Five Spending Habits That Lead To Debt

Debt isn't something that just happens coincidentally or accidentally as you go about your daily living. There are certain spending habits that lead to debt. Recognizing these habits now could save a lot of money and stress later. If you want to stop creating more debt and pay off the debt you have, you must eliminate these bad habits.

1
Spending more money than you make.

Senior Woman Sitting Between Shopping Bags on Red Couch
There are certain spending habits that lead to debt. C. Lyttle / Getty Images

The logical part of you thinks it's impossible to spend $1,200 each month when your paycheck is only $1,000. Spending more than you make is easier than you think. 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.

You can get away with overspending for a few weeks or months, but soon or later, your hole-digging spending habits will catch up with you. Soon, you'll deplete your savings, max out your credit cards, and run out of places to borrow money.

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.

2
Spending money you don't have.

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.

3
Using credit for ordinary purchases.

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.

4
Using credit when you have cash.

Another bad habit that leads to debt is choosing credit over cash when you actually 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 own cash.

5
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 kind of 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 limit. 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. Transferring a balance once or twice to take advantage of a great rate is different from continually transferring balances to dodge credit card payments.