4 Lessons learned from my debt reduction mistakes
Debt reduction is a noble step that you can ever take. Less debt means you save more on interest charges, have more available cash on hand, and stay prepared to any unforeseen calamities.
If you have less debt burdens, you can even focus on savings for your kids college, fund investments, and build wealth for a long and happy retirement. However, while some people successfully pay off their loans, some mess up, and I was one of the latter.
Here are four key mistakes people commit while debt reduction and how you can avoid doing them.
1) High interest accounts: It’s always very difficult to cope with a high interest account. It always seems a never-ending journey. The more you pay off, they more you realize how much is still remaining. Actually, in a high interest account, a majority of your payments get burned up paying interest rates, and very little goes to the principal.
It’s always beneficial to use a balance transfer credit card to combat high interest accounts. Move all your debt from a high interest credit card to a lower one, and hence allow yourself to pay off the principal faster.
2) Negative cash flow: You’re never going to have debt free life if your expenses are higher than your income. In fact, negative cash flow can be the reason you’re in debt today. There are two ways to destroy negative cash flow – lower your expenses, or raise your income – or both.
Debt consolidation can be helpful to reduce your total monthly payments. Find out and cut back on unwanted expenses. Look for side jobs to bring in some additional income.
3) Adding more debt: If you’re already drowned in debt, adding more isn’t going to help help you stay afloat I guess. But why would someone add to the lot if he or she is already try to break free? Perhaps, due to some unforeseen and unavoidable expenses.
A possible way out might be putting off assuming additional and unnecessary expenses when you’re paying off your existing debts. Keep some emergency cash in place to deal with the unavoidable ones.
4) Not tracking progress: Successful businesses are always interested in looking at every financial reports, and every consumer feedback they come across. If you don’t check your payment history on a regular basis and focus on how much is left, probably you’re not making any progress at all. Chances are that you might not even progressing at all, and your debt is actually growing.
Add up your total debt every month and keep a close eye on your progress.
Did you face any of these problems that I faced? Share with us if there was any other particular thing you faced.