The moment you say enough is enough, be prepared to fight a long, hard battle. Getting out of debt is not an easy process. You’ll have to make sacrifices everyday to make sure you’re watching your budget, as well as giving up some of the finer things in life.
One of the most difficult parts of getting out of debt is in the initial phase: not seeing much impact on your credit card balances. As you pay your monthly payments, it doesn’t seem like you’re making much of a dent at all.
As you continue this process, things will get better. You’ll finally hit some milestones (whether it’s 10% paid off, 25%, or even 50%), and you can finally see the light at the end of the tunnel. Here are four of the worst things you can do while trying to get out of debt.
Closing Your Accounts
It might be tempting to close your accounts so you don’t continue to use your credit cards. This is the first mistake. Closing your account will have an impact on your credit score. In doing so, you’re reducing the average age of your accounts, as well as increasing your overall debt-to-income ratio. Here’s a tip: if you’re in a situation where you somehow need to close an account, always close the newer account first.
Recycling Your Available Credit
Imagine you have a credit card balance of $3,000. You’ve made a $500 payment and now your balance is $2,500. One of the biggest mistakes you can make is to use this available credit for your everyday purchases. You might be thinking, “I only have $300 left in my checking account so I’ll go ahead and make this small $20 purchase on my account.” This is a fatal mistake that everyone makes. If you’re continuing to accumulate any type of balance on your account, your get-out-of-debt process just became that much harder.
Not Changing Your Lifestyle
Take a hard close look on how you got into debt. It didn’t happen overnight. It was probably a combination of reckless spending, poor money management, or trying to live a more extravagant lifestyle than you could afford. The first step is to acknowledge that you made a mistake and vow never to do this again. We all make mistakes, and the past is the past. When you’re trying to become debt free, you’ll need a behavioral change to kick debt in the butt. Carefully think about why you got into debt and figure out a solution. Ask yourself, “Was it all worth it?” Chances are that it wasn’t. Then, come to terms with making those sacrifices to get back to square one.
Not Asking For Help
We all know it’s going to be a long road, but in the end you’ll feel a lot of weight lifted off your shoulders. There will be times you will have unexpected emergencies and your priorities will shift from paying your credit cards. The last thing you want to do is to avoid the problem. Call your creditors to see if they can change your due date. Ask your family or friends for help. If you miss a payment, credit card companies are allowed to increase your interest rate through the universal default language in the card agreement you signed. Any type of increased risk they see on your part is enough evidence for them to increase your rate.
As you begin your journey to get out of debt, the best first step is to create a budget. Take a look at your past credit card statements and pinpoint where you’ve been spending the most money. You’ll have to make sacrifices along the way, but you’ll reap the rewards when you’re at the finish line.