Paying off debt can be challenging. Worse yet, high-interest debt may feel like an insurmountable mountain. There are ways to achieve debt freedom, but there are 11 pitfalls you must avoid.
Not Having a Plan
Getting into debt doesn’t occur overnight. A plan is often necessary to attack the indebtedness. Write down all of your obligations, interest rates on each, and due dates.
Consult your budget and identify what you can afford to pay over the minimum payments. Doing this will ensure success.
Not Changing Your Spending Habits
In many cases it’s overspending that leads to consumer debt. If you want to achieve freedom, changing those habits are needed.
Track your spending for a month and identify what purchases brought you minimal value. Then, cut the expense. Doing this instantly allows you to begin to break the cycle.
Not Transferring Your Balance to a Better Credit Card
Credit cards are notorious for high interest rates. The average rate is over 20 percent. However, you may be able to use a balance transfer credit card to lower that rate.
Many balance transfer credit cards offer a zero percent rate for up to 18 months. This lets you focus solely on the principal. If you can pay it off within the given introductory period you can save loads in interest.
Not Saving Money
Paying off debt means you shouldn’t grow your savings, right? Wrong! A majority of Americans don’t have enough funds to cover an emergency.
Even if it’s in small amounts, continue to save money each month. This will help you in the long run to avoid putting an expense on your credit card.
Borrowing From Your 401(k)
When you want debt freedom and have money in your retirement account, it’s tempting to use it to apply to your debt. Don’t do it.
You will likely incur a significant tax hit. You may also sacrifice matching funds from your employer. That’s not to mention hindering your retirement savings.
Doing it Alone
High-interest debt is isolating. It’s also a very emotional experience. Don’t go it alone. Use available resources to help you along the way.
Better yet, entrust a close friend with your experience. The encouragement and accountability are fantastic tools to help you achieve success.
Using a Buy Now, Pay Later App
Buy Now, Pay Later (BNPL) apps promise the ability to buy something, and spread the cost over multiple payments. Sounds great, right?
The devil is in the details. If you miss payments, you risk fees and harming your credit. It’s best to save for the item so you can purchase it guilt-free.
Closing Your Credit Card
Closing your credit card is understandable when you’re deep in debt. Doing so may actually cause more harm.
Instead, keep it open but don’t use it. Closing it will likely negatively impact your credit score and deter other financial goals you may have.
Not Having a Goal
Goals are essential to success, especially achieving debt freedom. When you have tens of thousands of dollars in debt, it can feel like you’ll never achieve your goal.
Have your purpose in mind, and set up smaller goals. This will motivate you when struggling and create the momentum necessary to kill the debt.
Not Asking For a Reduced Interest Rate
A huge part of what makes debt suffocating is the high interest. Don’t be shy in asking your credit card for a lower rate. Simply call the bank and ask what they can do to lower the rate.
Even if it’s for a temporary period, the relief can help more of your payment attack the principal. That helps create momentum.
Not Looking For a Way to Increase Your Income
Attacking debt requires less spending and more income. Ask your boss if you can work additional hours.
If that’s not possible, look for a way to make money on the side. Take the extra earnings and apply it to your debt to amplify your efforts and achieve freedom sooner.
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Living paycheck to paycheck makes debt payoff difficult to accomplish. By cutting a few needless expenses you can free up cash to throw at your debt. Who knows, you may not even miss it.
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Saving money is vital, even when you have a limited income. It’s easy to think you can’t do it, but even if you save $20 a month it creates a sound discipline and helps guard against future indebtedness.
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