Getting out of debt can be a life-changing experience, but for millions of Americans it is not easy. Not only does economic fragility make it hard but they also need to deal with the self-inflicted mistakes that keep them in debt. Do not let this happen to you, instead learn the eight mistakes that you in debt and how to avoid them.
Mistake 1: Not Changing Your Spending Habits
Think about it, you cannot get out of debt if you do not change your spending habits. This could be wasting money on a gym membership you never you or signing up for Netflix, Hulu, and Amazon Prime and never using any of these services.
It is your spending which got you into debt. Even if it was a healthcare bill, or something else which knocked you off your feet, not having enough money in savings for an emergency is related to your spending habits. As such, if you want to get out of debt, you need to stop spending money – at least as freely as you currently do.
Granted, changing your spending habits is not an easy task. But if you want to get out of debt and on a path toward being financially independent, then you need to cut back on your discretionary spending today.
Mistake 2: Trying to Go It Alone
Getting out of debt is not easy and sometimes you might need a shoulder to lean on. Keep in mind the support is not always financial. Instead, the support that can help is someone who can coach you through the process of planning and budgeting your money as well as how to review you plan to make sure it is working.
If you do not have a family member or friend that you can reach out to, then you might want to consider talking to a credit counselor. Organizations such as the National Foundation for Credit Counseling offer free help and their counselors are trained and certified. They can help to suggest solutions which can get you out of debt including debt management, consolidation, settlement, and when to decide if bankruptcy is right for you.
Mistake 3: Expecting Debt-Relief to Work Miracles
While debt-relief programs can help when you are trying to get out of debt, these programs cannot work miracles. This is important to remember as many people start sign up for these programs thinking that their problems will be solved. Sadly, there is no miracle solution when it comes to getting out of debt.
Mistake 4: Not Making a Budget
If you do not have a budget, then how can you control your spending? The answer is that you cannot. Getting out of debt requires having a plan and working towards that plan. This means setting up a monthly budget and checking your expenses to make sure they are in line with your expectations. According to Qapital, one of the keys to getting out of debt is to “cut unnecessary spending and live below your means” and the best way to do this is to have a budget and use it as a guide to monitor your progress.
Mistake 5: Trying to Pay Off Everything at Once
Rome was not built in a day and while the enthusiasm to pay off your debt is commendable; the reality is that you cannot pay off everything at once. A better approach is to prioritize your debts and then plan to pay them off incrementally and in a way that you can afford.
Doing so will not only give you a sense of accomplishment as your balances begin to fall but it will get you to your goal faster. Remember getting out of debt is a marathon and not a sprint, so do not try pay off everything at once.
Mistake 6: Closing Accounts
While using the accounts without controls is the reason why you got into debt, you do not want to close all your accounts when you pay off the balances. Instead, you want to be tactical by keeping some of your accounts open to make sure you have credit available when you need it.
Mistake 7: Not Contributing to Your Retirement Account
The rules allow you to make pre-tax contributions to these accounts, so why are you not taking advantage of this? If you are living in debt, you might not be able to make the maximum contribution but do want to put as much money as you can afford to toward your retirement. Think of this as an investment in yourself.
Mistake 8: Not Having a Rainy-Day Fund
While you want to pay of your debts as fast as possible, you also need to make sure that you are setting aside funds for an emergency. If you do not, then you risk getting back into debt when something bad happens. As such, you want to put money into a savings account every week. This could be as little as $10, but over time, this can add up.
