This article throws some light on the 7 biggest mistakes people make while paying off debt and some of the remedies to overcome those challenges. This include:
- Paying off low interest debt as opposed to high interest debt OR paying off low interest debt instead of investing that money
- Making almost no progress and then give up, returning to the old spending habits
- Continuing the investment, it is always better to stop all investing activity and instead dump it all one debt. In order to overcome these mistakes, you might want to effectively use the debt relief programs that help you take steps to reduce or eliminate your debt over time.
- Debt relief programs consisting of debt settlement, debt consolidation, credit counseling, and bankruptcy. Debt settlement programs charge you fees according to your unique financial situation and Debt consolidation programs turn all your monthly debt payments into one monthly payment. Credit counseling, a non-profit financial educational organization that provides a free resource to help you improve your individual financial situation. Bankruptcy is the last resort that you might use when no other debt relief plan is possible.
- Closing accounts when they are paid off. This is yet another significant mistake. You can pay off the account; however never opt for closing the account.
- This is primarily because the credit scoring systems rely not only on how much finance you owe, but how much credit you have available in your account. You can improve your credit score when you have credit available, but not using it
- Missing a practical budget. This is a significant concern while you are on your way to gain control of your finances. You might want to develop a realistic budget that addresses all your finance related specifics, such as food, healthcare, housing, insurance and education; most importantly creates room to make payments on debt.
- Choose cash payouts as opposed to credit cards to reduce dining out, entertainment, shopping for new clothes, cars or electronics. It is always good to operate with a budget and paying cash is a great start.
- Cashing out IRAs’/ 401K’s in a last attempt to pay off debt
- Reducing the spending. People mindset is conditioned, and they are habituated in following certain customs in life; This means that they go for shopping at the same factory outlets, go for eateries in the same restaurants; and opt for same car during hang out’ and so on. In a way, it as well cost them more than they can handle financially. The point here is don’t be emotional and instead figure out the cheapest way to settle the debt.
In summary, you might want to consider working with a debt relief company as directed by the debt relief program to negotiate with creditors on your behalf and potentially get your debt under control. This would help you consolidate your debts and make one payment each month.