Becoming debt-free takes a long-term commitment and a consistent effort to live within your means. It also requires avoiding many of the common pitfalls that become barriers to reaching your goal of being debt-free.
Typical mistakes consumers make when paying off their debt are as follows:
- Going at it alone.
While some people can dig themselves out of debt on their own, others need professional help. If you no longer can afford to make the minimum payments on your credit card and are consistently making late payments, you should consider seeking support from a debt relief company. Consumers on a debt management program offered by a debt relief company can take advantage of better repayment terms — like lowered interest rates and waived late fees — than those offered by most creditors.
- Neglecting to research.
Before signing up for a program with a debt relief provider, do your research to find a reputable organization. Consumers should look for a provider licensed by the state in which they reside, as well as a creditor who is accredited by the Better Business Bureau. Do expect to pay a fee for service depending on the type of repayment program in which you enroll. Keep in mind that fees should follow legal guidelines set by each state. You can find the guidelines for your state by going to FTC.gov.
- Making large monthly payments.
When facing a large credit card balance, it’s tempting to make a big payment each month in order to see a significant decrease in your debt. However, your monthly payment needs to fit your budget so you can accommodate your other necessary expenses. If not, you’ll end up relying on your credit card to cover basic living expenses and you’ll be stuck in the cycle of making payments while racking up more debt at the same time. Always try to pay more than your monthly required minimum payment — double it if your budget allows — to begin making immediate headway in paying down your debt.
- Skipping out on saving.
Don’t neglect your savings in an effort to become debt-free faster. An emergency savings fund is the key to getting out of debt and staying out of debt. You won’t have to rely on credit to cover unexpected expenses if you have an emergency fund you can dip into during those tough times.
- Ignoring the details.
It’s not good enough to make a payment every month. You need to make sure you are making those payments on time. You must be vigilant in reviewing your contracts with your creditors. Know the terms of your agreements with creditors, including when your payments are due, so you don’t rack up late fees that will add to your total debt.
- Continuing bad habits.
You can make your debt payments on time each and every month and watch your balance go down, but if you're not addressing the poor money management habits that got you into debt in the first place, you’ll find yourself back at square one. Take control of your finances by identifying the bad habits and don’t let your bad habits take control of you.