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Debt might feel unavoidable right about now. With inflation the way it is, it can be hard to keep up with the cost of living. But inflation isn’t the only reason why your budget is tied up with online loans and credit card debt. If you look carefully at your spending habits, you might spot poor choices that can add to what you owe.

To avoid taking on more debt, make sure you aren’t making any of these small financial decisions that have a big impact on debt.

1. Not Following a Budget

Spending without a plan can lead you to pile on debt, even if you rake in a six-figure salary. Anyone can overreach and dip into credit if they aren’t aware of their cash flow.

Your cash flow (all the money coming in and out of your hands in any given month) gives you insight into your financial health. It tells a story about your spending, and whether you spend more than you earn.

A budget can help you set appropriate priorities, so you don’t waste money on something unnecessary before paying your bills.

2. Failing to Prioritize Savings

Your budget isn’t balanced until you save some money each month. According to the 50/30/20 Budget, you should aim to save as much as 20 percent of your take-home pay. This amount goes towards all your savings goals, such as an emergency fund, retirement, and big purchases.

If you’re starting from complete scratch, focus on your emergency fund before the others. It’s the one you’re more likely to need first, and it’s one of the most important accounts you can have when paying off debt. After all, if you don’t have these savings, you may need to take on more debt to cover an emergency.

If this happens to you, consider taking out an online direct loan carefully. As you can see at MoneyKey, online direct loans provide many different borrowing options. You’ll have to take the time to review these options to determine if online direct loans are right for you at this time.

Once you save roughly $1,000 in your emergency fund, you can branch out to contribute some money to other savings goals.

3. Using Credit without a Plan

In today’s digital landscape, asking you to cut up your credit cards is impractical. You may need these cards to pay bills or reserve services online. They’re also an important safety net in emergencies, a way to earn cash back on essential expenses, and a means to build positive credit.

With credit playing such an important role in your finances, it’s crucial you learn how to use them responsibly.

Unfortunately, most people don’t. A Federal Reserve Bank of Boston study shows consumers spend 409% more with credit than cash.

Why? It boils down to simple psychology — spending digital “fake” money is easier than real dollar bills. Rather than pulling from a finite amount of cash from your wallet, you can access a potential enormous credit limit. And since you don’t feel the loss of every cent your charge to your account, you can lose track of how much money you’ve spent.

You can still take advantage of your credit cards, but you have to treat it like cash. Only charge items you can pay back with the money you have available in your monthly budget.

Bottom Line:

Three simple spending habits can push you to add more debt to your existing personal loans and credit card bills. Keep this in mind. You’ll want to budget tightly to keep up with the rising cost of living.

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