If you’ve ever been in debt, you know just how soul-crushing and stressful it can be. When you’re deep in debt, you have to plan your life around it. And if your dollars are stretched too thin, you may have to sacrifice other financial goals to keep up with those monthly payments.
Unfortunately, a lifetime of debt is something Americans know too well. According to Federal Reserve figures, the average household carried a credit card balance of $7,281 in 2015. And if you exclude the households with no debt, the average outstanding balance surges to $15,609.
Digging Your Own Debt Hole
That kind of debt usually doesn’t happen overnight. While some people wind up in debt through no fault of their own, the vast majority of those who are in debt end up there after years — or even just a few months — of poor money management.
Here are some unfortunate money habits that can lead to a mountain of debt over time:
According to a 2014 study of 1,000 adults administered by CreditCards.com, three out of four people openly admitted to shopping on an impulse. Those who responded positively said they purchased things when they were excited (49%), bought stuff out of boredom (30%), shopped when they were sad (22%), made impulse purchases out of anger (9%), and made unplanned purchases when they were intoxicated (9%).
While an occasional impulse purchase may not break the bank, constant overspending may be cause for worry. And if you make a habit of putting those unplanned expenses on credit, impulse spending can cause you to spiral deep into debt over time.
Eating Out All the Time
According to Commerce Department data released this year, restaurant and bar sales overtook grocery store spending nationally in March 2015. Yes, you read that right: For the first time, we are spending more on dining out than we are on groceries — and with disastrous consequences for our pocketbooks.
While eating out is only problematic if you don’t plan for it (and can’t truly afford it), a little goes a long way. And if you’re prone to put that restaurant meal on a credit card, this habit could do a lot more than eat up your expendable income; it could cause your credit card bills to surge over time.
Going Sans Budget
Even though budgeting is nothing more than a plan for your money, the dirty “b-word” gets a bad rap. Unfortunately, going without a budget is one of the easiest ways to wind up in debt. After all, how can you be aware of how much you’re spending if you aren’t actually keeping track?
Unfortunately, a fairly recent Gallup poll shows that only one in three Americans creates a detailed monthly budget or spending plan. When you consider that unfortunate statistic, it’s really no wonder so many of us are deep in debt.
Going Without an Emergency Fund
What happens when you have an unexpected medical condition that keeps you away from work? An emergency home repair? An expensive legal situation you must take care of?
If you don’t have an emergency fund, you might be tempted to rely on credit in the short term. And unfortunately, using credit as a crutch can come back to bite you. If you rack up debt due to an emergency and don’t have a plan to pay it back, you could easily wind up in debt for the foreseeable future.
Embracing Lifestyle Inflation
If you’re growing in your career, you might enjoy a hefty raise or annual bonus. What you do with that raise can have an equally important impact on your finances over time.
If you save that raise each year and learn to live on last year’s income, for example, you could have a lot of money stashed away by retirement. But if you allow your expenses to creep up as you earn more, you will always wind up living at the edge of your means.
That’s why many people refer to lifestyle inflation as the ultimate net worth killer; if you constantly spend all that you earn, your annual bonuses and raises won’t actually help you grow rich over time.
Making Minimum Payments on Credit Cards
If you’re making the minimum payment on your credit card, you should brace yourself for a lifetime of debt. With credit cards carrying APRs anywhere from 4.9% to 24.99%, your small revolving balance could grow a lot faster than you ever anticipated.
Remember how the average indebted household carried $15,609 in credit card debt in 2015? That kind of debt doesn’t happen to those who make a habit of paying their credit card balances in full each month. No matter what, making the minimum payment on your credit card is a surefire way to land deep in debt.
The Bottom Line
While good financial habits can help you avoid debt and grow your nest egg over time, bad habits can lead to a lifetime of monthly payments — and even financial ruin.
Recognizing toxic habits early — and doing something about them — is the best way to squash bad habits and replace them with behaviors that will help you in the long run.
What habits got you into debt? What positive habits helped you dig your way out?