Thinking about tackling out-of-control debt problems all on your own? It’s not for
the faint of heart — it takes time, persistence and serious dedication. Without the proper research (or the help of a professional debt management company), you’re sure to make some mistakes along the way. Unfortunately, many of those mistakes could make your debt problems even worse and they can have serious implications on your financial future, if you’re not careful. Here are some of the most common mistakes people make when trying to eliminate or reduce credit card debt and things you can do to avoid them:
Creating an Unrealistic Plan
Creating an unrealistic or impractical debt reduction plan is a common mistake. You can’t fix your debt problems overnight and it can take months (or years!) for your situation to be completely resolved. Setting your goals too high could leave you feeling frustrated or hopeless when you can’t make ends meet. Rather than falling off track when it gets too tough, take it slow and be patient. Make sure you create a debt reduction plan that allows you to pay all your monthly obligations with ease to ensure that you’ll make it through to the end.
Tackling Too Many Accounts at Once
Don’t try to payoff all your outstanding credit card debt simultaneously. If you have multiple credit accounts that you’d like to eliminate, deal with each one individually — one at a time. Not only will the progress be more obvious as you make payments, but paying off one account completely will be more impactful to your credit score than paying off a smaller amount on several different accounts.
Taking Out a Second Mortgage
Although taking out a second mortgage or using a home equity line are legitimate ways to consolidate and reduce your debt, studies show that most people who use these methods eventually end up with even more debt further down the road. “Robbing Peter to pay Paul” is no way to tackle your debt problems. If you don’t resolve the underlying issue of spending more money than you make, you’ll end up in the same situation as before. Is paying off your unsecured debt really worth loosing your home? Dont’ risk it! Before you consider a second mortgage or home equity loan, be sure you can afford the monthly payments. And be prepared to drastically reduce your spending to ensure you don’t fall into the same traps again.
Using Credit Cards to Pay Credit Cards
You might be enticed by the 0% APR credit cards that show up in your mailbox each day, but proceed with caution. While it’s possible to transfer your higher rate credit card balances and achieve some savings, most people that have problems with debt have problems for a reason. If you don’t have the financial discipline to control your spending and avoid new purchases, your problems will get even worse. Keep in mind that the 0% APR won’t last forever, and at some point you’ll be paying interest on your balance. You could end up paying even higher rates, and if you add new charges you’ll have even more debt to eliminate.
Canceling Credit Cards
If you lack the self-control to keep your credit cards in your wallet, you may find it tempting ton cancel your accounts completely. But having open credit card accounts can have a positive impact on your credit score, especially when you keep the balances low. If you must close your credit card accounts, wait until the cards are paid off completely. Canceling an account before it’s paid-in-full will make it less likely the credit card company will be willing to work with you if you need any assistance.
Making Big Purchases
This should be obvious! If you’re seriously committed to debt reduction, you shouldn’t be buying large items that you can’t afford. If you can’t pay with cash, it’s not worth risking your financial future. Wait until you’ve completely eliminated your debt before you consider any large purchases on credit. Credit should be reserved for emergency situations only – and only used as a last resort.
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