7 Bad Habits that Lead to Debt

Dear Rich Lifer,

You want to know how to pay off your credit card debt the right way? 

Here’s how you do it: 

Say you have two or more cards that you carry a balance on and you have a set amount of cash each month you can use to pay down these cards. 

If you want to make sure you pay the smallest amount of interest, eliminating your debt fastest, you do two things: First, pay the minimum amount on each card. Second, dedicate all of your remaining money to the card with highest interest rate. 

That’s it. 

It turns out, the majority of people are not paying their cards off this way. 

In case you haven’t noticed, we have a debt problem in this country. Our total tab for consumer debt is over $4.1 trillion. 

That’s according to LendingTree, a loan comparison website, which analyzed data from the Federal Reserve on non-mortgage debts including credit cards, auto, personal and student loans.

LendingTree estimates that consumers are spending about 10 percent of their income paying these debts each month. 

The solution I just provided is merely a tactic that will solve a financial problem. It’s not a solution to get you out of debt for good. 

The thing you need to know about debt is it’s not a financial problem. The reason you’re in debt is habitual.  

Debt doesn’t accumulate overnight. It usually builds gradually over time as your overspending racks up. To fix your debt problem, you need to fix the habits getting you in debt in the first place. 

Here are 7 habits that will either make or break your bank account. Get these habits under control and you’ll never have to worry about debt again. 


1. Emotional Spending


Try this quick test to see if you’re an emotional spender – answer yes or no: 

Do you shop to relieve stress or escape boredom?

Do you shop as a pick-me-up or for entertainment?

Do you celebrate wins by going shopping? 

Do believe there’s such thing as “retail therapy?”

Do you have clothes in your closet with tags still attached? 

Do you feel anxiety, guilt or regret after shopping? 

Do you hide purchases from friends or loved ones? 

If you answered “yes” to one or more of these questions, then you likely have an emotional spending problem. 

Emotional shoppers get addicted to the endorphin high that comes with buying. This can turn spending into a physiological habit.

It’s also why excessive spending is about the experience from buying the stuff and not the stuff itself. 

The wealthy habit is to spend based on needs – not wants – and to plan purchases rather than buy spontaneously.

A good habit for breaking emotional spending is to implement a 2-day rule for all non-planned purchases. Letting your emotions settle down for a couple days will help you think clearly and decide whether you actually need this item. 

2. Addiction

Similar to emotional spending is addiction. This can be any kind of addiction that’s causing you financial trouble. The biggest culprits are drugs, sex, and gambling. 

If you don’t get these three under control, you can easily spiral into debt and create even worse trouble for yourself. 

The wealthy habit is to avoid all forms of addictive behavior. This is obviously easier said than done, especially for people with addictive personalities. 

If you face addiction problems, you probably need to seek advice beyond what I’m providing here. Get professional help and consider one of the 12 step programs tailored to your addiction.

3. Entitlement

I blame social media for a lot of the entitled behavior you see today. 

When you see celebrities and your friends posting pictures of their designer clothes, big screen TVs, pedicures, and new cars, it makes you think, why shouldn’t I have that too?  

The wealthy habit is to only buy what you can afford to immediately pay for. Your attitude should be you’re entitled to what the balance in your savings account shows you’ve earned. 

4. Instant Gratification

Closely related to entitlement is instant gratification. You want it now and are willing to pay on credit so you don’t have to wait until you have enough money saved up. 

The wealthy habit is to pursue delayed gratification. Put purchases into the context of your long-term financial goals. 

If you want to retire early, then you need to spend for tomorrow and not for today. Ask yourself the question: will this bring me closer or further from my long-term financial goals? 

5. Associating Self-Worth with Stuff

Debtors buy into the false belief that happiness is somehow connected to more-better stuff. If I had a nicer car, the barista at the cafe would like me. Good advertising manipulates you into believing products will make your more attractive, smarter, happier, and live longer. 

The wealthy habit is to separate your spending from your self-worth. Your possessions don’t define who you are as a human being. 

Next time you’re about to make a purchase, ask yourself why you’re buying this particular item? Are you buying it to satisfy a need or is it contributing to a self-image you’re trying to create? 

6. No Plan

Debtors disconnect spending, saving, and earning from each other. There is no budget, no plan for retirement, no tracking of numbers, and no strategy for increasing earnings.

The debtor lives month to month because there’s no plan to do anything different. That’s why when you experience a rough patch, say losing a job or a medical emergency, the default plan is go into debt. 

The wealthy habit is to create a plan and work your plan. Build an emergency fund, choose affordable insurance so you’re not totally exposed, and automate monthly savings so you don’t have to think about it. 

7. Complacency 

Nothing accelerates debt more than complacency. If your attitude is, “I’m already in debt, so what’s a little more?” you’re in for a lifetime of living paycheck to paycheck. 

Not taking action is the worst thing you can do to alleviate your debt problem. As I said at the beginning, debt doesn’t accumulate overnight. It’s a series of small impulse purchases that eventually add up to serious debt.

The wealthy habit is to be proactive about conquering your debt. Living paycheck to paycheck, using credit to pay for living expenses, and stressing over money are warning signs that you need to take action.

If you have to, cut up your credit cards and stick to only using cash until you get back on track. Break the habit of thinking credit is your money to spend. 

To a richer life,

Nilus Mattive

Nilus Mattive

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Nilus Mattive

Nilus is the editor for the daily e-letter The Rich Life Roadmap and a Paradigm Press analyst.

Nilus began his professional career at Jono Steinberg’s Individual Investor Group, where he published his original research through a regular investment column. Later, he worked for a private equity business and spent five years editing Standard and Poor’s...

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