By Ann Sullivan
Accumulating debt is easy. You start out with good credit and can easily lose track of your spending. Add to that, your credit card companies keep raising your credit limit. Before you know it, the payments become more than you can comfortably afford. There are many mistakes people make when trying to get out of debt. Reducing or eliminating debt is not just about not using your credit cards or maxing them out. It’s about changing habits that got you there in the first place. If you’ve found yourself in a situation where you have considerable debt, here are nine mistakes you should avoid when trying to get out of debt.
1) Keep Spending the Same Way
One of the biggest mistakes people make in trying to get out of debt is doing things the same way and expecting different results. The worst mistake is to keep spending money on unnecessary things and not scrutinizing where you can cut down. If you’re serious about getting out of debt, it’s time to put your nose to the grind stone and seriously evaluate what your spending habits are. This involves creating a budget, if you don’t already have one. Start with the most necessary things, such as monthly bills including rent or mortgage, utilities, and everything that recurs each month. Next, review other necessities such as groceries and gas in the car. The third part of your budget should include flexible spending. Here’s where you need to seriously consider what you’re buying that may not be needed. There will be some sacrifices here, so be honest when reviewing this part.
2) Going it Alone
Some people dig a hole so deep, they don’t know where to turn for help. When it gets to this critical juncture, it’s time to see outside assistance. Here’s where researching and understanding available services is critical. There are some debt relief companies that will take advantage of such as situation. There are others that are non-profit and can genuinely help you. Be sure to do your homework. Take advantage of free services when trying to determine the best course of action. Sites such as debt.org can offer free counseling and tools to help you understand your debt, and what relief options are available. Jumping straight to bankruptcy as a quick fix is not always the best solution. There may be options available to avoid this and it should be used as a last resort when all else fails.
3) Not Creating a Practical Budget
Not having a practical budget could be the cause of your debt issues in the first place. If you don’t operate on a budget currently, now is the time to start. If you don’t have an idea of what you can afford without creating more debt, that’s a big mistake. The rule of thumb should always be, don’t spend money you don’t have. The second rule is, don’t borrow from Peter to pay Paul. Create a budget that’s practical and based upon your income to expense ratio. That way, you’ll get in the habit of knowing what you can afford without charging it and creating more debt. If you withdraw cash on one credit card to pay another, or pay your bills, you’ll only be creating a snowball effect. The interest charged on most cash advances is something that will follow you for quite some time. Avoid doing this!