3 Hidden Expenses That Can Lead to Debt – And How to Stop Them

Don't let these budget-busters destroy your finances.

Don't let these budget-busters destroy your finances.

There are some big reasons why you don’t want to get into debt. First, by its very nature, debt is costly. Whenever you make purchases on a credit card and don't pay your balance in full every month, you automatically lose money on interest. Second, too much debt can hurt your credit score, making it harder for you to borrow money when you need to. And let's not forget the psychological cost of debt -- the fact that owing money can be a huge source of stress, thereby impacting your mental and physical health.

If you're currently drowning in debt, it could be that you're just plain bad at managing your spending. Or it could be because you're spending too much in a few key categories. Here are three common culprits -- and what to do about them. 

1. Housing

Housing is the typical American's greatest monthly expense, but as a general rule, it should not constitute more than 30% of your take-home pay. If you own a home, that 30% should include your mortgage payment, property taxes, and homeowners insurance. And no matter if you’re a homeowner or a renter, if you're currently spending far more than that to put a roof over your head, it may be time to look at either downsizing to a smaller space or moving to a less expensive neighborhood. 

2. Transportation

Unless you live someplace with great public transportation, you probably need a car to get around town and hold down a job. But if you're spending a huge chunk of money on that vehicle, you're doing your finances a major disservice. The average monthly car payment for a new vehicle is $554 a month, reports Experian, while the average used car payment is $391. That's a sizable difference, so if you've been stretching your budget to swing a new car, you may want to consider selling it or trading it in for a used model instead. 

3. Healthcare

Healthcare is an unavoidable expense, and unfortunately, it's largely out of your control. After all, if you work for a company that provides you with health insurance, you're stuck with your plan’s deductibles and copayments. And if you or your kids get sick a lot, you'll spend more money on care than someone whose family is exceptionally healthy. 

That said, there are a few things you can do to lower your healthcare spending. First, make certain you understand your health insurance company's rules. If you're required to obtain a referral before seeing a specialist, do so. Otherwise, your insurance company may not pay for those visits, leaving you to foot some expensive bills. Next, be smart about prescription medications. Ask your doctor for generics if you're paying a lot for brand-name drugs, and if there's a medication you take regularly, try ordering it in three-month supplies. Doing so could be much cheaper than refilling month after month. 

Finally, take good care of yourself. Eat well, get enough sleep, and be an avid hand-washer during flu season. All of these behaviors will lower your chances of catching the latest germs. 

Housing, transportation, and healthcare may be unavoidable expenses, but they don't need to land you in debt. A few changes on your part could make all three much more affordable.