10 Debt Problems You Can Easily Avoid
Being in debt isn’t an easy way to live and it can be easy to fall for those get-out-of-debt-quick scams. No matter what types of debt you have, including credit card debt, there are some debt problems that can be easily eliminated.
10 Debt Problems You Should Avoid at All Costs
Debt Elimination Scams
If someone offers to erase your debt without analyzing your financial situation, just run away. The hard truth is that there's no way to eliminate your debt without finding ways to make more money. Read about how to qualify a credit counselor to help you with your debt needs.
Closing Your Credit Card Accounts
Closing a credit account sounds like you are taking control and moving a step in the right direction, but unfortunately, this can actually hurt your credit rating. By closing a credit account, creditors scan see that you have trouble handling the temptation of credit cards, which is a negative sign. The best way to keep your credit score intake is to shred your cards or leave them at home. If you do have bad spending habits, try to remove that temptation.
Making Only Minimum Payments
Minimum payments are not your friend. There's a reason the minimum-payment requirement is so low: the lower it is the longer you'll be in debt. The longer you'll be in debt, the more you end up paying your creditor. Don't just pay the minimum; create your own minimum, whether it's 10% of your balance or triple the minimum.
Not Having a Debt Plan
You need to figure out how to get yourself out of debt. You cannot just fly by the seat of your pants and hope that your debt goes away. The only way to triumph over debt is to create a plan, and stick to it. This means deciding which debt to pay down first and determining your best debt repayment option.
Filing for Bankruptcy before Exhausting Your Other Options
Read about how bankruptcy affects your credit and see if it's still something you want to pursue. Bankruptcy does not wipe away debt without any consequences - it can really damage your credit rating. In fact, most courts require that you consult with a credit counseling agency before you can file.
Not Checking Your Credit Report
It's possible that you could have fraudulent information on your credit report. Sometimes people with the same name get the other person's entries on their report. You could have a bad credit score that's affecting your interest rates and debt without even knowing why. It's always a good idea to check out what's on there and dispute any inaccurate entries. Once you have a better credit score, you can negotiate with lenders to reduce your debt.
Not Negotiating with Your Lenders
It can take just a phone call to your lender to possibly get a lower interest rate. It may not work for everyone, especially if you DO have a bad credit score, but it definitely doesn't hurt.
Making ANY Payments Late
Besides interest, late fees can really add exorbitantly to your debt. And, what's worse, they can be easily avoided. This may sound like a no-brainer, but it can sometimes be easy to forget when your payments are due. Write them on a calendar, or, better yet, set up a direct payment, so you won't even have a chance to see that money before you pay your bills.
Not Sticking with Your Budget
In order to pay down your debt, you must make more money than you spend to have extra money to put towards your debts. You cannot do this without having a plan (see above) and creating a budget. Figure out how to create extra money each month - maybe take on a second job or move into a cheaper home. You have to learn how to be tight with your money and only spend on the necessities. It won't be easy, but you have to stick with it.
Obtaining New Debt
You don't need new credit cards or a new home or car when you're already in debt. It's best to pay off the debt you currently have before acquiring any other new debts. Granted, this sometimes can't be avoided, such as you land in the hospital and have to pay thousands in ER bills, but you can prevent racking up more credit card debt. Throw those offers for new cards in the shredder immediately.