These 2 Bad Financial Habits Keep You Broke
Debt is like a viral mindset that worsens your financial instincts the more you treat money like a tool and not a life option.
This isn’t just an opinion. The average American household owes more than $90,500 in personal debts.
Debt is a mindset that is learned and sometimes hard-wired into the mindset of some people.
The way that you think about debt can inform how you generate income. Too many people think the best way to generate new income is by generating more debt.
You may be self-initiating your own debt-cycle misery and not be aware of it.
Here are two bad financial habits you should stop or never initiate.
Payday Loan Debt Quagmires
Payday loans are unsecured, personal loans that are automatically leveraged against your future paychecks.
They are considered predatory loan products because they mostly tempt financially desperate people who’ve no idea they’re falling into a debt quagmire.
Payday loans do not exist for your convenience – they exist to expedite repayment to lenders at your added expense.
Payday loans are easy to apply for. All you need is to have been reliably employed and living at the same address for at least a year.
It helps to have a decent credit score. Even if you don’t, a payday lender may just approve you at a higher interest rate.
After approval, the payday lender automatically withdraws repayments from your bank account in coordination with your future paycheck bank deposits.
These withdrawal repayments are automated on the behalf of the payday loan lender. You have no control.
If you miss a payment, or pay late, you will be hit with massive late penalties fees at augmented interest rates.
Payday lenders charge 400% interest as a baseline interest rate, especially if you have bad credit. Sometimes they can charge as much as 1,000% interest.
For many people with debt-cycle mindsets, payday loans become a debt quagmire they can’t escape. One out of every four people with a payday loan apply at least 9 more times.
You will end up in more horrific debt than when you started.
Closing Credit Cards After Responsibly Paying Them Off
If you know you have problems with unmanageable debt, isn’t it a great idea to close credit cards after they are paid off?
It may be the worse thing you ever do for your personal finances.
Your credit history is an automated averaging and calculation of credit history and activities. These data points determine your creditworthiness.
If your first credit card is 7 years old and then you close it, then you just digitally evaporated 7 years of your credit history.
Your credit history will look blank and your credit score will drop and then re-average based on existing accounts.
Your sparse credit history will look suspect if you try to open new accounts. Its better to have a credit history that proves you improved your practices than a blank one.
Keep your credit cards open and use them sparingly. Its hard to get through life without debt or a credit history.
Maintain a Budget
You have to change your financial mindset to get out of a debt quagmire.
Start saving money. It’s better to save $5 today than owe it tomorrow.
Keep detailed budgets and records of your financial activities. Pay attention to the way you spend money.
The best way to get out of a financial hole is to stop digging.
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Allen Francis is a full-time writer, prolific comic book investor and author of The Casual’s Guide: Why You Should Get Into Comic Book Investing. Allen holds a BA degree from Marymount Manhattan College. Before becoming a writer Allen was an academic advisor, librarian, and college adjunct for many years. Allen is an advocate of best personal financial practices including saving and investing in your own small business.