7 Mistakes To Avoid When Paying Off Debt
It’s difficult to escape out from a mountain of debt. And as you search for solutions, the answers all look the same: you’ll have to cut back on your spending and face debt head-on.
When starting to pay down your debt, it's common to run into obstacles along the way. The following are the most common mistakes that you'll need to avoid as you work on reaching financial freedom. And by avoiding these common mistakes, you won’t feel trapped or make the repayment process more painful than needed.
1. Ignoring Debt Consolidation Options
If you have multiple debts, it can be very difficult to keep up with all your due dates. It’s extremely easy to miss a payment if you’re juggling several each month.
Debt consolidation is the solution to this frustrating problem. You can roll multiple debts into a single personal loan to combine the number of payments you have to make each month. Of course, debt consolidation only makes sense if you are able to secure a lower APR or interest rate on your loans.
If debt consolidation feels like a good option for you, take a minute and simplify your repayment process today.
2. Not Using Balance Transfer Opportunities
If you have high-interest credit card debt that is snowballing out of control, using a balance transfer is a lifesaver. Many cards offer attractive introductory balance transfer offers that allow you to have no or low-interest rates for a few months. You can use that time to aggressively tackle your balance before it starts to grow again.
It doesn’t hurt to take advantage of a lower interest period if you can find a card that works for your situation.
3. Forgetting To Budget
Careful budgeting is absolutely essential to paying off your debt. If you aren’t sure where your money is going, pause and take a step back to better understand your monthly expenses.
If your goal is to pay down debt, effective budgeting is the system that will get you there. Don’t ever underestimate the power of a carefully managed budget!
4. Not Factoring In Your Interest Rates
The interest rates on your debts will decide the total amount you will pay over time. The higher the interest rate, the more expensive the loan.
With that in mind, it is very important to consider interest rates when you create a debt payoff strategy. According to the “avalanche” method, it makes sense to pay off the loans with the highest interest rates first. That way you can maximize your dollars to pay off all of your debt in the shortest amount of time.
5. Shopping Without A Reason
Deciding to go to the grocery store or Target without a list is dangerous. You’ll end up with a cart full of items that you might not need. Instead, check your pantry and recipe book against a prepared grocery list before you go out to cut any unnecessary expenses.
Likewise, don’t head to the mall without having a specific item or reason in mind. It’s ok to shop for what you need, but make sure you also keep those specific things in mind as you leave the house.
6. Sacrificing Too Much
You may want to drop your debt like a hot potato. Unfortunately, it doesn’t work like that. It will take time and sacrifices to pay down your debt.
It is tempting to give up everything fun to pay off debt. However, this is similar to a "crash diet" for your wallet. As with most crash diets, it might not show success in the long run because it’s very difficult to maintain. Throughout your debt payoff journey, you will have to give things up. But you shouldn’t give up the little things that make your life worth living. Everyone needs balance!
When has a crash diet worked? Don’t repeat this mistake with your finances.
7. Pretending Things Can Stay 'Normal'
On the opposite side of the spectrum, you can’t continue as if nothing is wrong and changes don't need to happen. If you have thousands of dollars in debt to repay, you’ll need to make some adjustments to your life.
It will need living within your means, which may include downsizing and regularly monitoring your credit utilization ratio. It’s no longer about what looks good or what’s most comfortable. Rather, it’s about how you can make responsible financial choices.
You’ll need to find a balance between sacrifices and normalcy. It might take a few months before you’re comfortable with the budgeting changes you’ll be forced to make. But remember, with the right plan to repay your debt, you won’t have to do this forever. Just keep marching up to the finish line.
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