Advertiser Disclosure

Advertiser Disclosure: The credit card and banking offers that appear on this site are from credit card companies and banks from which receives compensation. This compensation may impact how and where products appear on this site, including, for example, the order in which they appear on category pages. does not include all banks, credit card companies or all available credit card offers, although best efforts are made to include a comprehensive list of offers regardless of compensation. Advertiser partners include American Express, Chase, U.S. Bank, and Barclaycard, among others.

  • Date


Dig Deeper


Become a Money Crasher!
Join our community.

10 Bad Financial Habits You Need to Break to Get Out of Debt

We all have our creature comforts – those habits that, for better or worse, we indulge on a daily basis. However, while a regular morning latte or a new pair of shoes might seem harmless, you’ve got to consider their effect on your bottom line. A dollar here and a dollar there add up over time – and, despite your efforts in other areas, they could be one of many reasons you’re still mired in debt.

Those of us who find ourselves experiencing chronic debt problems often share similar behaviors and financial habits. If you catch them early enough, you can avoid trouble. But even if you’re already in the red, recognizing and adjusting these behaviors can help you get back on track.

Bad Habits of Perpetual Debtors

According to data compiled through the U.S Census Bureau and the Federal Reserve, average household credit card debt in 2014 was a whopping $15,191, with Americans owing more than $854 billion to their credit card providers altogether. It’s a set of consistent habits that sets those prone to debt apart from those who stay in the black. By watching out for the following behaviors, you might be able to stop some of those bad habits in their tracks and reassess the way you think about and approach debt.

1. Impulse Buying

Those who are constantly in debt are often the type to snatch up something whether it’s on sale or not – even if the purchase wasn’t exactly planned. However, impulse buying can lead to a series of dangerous spending behaviors:

  • Justifying Unplanned and Poor Purchasing Decisions. By justifying a “need” for an expensive bag or new gadget, you allow yourself to overspend and find reasons why it makes sense.
  • Using Your Credit Card for Impulse Purchases. Because impulse shopping is unplanned, you may not actually have the funds to cover costs. That means you’re using credit to purchase items you can’t afford.
  • Losing Track of Your Budget. Even the most diligent budgeter can mess up every now and again. However, impulse spending causes you to lose sight of your budget and your financial goals: When you decide your budget is already blown, you might just keep swiping that card – and that’s a slippery slope.

While an impulse buy here or there may not leave a lasting impression on your finances, making it a habit can seriously derail your goals. Develop a plan that helps you cope with that irritating itch to spend without thinking.

Julian Ford, a professor of psychiatry at the University of Connecticut School of Medicine, suggests coming up with a mantra so you remember your goals – for example, “I only buy what I need.” Before you make a purchase, stop – think of your mantra, and walk away. If it’s something you really do need, it’s still going to be there in a few days.

2. Using Credit Cards for the Points

Not all rewards credit cards are evil. In fact, when used responsibly, some definitely have their place in your wallet. However, there’s a reason credit card companies offer those rewards, and it’s definitely not out of the goodness of their hearts. Rewards encourage you to spend more, plain and simple.

A 2010 study presented at a meeting for the American Economic Association found that simply using a rewards or points-based credit card with a 1% return actually increased monthly spending by $68, and overall credit card debt by $115 per month. Suddenly, that pursuit of points doesn’t seem so savvy.

While you might score a little cash back on that purchase, many cards impose heavy restrictions. From annual caps, to higher cash-back rates only for limited purchases (such as gas and groceries), you might not be getting back as much as you think. Going deeper into debt in pursuit of the almighty credit card point is simply not worth it.

If you find yourself in credit card debt, look into moving your balance to a card with a lower APR. Thi will help to reduce the amount you’re paying in interest each month.

Stop Using Credit Card For Points

3. Keeping Up With the Joneses

Real estate agents often say that it’s better to be the worst house on the best street than the best house on the worst street. However, when your neighbors seem to have it all, the drive to be the best house on the best street can overshadow your spending savvy. Competition is a psychological trigger that can cause spending, and keeping up with the Joneses – or competing against family members, neighbors, or friends – can lead you to overspend.

While some people simply don’t care about measuring up to others, it can be a real challenge for certain families. When a friend purchases a new vehicle or home, takes a pricey vacation, or even wears expensive jewelry, it can trigger competitive behavior that leads to poor spending decisions.

It’s important to remember that success is hard to measure from the outside. When you see a neighbor pull up in a shiny new car, remind yourself of your priorities and goals. No one can see your retirement account balance, but you know that you’re working to secure a comfortable future by contributing to it, instead of that new watch.

4. Shopping to Be Happy

Raise your hand if you’ve ever gone on a mood-based spending spree. If you have, you’re not alone. Shopping can actually release endorphins in the brain, similar to other activities such as exercise, sex, and even eating chocolate. Unfortunately, like those three things, spending money in order to feel good can actually become addictive. Shopping to boost your mood creates a link between happiness and buying material goods – and it’s a link that can be seriously hard to break.

Ryan T. Howell, assistant professor of psychology at San Francisco State University, suggests checking your emotions before you buy as a way to stop emotional shopping. Before you hand over your credit card, think about why you’re making the purchase – because you really need it, or because you’re hoping to boost a bad mood?

Of course, if you can’t get your emotional spending under control, you may need professional help. Shopping addiction is real and can be difficult to break, but with the help of a dedicated mental health professional, you can learn your triggers and find coping mechanisms to help keep you out of debt.

Are we saying that all shopping is bad? Of course not. You just can’t do it to help you feel better at the end of a bad day. When you do go on a shopping trip, make sure you find ways to save money. Apps like Ibotta or Drop can help save you money on nearly every shopping trip you make. Plus, shopping online through eBates can help add cash back to your wallet as well.

5. Expecting a Miracle

Often, people who are consistently in debt mistakenly believe that righting their finances would take a money miracle. However, you’re never going to get out of debt by winning the lottery, landing a windfall from a wealthy relative, or having the world’s best-paying job simply fall in your lap.

What makes this way of thinking so dangerous is that it removes you from a position of control. When you’re hoping for someone else to swoop in and save you from your bad habits, you’re handing over the financial steering wheel and emotionally cutting yourself off from your debt. Of course, we all know that your credit, debt, and lifestyle belong only to you – and only you can solve the problem.

Instead of waiting for a miracle, start opening your bills and taking the time to make a budget. Set up payment agreements to stay current, pay all new bills on time, and remember that you’re the one who is affected when you’re stuck in debt.

Pro tip: When setting up a budget, we recommend using either Personal Capital. They have a bunch of tools to help give you a 360 view of your finances.

6. Excessive Lifestyle Inflation

As you get older, you probably expect to achieve a better financial status than you had as a young adult. A better job, a raise, and even natural economic inflation can all affect your earning power. However, the difference between those who are always in debt and those who stay in control of their own finances is that the perpetual debtors buy more than they can afford.

It’s tempting to put that raise to work to buy a new house, take a vacation, or simply increase your living expenses, but it could land you back at square one. For example: If Bill earns $60,000 per year and spends $45,000, but Jeff earns $150,000 and spends $175,000, who is truly in a better financial position? Although Bill earns less, earnings aren’t the only factor when it comes to staying out of debt. It’s how you manage your money.

Lifestyle inflation is a natural part of earning more and moving up the chain at work – but it’s only acceptable if you’re spending within your means. As soon as you start going into debt to afford a certain way of living, it becomes problematic. Make sure you only spend what you can afford, and maintain your valuable financial freedom.

7. Keeping Debt Out of Sight and Out of Mind

When you put your fingers in your ears during the debt conversation, you’re engaging in risky behavior that could plunge you even deeper into the red. Those who tend to ignore their debt may engage in the following red-flag behaviors:

  • Avoiding phone calls from creditors and collection agencies
  • Ripping up bills and statements before they’re opened
  • Becoming visibly uncomfortable, defensive, and angry when debt is discussed
  • Not knowing how much debt is owed

Getting hit with late and nonpayment fees, dealing with collections, and falling deeper into debt than you realized are all consequences of taking an “out of sight, out of mind” attitude toward what you owe. It’s dangerous and simply perpetuates your bad behavior.

You don’t have to like your debt, but you do have to acknowledge it. Get in the habit of opening your mail when you feel calm and ready. The more you know about your debt, the better prepared you can be to face it.

Once you know how much you owe, work out payment plans. If you owe a lot to several different creditors, pay your utility and fixed bills first and then focus on the account with the smallest balance. This can feel more achievable, and paying it off can give you the motivation you need to move onto the next balance.

The interest you pay on your debt each month can be a little frightening. A personal loan from SoFi can be a great way to ease the pay. The average credit card interest rate is nearly 18%. By using a personal loan, you can potentially cut that in half depending on your creditworthiness.

These are small steps, but they can make a big difference in how you view debt: as a surmountable obstacle, rather than an unbeatable foe.

Keeping Debt Out Sight

8. Taking Interest-Free Loans

Like credit cards that offer points and rewards, stores that offer no-interest loans are simply luring in potential debtors and enticing them to spend more than they can. The sad part is that many people who bite on such offers won’t pay off their loans before the interest-free period ends, after which they’re often slammed with fees and even retroactive interest from that so-called “interest-free” period.

Always read the fine print, and remember: Unless you’re certain you can pay it off before the grace period ends, interest-free loans are anything but.

9. Only Paying the Minimum

Paying the minimum every month doesn’t mean you’re getting out of debt – in fact, minimum payments are often calculated to be about 4% to 6% of your balance, which could mean you’re not only staying in debt, but actually accruing more interest. When you open your credit card statement, remember that you owe the balance – not just the amount listed under “minimum payment.”

10. No Debt Planning

I used to think that going into debt was no big deal: I’d just pay it off later. That bad habit caught up with me when I found myself owing several creditors, all of which wanted payment at the same time. I was completely overwhelmed.

I finally got wise and created a plan – I sent in all budget surpluses to my debts, starting with the smallest balance first. Of course, that also meant keeping up with minimum payments until I could tackle each balance. With a plan in place, attacking your debts becomes a lot less overwhelming. I could see my balances going down and accounts being closed, which motivated me to keep going.

Paying off debt is great, but trying to do it without a plan in place can leave you throwing your hands in the air and returning to your bad habits. You have to plan ahead and know where every dollar is going if you want to quit your harmful behavior and start fresh.

Final Word

Obviously, the solutions to each of these bad habits varies from person to person. Someone might need to take up hiking to replace the mood-boosting properties of shopping, while another should probably cut up that cash back card to reduce temptation.

However, as with all bad habits, the first step is recognizing that your behavior needs to change. If you find yourself chronically sabotaging your financial stability, it’s time to hit “pause” and take stock of yourself. Knowing that you’re hurting your own chances for freedom just might be the kick you need to finally get yourself out of the red.

Do you have any habits that sabotage your financial freedom?

Jacqueline Curtis
Jacqueline Curtis writes about edtech, finance, marketing, and small business strategy. With over 14 years of copywriting experience, she's created content and scripting for organizations such as GE, Walgreens, Overstock, and MasterCard. She lives in Utah with her husband, three kids, and an overzealous springer spaniel named Penelope.

What Do You Want To Do
With Your Money?