With the economy being worse than ever, everyone tries to meet needs and get out of debt. Unfortunately, while the good intention is there, the knowledge is not. In order to reduce debt and stay away from it forever, some mistakes need to be avoided.
Common debt reduction mistakes
1. Pay first the credit card with the lower interest rate
While it is definitely more convenient to pay first the credit card with the lower interest rate, as that means you will have to pay less, this is not going to help you reduce your debt. In order to reduce your debt, it is best to focus on the credit card with the higher interest rate and pay more than the minimum payment on a regular basis. Once you manage to pay that credit card off, or at least significantly reduce your credit card debt, then you can start paying more to the credit cards with the lower interest rate.
2. Extensive use of credit cards
Many people think that by using credit cards extensively they will be able to spend less as it will take time before they are able to pay the full amount. While this may seem encouraging in the short run, in the long run, it is only going to cause even more serious problems, as your debt will be even bigger by then. Painful as it may seem at first, it is however wiser to use cash whenever that is acceptable. With cash you may not be able to purchase anything you want, whenever you want it, but at least you will not have to worry over spending too much, as this will not be possible anyway.
3. Get loans to repay other loans
For many people, a loan is the only way to pay off their debt as soon as possible. While getting a loan, tailored to your needs and your finances is not necessarily a bad idea, getting loans to repay previous loans is a recipe for disaster. This is practically a guarantee that you will never be able to reduce your debt, in fact, you are only going to increase it. If you realize that you are unable to pay off your loan, consult your bank counselor so that the two of you can make some necessary adjustments. If you have to borrow money, turn to family or close friends who are definitely going to be more understanding and thoughtful of your situation.
Learning to avoid the above debt reduction mistakes will help you stay on track and follow through till the end.