1. Spending more money than you make.
The logical part of you thinks it’s impossible to spend $1,200 each month when your paycheck is only $1,000. Spending more than you make is easier than you think. So easy, you might be doing it without necessarily realizing it. Dipping into savings, borrowing from others, and using credit are the primary ways of spending more money than you bring in. You can get away with doing this for a few weeks or months, but soon or later, your hole-digging spending habits will catch up with you. Before you know it, your savings is depleted, your credit cards are maxed out, and you can’t borrow any more money.
2. Spending money you don’t have.
Spending more money than you make is enabled by spending money you don’t have or money you are yet to earn. You spend money you don’t have by using credit cards and taking out loans. When you use these instruments to pay bills and make purchases, you’re creating debt. If you can’t repay the debt each month, it will continue to grow.
You can resolve this bad habit the same way you stop spending more money than you make – by reducing your expenses and relying only on your income to pay for your wants and needs.
3. Using debt to pay off debt.
When you use credit cards to pay off other cards and loans to pay off other loans you’re not paying off anything. You’re just shuffling your debt around and incurring more debt each time you do so. Balance transfers have transaction fees and most loans have some kind of down payment or origination fee. So when you use debt to pay off debt, you end up worse off than when you began.
Using debt to “pay off” debt might be beneficial if you can transfer a balance from a high interest rate credit card to one with a lower limit. However, you have to be careful that the balance transfer fee doesn’t negate the interest savings and that your post-promotional interest rate isn’t worse than your previous rate. Transferring a balance once or twice to take advantage of a great rate is different from continually transferring balances to dodge credit card payments.