Change Your Credit Habits…Yes, it’s Tough

Changing habits is a difficult thing to do.  Whether you are trying to eat healthier, lose weight or curb your spending…it’s tough!  Like any habit, however, it can be overcome and you have the control to illicit change.  The first step when trying to make a change to improve something is to figure out exactly what you need to change.  For most people when we talk about poor credit habits, it comes down to spending.  Spending includes how much we spend, what we spend our money on and lastly our spending timeframe.

Differentiate Mandatory and Discretionary Spending

Simply stated, this is “what you need” versus “what you want”. You need food, shelter and basic clothing. You want an Xbox, a flat screen TV and the latest smart phone. Now obviously there are many choices amongst the “necessary” items like food and shelter. For example, you need a balanced diet. This diet does not have to include filet mignon. In addition, you need basic shelter that is not beyond your fiscal means. This does not have to include a mortgage that represents 50% of your monthly income.

Buy what you need first. If there is money left over, save it for a rainy day. If there is something that you really want but don’t need, look in the mirror and ask yourself “Do I really want this item and does this item define me?” If the answer is yes, buy a new mirror. This all goes back to sound decision making.

Never Borrow for Discretionary Items

If you “want” something…save for it!  It is easy to convince yourself that a “want” is a “need” to justify buying a “want” on credit.  This goes back to changing our credit habits.  You really have to ask yourself before making this mistake, “Do I really need this item, or can it wait?”.  Furthermore, you should not be buying “needs” on credit either.  If you cannot fulfill your basic needs with your current income then there is no way you can pay back anything you buy on credit.  You are on the dreaded hamster wheel of credit.

Budget, Budget…Budget!!

Nobody can look into the future but we can plan for what we know. Create budgets that allow you to track and control spending on “what you need” and “what you want”. Most people are shocked by their frivolous spending habits once they start tracking them.

Reality Check

OK, so if you shouldn’t buy “wants” on credit and you shouldn’t buy “needs” on credit…what should you buy on credit.  The answer…nothing.  In a perfect world, you should not buy anything on credit…except for maybe a house and a very practical car.  The only things you should buy on credit are items that you need to make money (a car) or something that provides you shelter and would be unreasonable to save for (a house).  Credit should be used for a very, very rainy day.  For example, emergency home repairs, car repairs and any other unexpected expense.  That’s not to say you shouldn’t have savings to take care of those expenses…but a line of credit is an added “belt and suspenders”.

Wrapping Up

Spoons don’t make people fat, pencils don’t misspell words, and credit doesn’t put you in horrible, never-ending debt.  It’s our habits and how we use items in our lives that is the problem.  Change your bad habits and you will change your life.

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