Here are five mistakes not to make when in debt.
1. Failing to build an emergency reserve
When the unexpected catches you by surprise, don’t reach for your credit card. You’re going to need a different plan in order to get out of debt. Start putting aside a little money each week for emergencies. It can be as little as $10, that’s a couple of missed lattes or a fast-food lunch.
Once you have that emergency fund, life’s surprises don’t need to be disasters. Build your reserve to $500 in a year and if you can stomach it, go ahead and take it up to $1000. Then, forget it’s there… until your car stalls in the middle of an intersection.
2. Hiding debt from your significant other
If you are hiding debt from your partner, you make it much more difficult to climb out of the hole. You may feel like a failure when you spill your secret, but once you do, you can stop pretending and start making real progress toward your goals.
With the support of your beloved, you can curb your enthusiasm when it comes to going into further debt. That fancy dinner out? A picnic in the park is just as much fun. And, as a bonus, your relationship will be healthier for the honesty.
3. Ignoring inevitable expenses
Although some expenses are discretionary, like clothing, you generally can’t go without, say, shoes. If you need boots for the coming winter, that purchase ought to be included in the annual budget. Look ahead and anticipate expenses so that you don’t end up paying more in a pinch. End-of-season sales or thrift stores are good options, too, when you are in debt.
4. Continuing to use plastic rather than cash
Both debit and credit card usage can keep you in debt. Dave Ramsey, the financial guru, and author of “The Total Money Makeover,” suggests that once you determine your budget, grab a stack of envelopes, label them according to your budget categories, and stuff them with cash. When the cash runs out, stop spending. It’s that simple.
5. Losing motivation behind a pile of debt
Financial advisors typically recommend paying down high-interest debt first. Great. But, when you’re facing a mountain of minimum payments each month and nothing seems to change, you can feel demotivated. In this case, pay the smallest bill off first, which may, in fact, be a high-interest retail card. By paying off the little debt first, you will reduce the number of creditors and feel good about your progress.
With a realistic budget in place, and if you avoid these five mistakes not to make when you are in debt, you can be debt free before you know it.
If you need help, call 1.800.463.8371 One of our Licensed Insolvency Trustees will be happy to meet with you and help you avoid the money mistakes everyone makes.