Avoid These Mistakes When Paying off Debt

Getting into debt is not really a problem, quite easy actually. Some of the biggest investors in the world use debt to make their fortunes. However, for the average Joe or Jane, this is a big problem. Student loans, house loans, mortgages, and car payments all pile up. Even credit card debt, which seems easy to manage, can really pile up if you don’t make the payments.

This has a huge impact on your credit score and your financial viability. It damages your credibility with banks and with those that issue loans. What’s worse is that people often don’t do what’s in their power to get out of debt.

You shouldn’t repeat those mistakes. So, here are 5 of the biggest debt mistakes people make when paying it off. 

1.     Getting Overwhelmed

Getting into debt can be a harrowing experience. Not being able to get out of it can eat up your nights and days. However, getting overwhelmed is a mistake. You need to focus on how to get out of it, not on being crushed by it. People’s student loans, mortgages, car payments etc. all bear down on them. Even credit card debt, as highlighted above, can get overwhelming to manage.

That being said, the solution is not to sit worrying about it. The best approach is to create a plan and stick to it. You should also talk your options through with a third party. A financial expert can really help you prioritize what you need to do.

Perhaps you can even choose to consolidate your debt to get rid of it. Hence, when you decide to pay off the smallest debt, or focus on crushing the highest interest debt, you can move on. This will alleviate a lot of problems you have.

In most cases, you begin to see the plan take root as soon as you begin. Sure, you’ll have a long road ahead if your debt is ballooning, but you can build on small successes as time passes.

2.     Skipping the Full Company Match with 401(k)

One of the most common debt mistakes people make with their money is doing nothing. They don’t know how they can maximize their wealth or improve upon their current circumstances.

One big example of this is skipping the full company match on a 401(k). In the long run, this can result in you accruing much lesser money. It can be the difference in retiring a millionaire and retiring a half a millionaire.

People instead choose to take more of their salary home rather than getting a bigger match. In many cases getting the greater match is a 100% return. It’s much better than the return you get on paying off the most expensive debt. In the long run, this will help you pay off a lot more debt than you could imagine.

Other mistakes people make are not saving for debt, or future purchases, or setting up an emergency fund. All this pays off in the long run.

3.     Focusing on the Symptoms, Not the Disease

You’ve heard of this in the more literal sense, as well as the figurative sense before. If not, you may have just forgotten. Treating the symptoms instead of the disease simply means not treating the effects and not the fundamental problem. It’s like trying to cure a cold by simply wiping up mucus or taking some hot tea. Instead, your course of action should be to take antiviral medicine or to see a doctor.

The disease that debt stems from is overspending or being irresponsible with money. Sure, there are times that people genuinely get into debt without any fault of theirs. However, debt is usually accrued due to bad purchases and bad money management. 

Hence, all the tips around balance transfers and negotiating debt down, etc. These exist because people are fundamentally bad with saving and sending money. The habits are the disease, and the debt is just the symptom.

4.     Not Addressing Debt Head On

Avoiding mistakes when paying off debt also includes being proactive. Most people don’t address the debt head on. This allows it to balloon while they’re being inactive. It’s like letting the deadline for a project creep closer and closer and not doing anything about it.

It’s very tough to get serious and confront debt since it’s an unpleasant experience. However, doing the opposite, or not doing it at all comes with a heavier price. You should instead try sitting down with a financial expert or with a third party. They may at least get you to confront your debt and see it through a different lens. At least with that out of the way, you can work on minimizing your debt.

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5.     Paying the Bare Minimum

Finally, doing the bare minimum is not enough either. It’s another one of the debt mistakes people make when trying to pay it off. Making the minimum payments when you can clear off a larger chunk is a mistake. Why? Well, the interest on your debt works on the size of the debt. If you can drastically reduce the size, you can reduce the impact of the interest too.

If you can afford to pay more than the minimum payments in a month, do so. You may save yourself extra payments in the future. Your bank won’t recommend doing this of course, since they want to mil you for all you’re worth. However, it’s within your rights to pay as much as you can. And if you can, that’s the best course of action.

Not repeating these mistakes will help you get rid of your debt faster. It will address the symptoms and the disease of debt itself and get you out of the trap that you’ve built for yourself.

So good luck, and here’s to a debt free existence. 

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