Five Bad Habits That Keep You in Debt… and how to fix them!
Getting out of my old money habits and building new ones was one of the most invaluable things I did while paying off all of our debt. I didn’t realise it at the time, but back when we were acquiring debt, I had habits in my daily life that I followed that consistently ensured I was always going to be in debt, and once I changed my behaviour, managing my money became a lot easier.
Here’s my five money habits that keep you in debt.
1. Ignoring your debt
Ignore your debt and the problem just gets worse. I ignored our debt and buried my head in the sand, rationalising that our car wasn’t debt because it was offset by the asset itself, or that our loan covered home repairs that increased the value of our home. Rationalising in this way means that you don’t see debt for what it truly is; money you owe that you are going to have to pay back. Ignoring debt will almost certainly lead to more debt, because you can’t make a plan to fix your problem when you don’t know the extent of the damage.
Fix this habit by: Sitting down with all of your statements and tally them (you might want to bring wine to this party!), make a budget and figure out how much you can repay. Yes, it’s painful, but once you do this, things can only get better from here
2. Only paying the minimum in repayments
If you make only the minimum monthly payment on a £5,000 credit card balance at 19.9% APR, it will take you 31 years and 11 months to pay it off, and it costs £7,426 in interest (you can scare yourself with your own calculations here!). The simple fact is that only paying the minimum, while still racking up debt, is like trying to fix the hole in the Titanic with sellotape; it’s only going to hold for so long. It’s understandable that not everyone can snowball their debts with huge overpayments, but an extra few pounds every month can really make a difference.
Fix this habit by: Swapping your direct debit for the minimum payment on your card for a standing order, with as much as you can afford, to transfer to your account on payday
3. Consolidating debt, or continuously using 0% balance transfer deals
Debt consolidation (i.e. taking out a loan to clear your credit cards) and balance transfer deals are paraded as though they are a solution, when in fact they are not only the problem, but you also end up taking on more debt when you initially take them out! When it comes to consolidating debt with loans, you’re not actually fixing the problem but rather, getting rid of the urgency to repay what you owe, and this could lead you back into debt.
While there is merit in the argument that 0% balance transfer deals can save on interest over time, these products also entice us into a cycle of transferring debt continuously, rather than actually paying it off. The 0% deal might then be counterproductive when you aren’t in any hurry to pay it off.
With both consolidating or transferring debts, while it’s always sensible to get the best deal, don’t do it if it’s going to make you complacent about debt repayment.
Fix this habit by: consolidate/transfer if it’s cheaper over the course of repaying your debts, but ensure you still make those overpayments and remain gazelle intense about getting rid of your debt
4. Basing affordability on the monthly repayment, not the cost overall
This is one for those who have fallen prey to a car lease! When we bought our car, we went to the dealership and drove away the same day in a brand new shiny vehicle. We rationalised that we couldn’t afford a used car because that meant paying a few thousand pounds there and then for it, but a new car was cheaper because all we had to do was pay a monthly payment. Four years of repayments and £11,000 later, I learned my lesson.
It’s really not uncommon to think this way. As consumers, we are sold on the idea of ‘buy now, pay later’ or ‘spreading the cost’ to persuade us to buy something we know we can’t afford right now.
But if you can’t afford it today, remember that future you is being squeezed to pay for it later.
Fix this habit by: Calculating the overall cost of the product, and use this figure as a comparable when you are shopping around
5. Looking for things to buy
This one was a revelation to me when I started paying off debt. I spent a lot of time scrolling mindlessly through clothing websites, walking around the shops on my lunch break, and poring through magazines that dictated that seasons ‘must-haves’- all out of boredom. My actions were passively looking for the next thing to spend on, whether I actually wanted it or not. What I was doing was walking around, asking to be told what I needed to buy. Which is crazy, considering I had £16k debt at the time.
In reality, we already have a lot of stuff. The chances are, right now, you already have everything you could possibly need, and the only time you need to go shopping is to replace something you already have that’s broken or worn out. Once you stop seeing all the things you need and telling yourself you have enough, life becomes surprisingly rich- bank account and beyond.
Fix this habit by: swap shopping and scrolling for another activity, preferably something you really enjoy (here’s my self-care on a budget post if you want to start with some free me-time). Be mindful of what you do in your spare time, and avoid places and people whose message is that happiness can be bought!