Getting rid of debt can be one of the hardest financial challenges we face. The amount we owe can grow beyond a healthy limit in the blink of an eye, yet it doesn’t disappear as quickly.
It doesn’t matter if it’s a credit card, an auto loan, a student loan or another type of debt, balances don’t go away overnight—and you shouldn’t expect quick results. There will be roadblocks and discouragement, and you may make a few mistakes on this journey. The good news is that you can avoid common mistakes.
Here are six mistakes to avoid while paying off your debt.
Never Adjusting Your Lifestyle Expenses
If you want to pay off debt, making higher monthly payments is a no-brainer. But you shouldn’t settle on just doubling or tripling your minimum payments. You should also make adjustments to your lifestyle and reduce spending in some areas so that you can drop lump sums on your debt every month. Some people are quick to say they can’t afford larger payments, yet they’re spending hundreds every month on stuff they don’t need.
Refusing to adjust your spending habits extends the time it takes to pay off debt. Cutting lifestyle expenses can be hard, but it’s a sacrifice you won’t regret. If you can cut $100 from your entertainment budget a month, and then add this amount to what you’re already paying toward debt, that’s an extra $100 that goes toward eliminating the balance on a credit card.
Spending Free Money Instead of Paying Down Debt
If you have debt hanging over your head, think of free money as a gift from heaven. It doesn’t matter if it’s a work bonus, an unexpected tax refund or a gift from a relative, don’t blow all the money on fun.
There isn’t anything wrong with spending a little on yourself. But rather than enjoy the gratification of a new pair of shoes or clothes, consider the big picture and use free money as an opportunity to jumpstart your debt payoff efforts. Putting a serious dent in your balance can motivate you to keep working toward your goal. Free money doesn’t fall in your lap every day, so make the most of it.
Forgetting to Come Up with a Plan
There are many debt reduction methods, so it’s important to research and find a strategy that works for you. For example, there’s the snowball method where you concentrate on paying off one debt at a time, maybe the debt with the lowest balance or the one with the highest interest rate. Or there’s an option of transferring all your balances to a zero percent or a low-rate credit card.
Never Identifying a Reason for Paying Off Debt
Another mistake is never establishing a reason for paying off debt. If you know “why” you’re sacrificing and working hard to eliminate balances, it might be easier to stay on track. Maybe you want to purchase a house in the next two or three years and you know paying off debt will improve your credit score and increase purchasing power. Or maybe you’re tired of losing sleep over your financial health and worrying about creditors. Any reason is a good reason to pay off debt, but it’s important to identify your driving force.
Adding New Debt
Adding new debt isn’t going to get you anywhere. Understandably, life happens, and you might have to pull out a credit card. If this happens, just make sure you pay off any new debt within a month, or else you’ll be spinning your wheels and getting nowhere. You need to take an out of sight, out of mind approach with credit cards. You don’t have to cancel your account, but you should make the cards as inaccessible as possible. Cut your cards in half or put them through a card shredder. Additionally, stop saving your credit card information on retail sites, which makes it too easy to shop online.
Ignoring Your Savings Account
Since your money only stretches so far, it might be hard to pay off debt and save an emergency fund simultaneously. But even if you can’t sock away 10% of your income while focusing on debt elimination, don’t completely ignore your savings account and save what you can. A small deposit every paycheck is better than nothing. If you don’t save for a rainy day, it’ll only take one emergency to put you back into debt.
Even if it takes weeks, months or years to pay off debt—don’t give up. There is no better feeling than living life without unnecessary debt hanging over your head.
What mistakes did you make while paying off debt?