6 Mistakes To Avoid When Paying Debt

Let’s face it, debt can build up at any time. You may be running smoothly for a long time and then suddenly, you are unable to afford the repayments. Circumstances in your life may change, such as a job loss or a divorce, which can then have a serious effect on your finances. Or perhaps payments for utility bills, petrol and gas are rising and you have to pay them first, so other debts build up over time.  Whatever your situation, it’s important to deal with your debt as soon as you can, but getting rid of debt quickly can lead to mistakes. Here are 6 mistakes to avoid when paying off debt.

• Making The Same Mistakes
• Not Setting A Budget
• Trying To Clear Debts Alone
• Only Paying Off The Minimum Amount
• Neglecting To Check Credit Score
• Don’t Change Address Without Telling Creditors
• Conclusion

1/ Making the same mistakes

If you know your debt is becoming unmanageable, but continue to put items on your credit cards, then it’s time for a rethink.

It’s easy to fall into paying for things with credit, almost all of us have done it at some time. Using credit is fine and easy to manage if you are sure you can make the payments. However, if you continue to use credit even though you can’t pay it off, you’re making your situation much worse.

At this stage, it’s important to get some free debt advice, and find out how you can pay off your current credit cards, before taking any more out.

2/ Not Setting A Budget

It’s one thing to aim for clearing your debt, it’s another thing to actually achieve it. Just hoping to pay it off is not going to get you results in the long run. It’s likely you’ll be left with even bigger debts unless you make a proper plan.

Hence you need a budget. If you don’t know where to start with this, there are plenty of places you can go to for support and advice. It’s important to have a plan so you can stick to it and follow it through.

For example, let’s say your budget means you can pay £100 per month to your debts. You can set this aside in a separate bank account or online banking pot and not touch it for anything else. Yes, it’s going to be difficult, but sticking to the plan means you could be debt free in a matter of months, rather than years (depending on how much you owe of course).

Remember, if you can’t see how you are going to set aside any money to pay off your debts, you can get free support.

3/ Trying To Clear Your Debts Alone

Which brings you neatly to this point. Paying off debts is hard work. Sometimes it can seem overwhelming and it’s easy to see how people end up avoiding it altogether. But this is a big mistake.

By spending time doing a little bit of research, you can find your nearest debt support or advice centre and work with them. There are some great free services and charities out there that can really help you. Don’t ever feel that you need to face mounting debts or problems caused by debt by yourself.  Now onto number 4 of 6 mistakes to avoid when paying debt.

4/ Only Paying Off The Minimum Amount

While saying this, it’s important to know that paying off even the minimum amount each month is better than paying nothing. However, if you can pay off more than the minimum amount each month, you should definitely do it.

This is because the amount of interest which is building up on your debts gets bigger the longer you take to pay it off.

For example, credit card balances are one of the most common forms of debt in the UK. Using credit cards may be great to start with, but this type of lending comes at a price. The longer it takes to pay it off, the more money you have to pay back. Therefore, it’s extremely advisable that you clear your credit cards as soon as possible, instead of thinking that you’ll just pay off the least amount each month.

5/ Neglecting To Check Credit Score

Lenders use credit scores quite often to measure how much of a risk it would be to lend you money. Hence if your credit score is low, you may still get a loan, but the interest will be significantly higher because it’s more of a risk to loan you money. Whereas if you have a high credit score, the charges will be lower.

Taking time to check your credit reports can help you in the future when you are applying for loans such as a mortgage or a new car. It’s also useful to check once a year, even just to stay on top of your finances.

Furthermore, by thoroughly checking your credit report, you can remove any negative information. For example, perhaps you have been in debt previously, or even bankrupt, this should only stay on your report for a certain period of time (usually around 7 years). If that time has elapsed, you can get the information removed and improve your credit report.

6/ Don’t Change Address Without Telling Creditors

Many of us move homes several times and if renting, it could be every few years.

However, it’s important to tell creditors each time you change address. Moving to a different area will not get rid of your debt. The chances are that it will only increase and get worse if you ignore it.

Even if you have already cleared all your debt, it’s important to notify creditors so they can update the new address. Otherwise they may not be able to contact you in an emergency, such as a notice of default on your house.

Conclusion

To sum up, this is not an exhaustive list. Getting rid of debt can be a long process which isn’t easy. There are more than 6 mistakes to avoid when paying debt, but hopefully this helps you to realise what to look out for. Don’t forget that if you’re struggling with debt problems, you don’t have to face them alone. Seek out advice and then set up a budget and stick to it. Try to honestly evaluate your lifestyle and see if there are any areas where you can save money.  Don’t leave it too late or ignore it. Now is a perfect time to sort out your debt.

Here are some free support resources:

• National Debt-line
• StepChange.org
• Citizens Advice Bureau