Your overspending habits can have disastrous effects on your debt consolidation efforts. It is what got you into debt and it can also be the reason for you to fail at achieving debt freedom. According to reports, 6 out of 10 Americans admitted that the most common cause of credit card debt is overspending on unnecessary expenses.
If you want to be successful in your pursuit of debt freedom, it is important for you to keep a tight lid on your spending. You have to be smart with how you use your money. It is important for you to make every dollar count. While you are still paying off your debts, you will be living on a restricted budget. Prolonging the presence of debt in your life will only compromise your financial security. Every payment that you make towards the interest is another amount that you are taking from your net worth. You cannot maximize your financial growth because of your debt. The earlier you can get rid of it, the faster you can make your financial future more secure.
How overspending compromises debt consolidation
We all know that your financial habits can affect your debt consolidation program. The positive ones can help make debt freedom easier to achieve. But the negative ones, like overspending habits, can ruin your chances. Not only that, but it can also make things worse for you. To be specific, there are two things that overspending can do to your debt consolidation efforts.
You add to your payments every month
Your overspending habits can compromise your debt consolidation program because you are essentially making your payments bigger and bigger. If you are paying with credit, you are just making your debts grow. But even if you are paying in cash, you are still putting your debt relief program in jeopardy. That cash could have been used to pay off your debts faster. But since you have chosen to spend it on unnecessary things, you have just wasted the chance to be one step closer to debt freedom.
You also need to remember that one of the reasons why you consolidated your debt is to help you manage your payments. Adding more to what you already enrolled in the program can put unnecessary stress on your finances.
Rather than being able to focus on the consolidated amount, you have to continuously increase that amount simply because you overspend. This will cause chaos in your budget. As you veer away from your budget, it will also compromise other areas of your finances such as savings and other payments.
The chances of missing a payment become greater
If you do not stop your overspending habits while you are consolidating debt, there is a high chance that you can miss out on some of your payments. Your debt payments are already making your finances tight. If you are not careful, you might end up using the cash meant for your priority expenses. This can include your debt payments.
Once you find yourself skipping on payments, it will only make your financial situation worse. You will have to deal not only with interest payments but penalties and other charges as well. Once you get to this point, your credit score will start to get affected as well. Once late payments are reported, your credit score will start to dip.
You have to remember that sticking to your debt payments is one of the key ingredients to make your debt consolidation effort bear positive results. If you compromise your payments, that will waste all the hard work you had been exerting so far.
Possible causes of overspending
People who struggle with overspending habits should really deal with this problem. Even if you can get yourself out of debt, your tendency to spend beyond your financial capabilities will get you in the same situation again. This is why you need to find out the possible causes of your overspending urges.
According to a survey, the top five areas that Americans usually overspend on include food, online shopping, clothing, social events, and alcohol. Among the 5, only food is acceptable. However, even if this is a necessity, it is still not an excuse to overspend on food. There are so many ways to keep your expenses low.
To deal with your overspending habits, you need to identify what is causing it. Here are some leads that you might want to look into.
No budget plan
A budget plan will give you an overview of your current finances. More importantly, it will tell you if you can afford something or not. It will indicate how much you are allowed to spend on every category. If you do not have a budget plan, it is easy to overspend on certain categories. To solve your overspending problems, you might want to create a realistic budget that can guide your financial decisions.
Trying to keep up
Another reason for overspending habits is trying to keep up with the people around you. When it comes to your finances, you have to focus on your own needs and financial goals. Do not compare yourself with others – whether it is a relative, a friend or a colleague. The only one you should compare yourself with is your own. Make sure you only get better. Stop looking at others because that can easily make you spend on something that you do not need.
There are other reasons why you have developed overspending habits over the years. However, these two are the most common reasons for you to have it. Make sure you identify if you have these so you can do something about them.