Top 5 Most Common Pitfalls in Eliminating Debt

Borrowing money can be a useful tool to help you finance a major purchase such as an education, a home or a vehicle. But left unchecked, debt can become a huge burden that haunts you for the rest of your financial life. Now is the time to address any issues getting in the way of your financial goals. These tips can help you avoid some common pitfalls of getting out of debt.

#1 Not Paying On Time

The due date on your bill is not simply a suggestion of when your lender would like to receive payment. When you fail to make timely payments, not only will it take longer to pay down debt, you end up increasing what you owe with penalties and fees that are tacked on.

Late payments can also hurt your credit score and lead to higher interest rates. The long-term damage can be devastating. It is important to work your payments into your budget to allow plenty of time for the payment to reach the lender before the due date.

#2 Not Paying Attention to Interest Rates

When paying down debt, it always makes more financial sense to pay off high interest accounts first. To pay off debt quickly, list all of your debts, excluding your mortgage, by interest rate with the highest interest accounts on the top of the list.

Apply as much money as possible to the top account while paying the minimum payment on the rest. Continue to do this until the top account is paid off and then start on the next highest interest rate account until all debt is paid off.

#3 Only Making the Minimum Payment

At this point in the game, you probably already know that paying the minimum will do little or nothing to erase your debt. The minimum payment set by the credit card company barely covers the interest and only making minimum payments can result in paying hundreds if not thousands more than you originally owed. Use a loan calculator to figure out the best way to pay off your debt.

#4 Using Your Credit Card for Cash Advances

If you don’t have the cash on hand then you can’t afford to make the purchase. By using your credit card for a cash advance, you not only tack on cash advance fees, but you will also have to contend with a significantly higher interest rate on the transaction. This never makes sense when trying to reduce debt.

#5 Choosing the Wrong Debt Relief Help

There are thousands of companies that have popped up to “serve” consumers drowning in debt. While some debt relief companies are legitimate and offer services that can help individuals based on their unique situation, there are plenty more that are looking to take advantage of people in desperate situations.

Whether you are considering debt consolidation, debt settlement or even bankruptcy, it is important to understand how each process works before looking for third party help. If after carefully researching the process you decide on one that meets your current needs, consider whether you can do on your own what these companies are charging a fee to do for you. In most cases, the answer is yes, you can create your own debt consolidation plan free of charge.

As millions of consumers have already learned, getting out of debt is never quick or easy. It takes time and considerable effort to regain control over your personal finances. However, the results of your diligence are well worth it. Eliminating debt is the first step in working toward financial goals that will allow for financial security in the future.