Being in Debt can make our life hell. No matter how much you try, you will fall again and again into the same vicious cycle of debts. Many people try to get out of Debt, but they make silly mistakes that cause them to stay in the Cycle of Debt. Following are some of the common mistakes that people commit when they want to get rid of Debt:
Taking out payday loans
This is one of the biggest mistakes you can commit if you are thinking about getting rid of Debt. If your car or any other loan is due and your employer writes you a payday check, it can seem quite tempting initially. But, this cheque is not cashed yet, and it will be deducted off your bank day when you get your pay. Thus, this can be one of the worst mistakes you can ever make if you are thinking about getting rid of Debt.
Negating the importance of emergency fund
Nobody pays attention that they may face an emergency in your life. Thus, people who are not in the habit of maintaining an emergency fund often fail short of money if they face any emergency abruptly. Thus, if you want to get rid of the debt cycle, never negate the importance of an emergency fund. Try to use the emergency fund only in case of a real emergency and not for an emergency like craving for shopping or food.
Closing down your credit card
Most often, people close their credit cards after they get rid of their Debt. But this can be one of the worst mistakes to make. Closing down your credit card will reduce your CRISIL score, which shows your borrowing capacity. This can prove to be a wrong step in the long run. Thus try to utilize your credit card properly and try to avoid overspending.
Heading to a pawn house
People who are in the habit of getting into Debt have a common habit that is known as visiting a pawn house. When you are in Debt, visiting pawn house to give your jewelry and electronics and getting cash can seem pretty alluring, but this is the worst form of Debt you can get into. This process needs no credit cheque, and since you have kept valuables that you don’t use too often, there might be chances that you won’t pay much attention to getting those products back once you have enough money. Thus, you have everything to lose in this case.
Poor spending habits
Human beings are habitual creatures, and when it comes to spending money, old habits can remain. When you are used to eating and shopping at the same places, it can be hard to change. However, you need to change your spending habits if there is a chance you will get out of Debt. You can try reducing the number of times you eat out and enjoy having homemade meals instead. You can also try to watch movies at home instead of going out. Instead of carrying your purse or wallet, carry the exact amount to avoid impulse spending.
Lack of reasonable budget
Every person who is trying to get rid of Debt must have a properly planned budget for each day, month, and year. This way, they can pay attention to how much they are earning and how much they are spending. The budget also helps you to plan about taking on debts. Thus if you are earning as much as you are spending, there may be fewer chances of getting into the Debt. But if all your earnings go into paying Debt, you need to be concerned. Thus, once your dents are paid, it’s time to make a proper budget that includes everything. The budget should have proper columns for income, sending, and any additional expenses.
Using a debt settlement company
Many people get trapped in the newly found concept of debt settlement companies. These companies help you to negotiate with your creditor so that you need to pay just a fraction of the amount you borrowed. For this, these debt settlement companies charge you a fee. If you think that debt settlement will happen within a few days, you are mistaken. It may take up to 36 months for one Debt to get settled. This way, the interest payable to your creditors can increase, and if the Debt is not settled, you may even get into another debt trap to settle payment to your creditor.
No one likes to stay in Debt. But, once you get into this cycle, it may be almost impossible to get out. Thus, it is always advisable to plan your finances well and try to stay away from Debt as much as you can. We hope this article will help you in avoiding major mistakes, if you need more information you can checkout online blogs like HuffPost.