Dealing with debt is one of the biggest financial hurdles people face. Wanting to quickly eliminate it is a good sign, but it’s important to avoid some costly mistakes that can set you back. Here are five common errors to watch out for.
1. NOT HAVING A CLEAR PLAN AND TIMELINE
When you start paying off debt, having a solid plan is crucial. It keeps you focused and motivated, and lets you track your progress. Look at your situation – how much you owe, your monthly income, and your needs versus wants. Will you consolidate or refinance your debt? How quickly can you realistically pay everything off? Answering these questions helps create an effective strategy, whether that means paying off debt aggressively or at a steady pace.
2. PAYING OFF THE WRONG DEBT FIRST
Having a good plan is just as important as making sure you’re paying off the right debt first. Whether you use the snowball method, the avalanche method, or a mix, do it strategically to maximize your progress. For example, if you want to save on interest, pay off high-interest debts like credit cards before student loans.
3. IGNORING THE BENEFITS OF MAKING EXTRA PAYMENTS
Paying your debts should be a priority, not an afterthought at the end of the month. It’s smart to make payments right after you get paid, even if the minimum isn’t due yet. Budgeting for extra debt payments and setting up automatic payments can help you stick to this plan consistently.
4. TAKING ON NEW DEBTS WHILE REPAYING OLD ONES
If you’re repaying debt but still taking out loans or misusing credit cards, your progress will be slow. When focusing on debt repayment, try to limit credit card use and avoid new loans. If you need to cover monthly expenses with credit cards, make sure to pay off the full balance each month, but overall, use them sparingly.
5. NOT HAVING A STRONG REASON
Paying off debt can take time and require a lot of dedication and sacrifices, so it’s easy to lose motivation. Knowing your reason for paying off debt can keep you going during tough times. Think about why clearing debt matters to you, how it will impact your life and finances, and who will benefit. Being around like-minded people can also help you stay motivated.
Have you ever made any of these mistakes while paying off debt? How did you get back on track?