Modern life is full of small, subtle overspending traps. Debt can pile up for all kinds of reasons—poor communication with a partner or spouse, a lack of organization in the kitchen, overdoing it during the holidays—but, thankfully, if you’re on the lookout for these potential traps, you’ll be able to ward them away with a little planning and creativity.
Financial infidelity and hidden purchases
If one partner has a secret credit card or hides purchases from the other, debt can pile up under the radar. Clear, consistent communication about money is paramount to keeping debt levels low and enjoying a healthy, honest marriage.
Gambling
If betting has ever caused a problem for you (if you’ve ever gambled money you couldn’t afford to lose, for example), seeking help for problem gambling is the first step to getting debt under control. Gambling issues can quickly spiral into bigger and bigger problems with debt if the gambler thinks they’re just one bet away from striking it rich. Ditching this type of thinking and making a choice to quit gambling altogether is the only way to stop the financial bleeding and prevent future debt from piling up.
Not having enough savings
Unexpected expenses crop up—that’s just part of life. But if you don’t have adequate savings to combat them, your only choice will be to rely on credit cards. Have an emergency fund of at least $1,000 in case you run into a car repair or unexpected bill you need to field.
Not having a budget
If you’re not tracking your income and expenses, you’ll easily fall prey to the slow, almost imperceptible accretion of debt in daily life. Can you afford to go to the movies? That dinner with friends? That trip to the Caribbean? If you don’t really know because you’re not keeping a close eye on your money, you might say yes when, really, you should say no.
Divorce
Divorce is a financial minefield for many reasons, but it could also leave you holding the bag on debts that you did or did not incur—even if your ex-partner promises to pay them during the divorce proceedings. Creditors don’t care about the contents of a divorce agreement; if the original loan contract had your name on it and it’s not refinanced in your ex’s name alone, your ex’s failure to pay means it becomes your responsibility.
Making purchases out of status seeking or peer pressure
Keeping up with the Joneses is a dangerous game for your personal finances. Rooted just as much in psychology (low self-esteem and stress) as in poor financial management skills, making purchases to keep up with wealthy friends or neighbours can slowly wreak havoc on your financial life, landing you in debt or cutting into your retirement savings dramatically.
Making impulsive spending decisions
Nearly 90% of Americans say they’ve made impulsive spending decisions while shopping online. Whether it’s in the checkout line at the grocery store or while scrolling through Instagram, clever marketing and merchandising prompt us to spend on items that we hadn’t planned on buying. Remember—if it’s not in your budget, it’s an impulse purchase. To avoid overspending and racking up unnecessary consumer debt, think twice about whether these impulse purchases are really worth it.
Not cooking much
According to Forbes, it’s almost five times more expensive to order delivery than it is to cook a meal at home. Most people don’t have unlimited discretionary budgets, so consistently ordering takeout can quickly start to add up, potentially racking up credit card debt. Get organized and plan your meals to avoid impulsive restaurant orders.
Overspending during the holidays
The average American household spends US$1,048 on gifts for the holidays. If that’s not in your budget, don’t spend it. Find alternative ways to give appropriate gifts by planning everything out in detail and perhaps even getting creative with bartering networks or crafting.
Not being adaptable
If you’ve experienced a job loss or unexpected dip in your income, remember that your lifestyle must adapt if you’re hoping to avoid getting into debt. Streamline your budget, make sure friends and family know that you’ll be going out less, and start planning to increase your income (whether through a new full-time job or a side hustle or two).
Not sticking to a financial plan
We’ve already covered the importance of having a budget, but your budget (or your full financial plan) won’t help you if you consistently ignore it. Identify any patterns or triggers that cause you to fall off the wagon, so that you don’t repeat the same financial mistakes over and over again.
Underemployment
If you’re underemployed, and not earning enough to fully cover your lifestyle every month, you’ll likely find yourself sliding into debt. Taking on a second job (perhaps freelancing or consulting) or changing careers could be solutions, albeit ones that take time and effort. If those aren’t possible, cutting major expenses may be warranted.
Failing to plan for big-ticket items
Instead of accumulating consumer debt every time you need to make a large purchase (such as an appliance or an upgrade to your vehicle), plan well in advance and set up an automated savings account.
Carrying a balance on your credit card
Don’t forget that the interest you’re paying on your credit card balance compounds monthly, which gets you a little further into debt every month. Make a plan to tackle your debt.
Not paying your bills on time
Most financial institutions charge penalties for late payments on bills which, if they’re incurred on a regular basis without a plan to pay them, can cause debt to pile up.
Transferring your credit card balance over and over
Credit card balance transfers come with a number of hidden dangers, not least of which is the interest rate you might be charged after the introductory annual percentage rate (APR) expires. If you plan to use balance transfers as part of your debt-reduction strategy, pay close attention to all terms and conditions and make sure you can afford the balance transfer fees.
Taking out too many cash advances
Unlike typical charges to your credit card, which start to accrue interest at the end of the month, when you take out a cash advance interest charges are applied immediately. There’s also usually a fee involved. Use cash advances sparingly, especially if you don’t have the money to cover them right away, to avoid unnecessary debt.
Not having rules or limits on credit card use
Credit cards are incredibly handy tools—when used properly. But many people use them irresponsibly and get themselves into trouble with debt, which is why some personal finance experts advise cutting up credit cards for good. If you’re still planning to use them, for travel rewards or other reasons, it’s useful to apply a set of personal rules to your credit card use.
Unexpected medical costs
About 137 million Americans struggled with medical debt in 2019. Even in Canada, where public health insurance covers most hospital bills, some prescriptions require out-of-pocket payments. Health shouldn’t be something you slash from your budget, so shop around for insurance and work on building an emergency fund as much as possible. Medical bills in the U.S. can often be negotiated.
Not accounting for inflation in your budget
Remember that the cost of living rises every year, so tweak your budget regularly to keep pace with inflation. Not doing so could mean that your budget is no longer realistic, which could prompt you to spend on credit cards and get into debt.
Anne-Marie Vettorel, Espresso
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