Sometimes, it is your financial mindset that is keeping you in debt.
We can blame society for that. Our economy is heavily reliant on consumer spending. The more people spend, the better it will be for businesses – and in effect, the economy. This is why financial institutions have made it easier for us to get and use credit. That way, the purchasing power of consumers will be strengthened. Even if they do not have cash, they will still keep on buying.
While that is good for the economy, it jeopardizes the personal finances of the average American household. For instance, consumers feel like their credit cards are an extension of their wallets. It makes them feel like they are spending their money. But the truth is, they are spending the money on the creditor. They need to pay this money back and it has to be done with interest.
Apart from endangering our finances, this system also changed our mindset about credit. And it is what causes us to put ourselves in a difficult credit situation.
Financial mindset that keeps people in debt
So what is this financial mindset that is putting our finances in danger?
A lot of consumers treat debt as a tool. In fact, a survey revealed that consumers value their cards and treat it as a financial and credit tool.
Whenever they want to acquire something, all they have to do is to use debt. If you want to own your house, you can borrow a mortgage. In case you want to buy a new car, a car loan will help you get one. Even your education can be paid through credit.
This has become the norm in our society. When you want to get something, you can rely on your credit to pay for it.
And that is what makes it very dangerous. This is the financial mindset that will keep you in debt. There are two reasons for this.
It makes you impulsive
First of all, it makes you impulsive. There is no need to think twice about any purchase because you know that you can afford it. Or to be specific, you can borrow money to pay for it. That means if there is something that you want to buy, you just do it. This impulsive behavior can be very dangerous. It can make you use your credit cards with abandon. If you keep on charging your purchases, that can quickly accumulate. The high-interest rate will soon make your debt grow that it becomes too hard to pay off.
It makes you recklessly ambitious
This financial mindset of thinking that debt is a tool makes you recklessly ambitious. To be frank, there is nothing wrong with being ambitious. It helps push you and motivate you to step out of your comfort zone to reach your goals.
However, it can also be dangerous. It can make you feel too confident about buying stuff. Even if you are not yet financially ready, debt allows you to buy a house that may be too expensive for you. It can give you the courage to buy a new car even if you still have an old one. Debt gives you a certain level of purchasing power that can easily be abused.
It makes you negligent of the future
Finally, debt can make you negligent of the future. If you need to buy something, your immediate option is to use credit. If your car breaks down, you use debt. If your heater is damaged, you will do the same.
The thing is, you can avoid using debt. You just have to prepare for certain expenses. It is through your emergency funds. If you have enough savings, you can actually pay for these emergency expenses in cash. But since it is very easy to use credit, most people do not make enough effort to save money.
If you do not change this financial mindset, you will end up in trouble. It will be harder to secure your financial future if you continue to treat debt as a tool.
It is not. You should stop thinking of it as a tool to get what you need. Eventually, this mindset will make you accumulate a lot of debt. It will be harder to pay it off. You are better off living below your means so you can save money for emergencies – or any extra things or services that you want to pay for.
How to change your financial mindset to be free from debt
While it is the norm for us to have this financial mindset, that does not mean you cannot change it. You should stop thinking of debt as a tool. Here are tips that will help you do this.
Save instead of borrow
Patience is a virtue. And your finances can really benefit from this. Instead of forcing yourself to buy something by using debt, just wait. Save up for it. Stop relying on your credit cards. Instead of forcing yourself to buy a big-ticket item, just save up. That way, you will only pay for the actual price of the expense. You do not have to add any interest in that. If the amount is too big and you really need to make a purchase, at least pay for a portion in cash.
But what about small purchases? Reports reveal that some consumers use their credit cards for purchases that are under $10. This is really not necessary. Just use cash so avoid the charges that come with your credit cards. It can quickly get out of control if you are not careful in paying it all back. So pay in cash if you can.
Learn to make sacrifices
One of the most effective ways to improve your finances is to live below your means. It can also change the financial mindset of using debt as a tool. When you live below your means, you get to have extra money after you pay for your monthly expenses. This money can be used to save up for the purchase that you want to make. Or it can boost your emergency fund. The idea is to use this extra money to stop relying on debt for purchases.
But if you want to live below your means, you have to make a lot of sacrifices. You need to make a decision to cut back on various expenses. You may even have to make drastic lifestyle changes. Sometimes, this is necessary if you really want to improve your finances.
Before you borrow, make sure you can pay it back
The truth is, it is very hard to eliminate debt completely from your life. But as long as you use credit wisely, it may not be necessary. You just have to make sure that you know how to pay it back. When you use your credit cards, you need to pay the balance in full when the billing statement comes. Pay it within the grace period so you do not have to be burdened with additional finance charges. And if you have multiple debts, choose a debt relief program that will make it easier to pay off. For instance, you can use debt consolidation. This strategy will combine all your debts and leave you with a single monthly payment. It doesn’t matter what strategy you use. What is important is that you do something about your debts.