12 dangerous habits that can put you deeper into debt

American consumer debt is at an all-time high. According to the New York Fed Consumer Credit Panel, total household debt in the third quarter of 2022 reached $16.5 trillion.

Is there a way to crush your debt once and for all? Absolutely, but it requires you to avoid bad money habits that can put you deeper into debt.

Here are 12 of the dangerous habits and what to do instead.

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1. Spending money to keep up with other people

The peer pressure is enormous. You may not feel a direct order to keep up with other people in your social circle, but it can be sneaky. If one of your friends buys a new car, you might be tempted to buy one too.

Break this habit by realizing that you bear all the consequences of your consumption. In other words, it is not your friends who have to clean up the debt. That job is yours and yours alone. Better to avoid it altogether by living within your means.

2. Not automating savings

For most people, if it’s in their primary checking account, it’s up for grabs. Spending all your money is a guaranteed way to keep paycheck to paycheck.

Instead of continuing the cycle, break it by adjusting your salary distribution. You can send a fixed amount to your primary checking account and a percentage to savings. This will ensure you consistently build an emergency fund and avoid more debt.

Payday loans are often sought after in emergency situations, but they are a bad business: they can have interest rates of over 600 percent!

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3. Not having a consistent budget strategy

Not having a budget strategy is a dangerous habit. You don’t realize how much you have coming in, how much you have going out, or even how much you need to take care of life’s expected and unexpected expenses.

When you have a budget, things that used to be “emergencies” like car maintenance and property taxes just become part of the budget.

4. Not tracking expenses

Expenses tend to creep in, making it easy to end up with “more moths than money,” as the old saying goes.

It’s a dangerous money habit to have because if you have no idea about your expenses, you can’t really plan for unexpected events. This puts you in a tough situation where you may have to take out expensive loans or run up credit cards, pushing you deeper into debt.

Pro tip: Many of the best budgeting apps automatically analyze your spending from a linked bank account to keep you on top of your spending.

5. Eat out every week

Checking out the best restaurants in your city is fun, but it can add up very quickly. Even fast food races are starting to stack up.

If you order every single week, it is money that loses its ability to benefit you beyond a full stomach for the evening.

A better approach is to work eating out into your budget, but pack lunches for work and cook most of your meals at home.

6. Pay the minimum on credit cards and loans

Paying the minimum on credit cards is a surefire way to keep yourself in debt longer. This is because the minimum balance on credit cards goes towards paying most of the interest and very little of the balance.

Pro tip: By paying more, more of your payment goes toward the original balance instead of just interest. You can also save what you owe by switching to a low-interest credit card.

7. Buy more house than you can afford

What you get approved for in terms of a home loan and what you can actually afford each month are often two different numbers.

Typically, your mortgage should not exceed 28% of your take-home payment from an affordability perspective.

In some markets, this may mean much less house than you expected. But having the cash flow to handle repairs, save for unexpected expenses, and still set up for retirement is much more important than having the biggest house on the block.

8. Shopping for each sale

Unfortunately, retail science is designed to take as much of your money as possible. Shopping at every sale is actually a dangerous habit that can put you deeper into debt because it encourages spending.

This means that not every deal is really a deal. Even if it’s a 75% off sale or a clearance deal, costs can still add up. Stay at home and don’t add items to your online shopping cart either.

9. Spending too much on a car

Just like spending to keep up with other people, you can also spend too much on a car. It is a purchase that is guaranteed to depreciate in value, and one that requires upkeep and maintenance.

Pro tip: Buy a car that’s reliable and affordable when the total cost of ownership is factored in. And try these hacks to save money on car insurance.

10. Ignoring car maintenance until it’s too late

The check engine light won’t go away just because you put some duct tape over it. Unfortunately, when money is tight, it’s hard to find space for car repairs. That’s why it’s so important to have an emergency fund.

While some small shops now offer financing through third parties, the interest rates are not very good, making it even more difficult to get out of debt.

Pro tip: Set aside money for repairs throughout the year. Even if you don’t need many repairs, the fund can grow to enough to either repair your vehicle or get a new one without stress.

11. Not monitoring your credit

If you don’t look at your credit, you leave yourself vulnerable to fraud or even just misreported information.

Traditionally, the three major credit bureaus allowed one free credit report each year, but currently consumers can look up their credit report weekly. This is a temporary benefit due to the ongoing COVID-19 pandemic.

This habit can get you deeper into debt because your credit score directly affects the interest you receive. The worse the score, the more you will pay for credit cards, loans and even apartments.

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12. Let the bar eat your money

The bar can be an expensive place, with the average tab for just four drinks running from $80 to $100.

Add in the parking fee or taxi ride along with any other bar stops you’ll want to make, and going out for a night on the town can leave you deeper in debt than you might expect.

Entertainment is one of the biggest expense categories that can get out of control, but unlike rent or utilities, you can control it.

Bottom line

Good money habits open big doors. If you’re trying to take on bigger goals, like buying a home or taking better vacations, it all starts with building good money habits and avoiding the dangerous stuff.

Of course, that’s not the only part of the puzzle that needs to be solved. Eventually, you’ll need to address your income, including raises, promotions, or even an additional side hustle.

Start saving and investing money, and pretty quickly you’ll find you have enough breathing room to boost your bank account as well.

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