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How does a Credit Reference Bureau work? | The New Times

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Defaulting on loan repayments damages a business’ or individuals creditworthiness, making it hard for them to access more funding from banks in future, or having to pay higher interest rates.

Creditworthiness is a lender’s willingness to trust their client to pay their debts.

 

But to be able to judge a client’s creditworthiness, lenders look for evidence that the client pays bills and that they have a track record of successfully managing and repaying past debts. This information is largely stored in a credit conference bureau.

 

But how does a credit reference bureau work?

 

A Credit Reference Bureau is a company licensed to collect and combine credit information on individuals and companies from different sources and provide that information upon the request of a bank or another credit provider.

In Rwanda the institution is licensed by the central banks. Banks can only request a report on a borrower who has applied for their loan.

For the most part, the CRB is mandated to reduce Non Performing Loan (NPL) portfolios and also increase access to credit by the private sector.

A non-performing loan is considered in default or close to default after a certain period depending on the nature of the loan.

Many people consider it futile obtaining a copy of their credit report from the bureau especially when they have never taken a loan facility from any bank.

They assume their records are clean or do not contain a thing and are creditworthy. This is a misconception.

The credit risk involved in lending to a customer who has never taken a loan is undetermined and so should be treated in the same way as undetermined risk.

Undetermined risk is equated to high risk and consequently any lending will call for risk measures such as high interest rate and an expensive asset as collateral.

Generally, a good credit history is equivalent to a good character and can save you from the stress of looking for collateral.

A bad credit history is a cost because a loan request will go through various departments to ascertain whether the bank can lend to you.

How it operates

In Rwanda’s context the CRB operates in such a way that a customer provides information when opening an account or applying for credit, the customer then signs “acknowledgements/consents” to allow information to be submitted to the credit bureau.

Credit information providers submit information to the credit bureau which updates it regularly.

 The credit bureau, also known as TransUnion Rwanda, collects, validates and merges information into its database for use in generating a credit report.

CRB services entails that banks and others will share data about how loans are paid with each other to a central register which can be accessed when new credit facilities are being considered, or when limit reviews are undertaken.

TransUnion Rwanda replaced the Centrale des Risques et des Impayés (CRI), a public credit bureau that was established in 1990.

The major role

Financial experts say that the bureau improves credit assessment by lenders who will now have access to information on bank customers.

In the past, it was possible for a borrower to take loans from different lenders using the same collateral.

Additionally, the period customers wait for approval of applications will also be shortened.

With the bureau in operation, assessing individual credit will be a lot easier and more reliable as opposed to the current situation where it is

Experts also argue that the existence of credit registries is associated with increased lending volume, growth of consumer lending, improved access to financing and a more stable banking sector.

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Bad Credit

Refinancing Your Subprime Auto Loan

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Refinancing is a wonderful way to save money on your monthly car loan payment – but it can cost you more in the long run if you’re not careful. Refinancing when you have a subprime auto loan isn’t always as easy as refinancing a vehicle when you have good credit. Working with the right lender can help, though.

What Is Refinancing?

Refinancing is when you replace your existing car loan with a different one for the same vehicle, which may have either a lower interest rate, a longer loan term, or both.

Qualifying for a lower interest rate is optimal for getting a lower monthly payment and saving money overall. If you only extend your loan term without getting a lower rate, you actually end up paying more in interest charges over the term of your loan.

Auto loans typically use a simple interest formula, meaning your interest charges add up daily. The longer your loan term, the more you pay the lender – it’s wise to choose the shortest loan term you can afford. If you only extend your loan term you may end up paying more than the vehicle’s value!

Refinancing can typically be done with your current lender or with another one. It’s a good idea to shop around for the best possible rate before going with the first offer you receive. When you shop for the same type of financing with multiple lenders in a two-week timeframe, it’s called rate shopping. When you do this only one credit inquiry impacts your credit score instead of multiple, minimizing the negative impact that hard pulls can have on your credit score.

Options for Bad Credit Borrowers

Taking out a subprime auto loan is a great way to improve your credit, so, if you’ve kept up with your loan to this point and just need a little wiggle room in your budget, refinancing could be for you. Your credit is an important factor in refinancing your auto loan because refinancing is typically reserved for people with good credit.

However, when a borrower already took out a subprime car loan, many refinancing lenders are willing to work with them as long as they’ve made improvements to their credit over the course of the loan. Better credit alone doesn’t qualify you for refinancing, though.

In order to qualify for refinancing, you, your vehicle, and your loan all need to meet the requirements of a lender. These vary, but in order to refinance your car you typically need to meet these qualifications:Refinancing Your Subprime Auto Loan

  • Have a better credit score than when you began the loan
  • Have had your auto loan for at least one year
  • Have an acceptable loan amount
  • Have no more than 100,000 miles on your vehicle
  • Car can’t be more than 10 years old
  • You must be current on your payments
  • There can’t be negative equity in the vehicle

Lenders that refinance typically prefer cars that are in good condition, that aren’t too old, and have lower mileage. Some lenders may not want to refinance a vehicle that’s at risk for breaking down or is depreciating quickly.

They’re generally looking for a loan that isn’t too new, or too close to being paid off as well. And, refinancers may also require that you haven’t missed a payment on your original car loan. A borrower whose current on their loan gives a lender confidence you’ll manage the new loan well.

Alternatives to Refinancing Your Subprime Auto Loan

If you’re not able to refinance your vehicle, you typically still have the option to trade it in for something more affordable. Even if you’re still paying on a loan, all you have to do is pay off the loan to release the lien on the car.

Even if it’s years from the end of your loan term, you may have a good chance at trading in your vehicle, especially now. Due to fluctuations in the auto market, used cars are in high demand currently, which means that dealerships may be willing to pay a higher price to get your used vehicle on their lot – even if you’re a bad credit borrower looking to trade-in.

If you still owe on an auto loan this gives you a better chance at selling your car for the amount you owe to the lender. It may even give you enough cash left over to put toward your next, more affordable vehicle!

Ready to Get Started?

If you think refinancing your subprime auto loan is the way to go, you can check out our resources, here. But, if you think that finding an affordable, used car with a lower monthly payment is the right choice for you, we want to get you started toward your goal today!

At Auto Credit Express, we’ve got a coast-to-coast network of special finance dealerships ready to work with borrowers who are struggling with credit challenges. To get connected to a dealer in your local area that’s signed up with subprime lenders, simply fill out our auto loan request form. It’s fast, free, and never carries any obligation.

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It’s Time to Break Up With Your First Credit Card

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Many of us got our first credit cards when we were either in college or in our early 20s. We likely did not have a full-time job with a steady salary, and if we did, it’s also likely we weren’t rolling in dough.

See: 13 Credit Cards That Every 30-Something Should Consider
Find: Surprising Uses for Your Credit Card Rewards

Given these circumstances, the first credit cards offered to us were probably of a particular kind: low credit limits, no prior credit history required, high annual percentage rate and overall easy to get. While these cards served us well as a way to build up our credit — and probably learn some lessons about money the hard way — it’s time to let go for a couple of reasons.

The Benefits of Upgrading Your Card

When you upgrade your card, it’s likely you will also upgrade the benefits. Some companies, like Discover, Credit One and Capital One, are popular choices as a first credit card. However, these companies have better options as you, and your finances, mature.

The Wall Street Journal suggests asking for an upgrade. “Customers need to phrase it as a ‘product change’ when they call the card company. A product change involves getting a new card with the same card provider and it typically allows a cardholder to keep everything else the same, including the account number and available credit.”

See: 10 Credit Cards That Have Gotten Better During the Pandemic
Find: Old-School Money Advice You Shouldn’t Follow Anymore

This could be a good idea for those who are not ready to jump ship from their first credit company just yet. It also removes the hassle of having to find a different provider, and probably the largest benefit of all — no hard credit check needed.

A “hard” credit check is when your credit is thoroughly examined, and it results in an inquiry showing up on your credit report. These are always necessary for opening a new line of credit, like a credit card or a mortgage, but too many inquiries can count against you and negatively affect your credit. A “soft” credit check, on the other hand, will not affect your credit score and is usually done for verification purposes, such as when you apply for new employment. Soft checks also happen with preapprovals.

See: Soft vs. Hard Credit Check — What’s the Difference?
Find: 30 Things You Do That Can Mess Up Your Credit Score

If you ask for a product change on a credit card, you won’t need to have that hard inquiry because the company already has a solid picture of your credit and has done an inquiry before. But it’s important to confirm that your credit history will be rolled over to the new card.

Switching credit institutions all together can be beneficial, depending on what you’re trying to achieve. While the rules of credit apply whether you have, for example, a Credit One or Chase credit card, it’s not a secret that certain credit cards have certain reputations — or that credit bureaus take notice.

For example, the Credit One Bank Visa card is “one of the most popular credit cards for people with bad credit, largely because it’s one of the few unsecured cards that applicants with poor credit scores can get approved for,” according to WalletHub.

See: Biden Wants to Shut Down Credit Bureaus – What Would That Mean for You?
Find: 10 Credit Score Myths You Need to Stop Believing

In contrast, American Express credit cards are best for people with credit scores over 700 and require at least “good” credit for approval, WalletHub adds. A good credit score is one that’s between 670 and 739, according to Fair Isaac.

So while both cards function the same way, the profile of those who own these cards might be different — or at least be perceived as such.

Theoretically, the same person could own both cards, but your money works for you more with an American Express vs. a Credit One. If you have a Credit One card but qualify for American Express, it might make sense to leave your old credit card behind. In addition to the immediate financial benefits, upgrading for a credit card company that has a reputation for being exclusive to those with good credit could help when you apply for a mortgage or apply for credit cards at specific stores.

See: This Is How Many Credit Cards You Should Have
Find: Credit Cards With the Best Incentives to Open in 2021

The first question you should ask yourself is, “What is my card doing best for me?” If the answer is helping you build your credit, getting you out of bad credit or allowing you to have credit when you otherwise would not be able to, then sticking with the same card, or at least the same credit card company, makes sense.

This allows you avoid a new credit inquiry on your credit report while still building and increasing your credit. Asking for a credit limit increase on your credit card if you’ve been with the same company for a while, you’ve been routinely paying off your card and you’re in good standing, is a good idea.

See: Expert Tips to Fix Your Credit on a Limited Income
Find: What Is a Credit Limit?

If you are shopping around for a new card that gives you rewards or benefits based on your purchases, starting small is paramount. It wouldn’t be prudent to go straight for a card that has a yearly fee, for example.

Start small, and start smart with credit limits, too. Going from a limit of $2,000 straight to a limit of $15,000 while your salary remains relatively unchanged is not always a good thing. Having a higher credit limit doesn’t necessarily mean that you are now richer or more responsible — it only means that you now have a greater risk of putting yourself into serious debt. Slowly increasing your credit limit makes your debt more manageable — and makes you look more responsible to credit bureaus.

Breaking up is hard to do, but if your finances have matured, it might be time to get a card that helps you reach your goals with cash-back rewards and points you can use for travel, groceries and other other items. Shopping around for a lower interest rate and a slightly increased credit limit can also help you move forward.

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This article originally appeared on GOBankingRates.com: It’s Time to Break Up With Your First Credit Card

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16 Key Signs That You Will Always Be In Debt

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©Shutterstock.com / Shutterstock.com

Getting into debt is easy — and the numbers prove it. About 80% of Americans across generations are currently in debt, a 2019 Nitro survey found. And the total amount of household debt in America is nearly $13.95 trillion, according to the Federal Reserve Bank of New York’s most recent report on household debt and credit.

Find Out: 10 Credit Score Myths You Need To Stop Believing

There are plenty of ways people fall into debt, way too easily. The hard part can be getting out of debt, especially if you don’t recognize — or resist admitting — how you racked up debt. Here are 16 reasons you might have fallen into debt and how to avoid being stuck with it forever.

Last updated: May 13, 2021

Portrait of worried black woman standing beside window.

Portrait of worried black woman standing beside window.

You Believe Debt Is Part of Life

One of the biggest reasons people get stuck in debt is because they believe that debt is just a part of life, said Debbi King, owner of the personal finance coaching firm The ABC’s of Personal Finance. In fact, a 2015 Pew study found that 7 out of 10 people said debt is a necessity in their lives. “However, debt is a result of wanting or needing something that you don’t have the cash to buy at the moment,” King said.

See: 19 Ways To Tackle Your Budget and Manage Your Debt

Top view on a student with bunch of overdue bills.

Top view on a student with bunch of overdue bills.

The Solution

If you are determined to get rid of debt, you can rid yourself of these wants. “You have to not want debt so bad that you refuse to use it no matter what,” King said.

You also need to give yourself a wake-up call by keeping close tabs on your spending to see how much you’re relying on debt to maintain your lifestyle. “You may be using your credit card more than you realize,” said Bruce McClary, vice president of marketing for the National Foundation for Credit Counseling (NFCC).

Once you figure out how much you owe, make a plan to pay off the debt. Having a goal of getting out of debt might give you the motivation you need to stop relying on it.

Read More: Here’s How Much Debt Americans Will Have Due To the Coronavirus, by State

Man driving car and using phone to send text message.

Man driving car and using phone to send text message.

You Use Credit To Cover Emergencies

Many people assume they will never fall deeply into debt, said Matt Cosgriff, a certified financial planner and wealth management group leader at BerganKDV. “But it can happen so easily if you aren’t financially prepared,” he added.

For example, if you don’t have cash reserves to cover unexpected expenses, you might have to rely on credit cards. You will end up paying more than the original cost of the emergency if you do not pay off the balance quickly because of the interest on your card charges. Plus, you might not be able to build savings to cover future emergencies if your money is going toward paying off debt.

Stay on Top: This Easy Trick Will Improve Your Credit Score and Avoid Late Payments

A broken tire on the car.

A broken tire on the car.

The Solution

You can avoid this situation by creating an emergency fund, Cosgriff said. Ideally, you should save enough to cover up to six months of expenses. If necessary, start by setting aside a little each month, then increase the amount when you can. And make sure you have adequate insurance to cover catastrophic events, such as a medical emergency or car accident.

Score: 10 Things to Do Now If You Have a 500 Credit Score

Shot of a customer paying with a credit card in a clothing store.

Shot of a customer paying with a credit card in a clothing store.

You Make Only Minimum Payments

It’s hard to eliminate debt if you’re only paying the minimum you owe. In fact, McClary said it can become unmanageable if your balance continues to grow while you’re paying the minimum amount required.

For example, if you have a $5,000 balance on a card with a 17% rate and make a minimum monthly payment of 3% of your balance, it will take you 189 months — or nearly 14 years — to pay off your debt. Meanwhile, you will pay more than $4,000 in interest, according to Navy Federal Credit Union’s minimum payment calculator.

Cropped portrait of young woman paying via NFC in cafe, focus on female hands holding banking terminal, copy space.

Cropped portrait of young woman paying via NFC in cafe, focus on female hands holding banking terminal, copy space.

The Solution

Simply increasing the amount you pay can make a big difference. For example, you can cut the payoff time and interest in half by boosting your monthly payment to 5% of your balance.

Save Up: Americans’ Savings Drop to Lowest Point in Years

Young couple after grocery shopping on parking lot, putting groceries in car trunk.

Young couple after grocery shopping on parking lot, putting groceries in car trunk.

You Allow Expenses To Rise With Income

Andy Brantner, a certified financial planner and partner at BKLM Financial Services Consulting, knows financial discipline does not come easy. “It’s hard not to buy a better car or a bigger house when you get a raise,” he said. “But failing to keep your expenses steady when your income goes up creates a vicious cycle.”

It can be especially dangerous if you are still carrying debt from the days when you were earning less, and now are taking on more loans to help pay for that bigger house or a better car. Your debt will balloon, leaving you unable to pay if off despite the bigger paycheck.

Woman is shopping in supermarket and scanning barcode with smartphone.

Woman is shopping in supermarket and scanning barcode with smartphone.

The Solution

To avoid this, identify goals and review your spending to see if it’s in line with your priorities. If it’s not, you will need to create a spending plan that will align your expenditures with your values.

More Solutions To Paying Off Debt: 10 Best Personal Loans for People With Good Credit

One man, pouring gasoline in his car at the gas station.

One man, pouring gasoline in his car at the gas station.

You Use Payday Loans

If you get a payday loan to cover an emergency, it doesn’t mean you will be stuck in debt forever. After all, most of these short-term loans typically have to be paid back within 14 days.

But most people who get payday loans use them to cover everyday expenses, according to a report by Pew. And they often take advantage of rollover features that allow them to extend the amount of time they have to pay off the loans. Because the interest rates on these loans are so high — the average annual percentage rate is 391%, according to the Center for Responsible Lending — the debt can mount quickly.

If you roll over a typical payday loan of $325 eight times, you’ll owe $468 in interest and have to repay a total of $793, according to the center. Do that often enough and you will be stuck in debt forever.

coffee shop credit card payment.

coffee shop credit card payment.

The Solution

Make a plan to quickly pay off any payday loans you might have, even if it means getting a second job. Then take steps to improve your credit so you can qualify for lower-rate conventional loans going forward.

people talking toasting in a pub with the beers.

people talking toasting in a pub with the beers.

You Don’t Track Your Finances

“If you aren’t paying attention to where your money is going, it’s easy to overspend in certain areas and then not have enough for those unexpected expenses or your regular bills, which puts you in debt and keeps you there,” said Andrea Woroch, consumer and money-saving expert.

Shot of a young man using a smartphone and having coffee on the sofa at home.

Shot of a young man using a smartphone and having coffee on the sofa at home.

The Solution

“Stay on top of your finances by checking your accounts daily,” Woroch said.

It’s easy to do this from your phone by using your bank and credit card apps, or you can use a tracking app like Mint, which links all your financial accounts in one place.

“When you see how much you’re spending in one area, it’s easier to cut back,” Woroch said. “Remember, you can’t change what you can’t see, so it’s important to actually look at your money regularly to make sure your spending aligns with your budget and goals.”

Young couple is sitting at the table with laptop and paying bills online.

Young couple is sitting at the table with laptop and paying bills online.

You Disregard Your Credit Score

“If you don’t have a healthy credit score, your interest rate on your credit cards and/or loans is likely really high,” Woroch said.

The higher the interest rate you have to pay on your debt, the harder it will be to pay it all off.

Find Out: Biden Wants to Shut Down Credit Bureaus – What Would That Mean for You?

Smiling man lying on the couch and shopping online with credit card and laptop.

Smiling man lying on the couch and shopping online with credit card and laptop.

The Solution

“Get on track by committing to improve your credit score, which you can do in a few ways,” Woroch said.

These ways include always paying all your bills on time, keeping your credit utilization rate below 30% and using a credit-building loan to boost your score.

“For example, Self is an app that helps you build credit while you save,” Woroch said. “It’s a credit-builder loan, which is an affordable and accessible loan you take out in your name — but you don’t receive the money upfront. Instead, you make payments to yourself over the course of one to two years, and Self reports the payments to all three credit bureaus. In the end, the money you’ve put aside every month unlocks in the form of savings minus fees. It’s a unique product that is an accessible option.”

Young man lying on couch watching TV.

Young man lying on couch watching TV.

You’re Not Maximizing Your Earning Potential

“There are only so many ways you can cut back on your day-to-day and monthly spending,” Woroch said. “Sometimes you have to make more money to really get ahead financially and get out of debt.”

That means that if your only source of income is your day job, you probably aren’t doing enough to get yourself out of debt.

“People often limit their ability to make more money because they don’t think outside the box,” Woroch said.

Dog walker enjoying outdoors in park with group of dogs.

Dog walker enjoying outdoors in park with group of dogs.

The Solution

“If you can’t ask for raise or find a better paying job, then take on a side hustle,” Woroch said. “For instance, you can make up to $1,000 a month by simply petsitting in your own home via sites like Rover.com, which makes it super easy to set up a schedule that works best for you. This doesn’t require any special skills or really any time commitment because you can do this from home when you’re already home. Plus, you can double your side income by doing another side hustle at the same time as petsitting, like freelancing via Upwork.”

Bad Credit: 30 Things You Do That Can Mess Up Your Credit Score

Closeup of sad young Asian woman at cafe leaning head on clasped hands and staring into vacancy.

Closeup of sad young Asian woman at cafe leaning head on clasped hands and staring into vacancy.

You Are Overwhelmed by Student Loans

Student loan debt has reached $1.5 trillion, and payments on more than 9% of this student loan debt are at least 90 days late, according to the Federal Reserve Bank of New York. “So many people right now are burdened with student loan debt,” McClary said.

How to write the perfect professional thank-you note.

How to write the perfect professional thank-you note.

The Solution

If your student loan debt is unmanageable, McClary recommends talking to a certified student loan counselor to identify your options, such as income-based repayment or loan consolidation. You can visit studentloanhelp.org to find an NFCC member who will offer student loan counseling at little or no cost.

To avoid racking up student loan debt, McClary recommended that parents and students look for sources of free money for college, such as grants and scholarships. And families should weigh the costs of the schools their child wants to attend against the child’s earning potential after graduation. That will help the family determine whether the child will be able to pay off student loans.

Couple enjoying beach vacation holidays at tropical resort with swimming pool and coconut palm trees near the coast with beautiful landscape at sunset, honeymoon destination.

Couple enjoying beach vacation holidays at tropical resort with swimming pool and coconut palm trees near the coast with beautiful landscape at sunset, honeymoon destination.

You Allow FOMO To Dictate Your Spending

“One of the biggest things that causes people to overspend and brings them into debt is FOMO — the fear of missing out is a real thing,” said Ande Frazier, CEO of online financial community MyWorth. “It’s easy to get anxious when other people are having fun without you, especially when it’s happening in real-time on social media. This feeling might have you saying ‘yes’ to more dinners, drinks, activities and vacations than you want or can reasonably afford to attend.”

A woman is paying at a coffee shop.

A woman is paying at a coffee shop.

The Solution

Frazier recommends using cash instead of credit so that you really think about your spending decisions, rather than mindlessly swiping to keep up with the Joneses.

“The tangible nature of cash gives more value to the decision to spend that money, rather than just swiping a credit card, because you can see it and feel it,” she said. “It’s a form of mental accounting.”

Photo of asian man paying for his food delivery at home with credit card.

Photo of asian man paying for his food delivery at home with credit card.

You Have Your Financial Priorities Mixed Up

If you’re not allocating your money wisely, it will take you longer to pay off debt than it should.

“The most common mistake when it comes to short-term debt (i.e., credit card debt) is the belief that one needs to save and invest simultaneously,” said Roi Tavor, CEO and co-founder at Nummo, a personal finance management platform.

Any money you are putting toward saving and investing accounts is money you aren’t putting toward paying down debt.

Tax Season: The 6 Most Important Tax Deductions You Need to Claim

Young woman working at home.

Young woman working at home.

The Solution

“Before putting money in a savings account that yields 1% or 2%, make sure to pay off credit cards that charge you 10% or more on outstanding amounts,” Tavor said.

Beautiful, young female athlete running uphill.

Beautiful, young female athlete running uphill.

You Set Unrealistic Goals for Yourself

If you’ve been in debt for a while, maybe you’re constantly telling yourself that this will be the month you pay off all your debt. But if you have thousands of dollars of debt, this goal likely isn’t realistic.

“Having a plan to pay down debt is a great starting point; however, if you make your goals too lofty, you’ll set yourself up for failure,” said Leslie Tayne, founder and head attorney at debt solutions law firm Tayne Law Group. “In doing so, you’ll likely get discouraged and may even give up, preventing you from reaching your goal of paying off your debt.”

Group of hikers and friends walking on a mountain at sunset.

Group of hikers and friends walking on a mountain at sunset.

The Solution

“While you, of course, want to pay down your debt as quickly as possible, keeping your goals reasonable will help keep you motivated and on track to get that debt paid off,” Tayne said.

Start by making it your goal to pay off one credit card or loan at a time. Ideally, start with the card or loan with the highest interest rate, and move down the line in order from highest to lowest interest until they’re all paid off.

Tourist riding camel in Desert.

Tourist riding camel in Desert.

You Justify Credit Card Spending Because of the Points You Earn

Many credit cards offer rewards systems that can be beneficial if used correctly.

“Many people charge almost all of their everyday purchases to their credit cards to take advantage of these rewards,” Tayne said. “However, if you’re carrying debt, the interest you’re paying will be negating the value of your points. Keeping the mindset that you’re always working towards the point may also be keeping you in debt if you’re not paying off your balances in full every month.”

Young cheerful woman at the market.

Young cheerful woman at the market.

The Solution

“Consider switching your everyday purchases to cash or debit, or ensure that you’re paying off each of your credit card purchases in full while you’re working to pay down your debt,” Tayne said.

Smart modern male customer choosing large TV-sets at electronics store.

Smart modern male customer choosing large TV-sets at electronics store.

You Don’t Differentiate Between ‘Wants’ and ‘Needs’

Sometimes there can be a fine line between “wants” and “needs.” Let’s say your TV breaks and you need a new one. You head to the store and see a brand new 65-inch TV and decide that’s the one that you “need.”

“Sure it’d be nice to have in your living room, but do you need a $2,000 item for entertainment? Especially if you are going into debt for it and it’s going to cost $3,000 with interest by the time it’s paid off?” said Brandon Neth, credit card and award travel expert at FinanceBuzz.

“When you’re at Best Buy, you may be able to tell the difference between a 55- and a 65-inch screen mounted right next to one another, but once you’re home, you realize you’ll likely be fine with a smaller TV,” he continued.

Find Out: How Do Your Stimulus Payments Affect Your Taxes?

Joyful young attractive multiracial couple checking out plasma TVs in the electronic store.

Joyful young attractive multiracial couple checking out plasma TVs in the electronic store.

The Solution

Set a budget for yourself before you walk into a store, and consider buying items that aren’t name-brand.

“As a former Magnolia/Best Buy employee here’s a friendly piece of advice: Many of the non-brand-name TVs use the same panels and technology as the big brand TVs,” Neth said. “Often they’re just calibrated differently out of the box. They can be adjusted to create almost the exact same picture in many cases. Save the money, invest it and build wealth — not debt.”

Smiling young couple buying Christmas presents online using a credit card and a digital tablet.

Smiling young couple buying Christmas presents online using a credit card and a digital tablet.

You Go Overboard During the Holidays

Nearly half of those surveyed in 2019 by Discover said they plan to rely on credit to pay for most of their holiday spending. That can lead to starting off the new year in debt. If you don’t pay it off quickly and turn to credit again every holiday season, your debt will mount.

Cheerful mature African American manager smiles while listening to a colleague during a weekly staff meeting.

Cheerful mature African American manager smiles while listening to a colleague during a weekly staff meeting.

The Solution

“It’s really important at this time of year for people who might have a weakness to find support,” McClary said. Find a credit counselor through NFCC.org or look for a workshop to get support for building a habit of saving rather than spending, he said.

McClary also recommended avoiding spending time around others who have a tendency to overspend and “getting in situations where you’ll be melting the plastic at the register. Lock up the credit cards this time of year.”

Lovely modern girl enjoying her time at a coffee shop.

Lovely modern girl enjoying her time at a coffee shop.

Your Focus Is On the Short Term Rather Than the Long Term

“People don’t think long-term,” Neth said. “They are too focused on the now and looking for instant gratification.”

He gives the example of regularly charging coffee to your credit card — even if it only costs $5.

“If you’re doing that twice a week, that $10 adds up quickly,” Neth said. “Even worse, if you’re putting this on a credit card that you’re not paying off in full each month, paying interest on your two cups of coffee may raise the cost to over $20. Although it’s convenient and tastes good, remember how much further your money can go.”

Happy attractive young women in casual shirts sitting at table in coffee shop and photographing together while drinking coffee.

Happy attractive young women in casual shirts sitting at table in coffee shop and photographing together while drinking coffee.

The Solution

A change in your spending mindset can help you break this debt-causing behavior.

“The one thing we don’t get more of in life is time, so look at your expenses as time,” Neth said. “How much are you actually making an hour once you deduct taxes, expenses and other related costs? A $15-an-hour job is probably closer to $9. Stop and think, is two cups of coffee worth an hour of my time?”

This is an especially important mental exercise for larger purchases.

“How many extra years must you work to pay off that car or TV? These numbers just get higher as you account for accruing interest,” Neth continued. “Don’t stall your financial future by making impulse decisions today. Set goals for the future and remind yourself of them daily. It takes hard work to get out of debt and stay out of it, but when you do, you take back control of your life.”

More From GOBankingRates

Cameron Huddleston contributed to the reporting for this article.

This article originally appeared on GOBankingRates.com: 16 Key Signs That You Will Always Be In Debt

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