7 mistakes to avoid when trying to get out of debt

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Getting into debt is probably easier than getting out of it.

Key points

  • Getting out of debt takes time. How you treat yourself during this time can help determine your success.
  • The practical steps you learn as you become debt free will serve you throughout your life.

We Americans have about $15 trillion in debt. Sounds like a made up number, doesn’t it? Unfortunately it’s true. Here’s what matters, though: No matter how much debt you are in as an individual, there is a way out. It may take longer than you want, and it may be more difficult than you hope, but it is possible. Once you’ve decided on a debt reduction method and got started, here are seven mistakes to avoid.

1. Keep fighting

As someone who has been in deep debt and gotten out of it, I’m here to tell you that blaming yourself for going into debt is a waste of energy. Looking back won’t get you where you want to go, and spending energy on guilt and shame won’t leave you strong enough to live life the way you want. So, are you in debt? Chances are you’ve learned some important lessons along the way. And even better, you’re adopting new, healthier habits that can help you throughout your life.

2. Being too proud to ask for help

For some, getting out of debt is all about choosing one method of debt reduction and sticking to it. For others, it is necessary to get to the bottom of the problem, to understand how it happened in the first place. If you feel like you’re floundering, don’t be too proud to ask for help. Organizations like the National Foundation for Credit Counseling can help you get to the heart of your spending issues and develop an action plan to get out of debt.

3. Caring about what other people think

Let’s say you take the same five-day trip with friends every year, whether you can afford it or not. You can refuse to travel until you have got your debt under control. True friends will support your efforts to improve your financial situation. The ones that don’t really matter.

4. Take advantage of retirement

If you have a 401(k) or other investment plan for retirement, it may be tempting to withdraw money from that fund to pay off debt. Think twice before doing so. Taking money in retirement not only leads to unnecessary costs, but can also impact your future. When you leave money in a retirement account to grow, it earns interest. And then (and that’s the magic of compound interest), the interest earned also earns interest. Letting it grow uninterrupted is almost always the best choice.

5. Become so enthusiastic that you forget to save for emergencies

As the ongoing global pandemic has illustrated, life takes strange twists and turns, and things can happen that we never expected. It’s essential that you have money set aside to cover emergencies, such as a broken down car or a flooded basement. The last thing you want to do when paying down debt is to borrow more to cover an emergency. When determining how much you can repay each month, remember to budget enough to set aside in an emergency account. If you never have to touch that account, great.

6. Closing of accounts

Once I was so mad at myself for charging a credit card that I paid for it and immediately canceled it. It felt good for about 60 seconds. And then I remembered the role “available credit” plays in our credit scores. Essentially, creditors want us to have access to all kinds of money that we are too disciplined to touch. Let’s say you have five credit cards, each with an available balance of $2,000. That’s a total of $10,000 available to you. The lower the balance of these cards, the more you have. Now, if you cancel one of those cards, your total available credit drops to $8,000, and that doesn’t sound so good.

If you pay an annual fee for a card, have the card refunded, then call the card issuer and ask them to reduce or eliminate the fee. Unless your credit score is so high that you can afford to take a hit, don’t cancel the card.

Read more: How much available credit should I have?

7. Forgetting to reward yourself

We humans are emotional beings (some of us more so than others). I would be lying if I said that paying off debt is fun, but it can be rewarding.

Why not set up a reward system? For example, buy a new video game every time your balances drop an additional $1,000. Invite a few friends over for dinner whenever the sales drop by $750. Plan an inexpensive weekend when a particular credit card is paid in full. In other words, build rewards into your deleveraging plan. You will have earned them.

If you’ve ever quit a job that made you unhappy or broke up with someone you weren’t right for, you know how powerful it is to take control of your life. Debt repayment should be celebrated. As you find that you have more money left in your bank account each month, you should be celebrated.

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