When you are in debt, you know that you need to get out of that situation as fast as you can. You know that it’s taking a toll on your monthly paycheck and you are not comfortable with carrying a balance. Yet, sometimes, we unknowingly do things that are making our debt worse instead. We dig a deeper hole instead of making our way up to freedom from debt. Here are some of them.
Things that makes your debt a bad debt
Paying only the minimum amount
The minimum amount required to pay, which you can see on your monthly statement is a devil in disguise. You see, it gives you a Band-Aid solution so that you can avoid penalty charges by your creditor. Admit it, paying only the minimum is lighter on your pocket and it’s a lot easier to come up with such amount. But minimum amount is designed for your creditor’s advantage, not yours. It is their game and you cannot beat them at it.
Say you have a balance of $5,000 which charges 18 percent in interest. If you make a monthly minimum payment of $125, it will take you 273 months or 11 years to totally eliminate the debt. By then you will have paid $6,923 in interest. However, if you pay say $250 per month, you will be able to pay your debt within 24 months and you will have paid only $989 in interest. See that huge difference?
Paying only the minimum amount may keep debt collectors or collection departments at bay but it’s a terrible strategy to pay off debt, let alone a substantial way of owning a credit card.
If you have to pay the minimum, only do it once or rarely — never do it habitually because it will only worsen you debt.
Using your cards while trying to pay your debt
Being in debt for a long time can teach us a lesson or two about handling credit. So we promise to ourselves that we will freeze or lock away our cards somewhere so we can no longer use them. Others would cut them to bits as an act of renunciation of credit. Some of us, however, would fall into a slippery slope. Once they get traction of their payment and have made significant payment already, they start to use their credit cards again. For smaller purchases at first, then the next thing they know, they are already back into the same old habit.
If you don’t want to make your debt problem worse, have a strong and final resolve not to use your cards while you are still paying it off. Use cash for your transactions, even if it’s just a small one. Especially if it’s just a small one!
Applying for new credit when you’re maxed out
When you have run out of credit, it is tempting to apply for a new credit from a different lender so you still have money “in case of emergencies” (we’ve heard that before), or who knows, you just can’t live without credit cards.
Being maxed out is a sign that you are overextended and that you have to start looking at your ways of spending — it’s not a sign that you should get another credit!
Not looking at your monthly credit statement
When you’re in debt, staring at your credit card statement would just make you feel bad about your situation. So you just stop opening your credit card bills, content on knowing that “Yeah, I’m in debt. I’m going to pay if off someday.” You don’t like looking at the numbers.
But burying yourself in the sand to avoid confronting the real situation is not the right thing to do. Moreover, you need to know what’s really happening with your debt so you will know what steps to take. If you see how huge the interests that are being slapped on you every month, you will begin to understand the importance of making more than minimum payments and paying your debt fast. Likewise, if you make it a habit to check your monthly statement, you will be able to check for errors and fraudulent transactions that might just make your debt even worse.
Keeping the same bad financial habits
There are good habits and there are bad habits. One thing is common between them: they are quite difficult to break. Waking up early to exercise is a good habit. Eating healthy is a good habit. Being in the know about your financial health is a good habit.
On the other hand, smoking is a bad habit. Spending half your salary because it’s payday is a terrible habit. Living beyond your means with zero savings is a disastrous habit. These bad financial habits will always push you down if you are trying to pay off your debt. Much like having a “yo-yo diet” where one day you are one on a diet, the next day you are binge eating, you will never make significant progress in paying off your debts if you are not willing to change them and embrace better financial habits.
If you really want to get out of your situation, you have to accept the fact that your debt was of your own doing. It was your financial habits that got you in it.
Not looking at other viable solutions to pay off debt
There are more than one ways to pay off debt. For example, you can negotiate for lower monthly interest rate. You can take advantage of balance transfers on cards with introductory APRs of zero percent. You can ask for a loan from family for zero interest, as well, if you’re lucky to have people around you who are willing to help you. You can even negotiate with debt collectors on your own. What we’re saying is that you are not stuck with making payments while counting down the number of months left for you to get out of debt.
No, absolutely not. There are non-traditional, yet still legal and logical ways to pay off your debts. Financial Rescue for example, offers debt relief programs where we negotiate your total debt balance for far less than what you actually owe. As a result, you cut your total balance as well as the number of months that you have to be paying your debt. A lot of debtors have found freedom from debt through debt negotiation so there’s no reason why, you shouldn’t be able to do so, as well.
Call us today to fully understand how it works.