You made the brave decision to get to grips with just how much you owe your creditors, and have now finally committed to paying off debt, no matter how long it takes. Go you. The next step is to make sure that you’re well aware of the common mistakes that many in your situation make.
Paying off debt mistake number one: You repay all your debts equally
If you’re splitting your spare cash between all your debts equally, stop. Take a step back and create a list of your debts alongside the extra fees and interest rates you’re being charged. Whichever comes out the costliest should be the one you overpay on, while you repay only the minimum on the remaining debts.
By focusing on repaying one debt at a time you also get the satisfaction of seeing your financial situation approve, bit by bit. This is known as the snowball method of debt repayment.
Paying off debt mistake number two: You have no plan… none at all
“Fail to plan, and you plan to fail” – it’s somewhat of an overused saying, but when it comes to tackling your debts it couldn’t be truer.
Start by listing out your debts and adding up what you owe. From here you may want to look into a debt consolidation loan (read our guide on this topic: 5 Debt consolidation mistakes and how to avoid them).
Paying off debt mistake number three: You haven’t changed your spending habits
If you want to repay your debts as quickly as possible there’s nothing else for it – you need to make compromises. That means cutting out every unnecessary expense and reviewing all your outgoings. Start with your direct debit list and become more mindful in your everyday spending.
Paying off debt mistake number four: You don’t have an emergency fund
In your bid to pay off your debts as soon as possible you’ve poured ALL your money into your debt fund, with nothing put away for an emergency. This is a BIG mistake, as it can leave you short should you have a critical bill to cover – such as a car repair or emergency travel. In this instance you may be forced to turn to a credit product that will only worsen your situation, such as a payday loan.
Paying off debt mistake number five: You haven’t researched potential debt solutions
Deciding that you’re going to repay your debts is one thing, actually managing it is another. If you’ve found that your debts simply aren’t reducing, or you don’t have enough spare income to repay your debts, you should research alternative options.
Paying off debt mistake number six: Using a low interest or free balance transfer offer, then running up a new line of credit
This is one of the easiest ways to fall back into the cycle of debt, only this time you have an added line of credit that is worsening your situation and adding to the total you owe.
If you’re truly serious about getting out of debt, cut up those cards and fully commit to the process.
Paying off debt mistake number seven: You haven’t reviewed your credit history
While you may feel as though you’re fully on top of your debts and you see your balances gradually reducing, there may be many other factors that are impacting your credit score.
There are many free credit report services that are available online, such as ClearScore, Noddle and Experian Credit Score. If you decide to use a different credit report provider just make sure that the service is genuinely free. If you’re asked to input your card details then the service will involve a monthly fee in the future.
Paying off debt mistake number eight: You haven’t spoken to debt experts
For all of the reading and online research in the world, you’ll likely never be as well-placed to understand what you should be doing to overcome debt as debt experts. You also need to understand that there’s a lot of misinformation out there, and even if the guidance is factual, it isn’t tailored to your exact circumstances.
If you’d like no-obligation guidance from professional debt advisers our team is here to help – free from charge, free from judgement. Call our friendly team on freephone on 0800 002 9051 or send them a message via the contact page and we can either email or call you back.