Dealing with debt is one of the most significant financial challenges individuals face. Desiring to rapidly eliminate debt reveals a positive mindset. Nevertheless, it’s crucial not to fall into the trap of certain costly blunders while clearing your debt. Certain mistakes can actually inhibit you from attaining a debt-free status and result in financial losses. Here, we outline five typical errors to steer clear of.
1. LACK OF A CONCRETE PLAN AND SET TIMELINE
Upon initiating the process of debt repayment, a well-structured plan is essential. It helps maintain focus and motivation towards achieving your objective, and also provides a way to measure progress. Analyze your current scenario, considering factors like your debt amount, monthly income, and needs, and wants. Will you opt for debt consolidation or refinancing? Within what timeframe can all your debts be realistically settled? These critical questions will assist in formulating an effective strategy, such as aggressively paying off the debt or taking a slower yet steady approach.
2. PRIORITIZING INCORRECT DEBT FOR REPAYMENT
Having a sound plan is equally as important as ensuring you are not settling the wrong debt initially. Whichever method you choose – the snowball method, the avalanche method, or a combination – ensure it’s done strategically to maximize progress over time. For instance, if you wish to save on interest, you might want to prioritize paying off high-interest debts like credit card loans before student loans.
3. OVERLOOKING THE IMPORTANCE OF ADVANCED PAYMENT EACH MONTH
Making debt payments should be a priority, but if it continuously falls at the end of your monthly to-do list, you might be making a grave error. Making advanced payments right after receiving your income is wise, even if the minimum requirement isn’t due till later in the month. Budgeting for surplus debt payments and setting up automatic transactions can ensure consistent adherence to this strategy.
4. CONTINUING TO INCUR FURTHER DEBTS
Are you actively repaying debt while still procuring loans or mishandling credit cards? If so, your progress may be negligible. When focusing on debt repayment, it’s advisable to limit credit card usage and abstain from further loans. Using credit cards to cover monthly essentials and paying off the entire balance each month is permissible, yet overall utilization should be minimized.
5. LACK OF A CONVINCING REASON
Clearing debt can be a prolonged process, demanding extensive dedication and inevitable sacrifices. Hence, it’s common to experience a dip in motivation midway. Knowing your ‘why’ and firmly believing in it will give you the needed boost during challenging times. Consider why debt repayment is significant to you, its impact on your life and finances, and the beneficiaries. Surrounding yourself with like-minded individuals can also aid in maintaining motivation.
We’d like to know, have you ever made any of these errors while resolving your debt? How did you manage to bounce back?
