Debt is something that consumes over 80% of all Americans in 2018 and looking towards tomorrow that number is likely to climb. It’s so easy to get yourself buried in large amounts of debt with the only relief of getting out inevitably causing yourself to fall deeper into debt. Sounds counterproductive to think of ways to get out when the bottom line only gets bigger and bigger.
Getting yourself out of debt means a lot more then just paying off credit cards or making sure payments are on time. Although important, there are other things to consider with much of meaning major lifestyle changes allowing you to better understand life’s priorities. The bottom line is this – there are wants and needs in life and the faster you understand this the faster you can get out of debt.
The following details the Top 10 Mistakes People Make When Trying to Get Out of Debt and tips to avoid them.
10. Trying to Pay Off Too Much Debt at the Same Time
Paying off debt is one of the first things you can do to get out of debt, sounds easy doesn’t it. One of the biggest mistakes people make is spreading yourself out too thin and paying off too much debt at the same time instead of concentrating on one or two obligations at once. Never over-extend your own budget even if the result sounds too good to pass up.
Know your financial limitations and don’t put yourself into a bind, or a position to rack up more debt trying to get yourself out of debt.
9. Closing Accounts Once Paid Off
Paying off credit cards, loans, and other debt is the result you want, but it’s not always wise to close out your accounts once you do. Your credit score and how creditors view you has a lot to do with your available credit. Having open accounts with a zero balance shows you have great restraint and will likely increase your credit score over time.
8. Not Contributing to a Retirement Plan
Planning for the future is something that everyone over the age of 18 should consider, but unfortunately, most do not. Contributing only 5% of your budget to retirement plans such as a 401K allows you to retire with money in the bank. The earlier you start the better off you’ll be, and don’t allow eliminating debt compromise your future.
7. Not Having a Savings Account
You should always have at least $500 in available savings that can be used for emergency purposes only. Nearly 60% of American’s don’t have the savings to cover a $500 unexpected expense such as vehicle repairs. Most experts recommend saving up at least 6 months’ worth of savings for a rainy day, or two.
6. Not Checking for Errors on Your Credit Report
According to a recent study, over 40 million Americans have errors on their credit reports. Being proactive and checking your credit report regularly will allow you to research and catch errors that can be reversed.
Each year, everyone is entitled to one free credit report from each of the top credit reporting bureaus including Equifax, Transunion, and Experian. Check for errors, contact creditors and prioritize debts that can and should be paid off first.
5. Not Understanding What Debt Consolidation Companies Can Do
Debt consolidation help million Americans get out of debt annually, but for every one person they help there are many more they do not. This is not because debt consolidation companies don’t help. It’s because they’ve garnered a bad rap and people don’t truly understand them. The reality is, debt consolidation companies do help, but understanding they’re not a instant solution but instead a long-term plan.
Do you due diligence and know that most reputable companies put plans into place that will take 3 – 5 years. Consult the Better Business Bureau and other local and state resources.
4. Not Asking for Help
Most people will try and dig themselves without asking for help. This is something that none of us “want” to do, but we all understand that friends and family are the best resources for help. This doesn’t always mean asking for money, but more importantly, asking for social support with constraint.
3. Change Your Spending Habits
People are creatures of habit and changing many of the spending habits will help you get out of debt once and for all. There’s a reason why you’re in debt in the first place and getting out of debt means changing the same habits that got you into this predicament is the first place to start.
Making subtle changes like eating in instead of eating out, taking a bag lunch to work instead of your wallet and renting a Redbox movie for $1.49 instead of going to the movies for $50 are all worthy consideration. A buck saved is more like a buck earned and over-time, a few bucks will be more like a few hundred.
2. Create a Practical Budget
For most of us, creating a practical budget is easier said than done. The typically daily rigors cause us to over-extend ourselves as there are always things that “just come up”. Planning for contingencies that aren’t there and everything that is there should be put into a budget to assure practicality.
Most people don’t consider a budget until they’re $30,000 into debt and it’s one of the easiest things you can do to assure you don’t go into debt. Create a practical budget that includes housing, food, utilities, gas, health care, insurance, retirement and savings should all be considered.
1. Make Getting Out of Debt a Priority
If you truly want to get out of debt, prioritizing your debt by changing your spending habits are a must. Too many people say they want to get out of debt but do little about it. It’s ultimately up to you, and when you truly understand and focus on this you can and will get out of debt.
Everyone wants things but understanding that needs comes before any want must be a priority. A simple tip like writing out what you believe you can do better once out of debt on a piece of paper and tape a copy to all your credit cards. This way, when temptation strikes, and you have the urge to use a card you’ll get an instant reminder of what your long-term goals are.
This can be your motivation, and believe me, it’s something so simple and really works.
