In previous weeks, we talked about how to come up with a plan and save more money. Here are the links, in case you missed them:
This week we’re delving into some common pitfalls to avoid.
Having a plan and saving more money are both essential to paying off debt; however, there are other things that can derail even the best-laid plans and intentions. Here are some things to watch out for…
Mistake #1: Not changing your spending habits.
Truth: You will never get out of debt if you don’t adjust the way you spend.
If you have debt it means you are accustomed to spending more than you earn. Most of this is probably habitual. Meaning, you are going to have to work extra hard to identify the ways in which you spend your money and where you might be able to cut back (i.e. your morning coffee, lunch/dinner out, impulse purchases, etc.).
Now, this doesn’t mean you have to go without, it just means you need to more carefully consider the actual cost when you buy things. Is it necessary? Can I truly afford it? How does this affect the big picture?
Mistake #2: Not creating a practical budget.
Truth: Having a budget is important. But, having a realistic budget you can meet, and follow is key.
A budget that doesn’t cover all your expenses will do you no good because you will always go over and feel like a failure. Having too many extras in your budget goes along with #1 and means there’s a good chance you will spend above your means.
Find the happy medium where your expenses are covered, but you have the room to pay more than just the minimums on your cards. Telling your money exactly where it should go and being able to operate within those parameters is really liberating!
Mistake #3: Trying to pay off all your debt at once.
Truth: It likely took you a while to get into debt and it will take you a while to get out.
Many people make the mistake of trying to pay everything off all at once. But it is better to focus on one or two things at a time and work your way down the list. (See
Mistake #4: Not having emergency savings.
Many people don’t have enough set aside to cover an unexpected expense of more than a couple hundred dollars. In fact, this often contributes to their debt in the first place. We usually can’t predict unemployment, illness, medical or vet bills, home/auto repair, etc.
What we can predict is that things will come up and catch us off-guard. The recommended amount to have set aside for emergencies is 3-6 months of expenses. Making sure you are prepared in case of emergency will help you avoid going into debt again in the future.
Mistake #5: Closing accounts when they are paid off.
Paying off your debt is great but closing accounts may actually hurt your score—particularly if it’s a card you’ve had for a long time.
Credit scoring systems rely not only on how much you owe but also on how much you have available to spend and the length of your credit history as well. So, the best thing to do is pay them off and put them somewhere you won’t be tempted to use them.
Good luck on your journey to becoming debt-free! And, as always, if you need help finding money to save or are curious about growing your wealth, I would love to chat via a FREE connection call
Light and love,