Paying off debt takes a lot of dedication and motivation. While the concept seems simple, paying off debt can be rather difficult. If you avoid these 10 common mistakes we all make when paying off debt your journey will be much easier.
Have you been paying off debt for a while but don’t seem to be making any progress?
Do you feel as though you will never become debt free?
Do you ever ask yourself if paying off debt is worth the time and energy
If you have answered yes to any of these questions you may be approaching paying off debt all wrong.
10 Common Mistakes to Avoid When Paying Off Debt
You Pay Extra On All of Your Debts
While paying extra on your debt is key to becoming debt free you want to concentrate on only one debt at a time.
There are two different methods
With the debt snowball, you are paying off the smallest debt first.
Read: Is the debt snowball right for me?
With the debt avalanche, you are paying off the highest interest rate first.
Read: Is the debt avalanche right for me?
Both systems work because you are concentrating on only one debt at a time. You will need to decide what system is better for your situation.
You Are Prepaying Your Debts
Not all companies treat extra payments the same. Some companies will
Your extra payment should go toward principle only.
When you make extra
You Do Not Have A Plan
What is your plan for paying off debt? You will want to write down how much extra you intend to put toward your debt as well as the timeline to pay off your debt.
The first step to having a plan to pay off your debt is to have a budget. Without a budget, you don’t know what you are spending or where your money is going.
If you don’t currently have a budget, I have a free download for a budget template you can use to get started.
You Do Not Have An Emergency Fund
You need an emergency fund. When you have an emergency fund in place you will no longer be using your credit cards for the small emergencies that pop up like the dog breaking their leg or the refrigerator dying.
An emergency fund will safeguard you against those what-ifs in life and allow you to continue on your path to financial freedom.
You Are Still Going Out
Don’t get me wrong, I don’t want you to be a hermit but when you are paying off debt, you need to be intentional with where every dollar is going.
You may need to invite friends over instead of going out. Make your coffee at home instead of driving through Starbucks. Eat quality dinners at home instead of going to a restaurant.
Making these tradeoffs will help you pay off your debt sooner and will help you be more intentional with your spending. It will even help your waistline. 😉
If you would like to still go out, create a budget for a night out. Maybe you only go out once per month rather than weekly. That is something you will need to decide.
You Are Still Using Your Credit Cards
You want to break the habit of continually relying on debt as a tool. If you are still using credit cards, even if you are paying it off each month, you are not training your brain to see debt as a bad thing.
While you are paying off your debt stop using all of your credit cards. You will be able to focus on solely paying down the debt without incurring
If you want to continue to use your credit cards after all of your debt is paid off that is a decision you need to make but you also need to have a plan to pay off the credit card every month.
A great resource to help you stay on track with this is the cloud-based software You Need A Budget.
You Have Not Made Any Lifestyle Changes
Lifestyle changes are one of the hardest things to make when paying off debt but they can have a huge impact on your budget.
Take a look at your non-essential spending such as your cable bill, cell phone bill, restaurants / eating out (I mentioned this earlier), entertainment, personal money etc. These are all non-essentials that take up a large part of our budget.
Downgrading plans or canceling services all together while paying off debt can have a huge impact on your overall budget and the amount of money you have to send to debt.
The more money you have available to pay off debt, the sooner you will reach your goals!
You Have Not Increased Your Income
If you are serious about paying off debt and paying it off quickly you need to work on the income side of things. You can cut all you want, but there is only so much that can be cut from your everyday expenses.
Work on increasing your income. This can be talking to your boss about a potential raise that you may be eligible for.
You can also start a side hustle. This is one of my favorite ways to bring in more income. Depending on the side hustle, you can do it on your own time from the comfort of your own home.
Read: This Facebook Side Hustle Will Make You $1,000 Monthly
Read: 3 Simple Steps to Land Your First Freelance Client
Of course, you could go out and get a traditional part-time job like delivering pizza (tips are good on weekends) or working in a retail setting. These jobs won’t pay as much and aren’t as flexible as some work at home side hustles, but it is a great way to increase your income for the short time span you’ll be paying off debt.
If do decide to increase your income, don’t fall victim to lifestyle inflation. You need this extra income to go strictly to debt, not to increase your standard of living.
Your Spouse is Not On Board
Do you have a grand plan to get out of debt and are willing to make big sacrifices to get there? If you answered yes, you are on your way to becoming debt free.
Is your spouse on board with your plan? If you answered no, you need to work as a team to become debt free and be on the same page.
Your plan as a couple may not look the same as your plan as an individual. You will need to compromise and work as a team to play off debt.
If you are not working as a team, you can be paying off debt while your spouse is still using credit cards and increasing the balances. You will be fighting an up-hill battle.
You Do Not Have a Good Reason For Getting Out of Debt
Why are you getting out of debt? You need a really motivating reason for putting in the work or you will not complete the process and may even find yourself further in debt.
Some reasons that people get out of debt are:
- increase financial security
- freedom to leave an unfavorable work situation
- reduce stress
- improve your credit score
- travel more often
Having a compelling reason why you are getting out of debt, and letting your family and friends know this reason, will help keep you on track.
Your reason why will help motivate you when things get hard and keep you pushing forward. It will also give you a sense of accomplishment when you actually reach the endpoint of debt and have something to look forward to.
Paying off debt begins with you.
Paying off debt is not an easy task. It may take you months, maybe even months to come out on the other side of the debt.
One thing is for certain though, paying off debt begins with you
You need to be motivated and have a specific reason for getting out of debt.
You need to make the lifestyle changes necessary to change your habits.
You need to draw a line in the sand that says “starting today, I am no longer a slave to the lender and I will be debt-free.”
Most people will never see a debt-free lifestyle because they are not willing to make the changes necessary to improve this one aspect of their life. If you are willing to make the changes necessary to become debt-free you will reap the reward and live a lifestyle most do not understand.