Welcome to my home! This is a debt-free learning community. Leave any self-doubt and judgments outside to make room for growth.
Today we are going to look at what is keeping you in debt month after month; year after year. You are going to be surprised as to what 4 things are keeping you from reaching your debt-free goals.
All of us make these mistakes regardless of whether we are good with money or not. Let’s get started on today’s adventure!
4. Paying extra on all of your debt at the same time
This one is always done with nothing but good intentions. Is this you, if I pay $30 above all of my minimum credit card payments I will pay them all off within the next year.
To be honest, I guarantee all of your credit cards have different interest rates. Each will get paid off at different times. Your minimum payment is just the interest you owe for that month.
Which means the $30 in this example is how much is being paid toward the actual principle. Credit card companies try to design these accounts to keep you financially dependent.
They also try to make the interest high enough to where it will take you 3 years minimum to actually pay off the card if it is maxed out…something to think about.
Try this instead, only put extra money toward one credit card bill at a time for a quicker payoff. Let’s say you have 5 credit cards and you are paying an additional $30 on each of them.
If you were to only pay the minimum balances on 4 of those cards then you would have an additional $120 (20 x 4) being paid toward one card. Could you imagine being able to pay an additional $120 toward one of your credit cards?
It would be possible to pay off that one account in a year depending on how large the balance is.
I currently have a credit card with roughly $3,900 on it, if I paid an extra $120 toward it per month I could have it paid in full in 14 months.
I’ve been an accountant for 8 years and I’m guilty of trying to pay off my student loan payments and credit card payments in this manner. Growing up I was always told by my mom to always pay more than the minimum balance on all of your credit cards.
It’s what makes us human. Being told this all my life I naturally, while in college working toward my degree, I would pay more than the minimum on every line of credit I was making payments on.
I paid extra on everything from the couch I financed, the credit cards, to the interest on my student loans so the bills wouldn’t be completely outrageous when I graduated.
A look at my actual finances during that time period, what if I had only paid extra on one bill at a time? The couch was $1,000 with 0% interest for 24 months, the accruing interest on my student loan was $50 per month, and the credit card balance was $700 and a 19% interest rate since it was my first credit card account.
If I had only paid $50 on the loan and the $36 minimum on the couch I could’ve been paying an extra $100 on my high-interest credit card. This card could’ve been paid off in roughly 5 months.
Then I would’ve had an extra $150 to pay toward the couch and paid it off interest-free 4 months after that. Instead, I ran into a financial hardship causing me to default on the high-interest credit card.
It took 2 more yrs to catch up on the payments of that credit card. I also barely paid off the couch within the 24 months 0% interest period. This is definitely a, “Please learn from my mistakes,” moment.
Has this ever happened to you? What change can you make in your current financial story to prevent this from happening in the future?
3. Always picking up the tab when you go out with friends or family
I like to refer to this one as fronting a good image. We all enjoy others being jealous of our financial or job successes.
What better way to showcase it than to pick up the tab for those near and dear to us. But what is the point in doing this if we are financially devastating ourselves?
Are the compliments paying your rent/mortgage, grocery, or utility bills?
Learn to tell them no if you can’t afford to pick up the entire check when you go out to a restaurant or bar. Saying no some of the time eases your wallet while letting them play hero once in a while.
I will be honest, I have a friend that always wants to pay our bill and this makes me greatly uncomfortable. I’m not one of those people who likes to be taken care of.
I’d rather pay at least my half of the bill. I will put up a fight with her when she does this.
Just because I am a one-income household doesn’t mean I can’t afford to take myself out once in a while. Maybe your friends or loved ones feel this way as well but are concerned with hurting your feelings if they mention it?
I have a moderate-sized family. A trip to Applebee’s would cost around $150.00…ouch! That is only if 7 people ate $20 worth of food and drink.
I know it feels wonderful getting the recognition for following through with this. I also understand it is a good deed to do this for those who you know are making less than you.
But look through the last 3 months of your credit card/bank statements. Then add up how much this deed is costing you.
Saying no occasionally does not reflect badly on your character. It allows someone else to occasionally get to be the hero.
2. Buying the most flashy gifts for special occasions
Special occasions (Christmas, Easter, Birthdays, Anniversaries, etc) are a happy exciting time. This is not the time to allow yourself to go into debt.
Christmas can be especially stressful, does charging one item to 4 different credit cards make that stress feel better? Or is that the root of your stress?
I completely understand wanting to see that one magical look on a family member’s face when they see that $3,000 car stereo they wanted more than anything.
Or maybe that $8,000 massage chair that mom really needed for her sore back. I am super guilty of breaking this rule.
But the misery I put myself in after the holiday. Some gifts took me 3 years to finish paying off.
If I were to compound this problem every Christmas I would have to file bankruptcy. Then sell my car, my furniture…maybe my house.
Always remember, you can’t be everything to everyone. Sometimes you need to be your own superhero and guard your budget.
If you don’t, no one else will. There is no shame in taking a step back from the “all in” behavior you have taken on in the past.
Again, it only proves that you are a normal red-blooded human.
#1 Focus on One Budget Goal At a Time!!!
If you try to do everything all at one time you risk increasing your stress level. A poll completed by creditcards.com found 65% of Americans lose sleep over money problems.
That is 2 out of 3 people and that percentage has increased from 56% in 2007! If this is already you, we want to reverse this effect to give you peace of mind.
The only way to succeed for the long term is to learn to focus first.
Researchers have found that multitasking can decrease your productivity by 40% according to verywellmind.com. A Stanford study found heavy multitaskers couldn’t separate relevant information from irrelevant information as well as their counterparts who complete tasks one at a time.
Imagine how multitasking your budget could hurt your finances even more!
An emergency fund cannot be built while trying to pay extra off the balance of every credit card you own. The amount of money you have to pay for simple things like gas for your vehicle will be depleted very quickly.
Then you will be forced to keep charging your credit cards for the basics or transfer cash from your emergency fund back to your checking account. Talk about defeating the purpose.
It is possible to have a working budget on any income. It all starts with focusing on one budget goal at a time. Am I sounding like a broken record yet?
Budgeting is not easy and has its struggles. Just take it slow. This will prevent you from spinning your wheels, being overwhelmed, and losing more sleep.
Remember, you are not alone, we’re in this together!!
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