debt

10 bad habits that lead to debt disaster

Sometimes the only way to stop a snowballing problem is to go back to the top of the hill and find out what started it.

If you're up to your eyeballs in credit card debt, take a step back and recount your money missteps. Knowing your weaknesses could prevent you from falling back into the bad credit pit and show you a way out.

According to Gail Cunningham, vice president of membership and public relations for the National Foundation for Credit Counseling based in Washington, D.C., consumers mired in debt make common financial blunders, most of which can be prevented with discipline and behavior changes. Learn from these mistakes and start paying off your debt.

Bad Habit No. 1: Misusing balance transfers 

Transferring balances on high-interest cards to lower-rate cards can be an effective technique, but it's easy to make it a good idea gone wrong.

Transfer a balance onto a card with a low introductory rate and you can potentially save money on interest if you refrain from charging on it and focus on paying off the balance before that introductory rate expires. But most people continue to charge on the new card and wind up with more debt once the teaser rate expires, says Cunningham.

In fact, new purchases may be charged an altogether different interest rate. Read the fine print very carefully and only attempt the balance transfer maneuver if you can control your spending on the new -- and old -- card.

Try this: If you can't refrain from charging, balance transfers won't get you out of debt. If you're really in the hole, consider getting a part-time job and dedicating your earnings to your debt load. If that's not possible, go back to your budget and cut back on unnecessary expenses, such as restaurant outings and cell phone extras. Put the money you save toward paying off your balances. Pay for new purchases with cash or debit. 

Bad Habit No. 2: Not checking credit reports -- you can't change them anyway

Wrong. If you have credit cards, pull your credit report at least once a year and check it for errors. Purging your record of inaccuracies proves crucial for getting better interest rates, landing the job you desire and stopping an identity thief from ruining your credit rating.

Your credit report also affects your credit score, which determines how high your interest rates will be on future loans. Dispute anything you think should not be there. The Fair Credit Reporting Act allows for the correction or deletion of inaccurate, outdated or unverifiable information, provided that a reinvestigation into the disputed data comes out in your favor.

Unfortunately, negative but truthful data must stay put. A Chapter 7 bankruptcy filing, for instance, will remain on your credit report for 10 years; a Chapter 13, seven years.

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