This is the second article of the 2-part credit management series that will focus on credit behavior.
Now that we know more about how money habits are formed, it is time to discuss how you can use it to change your credit behavior. When you have better credit habits, you will not feel threatened when you use credit. You will feel confident that you know how to use it in such a way that it will not compromise your finances.
Take the Millennials for instance. They have a lot of debts but they also have shown that they can save money too. In fact, 3 out of 4 people have $100,000 or more saved up. This is despite the fact that they have the most student loans.
As you can see, it is possible to have a lot of debts but you need to make sure that you have the right credit behavior to keep it from ruining your personal finances. So how can you develop the right habits? And how can you get rid of the wrong ones?
Eliminating bad credit behavior
You can use the same process when you want to get rid of the credit behavior that is keeping you in debt. Here are the 4 stages that you should go through if, for instance, you want to stop relying on your credit cards to pay for basic necessities.
The key to removing bad credit behavior is to make the cue invisible. If you want to stop using your credit cards, what is your cue? It can be the credit card itself or avoiding shops unless you have to buy something.
When it comes to the craving stage, you have to make it unattractive. Remind yourself why using your credit card is a bad idea. You can opt to stick a piece of paper on your card that shows your current balance. That should make using the card unattractive.
If you get past the craving stage and you still want to use your credit card, make it hard to access it. Some people would put their cards in a plastic bag, submerge it in water, and then freeze it. If you have to go through thawing the card to use it, then you will probably not use it anymore. Or you can ask a trusted relative or friend to keep it for you. That way, you will have to travel to their house so you can access your card.
Finally, the reward should be unsatisfying. Although using your credit card makes the purchase convenient, it will also compromise your finances. You need to remind yourself of that fact every time you want to use your card. You will be paying more on the purchase because of the interest rate.
If you follow this, you should be able to get rid of your bad credit behavior.
Creating better credit behavior
To create better credit behavior you still need to follow the 4 stages of habits. For instance, you want to develop the habit of making a list before a shopping errand. The purpose is to avoid overspending. With the way 86% of Millennials overspent during the last holidays, there is a serious need for better credit habits.
So what can they do to create better credit behavior?
If you want to trigger better credit habits, you need to make sure that your cues are obvious. You don’t want your brain to miss it. For instance, you can set up reminders so you will remember to make a list before you go out to buy what you need.
Sometimes, even if the cue is obvious, you do not feel the craving because there is nothing appealing to the task. If you want to develop the habit of making a list before a shopping errand, make an appealing task. Use your favorite notebook or pen so you always know where it is when you need to make a list.
When you do the task, you have to make sure that it’s easy. If it’s hard, you will most likely not do it. For instance, if you want to develop the habit of making a list to control your spending, you need to make it easy to do. Use the notes that you have on your smartphone. Or download an app that will help you make this list and stick to it.
Once you have completed the response, you have to make sure that your reward is satisfying. Highlight that so you will be motivated to practice the habit again. Like if you want to develop the habit of making a list before going out to buy anything, make sure the reward is clear. The fact that you did not overspend is rewarding enough. Not having to rely on debt is also a reason to celebrate.