By the time many people reach their late 20s, they find themselves with a mountain of debt and no idea how it got there. While being in the red can seem overwhelming at times, it is possible to get out of debt. It won’t happen overnight, but the first step is to understand why you’re in that situation in the first place. To put things in context, here are the most common mistakes people make that land them in debt (and what you can do to fix them).
1. Taking Out Payday Loans
Payday loans – they seem like a godsend when you’re facing a financial emergency with no money in your bank account. The reality is, however, that payday loans are evil, and the people who fall victim to them end up in more debt (often with legal problems to boot) because they are almost impossible to pay back thanks to outrageous interest rates.
To avoid making this mistake in times of financial crisis, look for alternatives to payday loans, like borrowing from close friends, family, or non-profit organizations, which usually carry no or low-interest rates.
2. Acquiring Too Many Credit Cards
When you open your mailbox to discover multiple applications for credit cards, it’s tempting to apply for them all, isn’t it? The thought of being able to buy whatever you want whenever you want is alluring, especially when you think you’ll be able to pay off the balances quickly. Unfortunately, quick repayments rarely happen because most people simply go for the minimum payment each month. This common practice just keeps adding interest charges upon interest charges, keeping you in debt virtually forever.
As tempting as it is to have multiple credit cards, the best way to avoid mounds of debt is to only have a single card that you use sparingly and pay off in full every month.
3. Failing to Save Money
When money is tight, it’s tempting to forgo saving money to get what you need or want now. This failure to save, however, can put you in deep debt should something unexpected happen that requires immediate financial attention. In instances like this, you may be forced to use credit cards to meet your needs, which can begin a financial tailspin you can’t pull out of easily.
Try to put away 10 percent of every paycheck in a savings account, so you have something to fall back on in a financial emergency. If you don’t have this much to spare, consider taking on freelance work to help you bank up some savings.
4. Spending Money to Keep Up with the Joneses
Thanks to the cleverness of their ad campaigns, everyone wants the latest gadgets. From smartphones and tablets to gaming systems and more, we must have the latest and greatest models even though the older versions still work just fine.
Trying to keep up with your friends and family in this manner can land you in debt up to your eyeballs if you’re not careful. Spending money on things you don’t need is a recipe for financial ruin. While it’s nice to have the newest gadget on the market, resist the urge if your older tech is working just fine.
Everyone’s financial situation is unique, but debt is a common problem all the same. Living outside your means is something you can control if you’re mindful. Keep the list above in mind as you explore ways to keep debt from becoming a problem for you.