There are times when you need extra money and one of the ways to get it is to borrow it. Borrowing can come in the form of loans from the bank, friends or even purchasing things on credit. Borrowing money may help you meet your immediate financial needs, but it can be hurtful to your financial life at the end of the day. And, as you may or may not know, not all forms of debt have the same effect on your financial life. However, if you want to achieve financial success in your life then you must become aware of the most harmful debts and I’ve listed them out for you below!
Debt #1: Credit Card Debt
Let’s face it, you know credit cards would be on this list. Having a credit card makes it easy for you to buy the things you want even if you don’t have the money for them in the moment. Sadly, paying with a credit card has become so easy that most people do not know when they’ve spent more than they can afford to. In short, credit cards are convenient to use but if you are not careful, you may end up in serious debt.
Credit card debts usually come with high-interest rates that can be as high as 27% which is why they can be so debilitating to your financial position. These high interest rates means that if you have credit card debt of $1,000 and you fail to pay on time, you might end up paying up to $270 extra in interest. This amount can be greater as the interest will compound over time.
If you want to avoid credit card debts, you have to look out for some of the common causes of credit card debts and eliminate them. One of the first reasons why people have credit card debt is because they do not have a budget. Some people think a budget is not necessary or it is a complete waste of time. However, a budget is an important tool that you must use if you want to avoid debt.
Having a budget makes it easy for you to find out if you are spending too much money on a particular spending category every month. And it also helps you to effectively plan your spending at the beginning of every month and allocate a specific amount for different needs and thereby reduce unnecessary spending. For example, buying a cup of coffee every day makes you spend about $30 to $150 every month. The price for a cup of coffee is about $1 to $5. However, if you…