Top 6 Debt Management Mistakes You Can’t Afford to Make

Anyone can slip into a vicious cycle of debt. There is no stigma attached to it, and therefore one should not feel ashamed of being in debt. However, we should have a practical approach towards borrowing and spending. Our income must govern our expenditure. And borrowing money should be regarded as a last resort, when we are left with no other option. When we borrow money, we should pay off the loans on time. Our focus should be on how to get out of the debt trap and live a debt-free life.

Today, millions of people are in one kind of debt or another—credit card debt, home mortgage, car loan, personal loan, etc. A large number of people make sincere efforts at getting out of the debt spiral, yet they fail because of a few mistakes.

Here are 6 major debt management mistakes that you cannot afford to make:

  1. Ignoring the debts: One cannot afford to ignore their debts. The challenge won’t go away on its own. Instead of running away from the situation, one needs to grasp the nettle. So, work out a strategy concerning paying off your loans—and stick to it.
  2. Emptying out the emergency fund: On the face of it, emptying out the rainy day fund or emergency fund to repay the debts may sound like a good idea. However, it isn’t. If you exhaust all the money that you had saved for emergencies, you will be left with no money if a crisis arises. Thus, you would further go deeper in a morass of debt. So, you will have to save and scrimp in order to pay off your debts.
  3. Falling into minimum-payment trap: If somebody falls into minimum-payment trap, it is less likely they will come out of the debt trap. It is because if your outstanding amount is high, you minimum payment will only cover the interest and the principal amount will stay as it is. And thus the lifespan of your loan repayment will remain the same. It is always helpful to create a monthly budget and allocate maximum amount of money to pay off loans.
  4. Borrowing from one source of loan to repay another loan: Experts advise not to borrow money from one source of debt to pay off another debt. If somebody does that it is less likely that they would break free from the debts. If somebody is hard-pressed to pay off their debts, they should talk to their creditors and ask them for temporary relief.
  5. Ignoring credit card debts: Despite having multiple debt obligations, one cannot afford to neglect credit card debts. If one does not meet the payments on their credit card debts, then interests and charges will pile up on overall due amount. It will adversely affect your credit card ratings.
  6. Accumulating bad debt: Bad debt can jeopardize your efforts at managing your debts. Unnecessary debts are commonly known as bad debts. Loans taken for purchasing a house, pursuing an academic career, meeting the expense of medical treatment, etc. are considered necessary. On the other, taking a loan to finance a holiday trip would be deemed unnecessary or bad debt. So, one should resist the temptation of taking bad debt as it can endanger debt management program.

If one avoids these obvious pitfalls, it can be hoped that they would be in a better position to manage their debts and live a debt-free life.