3 mistakes to avoid when you're paying off debts
Are you currently in debt? If you don't know, your credit report might be able to shed some light on the situation. Debts aren't always as simple as they appear - it's hard to keep track of all the things we need to pay for, from utilities to phone accounts to store cards, mortgages and personal loans. All that on top of general household expenses. Getting out of debt can be a challenge, but it's not impossible. You just need to be sensible about your spending, and maybe change your lifestyle a little until all the money has been paid off.
It might be as simple as reducing your spend on unnecessary items, or leaving your savings account alone. Whatever it is, you need to remain disciplined. These three tips can help you to avoid getting into more trouble when trying to pay off your debts:
1. Dipping into your savings
No matter what stage of life you're in, it's likely that you have some savings. It doesn't have to be a lot, but it's still money you've put aside for your future. It might be a retirement fund, depending on your life stage - this is money that you should leave alone1.
Don't get impatient and try to pay it off by unnecessarily withdrawing from your savings.
Your debt is something you can pay off gradually, taking a small amount out of your income each week, fortnight or month, so don't get impatient and try to pay it off by unnecessarily withdrawing from your savings.
2. Paying with unsecured debt
If you have credit card debt or a student loan that's been hanging around for a few years, it can be tempting when you see a great finance deal to take out an unsecured loan and use it to pay off your other debts. This can be a bad idea, as you'll just be adding to your debt mountain, even if you only take out a small loan1.
Unsecured debt is tempting, because it's an easy way out of your long-term bills - but again, remain patient and pay off your debts the smart way!
Don't try to pay off your secure debts with unsecured loans.
3. Avoiding a budget or lifestyle change
When you have debt, you often need to make a budgeting or lifestyle change2. Don't go out partying as many nights a week, or don't spend as much on lunch, or cut down the amount you spend on nice food at the supermarket. Paying off debt should be your primary focus to avoid an unstable financial future, so make sure you change your life to suit.
Find out more about your past financial decisions by getting your Equifax credit report today.
Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your circumstance before acting on it, and where appropriate, seek professional advice from a finance professional such as an adviser.
1Borowitz & Clark, Five mistakes to avoid when you're struggling with debt. Accessed January 2017.
2Debt.org, 10 biggest mistakes people make when paying off debt. Accessed January 2017.
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