Costly Mistakes to Avoid When Paying off Credit Card Debt
We understand that as your credit card debt starts to pile up, so does the anxiety of having to pay it all off. Fortunately, there are plenty of strategies you can use to get your debt under control.
Knowing how best to tackle your debt is knowing what not to do. Here are costly mistakes you want to avoid if you’re looking to get out of credit card debt without hassle.
Credit Card Debt: Mistakes to Avoid
You're on the right track just by researching how to pay off credit card debt. This shows that you're motivated and ready to create a plan. Making a game plan is the first step you should take. It's much easier to stick to a plan than to wing it.
We've all been there, racking up debt on our credit cards and then paying high-interest rates. But it's not the end of the world!
Here are some mistakes you should avoid to have a better financial future.
1. Trying to Pay Off Several Debts at Once
It can be tempting to pay off multiple debts at once, especially when you're struggling to make ends meet. However, there are many good reasons why you should focus on paying off one debt at a time.
Paying off one debt at a time can save money in the long run. It's because you will be paying fewer interest charges overall. Interest charges can add up quickly, so it's important to try and pay them off as soon as possible.
Furthermore, you can make headway quickly by focusing on one debt at a time. This is because all your extra money will go towards paying off the balance of that one debt, rather than being divided among multiple debts. One good technique to follow is the Snowball Method.
2. Applying For More Than One Credit Card
While there's nothing wrong with using credit cards to make purchases, there is such a thing as too much of a good thing. Applying for multiple credit cards can actually do more harm than good.
Here's why you should think twice before applying for multiple cards:
- You could damage your credit score.
- You could end up with more debt than you can handle.
- You could be hit with annual fees from multiple cards.
- You'll have a hard time managing your debts.
Applying for multiple credit cards seems like a good idea. However, there are some dangers associated with doing so. From damaging your credit score to racking up debt to paying annual fees. Do yourself a favor and only apply for the number of cards that you know you can handle responsibly.
3. Not Changing Your Spending Habits
Staying mindful of your spending is key when you're trying to pay off debt. Many people think they can keep up their regular spending habits, but that only leads to more debt. To get rid of what you owe, you'll need to change the way you spend money.
Bad spending habits can lead to serious financial problems like debt and a low credit score—but it's never too late to change your ways!
If you want to get your finances on track, start by making a budget and sticking to it, paying off your debts, setting up an automatic savings plan, and making cash payments instead of using credit cards whenever possible.
4. Not Understanding Why Borrowing Money Is Bad
According to the Survey of Consumer Finance conducted by the Federal Reserve, the average American household has nearly $7,000 in credit card debt. Many are not aware that borrowing money can lead to a vicious cycle of debt.
Once you've taken out a loan, it can be tempting to take out another one to help cover the payments on the first one. But, you're just digging deeper and deeper into a hole that gets harder to climb out of. Before you know it, you're knee-deep in debt.
Be careful about how much money you borrow and only borrow what you can afford to pay back to avoid any potential problems down the road.
5. Not Having an Extra Source of Income
There was a time when you could cling to one job for your entire life and retire without any financial concerns. Unfortunately, those days are gone, the career landscape has shifted, and now relying on a single income is a risky thing to do.
The primary obstacle preventing people from earning more is the belief that you must sacrifice your current job's worth of time to have a second job. That could not be further from the truth! You can make extra streams of income without leaving your present profession.
Putting in the extra effort to establish a side hustle can be challenging, but it pays off—literally and figuratively.
6. Neglecting Smart Spending Habits to Earn Rewards
Many rewards programs are designed to encourage customers to spend more money. However, it's easy to get lost in the various perks that credit card companies offer when signing up for a new credit card.
You shouldn't let that influence your decision too much. Instead, we should think about how we would use the card and if the rewards fit our lifestyle.
While there's nothing wrong with taking advantage of these offers, it's important not to let the pursuit of rewards cause you to spend more money than you can afford.
7. Getting Enticed on Credit Cash Advances and Payday Loans
If you're in a financial bind and need cash fast, your first instinct may be to take out a payday loan or use your credit card to get a cash advance. Loans or a credit card cash advance may look tempting but refrain from borrowing against your future paycheck.
When you take a closer look at the interest rate, you’ll see that this mistake will only lead to more debt. All in all, it's best to avoid using payday loans or credit card cash advances altogether.
8. Falling to Track Your Debt Repayment Progress
Losing track of your debt repayment progress is sometimes inevitable. You make a budget, stick to it for a few months, and then something unexpected comes up. Suddenly, you're behind on your payments and struggling to catch up.
Tracking your progress as you pay off debt provides a new perspective. In some cases, more motivation to keep.
If you can’t keep up with this habit, you could lose the fight soon after it begins. There are many ways to stay on track with your debt repayment. Start by using a budgeting app to help keep you organized.
9. Taking a 401(k) Loan
Borrowing from your 401(k) may seem like a quick and easy way to get your hands on some extra cash, but it's not a decision that should be made lightly. There are several good reasons you shouldn't borrow from your 401(k).
- You will pay more than what your contributions are worth.
- You risk losing even more money if your financial condition worsens.
- The repayment clock resets if you leave or lose a job.
- You'll pay with after-tax dollars.
- Your retirement savings will take a hit.
- You'll pay penalties if you can't repay the loan.
Before borrowing from your 401(k), consider the long-term consequences. You may end up paying taxes and penalties if you can't repay the loan, and taking out a loan could delay your retirement date by years. If possible, look for other sources of funding before tapping into your retirement account.
10. Not Following Through With Your Plan
Being in debt is hard enough, but paying it all off can be an even more challenging task. It requires determination and perseverance to stick to a plan.
As tempting as it may be to abandon ship when things get tough, doing so is almost always a bad idea—especially in repaying debt. From damaging your credit score to increasing the interest you pay overall, there are plenty of reasons why giving up on your repayment plan is a bad idea.
Easily Pay Your Credit Card Debt With These Tips
Managing your debt may seem overwhelming, but there are ways to get out of it. You can talk to a financial advisor or counselor about setting up a budget that works for you. They may even be able to negotiate better terms with creditors on your behalf. Start your journey to a debt-free life today!