If you want to avoid credit card debt and reduce the debt you have, you must know the spending habits that lead to debt and stay away from them. Debt is something that accumulates over time, don’t wait for it to get out of control before you work on yourself. Here are 5 spending habits that lead to debt you need to stay away from.

Spending Habits That Lead To Debt

01 Spending More Money Than You Make | Spending Habits That Lead To Debt

Spending more than you make is so easy, you might be doing it without realizing it. Dipping into savings, borrowing from others, and using credit are a few ways you can spend more money than you bring in. If you’re living paycheck to paycheck, you’re spending more than you make and this can lead to debt.

Keep your spending within your monthly income so that you’re living within your means and not creating debt. Reduce your spending below your income and use the extra money to pay down your debt.

02 Spending Money You Don’t Have | Spending Habits That Lead To Debt

Spending more money than you make is enabled by spending money you don’t have or money you are yet to earn. You spend money you don’t have by using credit cards and taking out loans, payday loans, cash advances, overdrawing your account, etc.

When you use these methods to pay bills and make purchases, you’re creating debt. If you don’t fully repay the debt each month, it will continue to grow.

You can resolve this bad habit the same way you stop spending more money than you make, by reducing your expenses and relying only on your income to pay for your wants and needs.

03 Using Credit for Ordinary Purchases | Spending Habits That Lead To Debt

You should use cash (or available cash in your checking account) to make everyday purchases like groceries, gas, clothes, and entertainment. The appeal of credit cards is the ability to pay later for items that you buy now.

The caveat is that you’re less likely to pay your credit card bill for items that you’ve already consumed, which most “ordinary” purchases are. Using credit instead of cash is a bad habit, especially when you don’t pay your credit card bills in full each month.

Some credit cards have reward programs that let you earn cash, miles, or points by charging more on your credit card. If you choose to maximize your reward earnings by charging more, only charge what you would have purchased with cash and pay off the purchase right away.

04 Using Credit When You Have Cash

Another bad spending habit that leads to debt is choosing credit over cash when you have the cash. You might want to get the goods (or services) without having to pay for them, but the convenience of holding on to the money in your wallet comes at a cost. Chances are, if you don’t want to pay for it today, you’re not going to want to pay for it tomorrow.

To change this bad habit, you have to be willing to pay for what you want with the money you’ve earned. Realize that while you can postpone payment by using credit, you’ll end up paying more than if you’d just spent your cash.

05 Using Debt to Pay off Debt

When you use credit cards to pay off other cards and loans to pay off other loans, you’re not paying off anything. You’re just shuffling your debt around and incurring more debt each time you do so.

Balance transfers have transaction fees, and most loans have some down payment or origination fee. So when you use debt to pay off debt, you end up worse off than when you began.

Using debt to “pay off” debt might be beneficial if you can transfer a balance from a high-interest rate credit card to one with a lower rate. However, you have to be careful that the balance transfer fee doesn’t negate the interest savings and that your post-promotional interest rate isn’t worse than your previous rate.