Anyone who is in debt wants to at least reduce, or better yet, get out of debt as fast as they possibly can. The problem is that many of us either don’t know how to get started, or are stuck in a state of indecision. As a result, we fail to make progress even in little doses.
Others, on the other hand, know that they need to get started with getting out of debt as early as possible, but are unfortunately hampered by debt reduction mistakes they make along the way.
Don’t get us wrong. Getting started is basically the most difficult part. And if you have already done it, then you are on track to finally being debt free. But knowing the mistakes that a lot of people make in debt reduction can help you hasten the process, and save you more money and time in the long run.
So, what these mistakes? Let us discuss below.
Not having any debt payment strategy
A strategy is a game plan that you put in place before you take any necessary action. Strategies force you to identify your target, and hit the nail on its head, which help you become more efficient in allocating your monetary resources.
In the case of debts, especially credit card debts, you cannot just sporadically pay one account one month and another account the next month. It is more strategic to put your focus on a single account, and work your way down to the last remaining debt.
If you have multiple debts from different credit cards, chances are they have different interest rates. The most sensible thing to do – from a totally financial vantage point – is to prioritize the account with the highest interest rate because that is going to be the account that will milk you, especially if you have a large balance on it.
Getting started is of ultimate importance but remember to add strategy to your effort, as well. Working smart often works better than just working hard.
Taking on more/new debt
Sometimes, getting started on paying off your debt gives us an illusion of movement or progress. It is like taxi drivers taking a different route to avoid the traffic, only to realize they spent just the same time and gas to reach their destination than if they had just stayed the course.
Some would think it is probably alright to take on a new debt because they have started paying their old debts, anyway. No, it isn’t. Doing so gives you a zero net progress in your debt reduction journey.
The best thing to do while paying off your debts is put away your cards and stop using them. Credit cards are a slippery slope that when you start using them, you often find yourself back in the same old habit of taking on new debts.
Not taking advantage of balance transfer cards
Credit card debts are one of the worst debts one can have due to their sky-high interest rates. However, every now and then, credit card companies afford us the chance to avail of zero interest balance transfer cards, as an introductory offer to the market. Some would offer up to two years of zero interest charges before they start charging their normal APR.
Yet, because we are already traumatized by the evils of credit cards, we become scared of the opportunity.
It is actually wiser to avail of these cards and transfer your balance from your high interest cards than to keep religiously paying for the current interest rate that your cards have. Because transferring your balance to a zero or lower interest card can save you money, you can actually use that savings to boost your payments, and speed up the debt reduction process.
Broken cash flow
You can’t save money on water if you have broken pipes at home. You can’t save money on gas if your car has a leaking gas tank. You can’t pay off your debt if you have a broken cash flow.
A broken cash flow has lots of leakages: examples are rent, utilities, mortgages, groceries, daily allowances, and credit card payments. If all of your income has been divided and allocated to all these expenses, how much is left? Is the number positive or negative? If it’s positive, is it enough to make significant payments on your debt? If it’s negative, how much do you bleed each month? How do you cover those expenses that you can’t pay with your paycheck?
Tell you what, being in debt while having a broken or negative cash flow will be an impossible situation for anyone. Being in such situation already calls for an immediate, aggressive, and effective action such as debt settlement or debt relief programs.
Failure to start as soon as possible
For a lot of us, inertia is the biggest hurdle in making progress towards debt reduction. We never seem to run out of reasons why we can’t get started yet: “budget is still tight”, “not enough extra cash for debt payments”, “I’m waiting for the next bonus to kick-start the process.”
These are some of the reasons we tell ourselves, that’s why we keep postponing debt reduction next month…until that “next month” fades and is forgotten.
The problem is that time is debt’s best friend. Delaying debt reduction means keeping your debt around for an extended period, which gives compounding interest the time it needs to grow your debt until it becomes too much to handle.
Never ever let that happen. Act now before it’s too late!
Debt reduction at Financial Rescue LLC
If you have debts that are too much to handle at the moment, there are institutions that can help you reduce your debt significantly in a much shorter span of time. That’s what we have been doing at Financial Rescue LLC for the last 7 years already.
We have helped individuals get back on track with their lives by negotiating with their creditors on their behalf, so that they would reduce their debt to an amount that our clients can manage to pay.
This has worked for our previous clients – there’s no reason that it won’t for you as well.