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Making mistakes and falling into pitfalls while paying off debt can seem like a frying pan to fire situation. Considering the psychological impacts debt exerts on people, the last thing you really want to do is find yourself taking some missteps rather than advancing towards financial freedom.
But unfortunately, the hard truth remains that people still fall for some common missteps even while fighting a monster as great as debt. So how do we drag ourselves out of debt without making the same mistakes millions of people have made, are making, and will make?
Achieving financial freedom is not a one-night miracle, and so, it is near impossible attempting to get out of debt overnight. Most of us, who are sick and tired of the pressure from our creditors, want to get out of our debt burden overnight, but we forget that it is a long and slow process, which means you have to wait, take a breath, find solutions, and put in the effort.
With that said, here are some fundamental debt mistakes you need to try to avoid on your path to financial independence.
No plan for freedom
Do you just wake up in the morning and say to yourself: today I am getting out of debt? Or maybe your motivation came as a result of the incessant calls and letters you've been getting from the bailiffs? Either way, financial liberty is always a result of financial planning.
So, irrespective of what your motivation to get out of debt is, the first and important step is to sit yourself down and make some plans. Budgeting plans, debt management strategies, checking out IVA companies, hacks on expenses, and alternative sources of income to mention but a few, are some of the plans you have to make.
As mentioned earlier, financial freedom doesn't come as a miracle; it is always as a result of planning and efforts. Many people get this wrong by assuming that they naturally have what it takes to clear off their debts.
Trust me; if you did, you wouldn't have borrowed or used your credit cards in the first place. If you find yourself wallowing in debt, chances are your sources of income weren't enough to outweigh your emergencies, special contingencies, and overspending.
So you should try not to rely on your willpower alone; instead, make plans and find out about debt management solutions. Trust me; you may find it hard getting out of debt if you don't.
Not changing spending habits
In truth, it can be pretty hard adjusting one's spending habits, especially when it means spending less, considering how addicted we've become to a certain lifestyle. However, one of the biggest mistakes people make when paying off debt is that they still try as much as they can to stick with the lifestyle they are used to.
Indeed, being in debt doesn't necessarily mean that you have to put your whole life on hold, but if it means cutting back on some regular things, then, it is worth it. For the short of a period of time when you are fighting the debt monster, you should try to cut back on your expenses and channel the resulting funds into debt payment.
If you've been making minimum payments before, this will raise the bar; if you've been defaulting on payments before, this will set things straight. By and large, adjusting your lifestyle could be the best thing to do when you are confronted with a debt burden.
Paying off multiple debts
There is nothing more damaging than an attempt to settle multiple sources of debt – credit cards, mortgages, auto loans, personal loans, etc. If you've been doing this for long, we implore you to reconsider. Although fulfilling your immediate debt obligation might seem like the only option you've got, but trust me, there are so many options out there.
The fact that you are channelling all your funds into these debt payments means that you are not taking advantage of some debt opportunities that can save you thousands of dollars.
Instead of paying those debts with hefty interests, why not try consolidating them into a singular balance transfer card, personal loan, or cash-out refinance? If anything at all, this strategy will drastically reduce your monthly interest rates.
Attempting to do it alone
Perhaps this is the biggest mistake of them all. Unfortunately, it is one almost everybody falls for. Some people don't like sharing your debt stories because they find it embarrassing, while some others simply think nobody cares. Far from it! Being in debt isn't like any regular life challenge, and so, you shouldn't attempt doing it alone.
Once you discover that you are struggling to fulfil your monthly obligations, do not hesitate to reach out to your creditors or visit a debt counsellor. The chances are that the former may have some alternative payment solutions for you, while the latter will definitely advise you on how to lessen your burden comfortably.
Are You Fighting The Debt Monster? Common Mistakes To Avoid