I’m sure we have all made mistakes at some point when it comes to our finances. I like to tell everyone I’ve tried everything that you shouldn’t do when it comes to managing money. Hey, the truth is the truth.
When it comes to debt, there are a few mistakes that can really limit your financial progress. Are you making these 5 mistakes when it comes to debt?
Not having a strategy
Incurring debt without a strategy can put you further away from your financial goals. With finances it is important to have a strategy, especially when it comes to debt. What you have to remember is that debt is costing you and minimizing that cost as quickly as possible is key. In my Conquer Your Debt Bootcamp, we create a customized repayment strategy that reduces your cost and repayment time.
Paying the minimum
Paying only the minimum increases your costs over the life of the debt, whether it is credit card, student loan (check out my post on paying the minimum for Student Loan Debt.) or a mortgage. Ideally as part of your strategy you want to factor in paying more than the minimum amount due. You will probably have to focus on paying more than the minimum on one debt at a time but then can apply that payment to the next item to be paid off. This is known as the snowball or avalanche method depending on if you are paying the lowest balance or highest interest first.
Financing more than you can afford
It’s easy to get in over your head quickly. Taking on more debt than you can afford is a common mistake that many people make. Charging up credit cards and getting loans can quickly increase your monthly payments to an amount you are not able to afford, especially if the interest rates and amounts owed are high. The best plan is to save for what you want and not use debt to finance it. I know for some, this is easier said than done, but you will be in a much better position financially if you do.
Ignoring It
Debt should NEVER be ignored. I will repeat, debt should NEVER be ignored. As my grandmother used to say “I’m not telling you what I heard, I’m telling you what I know.” It won’t go away magically and it won’t pay itself off. Interest keeps accruing and creditors can take you to court to recover what you owe plus legal fees. The creditors have become relentless in collecting on debts up to and including garnishing your wages. Trust me when I say, it is a big hassle and can be very costly. If you are not able to make the payments, it is best to contact the creditor and make arrangements. The sooner you contact them the sooner you can determine what course of action you need to take.
Not understanding what your debt will cost you
This is one that happens all too often. I’ve seen people just sign the dotted line without understanding or reading the fine print of the debt they have just taken on. Finding out the terms and amount that is owed after you sign is too late. In some cases people soon realize they are unable to afford it. In recent times, the creditors have been required to disclose the terms of the loan much clearer for the consumers. In my opinion it is the consumer’s responsibility to understand what they are taking on. Never sign anything you don’t understand, take the time to ask questions so that you know how it is going to impact your financial future.
Not doing any judging here because, I have been guilty of a couple of the mistakes above in the past. I have since corrected course and you can too! (Conquer Your Debt Bootcamp) The goal is to create and live the life you want without financial stress!
Have you ever made any of these mistakes?