You’ve made the decision that you want to get out of debt. Good for you. You’ve got your budget and your debt pay down plan ready to go. You are ready to attack your plan.
Before you start I want you to do one thing. Stop right there. Don’t do another thing to get out of debt. Not until you read this.
When people are trying to get out of debt, they are willing to do and try just about anything to get those bills paid down. This results in many mistakes. Things that can actually cost you in the long run.
Before you go on with your own debt plan, do what you can to avoid making these mistakes.
- How to Get Out of Debt (Even on a Lower Income)
- How to Pay off Credit Card Debt
- How to Really Pay off Your Debt
MISTAKE YOU’LL MAKE GETTING OUT OF DEBT
JUMPING IN WITHOUT A PLAN (or budget)
Picture this. You want to go on vacation to the destination of your dreams. You pack and get in the vehicle, but then what. How will you get there? Did you create a plan on how to arrive? If not, then you are going nowhere – and nowhere fast.
The same is true with your debt. If you try to get out of debt without having a plan of action, you will just end up spinning your wheels and make no progress.
Make sure you have your budget and debt pay down plan in order before you start to work on paying down any debts. You have to understand where you can make adjustments in your spending in order to free up more income to pay off your debts.
NOT CHANGING YOUR ATTITUDE
Change is tough. If you are eliminating your luxuries from your budget such as the morning coffee, the gym or even dinner out, it can really be a tough pill to swallow.
Before you can allow change to happen, you have to be open to it. If you find that you are not ready to totally look at your spending in a different way, make changes to your spending and really get your debt paid off, then you need to stop right now.
There is no way you can be successful if you are not willing to make the change and put in the hard work needed to reach your goal.
TRYING TOO HARD
One way to get out of debt is to make changes to your spending. However, you can take this too far and make it too difficult to maintain.
Look at it as you would if you were on a diet. If you suddenly force yourself to eat nothing but salad, you are bound to go to extremes. Before you know it, you’ve consumed the entire bag of potato chips, thereby undoing all you’ve been working to change.
The same is true with changing your spending to try to get out of debt. While it is important to scale back on your spending, make sure you allow yourself an occasional fun way to spend be it dining out, picking up a new pair of shoes or a day out with the kids.
If you want to get out of debt, then that has to be your one and only financial goal. Nothing else should get in the way. You can’t get the new car. You can’t upgrade your cell phone.
Nope. That all has to wait.
Your priority has to be to get out of debt. You need to develop tunnel vision when it comes to this goal.
Once you have started to pay off those debts and are on the road to financial freedom (meaning, you are debt free), you will have income freed up and then, and only then, should other financial purchases even come into the picture.
FORGETTING TO SAVE FOR RETIREMENT
This is actually a grey area as some experts will say you need to continue saving for retirement, while others will recommend that you suspend contributions. There is actually a middle ground you can strive for.
If your company offers any sort of a matching contribution, make sure you continue to contribute the amount needed to maximize your contributions. For instance, if they match you 25% of what you contribute, up to 4% of your income, make sure you are putting away the 4%. The reason is that you are passing up 1% of your income going right into your account for retirement – and it costs you nothing!
Even just scaling back on the amount you save can make enough of a difference in your take-home pay to free up money to pay off your debts, still while continuing to grow your retirement savings account.