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Paying off debt can be one of the most stressful things you ever do.  The constant pressure to keep paying extra on debts while still maintaining the regular payments of everyday life can be more than some people can handle.  The journey can be difficult as you decide which expenses to cut back on and which ones to cut out completely, but the end result is pure bliss.

Have you ever wondered if you are paying off your debts correctly?  Yes, that’s right; there are ways to pay debts off incorrectly!  Over my years in credit counseling I have seen people make some common mistakes when paying off their debts, but these can be corrected quickly once you know what you’re looking for.  Here are my 10 most common mistakes that people make when they are trying to pay off debts;

  1. Not having a budget

There is really no way you’re going to be able to pay off debts without having a plan of action; that is to say, a budget.  Without a budget, you will have no concrete idea where the money is going and what you can afford to spend on debt repayment every month.

I know a lot of people are against budgeting because they think it can suck the fun out of life.  However, I am a firm believer that budgeting actually adds a level of comfort to life which translates to fun.  Instead of wondering IF you can afford something it tells to without a doubt that either you can or cannot.  Sure you have to plan for your fun, but at least it won’t work against your plan to pay off debts.

Running a successful budget while paying off your debts will allow you to still enjoy the occasional night out without digging yourself deeper into debt.  Check out my other blog posts on creating a running a successful budget here.

  1. Not having a “why”

I know this might sound silly, but not having a reason to work hard at budgeting and paying off debts can really make it difficult at times.  Having that end result in sight, such as a holiday or just looking at the bank accounts knowing you no longer have to make credit card payments, can really give you the motivation you need to keep going when the road gets rough.

Take some time before building your debt repayment plan and decide why you want to be debt free.  Keep that goal in mind and work toward achieving it.  It’ll help, trust me.

  1. Not including your significant other

If you’re single skip to the next number.  But, if you are in a committed relationship where you both contribute to the debts as well as the budget, you simply must include your partner in the plans.  This might be the single most important tip after setting up a budget.

When you are in a relationship you are pretty much sharing everything.  This includes the debts, expenses, and responsibilities.  Even if you’re only dating, it’s important that they understand what you are doing so that they can support you while you cut costs and try to save money.  There is nothing more difficult, when it comes to the budget and debt repayment, than having your partner sabotage all your efforts by spending money you’re trying to save or increasing the debt levels while you’re trying to pay them off.

Take some time before you start this process and discuss your plans and goals.  Having a partner who is on board with your plan will make it that much easier to follow once you start.

  1. Waiting to make more money

One of the biggest reasons I hear from people who want to pay down debts but can’t is that they don’t make enough money.  They’ll start once that promotion gets approved or when they get that raise they were promised.  If you keep pushing your goals to the wayside because you don’t have enough money, they will never happen.  The truth is, there is no time like the present.

Even small amounts of money spent paying off debt can add up quickly and, when that raise finally happens, the debt level will be much less to tackle.  Cut out the coffee every day and use that money to pay off debts.  $5 a week adds up to $260 a year, and I don’t know anyone who wouldn’t want to be $260 less in debt.

  1. Paying extra money on every debt at once

If you have ten different sources of debt, there is no real advantage to pay them all off at once.  Chances are you will get discouraged at how slowly your progress is happening and just give up completely.  Instead, pick the highest interest debt and throw all your extra cash at that one first!  Now I’m not saying to forget about the other 9 debt loads, keep those payments up, but all extra money goes toward one high interest debt first.

The confidence you will find once one debt is paid off will boost your resolve to tackle the next highest interest debt.  It’s called the snowball method and it works for a reason.  Do you need a confidence boost a little sooner in the debt payoff plan?  Pick a high interest, low balance debt and pay that off first.  The boost you get from paying off the debt will push you to work even harder toward tackling the rest of your debts.

  1. Not having an emergency fund

Paying off debts can be really difficult and tedious.  There will be times when having no extra cash will be almost more than you can handle.  That feeling is only compounded when there’s an actual emergency that requires you to spend money.

That’s why you need an emergency fund.  Having extra money in the bank for the surprise repairs that pop up from time to time will go a long way to helping you stay away from going deeper into debt.

If you take nothing else away from this post, at least start an emergency fund.  They’re great to have even if you are not paying down debts.

  1. Not using automation

Have you ever heard the financial mantra “pay yourself first”?  If you’ve ever looked up budgets or finances on the internet you’ve undoubtedly heard people telling you to put a little money aside for yourself before spending the extra.

One of the best things you can do for yourself financially is to automatically have the bank take some money and place it in a different account every payday before you get a chance to spend it.  It’ll be transferred out of your spending account in the middle of the night into a savings account and you won’t even miss it.  Remember how saving $5 a week over a year would save $260?  Now imagine you’re saving $75 a payday for a year.  You would have $1950 by the end of the year!  Not bad for just making a quick call to your bank to set it up.

  1. Not being committed

Paying off debts, especially large amounts, is not for weak willed people.  It requires discipline and dedication each and every day.  If you’re only going to pay off debts and work toward an emergency fund when it’s easy then you are not ready yet.  I’m not going to lie; it’s going to be a lot tougher than you think.

It’s like working out at the gym and eating right.  It’s tiring and it’s a sacrifice, but the end result cannot be denied.  If you stick to it and give it 100% you will be very happy with the results.

  1. Continuing to use credit

If you’re in debt, chances are you have been using credit cards.  The average, non-mortgage debt for Canadians in 2017 is over $29,000 with average credit card balances running at more than $4000 each.  If credit cards are a huge part of the problem then you are unaware of how to use them properly.  If you are 100% committed to paying off debts, it’s paramount that you stop using credit cards immediately.

I don’t think that credit cards are evil and that we should cut them all up, but I do believe that there is a proper way to use them.  You need to have a plan for paying them off.  Use them, and pay them off when the bill comes in; or even sooner if possible!

But, if the temptation is just too great to pass up, then just get rid of them entirely.  It’ll be an adjustment at first but you’ll manage.

  1. Not closing accounts when they are paid

Once you manage to pay off a credit card the urge to cut up the card and throw it away will be overwhelming.  Trust me, there is no better feeling than paying off a credit card but you may want to wait on cutting up the card.

Closing the account can be a bad idea however because your credit score is affected by the length of your credit history and the different types of credit you have.  Cancelling accounts can negatively affect your credit score.  Instead, take the cards and put them in a safe place.  Remove the temptation to use them and just keep them active.  This way your credit score will not be affected and you’re not charging up debt again.

Most people don’t care about a lower score once they have gone so long without using credit cards, but if you plan to be shopping for a home or other big purchase you may want to preserve your score until that transaction is complete.

Getting out of debt is not just complicated, it’s downright difficult.  You likely didn’t into debt overnight so you can’t expect to get out of it any quicker.  Come up with a plan, work the plan, and soon you’ll be on the road to a debt free life.

Come and see one of our credit counselors for advice and help in managing your debt and for other great tips on how to pay off your debts the right way.  You can book an appointment at 705-560-0430.  The session is completely free and 100% confidential.   It’s time for a financial check up and we can help!