It keeps going in circles, an endless cycle trying to catch something just out of reach. Falling into debt can feel similar, trying just about everything to reach a break-even point, but never quite getting there. One of the easiest ways to avoid debt is to avoid common debt traps.
Getting your own credit card can be an exciting experience, but with great power comes great responsibility. High interest rates, which can exceed 15% or more, make carrying a balance expensive and can lead to a cycle of debt that’s hard to escape. Credit card debt can quickly lower your credit score, cause more stress, and inhibit financial flexibility. To avoid this debt trap, you have to take your finances into your own hands. Budget responsibly, if possible from your first paycheck. People often have something they want to do with their first paycheck, whether buying your parents a present, or maybe showing some self-love, but after that be sure to separate needs and wants, budgeting within your means.
On the topic of paychecks, people who have trouble budgeting may consider taking a payday loan. They are often marketed as quick solutions to some financial emergencies, but they can easily lead to a cycle of debt. They can be dangerous because of their high interest rates and short repayment terms. The annual percentage rates (APRs) can exceed 300% in some states, making them one of the most risky forms of borrowing. People often find themselves struggling to repay the initial loan and resort to taking additional loans to pay them off. This quickly spirals into severe financial strain and poor credit scores. To avoid such situations, it’s best to explore alternative sources of financial assistance, such as community organizations or personal savings. Though not encouraged, I would go as far as to suggest asking family if not close friends for help. The best course of action would be to have already had an emergency fund budgeted for unexpected expenses.
Impulse buys are yet another side effect of poor budgeting. Though it may seem obvious, those spur-of-the-moment buys hurt finances in the long run. Whether it’s something you see at the checkout or an online purchase, it’s important to take note that the placement of these items was done intentionally. Businesses place low-value items just before you checkout to encourage you to buy something you don’t need. They often seem harmless at the time, but they can add up quickly. To avoid falling into this trap, try making a shopping list before you go to the store, using cash or debit instead of credit cards, and leave 24 hours before making a non-essential purchase. Leaving time between your going back to purchase can allow for intentional consideration of what you need versus what you want at that moment. These simple steps can help you stay on track and avoid overspending.
If you didn’t already get it from reading this article, the biggest takeaway is to manage your money. It may not be the most fun thing to do after receiving your paycheck, but it’s much better to deal with than getting caught in a debt trap.
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