Five Common Mistakes People Make When Paying Off Debt
Paying off your debt is not an easy decision. It can be life-changing. Not to mention, it requires sheer commitment. What you need to know is that it’s a lot more than just paying back the money.
It also involves changing several daily life habits. Yes, without that, you may make a number of mistakes along the way. Here I’m going to highlight a few common mistakes people make when paying off debt so that you know what to do and what not to do:
One of the worst mistakes people make is walking all alone when paying off debt. Many people are reluctant to ask their friends and family when paying off debt, which is okay. But what about a debt repaying plan?
If you pay off your debt without a debt repayment plan or proper strategy, things are going to get worse. Thus, you must speak to a credit counselor for a debt-relief solution. They will suggest a debt settlement or a debt management plan as per your situation and time.
Using all the Eggs in the Basket
People with multiple debts make this mistake the most. They try to pay all of their debts at once, spend all their savings, get into the mud, and miserably fail. If that’s the case with you, you need to be careful about it.
Putting all your eggs in one basket is, of course, not a wise act. Hence, planning is imperative. I suggest you follow the debt snowball method here. Hit the smallest debt first and once you get done with it, gradually move towards the next one. Such strategies keep you motivated in the process.
Not Having a Budget
If you don’t change your old spending habits, you’re in some serious trouble. Thus, it’s a must that you change your old spending habits and create a budget for the future. Having a budget will seamlessly put things in order for you.
It’s easier than you imagine. You can calculate your earnings, set aside a few bucks for the necessities, add a little amount to your savings account, and direct the rest towards your debt repayments. Also, sticking to the budget is essential here, or else, the entire strategy would fail.
The best practice is to keep a journal of your budget plan. Keep all receipts and list down all the expenses you have in a week. Check how much you spend on food and other basic necessities. Next, include the amount you spend on dining out and shopping.
You might not notice that you’re spending too much on ‘wants,’ or things you simply like doing but aren’t necessary. If you want to stay away from lifetime debt, temporarily stay away from splurging on shopping and eating in restaurants, among other luxuries you can live without. Use the money you save to set a budget to pay your debts. You can treat yourself once in a while once your debts are manageable.
Not Having Emergency Savings
Many people forget about their rainy days when paying off their debts and it becomes the biggest mistake of their lives. Setting some money aside as an emergency fund is crucial as you never know what life has in store for you. Therefore, you must always be prepared.
As per many surveys, half of the people in the US. have minimal to no money for emergencies or unexpected expenses. In order to avoid such desperate situations, you need to have a considerable amount of money in your savings account. It will shelter you on your rainy days.
Don’t procrastinate. If you don’t have one yet, set up an emergency savings fund right now. You can talk to a bank representative to check out an ideal saving scheme option for you so you can’t touch your savings unless it’s for emergency purposes. Otherwise, you won’t be ready for another crisis and might end up in bankruptcy when one arises.
Declaring Bankruptcy Too Soon
It’s indeed correct that bankruptcy gives you a fresh start, but it’s only an option for those who are drowned in debt, not for others. Before you declare bankruptcy, you must ensure that you’ve explored all your options.
Declaring bankruptcy may give you a new start but it brings along challenges of its own. Yes, you may not be able to get another loan from a bank anytime soon. The bank may not agree to provide you with a car on lease. Similarly, opening an account or getting a credit card would be hard.
Seek the help of a lawyer before declaring bankruptcy. That way, you’ll determine the best legal options and other vital aspects of this process. A bankruptcy lawyer with years of experience handling similar cases as yours ensures all paperwork contains accurate information and meets the stipulated deadlines.
While filing for bankruptcy in a financial setback is a great way to manage debt, you must develop a good plan to deal with debt. Hiring a Florida bankruptcy attorney or one in your area can help you with this goal. In that way, you can rebuild your finances.
Your journey of paying off debt is going to be a bumpy ride. Yes, you’ll have to make a lot of painful decisions. You may have to miss all those events you badly wanted to attend. You may have to cancel a few night-outs with your friend. However, please know that it’s all going to be worth it in the end. I wish you good luck!