Mistakes to Avoid When Paying Off Debt

Mistakes to Avoid When Paying Off Debt

Written by Caitlin Wood
Last Updated November 30, 2021

It’s so easy to acquire things on credit or with loans. We discover something we want, and we buy it. People usually buy things with the best of intentions to pay them off as quickly as possible. Nevertheless, frequently even with the best of intentions the debts accumulate and eventually they become insurmountable.

If you’ve been attempting to get debt free, but aren’t making a dent in the mountain of doom, you might be plummeting into a few of these common pitfalls. Debt might be really easy to fall into, but it’s a lot more challenging to emerge from. If you can avoid these pitfalls you will be on the right track to becoming debt free and enjoying financial freedom.

Not Circling the Wagons

If you attempt to repay debt without any strategy outlining how you’re planning to do it, you will eventually pay it off. However, it’s going to take you considerably longer than it would have otherwise, and you will encounter far more hindrances in the process. Having an approach will keep you organized and on track toward your goal of becoming debt free.

It’s imperative that you understand what your plan is, and how you want to make it happen. Once you’ve planned it out in your mind, write it down on a sheet of paper. It’s one thing to ponder over it, but it’s another to actually go through the process of writing it down.

A thought can easily be forgotten. But once you write your goals and intentions on a piece of paper they become more real and more tangible. They are something you can feel, touch, and see. Put the piece of paper somewhere where you will see it every day to keep your plan fresh in your mind.

Not Zeroing In on Spending

In order to get rid of debt you need to get your spending habits under control. Otherwise, you will wind up in even more debt. You can’t spend so much money that you’re living beyond your means and still have enough money to pay down your debts promptly. Setting up a budget enables you to manage your spending patterns.

When creating your monthly budget, be careful to ensure that the budget is realistic. If you make it too rigid you won’t adhere to it and will find yourself caving in and binge spending. Additionally, you don’t want to make it so strict with your bill payments that you wind up being forced to use credit to pay for necessities like groceries. The idea is to get out of debt, not to create more.

Not Stopping the Debt Cycle

When you want to get rid of debt it’s essential to stop accumulating debt. That means you need to quit utilizing your credit cards or making any purchases through credit or loans. In the same regard, don’t use one credit card to repay another one, or use a credit card to pay off another debt. Using debt to pay debt merely increases your debt and the interest, and doesn’t do anything toward reducing your debt load. It’s best to keep your credit card tucked away for emergency use only.

Declaring a False State of Emergency

If you have an emergency fund, paying off your debts is not the time to use it. Your emergency fund is money reserved for household emergencies that occur in your life, and paying down debts is not an emergency. Emergencies happen, cars break down, furnaces stop working, and roofs leak.

You don’t want to deplete your emergency fund to pay off your debts only to wind up in a real crisis in the future with no cash to cover it. The last thing you want to have to do when you finally get out of debt is to have to use credit to cover life’s little mishaps and find yourself right back in debt again.

Getting Their Priorities Out of Sync

Occasionally people will endeavour to pay back their smallest debts first, working from smallest to largest. However, while they are doing that the debts with higher interest rates continue to climb. Paying off the debts with the highest interest rates first such as credit card debts and giving them your complete attention can help you get out of debt much more quickly.

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.

Turning a Blind Eye

Once the debt starts mounting up, as the statements come in every month it becomes much easier to leave the envelopes unopened than it is to watch the debt escalating on a monthly basis. However, seeing the actual numbers provides you with a better concept of the bigger picture.

Additionally, companies sometimes make mistakes. If you don’t review your statements and there are errors you won’t know. Should you come across an error, let the creditor know immediately. It’s equally important to examine your credit report every three months to look for inaccuracies.

Getting Caught in a Trap

Although working with a debt consolidation company sounds tempting, they typically aren’t worth the effort. Frequently, they are scams that take your money and run, leaving you with the same amount of debt and a lot less money. Other times, these companies will wind up costing you more than your original debt, and using them will ruin your credit rating anyway. Often, it’s preferable to work directly with the creditor as opposed to using a debt consolidation company.

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.

Rating of 5/5 based on 2 votes.

Caitlin is a graduate of Dawson College and Concordia University and has been working in the personal finance industry for over eight years. She believes that education and knowledge are the two most important factors in the creation of healthy financial habits. She also believes that openly discussing money and credit, and the responsibilities that come with them can lead to better decisions and a greater sense of financial security. One of the main ways she’s built good financial habits is by budgeting and tracking her spending through the YNAB budgeting app. She also automates her savings so she never forgets to put aside a portion of her income into her TFSA. She believes investing and passive income is key to earning financial freedom. She also uses her Aeroplan TD credit card to collect Aeroplan points so that she can save money when she travels.

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