12 Mistakes People Make While Paying Off Debt
Tired of paying off debt? Do you feel like you’ll be paying it off for your entire life? Maybe your wondering if you’re even paying it off the right way? Either way, you are probably making some of these common mistakes that many people make while paying off debt. In this article you will find 12 common mistakes people make when it comes to paying off debt. Get educated my friends, this stuff could change your financial life!
1. You’re Paying Too Much On ALL Your Debts
Alright, so let’s start off with an example here. You’ve got $200 extra after paying all your bills at the end of the month and you have 2 debts that you’re trying to pay off. I’m going to assume that you would most likely split that $200 and allocate $100 to each debt. This would be the wrong thing to do. Why? Because you’re truly focused on the number one main objective.
Here’s what your going to want to do instead. Put all of your focus on 1 debt at a time and put the entire $200 towards your debt that you owe the most. In addition, only pay the minimum on the other debt. This will allow you to solely focus on your largest debt and get it taken care of sooner rather than later. If you continue to do it the other way around, you’ll end up paying a heck of a lot more interest in the long run.
2. You’re Forgetting To Pay Extra Towards The Principal
So let me start off by saying this, you want most of your payments going towards the principal (amount you are borrowing from creditor), and you want the least amount going towards the interest. This is why it is extremely important to be paying more than the minimum payment on your highest outstanding debt! You want to get that sucker paid off like … ASAP!
Think of it this way, I’ll use a credit card payment as an example. When you login to your account and see that dreaded “minimum payment” due, don’t fall for it. Creditors use this “minimum payment” as a psychological marketing tactic that most people don’t even recognize. You see, creditors know that most of you are only going to pay the minimum, in return they make more money off of you on long-term interest.
So you see, it’s pretty darn important to be paying more than the minimums, especially on your larger debt accounts. Don’t let these creditors fool you, the longer your paying them interest, the wealthier they get. In contrast, the poorer you get as well. It’s sad, but nothing we can do to change that.
3. You’re not taking it seriously
Debt is debt, and nobody wants to be paying off their collectors forever. If your not taking your debt seriously, then all your doing is just “compromising” to be stuck in the same situation forever. In order to really get serious, you need to hustle hard! Get serious, get motivated, and get rid of that debt! Only you have the ability to make that happen.
The feeling you will have from paying off a large amount of debt will be intense! You will be happier, and best of all, you’ll have less to worry about.
4. Your waiting for that “extra income” before you start to get serious
I see this a lot actually. People will say things like “I’m going to be getting promoted soon and when that happens, I’ll pay off all my debts”. This is a bit no no, sorry but, you’re procrastinating when you say things like that. You know damn well that’s not going to happen. Instead, you’ll start making your “extra income and I guarantee you’ll find yourself further in debt because you’ll start buying more and more. Or worse, you’ll spend more on that credit card with an “intention” to pay it off.
Don’t make this mistake, just get serious and pay the damn thing off already.
5. You don’t have a plan
It’s like deciding to learn how to snowboard a day before you compete in a rail competition. You will get hurt, bad! This is why you need a plan. A detailed plan with actionable steps on how you will achieve this goal.
Your plan should also include writing out a list of your debts, the minimum payments, and what the interest rates are. This can take some digging. Then, if you are smart- which I know you are- you can start optimizing ways to make more of your money go towards the amount you borrowed instead of interest. This includes negotiating rates with your credit card company, or in some cases refinancing your highest interest rate cards into a personal loan at a much lower interest rate. Read the fine print on this and make sure you do the math to be sure it’s the best choice for your financial situation.
6. You aren’t making your debt a priority
This is pretty straightforward, if your debt isn’t a priority, you simply won’t see results. We will soon have a course/workshop that will help guide you in paying off your debts with common sense.
You need to be making your debt a priority. Think about it this way, the earlier you make it a priority, the earlier you can pay it off. The earlier you pay it off, the more money you’ll have in your pocket on a monthly basis. That doesn’t mean spend it either, actually, don’t even save it. Instead, invest in yourself and find ways to create a passive income stream so that you’ll never have to worry about debt ever again.
7. Your buying beer, coffee, and eating out all the time
Here is where most people get hung up. Prioritizing your debts does not mean go out and buy a 6-pack or go out to eat every weekend. That’s not going to get you anywhere. Think about it this way, you go out to eat and spend $40 – $70 each time, that’s a lot of extra money that could be going towards your debt instead.
Here’s another good example, this one goes out to the coffee drinkers. Most of you go to Starbucks every single morning before work and spend $4 – $8 every day on coffee. What your not realizing is that this adds up like crazy and it adds up to quite a bit. Once again, extra money that could be going towards your debts instead.
Beer and restaurants are not a priority, they will still be there when your debt is paid off. You certainly won’t die if you don’t eat out or buy beer either. Prioritizing your debt should be your number 1 main focus. I know it’s easier said than done, but it’s really not because if you want it paid off bad enough, you’ll do whatever it takes to make it happen.
8. Your paying off debt without an emergency fund
It’s important to have money set aside for emergencies. Don’t start paying off debt before you have at least a small emergency fund of say, $1,000. Why $1,000? That is typically enough to cover most insurance deductibles and prevent a small inconvenience from becoming a catastrophe.
9. You aren’t taking account for your debt that went to collections – in your plan
Imagine getting out of debt and ready to buy a home only to get your application denied on the spot because you have $25,000 in debt that was sent to collections, and you didn’t even know about it! It happens, and it can be quite a shocker for you when it does. Make sure to run a credit report ahead of time just so you can be sure that you don’t owe any “hidden” debt anywhere.
10. You give in every time a friend asks you to go shopping, or go out for drinks
This one is tough, especially for extroverts. I get it, you want to go out and have fun with your friends every now and then and that’s understandable. But, at some point you have to say no so that you can progress faster and get that debt paid off. If you truly can’t give up going out with your friends etc, at least find ways to get creative and look for deals and be thrifty. Go out someplace with happy hour or something. Do whatever you can so that you don’t spend as much as you normally would.
One thing you can do is use the Groupon app. You can seriously find some really good deals for restaurants in your area. But obviously, if you can avoid spending extra cash while paying off debt, then do it. I understand though, this one is much easier said than done.
11. You pay off debt just to go back into debt
I hear the same thing every single time, “I’m paying off my credit card so I can buy a new car”. The mentality is useless and won’t get you anywhere at all. All this means is that you have accepted debt as part of your lifestyle. That may be okay with you, but it certainly isn’t the way i would want to live my life! That just sounds stressful as hell, being strapped to debt over and over and over.
So please, I beg of you, stop paying off debt just so you can immediately go back into more debt. It’s the wrong way to think, if you want to come out ahead at some point in time.
12. You Think 0% Financing Means You’re Not In Debt
Trust me, 0% financing means your still in debt. Just another psychological marketing tactic used by finance lenders. Try making a late payment and just see what happens, lol. Before you know it, that company that gave such a good deal will end up turning into a pain in the butt that’s charging you intereste at a 23.99% rate.
Bear in mind that 0% is never just 0%, it’s still debt. There’s always a catch, even if it looks like a deal of a lifetime, there is always a catch!
Have you fell victim to any of these mistake in the past? I have, not anymore, but I used to fall for these mistakes years ago until I finally learned my lesson. If you need any help or have anything to say, feel free to let us know in the comment below. I will be leaving the comments open on this one.