7 Biggest Mistakes People Make When Paying Off Debt
The decision paying off your debt is a life changer but requires commitment. You need to learn how to get out of debt and how to avoid the mistakes that could ruin the whole thing.
Getting out of debt is more than just paying off a few credit cards and loans. It basically means changing your spending habits; learning about budget, prioritizing your debts; creating retirement funds; and knowing where to seek help when you get off track.
What this means is, you need to make a lot of decisions. Otherwise, you’ll make mistakes along the way. Below are some of the mistakes you can avoid that will make it easier to get out of debt:
- Using Same Old Spending Habits
Many people shop at the same stores, drive the same cars, and eat at the same restaurants. This is basically because it’s comfortable. However, you need to remember that It’s also costing you more than you can handle financially.
The truth is , if you don’t change your spending habits, you won’t get out of that debt.
This is what you can do: Try starting with your daily morning habits. Save money by having your coffee and breakfast at home. In the evenings, try to eat a home-cooked meal as much as possible. You will see how much this will make an impact on your daily spending habits.
- Signing up for debt-relief programs without understanding expectations
Debt problems have no quick-fix solutions. If you are promised quick-fix solutions, start looking elsewhere.
This is what you can do: Firstly, make sure you understand that debt relief programs typically take 3-5 years, so you need to be patient. Secondly, do research on the debt relief company you choose. Use Credit unions, sources for debt relief companies’ recommendations. Check and be sure that the debt relief organization you choose is licensed and has no record of customer complaints.
- Not creating a practical budget
It is never easy, if not impossible to be in control of your finances unless you create a practical budget. Many people think this is too much work until they get into high amounts of debt and start wondering how that happened!
This is what you can do: Start developing a realistic and practical budget to address financial needs like housing, car, medical aid, insurance, education etc, and still have room to make payments on debt. Try to put away credit cards and start paying cash. That can also mean reducing things like eating out, some entertainment, new clothes shopping, cars or electronics. If you’re serious about eliminating debt, following a budget and paying cash is a great way to start.
- Closing accounts when they are paid off
This is what you can do: Simply pay off the account, but don’t close it. Remember that credit scoring systems do not only rely on how much money you owe but also on how much credit you have available. Having credit available, but not using it, improve your score.
- Not setting emergency savings aside
Predicting unemployment and accidents is impossible. This is the reason why every home needs an emergency fund. Financial Experts say put three to six months of expenses aside for emergencies. This might take a while you’re focused on paying off debt but remember that it must be part of your monthly budget. Save at least 5% of your income in an emergency fund.
- Not correctly verifying your credit report
Checking your credit report for mistakes is an important step you can take to reduce your debt.
This is what you can do: Everyone is allowed a free credit report from each of the major credit reporting bureaus. Just make sure you split them up, one every four months. Check them for incorrect balances that can hurt your credit score and make a difference in your ability to buy a car, house or obtaining more credit.Check also 5 Reasons Why You Need a Credit Score
- Not prioritizing your debt
We all know that everyone has bills and most everyone wants to get out of debt. But, getting out of debt is not a priority for some people. Therefore, If you really want to get out of debt, make it a priority.
This is what you can do: The best solution could be consolidating your debts and making just one payment every month. To make sure you’re focused, you can take a piece of paper and write down the four debts you want to get rid of. You can maybe tape that piece of paper to your credit card. Every time you reach for that credit card, the piece of paper will remind you that you’re adding, not subtracting to your debt problems.
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