Do you want to avoid having thousands of dollars in credit card debt? According to financial experts, there are some common financial errors average Americans make over and over that leads many people to be drowning in debt. If you avoid these errors, it will be a lot easier to avoid credit card and other debt.
Owning your own home is the American dream, and under the right circumstances there is nothing wrong with owning home. Two errors that Americans often make, according to experts, is buying a home before one can financially afford it and buying too much home for one’s budget.
According to the article, Common Errors That Lead to Debt, on focusonthefamily.com, many people buy a home with a monthly payment they cannot afford. This can have a lot of negative consequences, including: the house being repossessed if one can’t make payments; husbands or wives having to have at least two jobs each to be able to make payments; (leaving little time for each other or children) going in debt by getting a home equity loan; or piling up credit card debt. The debt you will incur if you do this can be increased if a husband or wife loses a job or there are unexpected health issues.
According to a separate article with the same name on crown.org, besides paying too much for their house, many people buy their first home too soon after marriage. If a person is not adequately financially stable when he buys a house, he will have many of the same problems he would have if he pays too much for his house.
Experts say it is a big financial error if one pays more than 25 percent of his net spendable income on housing. When considering the mortgage payment, taxes, utilities, telephone and maintenance, it is okay to spend up to 38 percent of your family income on housing. Too many people, however, spend 60 percent or more on housing. Experts say there is no way people can afford that. It is no wonder so many people are in debt.
Experts say many people make a big financial error when they buy a car. They often buy a new car they cannot afford, only considering the monthly payment amount. While a home can sometimes be sold if it is been kept up and improvements been made for more than the purchase price, many people owe more money on a car that is one year old than it is worth. The late financial expert Larry Burkett used to say the best car to drive is “the one you have now.” He often advised people buying a car to buy a used car from a trusted source. Making a mistake when you buy a car can lead to other future debt.
Many people also make the financial mistake of not preparing for unexpected disasters. This can lead to credit card debt, if you have to fix your car and don’t have the money, fix your home and aren’t prepared financially, or have unexpected medical expenses. Financial experts advise having an emergency fund and doing whatever you have to do to fund it, whether working overtime, having garage sales, selling items on ebay, or however. Some experts suggest a $1,000 emergency fund, others $500.
Many people go into debt because of how much money they spend on their vacation. A vacation is not only nice, for some the rest away from work is a necessity. If you set aside money every week or month and don’t overspend on your vacation, you won’t go into debt. You can also pack food instead of eating in restaurants, choose motels that offer free breakfasts, and spend the most on meals at lunch, when you can save money. Experts also suggest you choose a motel with a pool.
Financial experts also advise against borrowing on credit cards or home equity loans. This won’t solve a financial problem, if a person has a habit of overspending.
Experts also advise against anyone becoming involved in get-rich-quick schemes. This is especially true if you have to borrow money to do the investing. That stock that has doubled in value today might crash tomorrow.
Experts also advise everyone to have a budget. There are many online tools that help in preparing one. A budget can help you not overspend, help you avoid debt. You might just be surprised how far your money will go if you have a budget and follow it.
Experts say one other big financial mistake that couples make is in not listening to the advice of their spouses. God put you together for a reason. If you discuss things together and make a joint decision it will most likely be a wiser decision.
Citations: Common Errors That Lead to Debt, by Harvey Nowland, Focusonthefamily.com
Common errors that lead to debt, by Crown Financial Ministries, Crown.org