are you overspending? how to avoid the debt trap

This is a guest post by Justin Toladro.

Overspending and ways to avoid itOverspending is a major problem in Australia, where consumer debt levels are among the highest in the world.

In the global economic recession, two different kinds of consumers emerged: the stingy shoppers and the over-spenders.

The stingy shoppers are so frugal that oftentimes they would rather go without even basic quality goods, all in the name of saving a dollar or two.

At the other extreme are the overspending individuals who can’t help but buy more, more, more! Even if they don’t need it.

Which type of consumer are you?

If you fall into the overspending category, you are not alone. Millions of Australians are currently struggling to pay off credit card debts because of their poor spending habits.

Here are some reasons why it’s easy to overspend, and ways you can avoid it.

easy come, easy go – easy credit = debt pain

One major problem is the overabundance of credit card offers like low introductory rates to encourage more people to sign up for more credit.

However, once you get sucked in, it’s hard to get out. These companies are in business to make a profit, not to benefit you.

The application process might be quick and simple and the credit limit might be more generous than your budget, but spending on easy credit is going to cost you later on.

Even if you “qualify” for a greater line of credit doesn’t always mean you should automatically start spending at that level, because that could spell years of minimum balance payments wrought with interest tacked on top.

The term, “Live within your means” comes in handy here. This means settling for a smaller credit card limit and paying it off every month. It means saying no to that impulse purchase and saving up for big ticket items.

be aware of sneaky store tactics

It’s not just the credit card or loan companies that are trapping customers. Stores are doing it too, albeit in a much more subtle and sneaky way.

To encourage spending, many stores offer discounts and sales like “Buy One Get One Half Off” deals.

Why?

Because psychologically speaking, customers often can’t pass up a deal as good as this, even if they don’t need the second item. You may have only need one new pair of pants, but with the second pair 50% off, you’re more likely to grab both.

How can you prevent the urge to give into these traps when going into a store?

For one, bring a limited amount of cash and no credit cards. This will force you to stay within a set limit without the option of resorting to the plastic.

Also limit the time you spend in a store. After all, the longer you have to mull over a purchasing decision, the more likely you’ll get it regardless of its negative financial implications.

Finally, don’t shop while you need to be somewhere else or when you’re really hungry, because these factors alone can influence your decision when going to the check out line.

emotional spending

In a time of economic instability, many people have turned to using credit cards to buy things to cheer themselves up.

Having a rough day?

Just swipe the plastic and get that new phone upgrade you’ve been wanting.

It’s just too easy.

And the good feelings that come with that new purchase reinforce the behaviour, encouraging you to spend every time you’re feeling down.

When you are hooked on buying things in order to create a positive emotional response, then you are essentially treating shopping like a drug, and soon you’ll need buy more and more in order to maintain that level of euphoria you’re seeking.

If you’re looking for long term financial solvency, then you need to nip this overspending habit.

That means avoiding the shops when you’re feeling less than chipper and finding another way to feel better, only shop with a list and stick to that list, use time-out tactics like keeping a wish list and leaving the credit card at home.

 

Overspending – you can conquer it.

The prize?

Freedom from debt. Financial security.

And peace of mind.

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