This is the first and greatest mistake most people make– at least before it is too late. You see, debt has a way of building because that is the way the lenders make money. They want to charge you fees. They want you to pay less than the total balance so that you pay interest. This is the way that they earn their money (along with charging for the transaction).
Most people will carry thousands of dollars in debt through credit cards, student loans, personal loans, car loans, and mortgages. They will live on money they do not have, and they do not realize that they are one unplanned event away from bankruptcy. All it takes is for someone to lose their job, a medical condition, or some unforeseen catastrophe, and they are in trouble. Having debt is a problem.
Mistake #2: Not Believing That There’s a Way Out
This mistake falls right in with the first. I don’t know how many times I have been told that, “I’m too far in. It’s good that you’re getting out of debt, but I could never do it.” This is obviously false, but it also a type of self-fulfilling prophecy.
You see, mathematically, you can get yourself out of debt– you just need to change your lifestyle, get more income, and you have to do something about it. However, if you tell yourself enough times that you’ll never get out, then none of these changes will happen, and you will find yourself going deeper in debt as you continue to fuel your lifestyle.
In order to make it, though, you need to get serious about how you spend your money, and start keeping track of where it is going– and get a plan.
Mistake #3: Not Having a Budget
If you averaged $40,000 and worked from 22 to 65 you would see $1.72 million in salary alone pass through your hands. If you’re not planning what to do with all of that with a budget, then you’re more than likely throwing a lot of it away.
This is one of the scarier things in my mind in terms of paying interest, because that’s money that will never work for me– money I’m simply throwing away because I think that I have to have something “now.”
You should be tracking expenses and planning how you will use your money. This will show you the areas where you need more discipline, and will show you just where you can save to get out of debt.
Mistake #4: Not Shopping Around
Many people will go for the familiar over the unknown. I created a Savings Account with the same bank I had a Checking Account at which my parents always had their checking account. No one shopped around for accounts. Too much hassle. Same thing with insurance, phone service, etc.
That’s a big mistake– because (more than likely) you’re not getting the interest rate you could get, paying a much cheaper rate, or saving money by shopping at cheaper places. It pays to spend the time to look around at what prices things are and what deals you can receive.
Also, don’t accept the sticker price– learn to negotiate and do comparison shopping. You’ll be surprised how much money you’ll save– money that you can put toward getting out of debt!
Mistake #5: Not Making a Sacrifice
In order to get out of debt it will take sacrifice. The biggest sacrifice is probably learning patience. You see, revolving credit is great for taking the “wait” out of buying. Because you don’t have to have the money now– you can wait until the next billing cycle or until that “bonus comes in”– you will find yourself purchasing things that you don’t have the money for. And the problem is that there will be times where the money you thought was coming in doesn’t come in.
Other sacrifices may include:
- Not having as many channels– or removing cable for the time being.
- Changing the store that you shop at, or getting cheaper foods.
- Slower Internet connection speed.
- Working a second or third job.
- Living in a smaller house.
- Living with one car.
- Going without the newest clothing styles.
The list continues. Be prepared to (at least for the time period that you are trying to get out of debt) go without some things so that you can find the money to put toward the debt. Reverse the trend.