5 Common Mistakes That Can Keep People in Debt

Dealing with debt is truly difficult in and of itself. People usually can’t get out of debt soon enough because they tend to commit a lot of mistakes along the way. People take for granted different factors in facing this challenge, like the idea of negotiating their debt or building a budget to work off their obligations. To help you solve this financial conundrum, here are five of the most common mistakes people with debt commit.

Not Negotiating

People with debt can mentally and emotionally benefit if they just simply negotiate around their debts. For example, if you have a credit card debt that you want to pay off now, you can try negotiating the terms of your payments. One thing that people don’t understand is that lenders also want to be paid as soon as possible, and usually they’re willing to work with borrowers in order to allow more breathing room for them to pay-off their debts.

Start by calling up your credit card company and ask for a lower interest rate. It sounds simple, but lots of people never do this. The thing is, most people don’t know they can actually do this or that it’s so easy. Some people simply don’t have any idea that it is possible, or that they are too embarrassed to even try. Find the confidence to do this, and start talking to the right people right away.

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Credit card debts are not the only ones that can be renegotiated. In fact, almost all types of debts, loans, even a trust deed, can be rearranged so that you can pay your loans much more efficiently. Negotiation can save you hundreds or thousands of dollars in some cases.

Not Prioritizing Paying off Debt

The second most common problem that people with debt face is not making it their utmost goal to pay off debt.

If your goal is to get out of the burden of your debt, it is necessary to make it your number one priority. If you make it your top priority, you might be surprised how much you can subconsciously work your way into completely paying it off.

When you’re in a huge debt, remember that luxurious things shouldn’t be anywhere near your radar. Anything that’s not a necessity can get in the way of you paying of your debt. It might be a scheduled vacation outside the country, a new gadget, or even just a series of high-end meals in fancy restaurants. Remember that your number one priority is paying off your debt, not making yourself feel better while in debt.

Focus 100 percent on your obligation if you want to pay it off as fast as possible. To help you keep your priorities straight, it’s always a good idea to rely on a budget. Your budget should empower you to spend on the things that are important to you. This serves as your guidance system to eventually becoming debt free.

Ignoring your debt

It’s actually surprising how people subconsciously – or even intentionally – ignore debt. However, the worst mistake you can ever make when you’re in debt is to set it aside and allow it to resolve on its own.

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If you let your bills pile up on a desk or in a drawer, you would just accrue more interest and late fees. You might even end up being sued, having your car repossessed or having you and your family evicted from your very own house.

No matter how awful it might make you feel, you need to open those bills and return any calls you receive from your creditors.

Not designing a budget

Paying off debt without a budget plan is like a wild goose chase. You might get there somehow, but you will probably just end up dirtying yourself in mud and letting it run off.

It’s best if you can make a budget plan. Whether on a logbook or on a spreadsheet, it can really help if you actually see how your money flows in your household.

It’s a common pitfall to think that you could work your way out of debt without having a household budget to help you cut your spending and better manage your money. There is simply no tool that’s more fundamental to good debt management than a budget. It’s just the only way to ensure that the limited amount of money you have available goes towards paying off your top priority debts and your living expenses.

Normally, creating a budget follows these 3 basic steps:

Establish Your Goals. It is important to have goal, especially with your finances, because it serves as your motivation every time you feel the need to bail out. The goal should be what you want to achieve or where you want to be at in the future. 

You may have more than one goal as you create your budget. However, you have to be mindful in determining the level of importance of each goal since it decides their rank in terms of which needs to be achieved first.

Know Your Numbers. Of course, throughout the process, you need to know how much money comes in, how much money goes out, and how often do these two occur. Literally, it is a numbers game. Make sure that your income is higher than your expenses.

Balancing the Accounts

Now, if you have debt, this regular order may be challenged. You might notice that your expenses may become higher than your income. If this happens, you must act quickly to make sure it will not blow out of proportion.

Check and re-check. Always go back to your previous notes. If you don’t normally create a budget plan, go back to your billing statements, deposit slips or any other document you can gather. This gives you a baseline on how you are right now.

Also, always keep in mind that together with creating your budget, you need to make sure that you have the commitment to keep it and update it as needed.

Not paying off different kinds of debt in a proper order

Well, it’s more about looking for the sensible order. More often than not, this kind of mistake can be committed by those who have more than one debt, be it from credit card, car loans, housing loans, or what have you. There is actually a better way to deal with having many sources of debt.

It’s tempting to try to eliminate all your debt quickly, but it’s in your best interest to pay off some bills before others. For example, it is recommended by financial experts for people with multiple debts to eliminate credit card debt prior to paying off a mortgage or car loan as credit card interest rates are usually much higher and mortgage interest is tax-deductible.

Some people are tempted to attack the loans and credit card accounts head on with the smallest balances first to feel more accomplished in the payoff endeavor, but most debt experts agree it’s most beneficial to pay off the account with the highest interest rate first. Think about it this way, you don’t want the interest to inflate to a point that it’s heavily damaging your finances. Once the debt with the highest interest is paid in full, you can move on to the next highest rate account.