This contributed post is for informational purposes only. Please consult a business, financial and legal professional before making any decisions. We may earn money or products from the affiliate links in this post.
The decision to get yourself out of debt can be a life changer, but only if you’re willing to put the necessary work in. Contrary to popular belief, freeing yourself from debt is much more complicated than simply paying off your credit cards. You also need to completely change your spending habits and make a commitment to be smarter with your finances. There are a lot of mistakes to be made along the way, but with the advice below, you should be able to avoid them.
Starting To Pay Without A Plan
Once you’ve made the decision to improve your financial health, you’re going to want to start right away, but this could cause some big problems. Before you dive in head first, you need to make a list of all of your debts, the minimum payments, and the interest rates, and prioritize them. From there, you can write out some realistic goals that you want to meet and when.
Sticking To The Same Spending Habits
Whether you want to admit it or not, your spending habits are likely what got you into debt in the first place, which is why you need to start making changes. You should shop around and look for discounts on everything you buy, from food to dining room furniture. You also need to take a look at your monthly expenses and cut out a few of the unnecessary ones, like coffees before work.
Forgetting To Make Payments Each Month
When you’re trying to pay off your debts, there are few things worse than accidentally missing a payment. Unless you can convince your lender to let you off, you’ll likely face late-payment fees or charges, which will only increase your debt. For this reason, you should start automating all of your bill payments. This way, everything will pay itself, and you won’t have to remember a thing.
Closing Accounts When They’re Paid Off
Once you’ve paid off a debt, you’ll probably consider closing the account so that you’re not tempted to borrow any more money in the future. While this is a sensible idea, it can damage your credit score, as the scoring system relies on how much credit you have available, as well as how much you owe. For this reason, you should leave your account open, but not use it.
Not Building Up An Emergency Fund
It’s impossible to predict when things might go wrong in your life. From car accidents to job loss, there are a number of situations where you might need to cash relatively quickly. Rather than borrowing money and putting yourself in more debt, you should make sure you have an emergency fund set up. Ideally, this should cover all of your expenses for at least six months.
Trying To Do It All Alone
Debt is often viewed as an uncomfortable and embarrassing subject, which is why most people won’t speak up and ask for help when they’re struggling financially. Instead of trying to get out of debt alone, you need to have courage and let someone know that you’re in trouble. There are lots of people out there who can offer help and advice, from family to credit counseling agencies.
If you’re trying to free yourself from debt, make sure you avoid making the common mistakes listed above.