It isn’t unusual for many people within a single neighborhood to feel overwhelmed by debt. It’s so easy to slip into debt these days that just about every household has had some kind of struggle with repaying a loan, including emergency repairs to homes or autos, unexpected medical bills, or long-lasting student loans.
With that said, there’s also plenty of advice for getting out of debt. With so much information, it seems like it would be easier to pay down those loans and get into a better financial situation. However, a lot of the information online is marketed as a quick fix or is really some kind of loan offered as debt relief. Here are some of the things you should beware of:
1. Quick Fix Schemes
Getting into debt many only take minutes but getting out of debt requires a lengthy span of repayment. When you reach out to anyone for help with debt management or reduction, if they aren’t offering counseling that includes changes in your spending habits, you should look somewhere else. It isn’t enough to understand how interest works (although you certainly do need to understand this;) you also need to change how you are spending money.
2. Taking Loans To Pay Off Loans
There are a few situations suited to personal loans for debt consolidation, but too often, people take out that additional debt, clear up their credit cards, and then continue spending as usual. If you’re serious about paying off all those loans, begin by paying off small debts. Then take the payments that were going toward those debts and put an increased amount toward your next largest debt. This “snowball” method allows you to experience victories early on and motivate you to keep working toward your goal of becoming debt-free.
3. Neglecting Your Budget
It can’t be said too often; the best way to get out of debt is to change how you’re spending money. This requires keeping track out of your income and account for every penny you spend. A realistic budget must include housing, food, insurance, and education. You need to factor in clothes, auto maintenance, and similar expenses. By creating a comprehensive budget, you should recognize areas where you can cut down, such as by eliminating subscriptions you are no longer using.
4. Not Prioritizing Your Goals
A lot of people believe they have a working budget and debt management plan, but they haven’t actually written anything down. When great deals on vacations come up or a holiday comes around, those budgets are quickly shoved to the back of the mind. A good solution is to have a clear goal in mind and in front of your eyes. Tape up a picture that represents being debt-free or write down the deadline for paying off the debt you’re currently working on and put that date where you can see it each day.
5. Thinking of Bankruptcy as a Start Over Plan
Too many people mistakenly believe that declaring bankruptcy will free them from their existing debts, so they can get a fresh start. Bankruptcy stays on your credit history for eight to ten years and can get in the way of buying a house, renting an apartment, purchasing a car, and maybe even getting a job. This should be one of the very last options you consider if you’re struggling with debts.
6. Failing To Stick With Your Plan
If you’ve carefully studied your debt consolidation plans and committed to a program, you don’t have the option of quitting. Failing to make payments as you’ve promised will cause lasting damage to your credit score and the financial institutions involved in the program won’t forget that you didn’t follow through. Avoid this problem by thoroughly researching your options before committing to any plan.
Some credit counseling agencies are legitimate, while many others are not. Make sure you are 100 percent sure you’re working with a trustworthy agency to protect your current and future financial situation.
7. Working on Debt Reduction Without Help
Financial struggles cause a lot of stress and trying to overcome those struggles on your own can lead to feelings of frustration and discouragement. If you have family or friends with experience in banking and finance, you may get some helpful tips and strategies from them. Your creditors may offer guidance for making consistent payments. You may also find that your bank offers resources for improving your finances. GBTI Bank, a leading bank since 1836, offers a wide range of financial services, such as loan financing, investment guidance, and financial education. If your bank doesn’t have the resources you need, it probably knows where to send you for help.
There may many agencies in your area with plans for getting out of debt, and there are endless resources online. Carefully research any of those offers or suggestions to avoid some of the most common mistakes people make as they work to get out of debt. Finally, create a budget and change your spending habits. It is possible to get out of debt and improve your financial situation, but it will take a strong commitment and several months or even years to reach your goal.