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Avoid these 5 Mistakes while Trying to Pay Off Debt

Achieve financial freedom by avoiding these five mistakes when paying off debts.
Achieve financial freedom by avoiding these five mistakes when paying off debts. (Photo: Advance Photo Illustration)

Acquiring debt has become a norm for various reasons such as an expensive life event. Norton Finance explained that Some people might acquire debts due to poor money management or acquiring debts such as student loans, mortgages, and car loans. GOBankingRates listed some common mistakes you should avoid when paying debts.

 

  1. Forget to Plan a Repayment Strategy

The first step when tackling your debt is to see how much total debt you acquired. It would be best to list any debts accrued from car loans, credit cards, medical debt, student loans, payday loans, personal loans, home equity loans, and IRS and government debt. Paying all these loans is impossible, but paying off debts as soon as possible will lower your interest and improve your credit score. Paying debts every month is important, especially if you recently received a bonus or tax refund.

Become debt-free and avoid these five mistakes.

Become debt-free and avoid these five mistakes. (Photo: Wise Bread)

  1. Getting a Payday Loan

It might be tempting to get a payday loan if you have a pending car or house payment before your next paycheck. In a payday loan, the lender offers you cash, depending on the amount you write on the check, plus a finance fee.

However, having a payday loan might worsen your financial problem as it has a higher interest. There is also a high possibility of defaulting on your financial obligation as your cash reserves are depleted.

Also Read: Know About ‘Student Loan’ Updates in January- If You’re in Debt 

  1. Pawning your Valuables

Valuable items like jewelery and electronics can be used to pawn in a pawnshop and receive money depending on the quality of your valuables. However, there is a strong possibility of losing the property if you cannot pay the interest. Moreover, the value of your item could be lower than expected as the pawnshop has to cover its costs.

 

  1. Pause Contribution to Retirement and Emergency Funds

Most people prioritize paying off their debt and pause their contributions on retirement and emergency savings. However, this strategy would rob your future self of financial security. Life is full of unexpected twists, so it is important to prepare a safety net. You have to make sure to have savings for living expenses for three to six months.

  1. Paying Mortgages, Student Loans, and Auto Loans Through Credit Cards

Due to its service fee, it will cost you more if you pay using a credit card. For instance, a 2.5% credit card fee may not sound costly. But, if you calculate it monthly and add it to your debt expenses, you’ll realize you have shelled out more money.

 

Paying debts is one of the big steps to getting into financial freedom. Managing your own money can be challenging. It is important to research what mistakes to avoid and what strategy to employ when paying off your debts.

Read More: Debt Problems Increase Stress, Anxiety, and Moodiness, Survey Says

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