Do you want to become debt-free? Pretty much everyone who owes money would probably love to pay it all off, but it isn’t easy to find the money to do it. You can wind up carrying the same balances for years, struggling to pay them off, and making very little progress. When you pay back creditors, your payments go toward the interest first, and it becomes a battle to pay down the principal.
There are different routes to a debt free life, including paying it all back on your own, signing up for a debt management or consolidation plan, bankruptcy, and consumer proposals. Each one may be a better fit for your situation, depending on the details. A bankruptcy trustee can help you determine which method is better for you.
Whichever path you go down, there are some commonly-made mistakes that can jeopardize your efforts to become debt-free.
#1 You Don’t Change Your Spending Habits
If you never change your spending habits, you’re never going to have more money to work with, and that means you’re not going to get out of debt. You can even wind up back in the red after getting out of it.
No one ever said breaking bad spending habits is easy, but one of the first things you can do is perform a kind of audit on yourself. Where do you wind up spending too much money or incurring unexpected costs? Do you go over your data plan? Do you eat out when you’ve got food in the fridge? Identifying these behaviors is the first step in changing them.
#2 You Don’t Make a Budget
You need to know how much money can come out of your bank account based on how much money goes into it. Following your finances helps you track progress toward your goals, whether it’s a vacation, a house, or a goal for retirement savings.
Making a budget helps you avoid spending money you don’t have. A budget is all about planning your money ahead of time, so you know where it’s all supposed to go, as well as setting aside emergency funds, so you’re prepared for surprise expenses.
#3 You’re Still Trying to Keep Up with the Joneses
There’s always social pressure to spend in a certain way, to have certain things or take certain vacations. When you’re in debt, you have to develop a thick skin and go your own way. The most important thing you can do is stick to your goal and focus on getting debt-free.
#4 You Cancel Your Credit Cards
When you’ve struggled so hard to pay off a credit card, it can be tempting to cancel the whole thing, cut it into pieces, and never think about it again. Not only is it cathartic, but it can also keep you from getting back into debt.
However, you could hurt your credit score by reducing the amount of credit available to you. If you plan on taking out a more productive loan in the near future, like a mortgage, you might want to keep it open unless it comes with a pricey fee, or you really don’t think you can resist using it again.
Avoid these mistakes, and you’ll be doing yourself a huge favor going forward.