25 Dumb Habits That Are Keeping You in Debt


"A hundred wagon loads of thoughts will not pay a single ounce of debt" goes an Italian proverb.

You need to take action to tame your debt monster. Let's put your financial house in order by kicking out these 25 dumb habits that are keeping you in debt.

Lack of Strategy

Without a strategy, you never know whether or not you are doing things right. Start by assessing how bad the situation is.

1. Not Having a Monthly Budget

One of the top reasons for having too much debt is living well beyond your means. You need to sit down, list of all your monthly expenses on spreadsheet, and put a number next to those expenses. How much you are spending per month may actually shock you. Once you have those numbers, go about creating a budget that will allow you to pay down your debts.

2. Ignoring How Much Debt You Owe

Ignorance is bliss. But bliss won't pay down your debts! On that same spreadsheet, list all of your total balances from store cards, credit cards, student loans, car loans, and mortgages. Seeing how much you really owe may be just the motivation you need.

3. Not Calculating Your Debt-to-Income Ratio

Financial advisers suggest keeping your debt-to-income ratio below 36%. If your DTI is 50% or higher, then you may actually need professional help to bring down your level of debt. Here's how to calculate it:

  • Add up your total monthly debt payments (e.g. $1,000).

  • Add up of all your monthly income, such as wages, tips, and alimony payments (e.g. $2,500).

  • Divide the debt payments by the income and multiply it by 100%. From our example, we get a ratio of 40%.

This would mean that 40% of your monthly income is going to cover debt. Is the remaining 60% of your monthly income enough to cover your monthly budget?

Mismanagement of Monthly Bill Payments

Now that we have your attention, here are some dumb things that you need to stop doing so that you can lower your monthly bill payments, too.

4. Paying Bills Past Due Date

Paying your bills late is a triple whammy. First, you get slammed with a late charge that can go all the way up to $35 per month. Pay a bill late for 12 months, and that's $420. Second, you miss out on benefits, such as getting your deposit back from utility companies or getting a lower monthly payment for paying on time. Third, your payment activity determines about 30% of your credit score. Paying bills late lowers your credit score.

lf you're having problems meeting your due date, then adjust those dates to match those of your paychecks. It only takes a phone call to your creditor, but keep in mind that it might take one to two billing cycles for the change to take effect.

5. Breaking Up Payments Into Installments

If you're breaking up payments into installments, you're likely paying more. For example, a car insurance company may charge you a "convenience fee" of $4 per installment payment. If you break down a 6-month payment into monthly payments, that is $24 per 6-month period or $48 per year. Not to mention that if you make each monthly installment late, then there is an additional charge.

6. Not Reviewing Your Monthly Bills

The convenience of getting your bills online often allows companies to sneak in charges. If you signed for electronic billing with AT&T, you might know what I am talking about. Some of my bills were 50 pages long, so I stopped reading them online for a while. A couple months later I noticed that I had been paying about $9.99 more each month. Turns out that somehow an additional feature had been activated four months prior. Without catching the error, I could have paid up to $119.88 extra per year.

7. Spending Money Ear-Marked for Bills

Thou shall not spend your bills money. Period.

Let this become your newest commandment for debt reduction.

Poor Credit Card and Banking Skills

Now, you are ready to improve your credit card and banking skills. This section focuses on the dumb habits that are letting your debts get plump. It is time to get them skinny.

8. Using ATMs Outside Your Network

You work hard for your money. So, why are you letting somebody take $2 to $4 every time you need some cash? Get in the habit of keeping a spare $100 bill in your wallet so that you are never in a cash crunch again. Also, use your smartphone to find the nearest ATM within your bank's network.

9. Getting Credit Cards Without Cashback

If you are going to use a credit card, you might as well get some cash back for doing that. One important reminder: To truly take advantage of the cash back feature and save money, you need to pay down the balance in full and on time every month.

10. Paying Only the Minimum Required Payment

If you keep on just paying the bare minimum payment, it may take years for you to get rid of those balances. And you will end up paying a fortune in interest.

By paying more than the required minimum, even if it is $50 per month, you are improving your chances of getting rid of those debts. Also, whenever you get a windfall (e.g. tax refund, birthday present in cash, bonus at work), use it towards your debt.

11. Keeping High-Interest Credit Cards

Nobody can force you to stay with a credit card; you always have the option to transfer your balances to other companies. Especially if they offer you a lower interest rate.

Once you find the right choice and you are ready to do a balance transfer, first check with your current card provider to see if they are willing to match the other company's offer. Some card companies prefer to match an offer rather than lose a customer. If your current card provider doesn't budge, then go ahead with your balance transfer.

Note that some interest rates are lower only temporarily, so you need to pay off as much debt as possible while the interest rate is low.

Out of Control Monthly Budgets

Show your monthly budget who is boss by kicking these bad spending habits.

12. Shopping for Groceries While Hungry

The hungrier you are, the more groceries you buy. The next time you plan to go out for groceries, have a meal before you head out the door.

13. Shopping for Groceries Without Coupons

Stop paying full price. While you may not become the next guest on "Extreme Couponing," it is not a bad idea to look for coupons. Once you have your list of groceries, do a quick search online to see if you can find coupons for the items on your list. Coupons.com is also a good site to look for savings. (See also: The Only Grocery Shopping Techniques You Need)

14. Impulse Buying

Some coupons do more harm than good. For example, a $10 coupon shouldn't force you to have to spend $50 right now. When shopping, you have to stick to your list.

15. Researching for Travel Without Clearing Cookies

Online retailers love cookies — not the chocolate ones, but the digital ones that your browser keeps and tells retailers about all your Internet habits. Whenever you are shopping around for flights, car rentals, or hotels, clear the cookies from your browser. Otherwise, you will notice how prices mysteriously start going up the longer that you wait. (See also: 4 Secrets to Getting the Best Travel Deals)

16. Insisting on Only Buying Brand Name Drugs

You know what's often the main difference between brand name and generic drugs? Price! Check the list of ingredients on the label, if the list is exactly the same, go for the less expensive option. Buy a brand name drug if and only if the ingredients on the brand name drug are missing on the generic version.

17. Throwing Away Too Much Good Stuff

Remember that one man's trash is another man's treasure. Search online what things are worth before throwing things down the trash chute. Amazon, eBay, and Craigslist can help you cash in on items you no longer want.

Expensive Entertainment

Life is serious enough. You do need a break, but not one that breaks the bank.

18. Going Out With a Credit Card or Debit Card

Sometimes the only way to use your credit card less is to hide it from yourself. Whenever going out for the evening, take only cash. This forces you to stick to a budget and prevents you from hitting the ATM late at night, when your willpower may not be at its peak. Let's be honest — have you ever taken out cash at 3 a.m. for a good reason?

19. Paying More When Cheaper Alternatives Are Available

This one is open to debate, but do you really need to spend that much money on entertainment? Doesn't the same $2 beer bottle from your local grocer taste the same as the $8 one at the bar?

Once you start thinking about it, you realize that the list of things with cheaper alternatives is endless. For example, you can skip the $10 to $12 movie ticket, by waiting until it comes out at the $1 dollar theater later or for about $1 on Redbox. If you need motivation to be thrifty, think about that big total debt number on your spreadsheet.

20. Keeping Unlimited Plans That Are Too Big

When it comes to movie streaming, you have many options: Roku, Amazon, Netflix, iTunes, and many more. Some people keep an unlimited plan with each one of these services, so that they can be always "in the know." Slash redundant and underutilized services. For example if you have an unlimited rental plan with Netflix but only rent two movies or fewer per month, then you are better just renting from a movie kiosk at about a dollar per movie.

21. Smoking

Smoking is killing your finances in two ways. First, it is expensive. An average pack of cigarettes is around $7. Let's say someone buys two packs of cigarettes a week, that equals $56 a month. Multiply that by 12 and that equals $672 a year! Second, smoking increases the cost of your life insurance and may limit the coverages of your medical health plans. If you smoke — quit!

Bad Tax Planning

It happens every year, yet it always catches you by surprise. Stop these three dumb tax habits.

22. Missing Out on Tax Deductions

You can take deductions out of pretty much everything and here are three great lists to get you started:

23. Withholding Too Little Federal and States Taxes

Another reason why you end up owing taxes to Uncle Sam is that you are withholding too little throughout the year. There are two ways to increase withholdings.

If you are self-employed or a business owner, you can pay estimated taxes up to four times per fiscal year using form 1040-ES. If you receive wages from an employer, then you can update your W-4 form in three ways: withhold at the higher single rate (box 3), claim zero allowances (box 5), and withhold an additional amount per paycheck (box 6).

By withholding throughout the year, you avoid the lump-sum payment every April.

24. Contributing Too Little to Retirement Accounts

You need to start saving for retirement. Not only will your older self thank you, but you will be liable for less taxes each year. When contributing to retirement accounts, such as a 401(k) or IRA, you lower your current taxable income.

The last dumb habit that is keeping you in debt is so important that it is a category of its own.

25. Lacking an Emergency Fund

Not having an emergency fund will always derail your finances. Life happens, so you need to plan ahead for those rainy days. If you don't have a cushion for emergencies, then you won't be able to keep up with debt payments, tax withholdings, and other good financial habits.

Figure the size of your emergency fund and build it using this step-by-step guide.

What are other dumb habits that you think we should include in this list?

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Guest's picture

26. Not using what you already have. For example, the trees in my area have been dropping tons of seeds onto my pea gravel walk paths in my garden. I tried raking - but it just wasn't doing a good enough job. I thought a leaf blower would be an easy solution, except I don't own a leaf blower, and I really didn't want to buy one that I would only use a couple of times a year. I thought about it for a couple days and thought I would try using my shop vac with the hose plugged into the exhaust hole. Worked like a charm! Also saved myself $50 - 100 bucks!

Damian Davila's picture

Great idea Kelly! I also would recommend asking friends and relatives for power tools and equipment. For example, my dad-in-law has such a big arsenal of drills and power tools that I don't need to buy a thing. Just always make sure to ask nicely, remember to give the tools back on time, and pay back the favor by helping out when needed.