For some, common sense is in short supply. If you’ve ever shaken your head at a friend’s excessive spending or tried to help a family member out of debt, you understand the emotions surrounding bad financial decisions. Logical or not, there are plenty of ways to get sucked into damaging credit scenarios in your own life. Avoid the following issues before they begin. Don’t allow your emotions to cloud your judgment.
1. Buying “cheap” and “convenient.”
My cell phone provider recently tried to sell me a home security system that operates through my wireless plan. I couldn’t hide my skepticism as I asked a few pointed questions:
- Who will have access to my security information? How can I trust a system that allows wireless employees full access?
- What happens if I lose my phone? Can’t a thief unlock my doors?
- What happens if I forget to pay my bill or there is a service outage? How will these risks affect my safety?
Although my answer was a resounding “no thanks,” I understand the impulse to buy. It’s a cheap and convenient way to add a measure of home security. That said, it’s unwise to buy anything based on these simple qualities. A poorly constructed buy will invariably lead to greater headaches down the road, a consequence that is sure to cost you time and money. Don’t allow convenience to overshadow quality. Take the time to consider your purchases carefully.
2. Saying yes to variable loans and expenses.
Two words: credit cards. We say yes to credit card debt far too often, whether it’s to fuel a spending habit or cover unpaid bills. Regardless of the reason, an interest-bearing balance will always lead to credit damage if not handled rationally. Leave your emotions at the door when it comes to variable expenses.
3. Not fighting for a fair wage.
Personality is the defining factor in this situation. If you are less-than-assertive, it’s time to give yourself a pep talk and pursue the raise you deserve. An increase in income will help you save for retirement, build an emergency fund, improve your home, etc. Build your self-esteem and your earning potential. Make a list of your qualifications and stand up for yourself.
4. Carrying your relationship.
Your boyfriend lost his job. Times are tough, he’s depressed, blah, blah, blah. Sympathy is appropriate but it isn’t a long-term solution. Don’t allow a bleeding heart to bleed your bank account. Help your partner temporarily but make it clear that your generosity has an end-date.
5. Avoiding bills.
Fear is a great motivator when money is involved. Unfortunately, it motivates many people to avoid the truth. “Out of sight, out of mind” is the wrong perspective, especially concerning financial stability. Unpaid bills will lead to credit damage, collection calls and bankruptcy in extreme cases. Pull your head out of the sand and deal with your problems in the light of day. Safeguarding your credit score requires attention.
6. Signing up for unnecessary debt.
The American Dream is difficult to achieve, but that doesn’t stop people from buying the stuff to fake it. It’s easy to be tempted by the perfect house, flashy cars and expensive clothes, but affordability should take precedence before desire. A high debt-to-income ratio will lead to a lower credit score and expose you to greater financial risk.
7. Cosigning a loan.
We’ve talked about this before. Don’t do it.
8. Paying the collection agency.
Many debt collectors have honed their harassment skills, threatening to sue customers, calling family members and even complaining to employers. While you may be afraid and embarrassed, don’t fall victim to their traps. Learn more about the regulations of debt collection before making any decisions.
9. Allowing anger to control your decisions.
A hot temper can be a fast way to burn credit score points. Whether you’ve recently quit a frustrating job or gotten angry with Uncle Sam and refused to pay taxes, anger will only result in self-injury. Take a deep breath and find a path that does not lead to credit damage.
10. Valuing money more than security.
The irony of credit damage is obvious in seemingly successful individuals. Many people who have high incomes fail to manage their money properly, using their liquid cash to spend, spend, spend and avoiding long-term plans. This often results in large debts and lack of funds in later life. If this sounds familiar, it’s time to change your financial perspective. Your knee-jerk reaction to spend is risking your stability and you are wasting the opportunity to retire comfortably. The old tale of the ant and the grasshopper couldn’t be more appropriate: avoid future regrets by taking care of yourself today. You can’t control the future, but you can plan for it.