Mistakes People Make When Trying to Get Out of Debt
by Mashum Mollah Finance 23 June 2020
A large number of people do not know how they found themselves with a lot of debt. If you are one of them, you know that you need to get your finances in order. You can start by getting out of debt. It sounds easy but it involves more than paying off your credit card debts. A lot can go wrong and you need to know the mistakes that can be made when you try to get out of debt. Here are some mistakes you need to avoid when getting out of debt;
1. Not changing your spending habits
Human beings are habitual creatures and when it comes to spending money, old habits can remain. When you are used to eating and shopping at the same places, it can be hard to change. However, you need to change your spending habits if there is a chance you will get out of debt. You can try reducing the amount of times you eat out and enjoy having homemade meals instead. You can also try to watch movies at home instead of going out. Instead of carrying your purse or wallet, carry the exact amount to avoid impulse spending.
2. Trying to get out alone
Everyone needs help and you cannot get out of debt alone. You need to ask for help and advice from credit counseling agencies. That way, you will get advice on how to manage your finances. They offer their services for free and will give you different options to choose from when it comes to debt management.
3. Not having a reasonable budget
Everyone needs to have a budget. That is the only way you can plan your finances. You need to plan how you will spend money to avoid overspending. Get rid of the credit card and pay cash instead. Prioritize basic bills like rent, food, health insurance, and remove unnecessary things from your budget. That means there will be no more shopping for expensive clothes and other items you do not need because they are not in the budget.
4. Getting into debt relief programs without knowing all the expectations
You need to avoid fast solutions to get out of debt. Most people go into debt relief programs without knowing how they operate. Debt relief programs take almost five years and you need to get a credible company that has a good reputation. When it comes to debt relief programs, you need to be patient.
5. Trying to settle everything at once
If you have several debts, do not try paying them off at the same time. Create a list of all the bills you have according to their importance. Then from your money, set aside a specific amount to pay off one debt at a time. Preferably, start with the one that has the highest interest. After paying one debt, you can move to another until all the debts are paid.
6. Closing your paid accounts
If you want your credit score to go up, you need to keep your paid account open. If you have credit and are not using it, it can boost the credit score.
7. Not having an emergency fund
Everyone needs to have an emergency fund and that includes you. Even if you are up to your neck in debt, you need to start putting money away for emergency purposes. It is recommended that you should have enough money to take care of your needs for approximately three to six months. You can check out some ways to build emergency funds on sites like huffpost and try to follow them practically. Set aside 5% of your earnings and put it away. It will take a while, but eventually, it will add up to a substantial amount.
8. Not having a retirement account
It makes sense that you will want to use all your money to pay your debts. There is one thing you have forgotten about that is important and that is your retirement fund. You need to invest in your retirement savings as they will help you in the future. The earlier you invest in your future, the better. You are better off looking for other places to get the money you need to pay off your debt as long as you save for your retirement.