The journey to a debt-free life is a long and difficult one. There are so many decisions that you need to make. Which debt should I pay off first? Which expenses should I cut back on and which ones should I remove completely? Add to that the immense pressure of paying debt while still having to meet everyday payments, and you can see why it is too much for some people.
Having said that, being debt-free can be more than just a pipe dream. If you are dedicated and avoid these common mistakes, there is no doubt that you can eliminate your debt.
Not Having A Budget Plan
It is practically impossible to pay off debt without a budget plan to curb bad spending habits.
A budget plan can be the difference between paying off your debt in 5 years or 20. You will be aware of how much money is going to which expenses, and thus how much you can afford on debt repayment that month. Smart budgeting will allow you to go on the occasional night out or road trip without having to plunge yourself deeper into debt.
Doing It Alone
People are often reluctant to talk about their debts to others. This mostly is because they are ashamed and do not want the pity of others.
However, eliminating debt is much easier if you are not alone. Try asking your family members and friends for help. Even simply talking to them about it can help reduce the stress you are feeling. If you are in a committed relationship where your spouse contributes to both the debt and budget, strategizing and budgeting with your partner will make it much easier to follow up.
You can also contact nonprofit credit counseling agencies to get help for free. These licensed experts can give you advice and solutions to help relieve your debt situation.
Paying Multiple Debts At Once
A lot of people try to tackle every debt each month. This is a terrible idea as there are no advantages to paying off multiple debts at once. Instead, you are likely to get discouraged at how slowly your debts are decreasing.
The best way to eliminate multiple debts is to focus on one at a time. Choose a debt with the highest interest rate and pay all your extra money on that one. Once that debt is paid off you will get a boost of confidence to pay off all remaining debts.
Closing Paid Accounts
It may be tempting to close your account and cutting up your credit card after paying it off. That is what most people do anyway right?
Don’t do it!
Your credit score is determined by your credit utilization rate and length of credit history, so closing paid accounts will negatively affect your credit score. Instead, keep your card in a safe place and only use it occasionally to prevent your issuer from closing it.
Continuing To Use Credit
If you want to be debt-free as soon as possible, then by all means do not use your credit cards! A lot of people keep on using their credit cards and attempt to simultaneously pay off both their debts and any new charges. This is not as easy as it sounds. To eliminate debt you should stop adding to it.
If the urge to use your credit card is too much, keep it somewhere where you can’t use it easily like a safe. You can also give it to someone you trust to hold on to so that you don’t get tempted to use it.
Not Using Automation
There are times when you may forget to pay your monthly payments. There are other times when you may impulsively use your extra money to buy things you don’t need.
This is where automation comes in. Use automated debt payments whenever possible. This means that your bank will automatically take some money from your account every month so that you won’t ever miss a payment.
Not Setting Aside Emergency Savings
Paying off debts is a difficult thing to do. More so if a surprise expense suddenly comes and you are not prepared. Things such as unemployment, car repairs, and health expenses are impossible to predict. That is why you should always have an emergency fund on hand. Having extra money in the bank can go a long way in making sure surprise expenses don’t interfere with your debt-repayment journey.
Achieving a debt-free life is certainly complicated. Getting into debt cannot happen overnight and so getting out of it will take some time too. However, if you consistently practice smart financial behavior and also avoid these common mistakes, there is no doubt that a debt-free life is waiting at the end of the road.