Debt can be difficult to pay down, especially when you have a lot of debt or a lot of high interest debt. Most people who have debt want to pay it off, but the reality is that it’s tough to do and many people make mistakes along the way. Here are some common mistakes that people make when they’re paying off debt so you have an idea of what you should avoid.
According to WalletHub, consumer credit card debt is approaching pre-2008 levels; a sign that Americans are once again over-leveraging themselves and putting their long-term financial wellness at risk. With interest rates projected to continue rising, it’s a bit of a double-whammy. Even a quarter percent hike could cost the average household hundreds of dollars in additional interest.
If you have decided to rid yourself of all the debt that has been holding you back all your life, it is time to start educating yourself. Many people make the mistake of jumping into things without knowing what to do. In order to get rid of your debt, it is important that you know exactly what you are doing. Here are some of the most common mistakes that you must avoid when trying to pay off your debt.
Not finding the core reason for your debt
Before you can come up with an effective debt reduction plan you need to know exactly why you got into debt in the first place. Typically this is because of an unsustainable lifestyle and spending more than you can afford. If that is the case you need to make some serious lifestyle changes before you can start thinking about reducing your debt.
Continuing to use credit cards
One of the first things that you need to do when trying to pay off your debt is to stop using credit cards. However many people continue to use credit cards not knowing how it is going to affect their finances and debt. Using credit cards means accruing more debt on top of what you already have. No matter how much money you save to direct towards debt repayments you will keep accumulating more debt every day if you don’t stop relying on credit cards.
Not making a debt management plan
If you start making payments without a plan or direction, you are not going to get anywhere. You need to come up with a debt management plan that helps you pay off your debts in a structured way. Many people start making payments willy nilly rather than identifying where the payment will have the most impact which is why it takes much longer for them to actually get somewhere with their debt.
Not taking care of credit score
Letting your credit score plummet through your debt repayment process will end up costing you heavily in the long run. You will have to pay much higher interest fees which will direct money away from your debt repayments. So make sure that you always set aside a certain amount to pay your bills every month, because missing your bills can result in worsening your credit score.
Trying to do it all on your own
You don’t have to do everything on your own, you can always ask for help when you’re struggling. You can talk to a credit counselor who can help you with negotiating lower interest rates on your debt and give you important advice about your finances. You can also ask friends and family for an interest-free loan that you can pay back in your own time.
How to Pay Off Debt Faster
Or, you could take a few steps toward paying off debt faster and maybe still have enough money for an occasional night out or round of golf.
Here are some suggestions that once you’re committed to eliminating debt, will make the process go faster.
- Generate more income. That’s a polite way of saying take on a second job. Most people respond: “I don’t have time!” But you do have time to visit restaurants, shopping malls, golf courses and gyms? Those take time and cost money. Use that time to make money. And put it all toward retiring your credit card debt.
- Pay all bills on time. You’re just giving away money when you’re late paying monthly bills. Late fees are a gold mine for credit card companies, landlords and banks. They don’t have to do any extra work to collect extra money. Don’t give away your money.
- Garage sale anyone? Nearly everyone has old TVs, computers, exercise equipment, furniture and clothes they simply don’t use anymore. Let’s someone pay you to take away your junk.
- Unbudgeted income. You may get a tax refund or payment from an estate you never expected. Forget about a weekend vacation. Spend the money on reducing debt.
- Ask for a rate reduction. If you haven’t looked at the interest rates you’re paying, especially on credit cards, take a look at your statement and find out. If you have been a consistent, on-time payer, your card company will want to retain your business. Tell them they can, if they drop your interest rate to the lowest levels. This is one area where “Ask and ye shall receive” should actually work.
- Ask for a raise. Businesses have been flush with money for a while, but the recent tax cuts should make their bottom lines even bigger. Unemployment is at its lowest levels. The combination means it may never be a better time to get a raise. The worst that can happen is you get another “No!”
Now that you have read this article you know about different mistakes that people tend to make when paying off their debts. You need your debt repayment process to be flawless so you can focus on realistic debt remedies. Just make sure that you avoid the mistakes mentioned above and you are good to go.