Learn how to get out of debt and how to avoid the mistakes that could torpedo your effort.
It’s so easy to acquire things on credit. We see something that we want, and we buy it. People usually buy things with the best of intentions to pay them off as quickly as possible. However, even with the best of intentions, the debts accumulate and eventually they become overwhelming.
If you’ve been attempting to go debt free, but aren’t making much progress, you might be plummeting into a few of these common pitfalls. If you can avoid these pitfalls you will be on the right track to becoming debt free and enjoying financial freedom.
Same old spending habits
We are creatures of habits and spending money is no exception. If you won’t change your spending habits, you won’t ever get out of debt. Start with your morning habits – have your coffee and breakfast at home. Pack lunch from home. Call your friends home, instead of going out. You will see an immediate impact on your daily spending habits. You don’t have to do without, you just have to make better choices with what you do.
Continuing to accumulate debt
When you get serious about paying off debt, you need to go cold turkey on your credit cards and avoid financing anything or taking out any loans. By continuing to accumulate different types of debt while making monthly payments on your existing debt, you are ultimately canceling out any progress you make and preventing yourself from moving forward. Make sure you aren’t incurring any more debt while you are repaying student loan debt.
Not having an emergency fund
In an attempt to put as much money as possible towards your debt, you may be inclined to forego having an emergency fund. This decision could hurt you. An emergency of some kind – a medical expense – may occur while you are paying off your debt. If you’re not prepared, you may end up going deeper into debt. Avoid this mistake by maintaining a small cash cushion while you are paying down your debt.
Paying off the wrong debt first
You need to make sure you aren’t paying off the wrong debt first. For example, if you have $8,000 in a high-interest credit card debt and $20,000 in student loan debt, and you want to save money on interest, you should choose to start paying off your high interest debt first, which is the credit card debt, even though it’s the lowest balance.
Since your student loan probably won’t accrue nearly as much interest as the credit card debt will over time, it makes sense to knock that out first before you tackle your loans if you are interested in minimizing interest payments.
Taking the minimalist approach
Whenever people receive their credit card statement in the mail, they typically prefer to pay the minimum monthly payment believing that it’s the best approach to paying off the debt. When you only pay the minimum payment, you will wind up paying a fortune in interest over time and it will take you years to pay off the debt. If you really want to pay the debt down, it’s imperative that you pay as much as possible toward your credit card debt every month.
You can pay off your debt and get out from under the financial stress that you are experiencing. You just need dedication, determination, and a little bit of time. Paying off debt enables you to finally have control of your life and your financial situation. Avoiding these common pitfalls should have you on the right track to becoming debt free and financially stable.