No one wants to find themselves struggling with debt, and yet, it happens. A medical emergency that insurance doesn’t cover a car repair bill that you’re not prepared for or a sudden loss of income: any unexpected expense you’re not ready for can easily put you in debt. And these are just the situations that you have little control over. If you’re financially irresponsible and often abuse your credit card, that’s also a surefire way to get into deep debt.
So, what do you do when you find yourself struggling to pay off your debts? At this point, what you do next is critical for your financial future. Here are some of the mistakes you must avoid when you’re already buried in debt:
1. Overspending
Avoiding overspending seems like a no-brainer, and yet there are still people in debt who spend even more money to make themselves feel better about the fact that they owe so much. It’s an attempt to compensate for the negative feelings about being in debt, such as anxiety, guilt, and depression, which will only lead to–you guessed it, even more debt.
2. Taking out loans immediately
Taking out a Singapore personal loan or a debt consolidation loan is a viable solution for people struggling to make payments and are thus incurring late fees and hurting their credit score in the process. However, this shouldn’t be your first consideration. Taking out a loan to pay your debts does not lower the overall amount you owe; it just buys you time to get your finances together.
If you decide to look for a loan to pay off your current debts, shop around for one with lower interest rates to avoid increasing the overall amount you owe.
3. Using credit cards
To get out of debt, you need to stop adding to it. That said, stop using your credit at least until you find your footing again. Rearrange your budget and learn how you can live solely on cash. If you are easily tempted to use your credit cards, lock them in your safe or freeze them in your freezer: whatever it takes to make yourself stop using them.
However, think twice before canceling your credit card after it’s paid off. In doing so, you may be doing more harm than good because canceling your credit card means you’re also decreasing the amount of credit available to you, which can negatively impact your credit score. Instead, keep the credit card open and refrain from using it to keep your lines of credit intact.
4. Sticking to the same budget
Your previous budget is probably what got you into debt in the first place. If you’re living beyond your means, then it’s high time to restructure your budget into something more financially sustainable. This means eliminating unnecessary expenses, cutting down on ‘wants’ and focusing on the ‘needs,’ putting big purchases on hold, and generally decreasing your spending.
You may have to make sacrifices along the way, but they are necessary to help you get out of debt faster.
5. Missing debt payments
Missing debt payments only inflates your ballooned-up debt even further. Not only that, but you’re also hurting your credit score in the process.
Avoid missing debt payments by automating them on your banking app. Doing this will help ensure that your bills are paid on time every month, helping you avoid interest and penalties.
6. Paying off all debts equally
It is a tempting idea to pay off a good portion of each debt you have every month. However, there’s something smarter than you can do, which is paying off a good chunk of the debt with the highest interest first and moving your way down from there. Working down the debts with the highest interest rates will help you prevent charges from accumulating, making it easier to pay off your debts in the long run.
7. Neglecting your emergency fund
Paying off debt is good, but don’t neglect saving money for rainy days. If you have to pay for a sudden expense without an emergency fund, you’re just going to start the cycle all over again. Remember that it can only take so little to put you in deep debt, so you better be prepared with an emergency fund that can cover at least six months of your living expenses.
Getting out of deep debt can feel like an insurmountable task, but with the right strategies, you can call yourself debt-free soon. Keep these mistakes in mind and be proactive in avoiding them as you pay down your debts so you can make the journey a lot easier.