How to avoid these 5 pitfalls when paying off debt

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A: The middle of the year is a good time to evaluate the progress we’ve made toward the resolutions we made in January. If you set a goal to pay off debt, whether you’re dealing with credit cards, loans, or other financial obligations, paying down debt is challenging because it accumulates gradually and regaining financial stability requires extra time and persistence. Crafting a budget, defining clear goals, and choosing an effective debt repayment strategy all hinge on finding a balance that allows you to remain focused without neglecting other aspects of your well-being.

To help you do that, here are five common financial pitfalls that you will want to steer clear of as you work to reach your goal as quickly as possible.

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Spreading your money too thin

Pacing yourself and not trying to do too much all at once is crucial when tackling your debts. Just like a renovation project or tasks at work, systematic steps yield better results. Rather than spreading yourself thin by topping up every payment, consider either the snowball or avalanche method and target one debt at a time. Success breeds motivation, helping you stick with your plan.

Not saving for emergencies

Prioritizing emergency savings alongside debt repayment is a strategic move that accelerates your progress. The reason why it matters is simple but often overlooked. Without savings, unexpected expenses force you to rely on credit cards, the very ones you’re diligently paying off. A single click or tap can undo all your progress, leaving you back at square one. Think of savings as your secret weapon against debt setbacks, and remember to include it in your budget, because a well-rounded approach to achieving debt relief considers both debt reduction and emergency preparedness.

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Getting caught by tunnel vision

When working on a debt repayment goal, it’s essential to maintain a balanced approach that ensures both short-term progress and long-term stability. Resist becoming so intensely focused on paying off what you owe that you forget about other critical aspects of managing your financial affairs. For instance, contribute to your retirement fund, especially if your employer matches your contributions. Even if you contribute at a temporarily reduced amount, it’s a long-term investment in your future financial security. Neglecting insurance premiums can be risky. Ensure you have adequate health, auto, and home insurance to protect yourself and your assets. In your effort to achieve as much cash flow as you can, you might be tempted to work instead of investing in your skills or education. Enhancing your earning potential with added certifications could ultimately end up accelerating debt repayment.

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7 Debt Repayment Mistakes That Will Keep You Feeling Broke

Forgetting to sweat the small stuff

While focusing on major debts, it’s easy to become complacent with smaller expenses and daily spending habits. However, an aggressive debt repayment goal means all hands on deck all the time. One way to avoid complacency is to keep track of where you spend your money. Choose whatever method is easiest for you — an app, your banking software, a spreadsheet, or a handwritten journal. This will help you monitor your routine spending and identify habits that could be costing you more than you realize.

Sweating the small stuff financially includes paying attention to details that could significantly impact your overall financial health. For example, switching to a bank account with lower monthly fees can save you money over time. Be proactive in researching and comparing account options to find one that aligns with your needs. Another consideration is the consequences that come with missing a credit card payment. If you realize you’ve overlooked a payment after a full billing cycle has gone by, your interest rate may increase by as much as five percent. If it was an honest mistake, reach out to your credit card company. Politely ask if they can reduce the interest rate this one time. While there’s no guarantee they will, it’s worth asking because paying an extra five per cent makes it harder to stick to your repayment timeline.

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When dealing with a substantial amount of debt, it’s tempting to believe that a little more won’t make a difference. The bills are already so big, what’s a little more? However, adding new debt while working to pay off existing obligations is a significant pitfall. Not only does this mindset hinder your progress towards achieving your goals, but the math also doesn’t align. Put your credit cards away and delete the account numbers from online retailers and payment platforms. Making it harder to access credit helps curb impulsive buying.

Pay off and then cancel overdraft on your bank account to prevent accidentally incurring more fees and interest. In addition, don’t apply for new consumer debt unless it’s a carefully considered consolidation loan. Flex your creativity muscle and come up with frugal entertainment ideas, tasty low-cost recipes, and embrace the buy-nothing mindset whenever possible. Adaptability is essential and will help immensely along your journey to debt freedom.

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Being too hard on yourself

No one is born knowing how to manage their money. Your paycheques and bills don’t come with instructions, leaving you to navigate the financial landscape on your own. If you think you made a financial misstep, cut yourself some slack and remember that bumps and bruises are a normal part of the journey. Rather than abandoning your goals entirely, take a step back to review and revise them. Consider adjusting your budget if it’s too restrictive, or you may want to re-evaluate your goals to ensure that they align with your current circumstances. Do your best to identify the root cause of your financial misstep and then focus on realistic solutions to address the problem.

What to Do When Your Financial Goals Seem Unrealistic 

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The bottom line on debt repayment mistakes

If you’ve been doing everything you can to pay your debts down and you feel like you’re not making enough progress, professional help might be beneficial. For example, a lender at your bank or credit union may be able to offer you a consolidation loan at a lower interest rate, which combines multiple debts into one payment. Alternatively, contact a non-profit credit counselling agency and a credit counsellor can review your budget with you and offer other debt relief options that you may not be aware of. Don’t hesitate to reach out to a licensed therapist for emotional support or lean on family and friends for moral support. Paying off debt involves more than just dollars and cents; it’s about your overall well-being. With a comprehensive approach, you’ll achieve your debt-freedom goal and ensure long-term financial stability.

Related reading: 

4 Common Debt Consolidation Mistakes and How to Avoid Them 

Powerful Strategies to Pay Off Debt That Really Work 

Comprehensive Guide to Getting Rid of Debt  

Peta Wales is President and CEO of the Credit Counselling Society, a non-profit organization. For more information about managing your money or debt, contact Peta by email, check nomoredebts.org or call 1-888-527-8999.  

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