Paying off debt is going to be unique for each person and situation, there isn’t one right method that will work for everyone. However there are definitely some universal methods that will help anyone get out of debt, if followed. Avoid these 15 mistakes when trying to pay off your debt, and you’ll be debt free before you know it!
1. Not creating an accurate monthly budget.
We all know and have heard how crucial a monthly budget is when wanting to pay off debt (and it is), but we often make the mistake of creating an inaccurate budget. Figure out what you are actually spending and go from there. Decide what you should be spending or what you want to be spending. Creating a budget isn’t necessarily just writing down what you spend each month, although that is a great place to start. You need to make sure that you have a very realistic budget, and have a plan for the money that is planned to be left over each month. If you don’t have a plan to “save” or invest it, or to use it to pay off other debts, often it will just get sucked into the abyss of extra spending to never be heard from again. Be sure to budget for life. This means that budget for birthday gifts, car repairs that might happen, etc. If you never allow for anything extra, you will continually get frustrated when those expenses come up. Remember, those “unexpected” expenses, are actually “Expected” in life.
2. Not Using a Debt Snowball
A debt snowball is when you take your smallest debt and pay as much as possible to that debt, while still making minimum payments on other debts, until it is paid off. Then once that debt is paid off, you take the amount you were spending on it each month and add it to the payment of your next debt. This will give you the confidence of getting rid of your debts one at a time, and help you to pay more than the minimum payment. This is tried and true and works for many reasons. First, it gives you momentum and takes the “guess” work out of figuring out how much to pay on each thing. It will also reduce the amount of interest you spend overall, because the sooner each debt is paid off, the sooner you are no longer paying interest on that card.
3. Using your Debit Card For Everything
I know that debit cards are much better to use than credit cards, but there have been studies that show that we almost always overspend when we use a card vs cash. This doesn’t mean you need to cut up your debit card and never use it, but find those areas of your budget where you tend to overspend and create a cash envelope. Groceries are usually at the top of the overspending list. If you take a cash envelope with your allotted grocery budget to the store, then you can’t go over what you have planned. If every time I wanted to go out to eat, I brought cash, I would probably order differently. Truth.
4. Paying the Payment
It’s easy to set up automatic bill pay, and pretend like those debts aren’t there. If we only pay minimum payments, with interest accruing, it will take years to pay off even the smallest of debts. Find ways to pay more than just the minimum amount. Work a side job or make money online from home to allow yourself some extra money to knock out the loans or debts. Minimum payments are what make credit card companies rich.
5. Losing Momentum.
This happens to everyone. Getting out of debt is hard and it can take time. Sometimes, we lose momentum and the motivation to stay on top of it. I know for my husband and I, when we were paying off our debt, we had to still allow time and money for some dinner dates and a few other extras or we started to get crazy. We also found that after a really long “financial fast” we would binge-buy something unnecessary. It was an emotional response to feeling trapped. What you need to remember is that debt is the trap and you are actually working toward freedom. Track your progress, write down your goals, and consistently talk about your goals and work toward each milestone. Consider creating a debt sheet, and cross off the payments made, or the accounts that are paid off. The debt snowball is another way to stay motivated as you see your debts disappear one by one. Find something that works for you.
6. Forgetting to cut lifestyle expenses.
Budgeting is more than just knowing the amount of money you are spending in each area of your life. We actually have to cut back on our expenses, if we want to meet our debt goals. Stop eating out, go on free dates, create a limit on birthday and Christmas gifts, etc. That extra money to pay off debt is not going to come from thin air…you have to create it by spending less. If you have to go out to eat, consider sharing a meal (this works at some places, not others) and order water. There are ways to cut back on expenses without being miserable. Find a balance.
7. Wasting food.
This may seem silly, but grocery bills add up quickly. If you are smart with meal planning and buying, you can save so much money! Be smart with that food you buy…don’t buy too much of things that will go bad, freeze what you can, EAT LEFTOVERS!! Any time you throw away food, you are throwing away money. There are a lot of recipe websites that will give you new ideas for leftovers, which are pretty cool! Use up your extras by making it into new things. Use the rest of your roast and make beef tacos the next day, etc. This takes a little bit of planning, but once you are in the habit of it, it makes dinner easier, because half of the work is done!
8. Adding to your debt.
This is an easy mistake to make. We are excited to put extra money on the credit card and we pay all of our bills and are left with… not enough money to live on the rest of the month. Enter: credit card. Don’t do this! If we are trying to get out of debt, don’t even use your credit cards. It is a slippery slope and a dangerous habit. Don’t leave yourself without the money that you need each month, or you will find yourself charging things again to pay for your basic needs.
9. Not Setting Goals
I am in love with goals. Without goals, I would be nowhere. I set goals and make task lists and it is what keeps me going. If you don’t have goals, you don’t know where you are headed. IF you don’t know your destination, you won’t know what path to take. It is simple, but life-changing. Set debt goals. Maybe you want 2 store credit cards paid off by the end of the year. Maybe you want to pay off your car by your birthday. Set clear, specific, realistic but uncomfortable goals and lay out a path to get there. If “I want to pay off my car by my birthday. In order to do that, I need to pay ($fill in the blank$) amount each month until then. I don’t have that much extra money each month, so I need a side gig to make some extra cash.” We need to think about our long term goals and plans, so we know where we are headed and we can track our progress along the way. This is extremely motivating and will keep you on the right path.
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10. Paying bills late.
Be sure that you are still paying minimum payments on time as you pay off your debts. Don’t focus so much on one debt that you forget about the due dates on the other ones. Late payments create late fees and increased interest rates. Whenever possible try and set up automatic bill pay to ensure that you are always on time.
11. Taking the saving too far.
Now I mentioned earlier about “really cutting back” but I also want to give a word of caution about this. Yes, cut back but be realistic as well. If you cut back too much then it won’t take long for an explosion to happen. It’s like when someone goes on an extreme diet, and they do good for awhile, but pretty soon they can’t take it and they splurge on an entire chocolate cake. Instead it’s better to live in moderation.
12. Forgetting that this is a team effort.
If you are married, or in a relationship where your finances affect each other, then you cannot do this alone. You need someone to support you and keep you accountable to your goals. You also want to be there to encourage each other and get excited about your progress. You also need to be on the same page with how much you are spending and where. So talk together and figure out a plan of attack that you are both okay with.
13. Having a good reason to be debt free.
This comes back to goals. Why are you getting out of debt? Is it to live life more freely? Is it to prepare for retirement? Is it to reach your next set of financial goals? We all know that being debt free is good, and that we should do everything we can to pay off debt. You have to find YOUR motivation for being debt free. What motivates you? When it becomes a big desire that you have and not just “what you should do” that’s when the real changes are going to happen.
14. Not using extra money.
Chances are you’ll eventually get a tax return, a raise, birthday money, etc. So, you can go out and spend the money, or apply it to your debt and pay it off that much faster! The choice is yours. No judging here 🙂
15. Forgetting to enjoy the journey.
Finances are stressful… and they can be really stressful. It is so important to be smart about your money and budget, and pay off debt……but you still need to live. Find joy in the journey and be happy. You can find joy in life even when you’re in debt believe it or not! So be creative with your saving and frugal living and make it enjoyable!
Here are a few other related posts to getting out of debt:
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10 Bad Credit Card Habits and How to Avoid Them
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