Debt Reduction Costly Mistakes

Avoid these common debt reduction mistakes and you will be better prepared to deal with your overdue balances.

Debt Reduction Mistake #1: Paying the minimum balance on your credit card. It's likely you already know paying the minimum amount each month on your credit card leaves your existing balance vulnerable to lofty interest rates. However, what you might not understand is just how quickly the numbers can add up. A minimum payment on $6,000 in credit card debt, with an average interest rate of 13%, will cost you an additional $4,800 – and take 21 years to pay off!

Debt Reduction Mistake #2: Using credit cards for cash purchases. Paying cash for purchases forces you to only buy the items you absolutely need. Set yourself up for success by only spending a predetermined amount of cash each time you shop. Find out more about this debt help strategy. Also, shopping from a list will help you avoid unnecessary purchases.

Debt Reduction Mistake #3: Avoiding creditors. If you've been in debt for any extended period of time, you've received calls from creditors. The experience is unpleasant for everyone involved, but the worst thing you can do is ignore the situation. By staying in touch with creditors, you demonstrate a desire to resolve your debt, opening the door for negotiations and extended deadlines.

Debt Reduction Mistake #4: Disregarding your credit report. Checking your credit report regularly (at least once a year) allows you to address any problems before they escalate. Any inaccuracies can lower your credit rating. Also, identity theft is on the rise. If a thief opens an account with your information, it will show up on your credit report. By identifying any lingering problems early, you will move toward an improved credit standing.

Debt Reduction Mistake #5: Leaving some bills unpaid. You might think focusing on one bill until it's completely paid is a good idea. But, if you let other credit card balances sit, it could lead to increased interest rates and lower credit scores. Yes, you should target your high-interest balances, but not at the expense of growing more debt.

Debt Reduction Mistake #6: Trying to tackle your debt without a plan. Just like a diet, attempting to eliminate your debt requires a strategy. Without a plan, you set yourself up for failure. A simple debt management strategy to help you get started is available on our site. Planning helps you understand your financial problems and establish a budget for effective spending.

Having trouble overcoming any of these debt reduction mistakes? Contact us today for more free advice that will put you back on the path to financial freedom.