5 Things Not to Do When You Are Paying Off Your Loan

Debt repayment can be an uphill task, but managing several pitfalls will go a long way to determining how soon and in the best manner is manageable. Whether it is credit card, student loan or a mortgage, it is important to know what not to go for to avoid wasting time. Paying off your debt is not as straightforward as many people think; below is a guide to the five biggest mistakes to avoid.

Mistake 1: Not Having a Clear Budget

Yet one of the largest mistakes that individuals make while paying off debt is the no-budget concept. This is an issue because budgeting helps people know how much they are spending and what is being spent on and thus, cannot be followed if it’s not specific enough to point out where one is overspending or not budgeting enough towards debt.

Solution: Develop a monthly spending plan which will help you to track all of your money inflow and outflow. Reply to the debt collectors first and try to find out where one can save. It can be as simple as using a budgeting application or making a spreadsheet for the same.

Mistake 2: Only Making Minimum Payments

Simply trying to make the minimum payment towards paying your debt will only ensure that you keep paying off interest, without making real headway towards clearing your balance. Some credit card firms may in one way or the other encourage consumers to make only minimum payments since this will make debt to stay longer thus incurring more interest.

Solution: If possible, pay greater than the line amount marked as the minimum pay. Larger payments allow you to lower your balance so you won’t be charged as much interest after some time.

Mistake 3: Ignoring High-Interest Debt

Simply put, not all debt is the same. Credit card debt for instance, is highly expensive if ignored or neglected for a long time. It is a common mistake approached by many debtors to eliminate low interest rates or several small interest rates without significantly reducing the high interest rates balances.

Solution: Paying prompt attention to the debts, which attract higher interest rates next. This is known as the avalanche method because the higher interest debts are paid off first to eliminate as many debts with high interest as possible.

Mistake 4: Borowing New Money While Still In The Process Of Repaying Money

A very bad practice includes taking new loans to pay other debts still without properly paying the new credit balance. New debt Once again poses serious risks to your efforts to repay the loan hence making it difficult to clear the debts.

Solution: It is advisable not to borrow with the intention of undertaking new project if it is not very much compulsory. Review your spending habits and make a conscious effort to insure that when making purchases that you are using cash or debit and try to avoid taking on more debt.

Mistake 5: Not Having an Emergency Fund

Hence, having an emergency fund when maneuvering through the debt payment process is often overlooked. Auto mechanics, illness, or many other emergencies may prevent you from setting money aside and push you into borrowing leading to more charges.

Solution: It will be ideal to try to save for an emergency fund of $500 – $1000. It can serve as your financial backup, avoiding such a situation when you borrow even more money at some unforeseen moment.

Final Thoughts

Staying clear of these pitfalls will enable you to clear your debts with ease and make a credit worthy future. Just remember that with every payment you make you are one step closer to achieving financial freedom. Work hard, stick to your budget and pay off debts in a way that will be most beneficial.

Are You Up for Changing Your Life for Debt-Free?

Pretty much like weight loss, paying off the debt is not a goal, but a process where each day or each dollar counts. If you avoid these common mistakes, you will be on your way towards being debt-free this year. If you have friends or relatives who have had a similar issue email this guide to them to use the tips in this guide.

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