MSN Money had a great article about “10 Bad Habits That Lead to Debt Disasters”. Here’s a few of their points and my comments on them.
“Misusing balance transfers”
That is one I have done multiple times. Signed up for a new card in order to transfer the balance, but then I’d use the card that I transferred the balance from. Then I would get another card to do another balance transfer. Again, I didn’t keep a zero balance on the old card. Balance transfers can be great to get a lower interest rate, but they only work if you are not charging more debt.
“Not checking credit reports — you can’t change them anyway.”
The purchase of our mortgage a few years ago made it clear that we needed to monitor our credit reports. We were actually showing two credit lines open for auto loans but in fact one of them had been closed for 2 years (our trade-in vehicle). It’s a good idea to check them at least once a year and you can get a free one at annualcreditreport.com.
“Failing to alert creditors about a financial hardship”
There were times where I purposely paid bills late for utilities knowing it would buy me a little bit of time. I never once contacted them to let them know what was going on probably mostly out of pride. It’s a hard thing to do to admit to someone that you can’t pay something but with our utility companies I’m sure they would have been accomodating. One thing I’ve learned since blogging is that there are a lot of people with debt just like me. It’s just that not many people talk about it.
“Using retail store credit cards to make use of discounts”
In March, we needed to purchase a new stove and we were lured into applying for a store credit card. We received $50 off of our purchase and that was a pretty good deal. The one thing I did, though, is to make sure of the terms. It had a zero percent interest, no payments until March 2007. Once March 2007 arrives, if the balance is not paid in full, interest will be charged at 23% and will start from that point forward. Some cards, if not paid in full, will go back and assess the interest that you would have been charged in the no interest period. If that card did that, we would have passed on the card.Â Always read and understand the fine print.
“Charging purchases instead of paying in cash or with a debit card”
This one seems like pretty straightforward advice. Unfortunately, there were times where I didn’t have a choice but to charge gas and groceries. The cash was used to pay bills. Now, that we have more income, all of the credit cards stay at home so there is no chance of them coming out to pay for things that can be paid with cash. If it can’t be paid with cash then we can’t afford it.
“Making the minimum payment only”
I did that for way too long and I never really realized how long it will take to pay off our credit cards if we only paid the minimum. My one credit card was around $28,000. If I only paid the minimum payment, it would have taken me 67 years to pay it off and it would have cost me over $65,000 in interest. Seeing that I am almost 30, I would be almost 107 before the card was paid off. I used the minimum payment calculator at Bankrate to calculate this. That is an eye-opener.