Making the decision to get out of a debt is the first step in your journey to financial freedom and security. However, paying off all of your debt isn’t something that happens overnight. It takes careful planning, smart decisions, and commitment.
Here are steps you’ll want to avoid so that you can be successful regaining control over your financial health.
1. Not Changing Your Spending Habits
Humans are creatures of habit, and you’re no exception. We tend to repeat our actions. Why? Because it’s comfortable and what we have become accustomed to.
However, if your goal is to pay off financial obligation, you can’t continue with the same spending habits. This means you’ll have to work extra hard to stop doing things you’ve been doing for months, if not years.
Some of the best ways to improve your spending include:
- Cooking meals at home
- Not making impulse buys
- Separating wants from needs
You don’t have to stop spending on things you enjoy. However, it’s important to make better choices with the money you do spend.
2. Not Creating a Budget
One of the most important tools you’ll need in order to pay off financial obligation is a budget. Without a budget, it’s impossible to gain control of your finances.
Most people don’t create a budget because it “takes too much time.” But the reality is that creating a budget doesn’t require hours upon hours. Getting started is simple.
Start by writing down all of your income. Then write down all of your bills, such as your car payment, mortgage, and utility bills. With the money you have left over, save as much as possible, while also saving some funds for a rainy day.
In the age of swiping cards and mobile payments, it’s all too easy to lose track of how much you’re spending.
3. Trying to Pay Off Too Much Debt at Once
Many people make the mistake of trying to put an end on your debt by paying everything off at once. If you have multiple credit cards and loans, you may put all of your money towards them each month, leaving nothing left to account for emergencies.
Instead of trying to tackle all of your financial obligation at once, prioritize your debt. Start by:
- Listing all of your debt
- Ordering debt from highest to lowest interest rate
- Paying off any small balances (i.e. $200)
Start by paying off the highest interest debt first. Once this debt is paid off, go to the next card or loan with the next highest rate.
You may also want to consider debt consolidation. If you have several credit cards and loans, you can combine them into one loan that is paid at a single interest rate.
4. Not Getting Help
Tackling debt on your own can become extremely overwhelming. Even if you’ve created a budget and prioritized your debt, seeing such large numbers can send you into a mental tailspin.
Don’t hesitate to ask for help and support from those around you. There are also non-profit credit counseling agencies, financial courses, debt counseling, and credit counselors available to help you every step of the way.
Stop Letting Debt Weigh You Down
Carrying around years’ worth of debt gets quite heavy. The good news is that debt isn’t a life-long sentence. With a plan, commitment, and willingness to change, you can finally dig yourself out of your financial hole. Dont make unnecessary money mistakes.
Make financial freedom your future by not making these four common mistakes when getting out of debt.