Thursday, 9 March 2017

How to avoid getting addicted to credit?

Credit instruments are meant to make your life convenient. Loans help you enjoy things now and pay for them later in small instalments. Credit cards are convenient while shopping as you do not need to carry cash. But you need to understand the financial implications of using these instruments so that you use them wisely and do not get addicted to them. Credit addiction can be as dangerous as an addiction to drugs. If you do not plan ahead for the future and constantly depend on debts to solve all your financial problems then you may soon find yourself on the road to financial crisis.

Here are some tips that will help avoid credit addiction.

Analyse your habits - Are you using your credit card to buy things that aren’t in your budget? Are you into compulsive spending where you buy things which you don’t actually need? Are you making only the minimum payments on your credit cards? Do you have past due accounts? Analysing your behaviour will help uncover a lot of truths. If you are spending beyond your means you will find it difficult to pay off the balance at the end of the month. If you are accumulating a lot of debt you will need to take charge of your situation right now. Stop using your credit card until you clear all the past dues.

Make a budget and stick to it- A person who recognizes the boundaries of his budget will never find himself in any financial trouble. If you haven’t yet created a budget, do so and promise yourself to stick to it. You can make use of various online tools which help you put all your financial information together and keep track of your spending. Spend only if you can afford the purchase. Keep track of your monthly expenses so that you know where the money is going each month.

Avoid extravagant lifestyle- You need to curb the temptation of spending wastefully if you wish to avoid credit addiction. Purchase things only if you think you will use them. Put a stop to compulsive buying where you just buy items frivolously because they were on sale and later find no use for them. A good way to do this is to make a list of things that you need to buy before going for shopping and then purchase only what’s on the list. If you are still not able to break the habit of impulsive buys then carry cash when you go shopping. A sustainable lifestyle will help you achieve financial freedom. Changing your shopping habits will not only improve your finances but also your credit health.
Pay credit card bills in full each month- Credit cards are a very expensive means of borrowing with an interest rate of 14-24%. If you make it a habit to carry balances on your credit card you will dig yourself deep into debt and find it hard to come out of it. Whenever you charge any expense on the card make sure that you have the funds set aside to pay for it when the bill arrives.
Save for emergency- Save at least 10% of your income to build up an emergency fund. You should have funds to cover for at least 4-6 months of living expenses. Having some reserves not only gives some sense of security but also prepares you to pay for unexpected expenses without wrecking the budget.
Do not max out your cards- If you are reaching your credit card limits each month, and are deeply in debt it is not a sign that you need to apply for more cards. Rather it is a sign that you need to mend your habits and be more careful with your spending. Don’t keep applying for new credit cards without paying off your old ones. If you do so you will find yourself in the vicious circle of debt.

If you are in financial trouble don’t just think that a loan will save you every time. You may postpone arranging for funds but ultimately you need to plan out how to repay it. If you are under too much debt, it is time to devise a debt management plan. Go over your spending and income and chalk out a way to become debt free. Timely action will save you from the miseries of credit addiction.

No comments:

Post a Comment