5 Common Mistakes to Avoid When Tackling Debt

Paying off debt can feel suffocating, especially when managing multiple balances and interest rates alongside busy life responsibilities. No matter what type of debt you’re dealing with (student, credit card, personal, etc.), having a clear plan will help guide the way to being debt-free. More importantly, we want to avoid common pitfalls that’ll slow you down or worsen your debt.

Here are 5 common mistakes people make when tackling their debt and how to avoid them.

1. Not Knowing the Exact Amount Owed

Many people start paying off debt without looking at the whole picture. What are your balances? What are the interest rates and due dates for each? If you don’t know, creating an effective payoff plan would be VERY hard. You have to see what you’re dealing with!

Action item: List all your debts in a spreadsheet. Or write it down on paper and transfer it to a spreadsheet if it’s easier. Note down:

• The balance
• Interest rate
• Minimum payment
• Lender

Seeing all your debts in one place will help you determine which ones to tackle first and your total financial debt numbers. Maybe it’s not as bad as you think, or perhaps it’s worse. Either way, if you don’t know what you’re working with, you won’t be able to solve it, and this is the most straightforward way to do so. 

2. Only Making the Minimum Payments

Making only the minimum payments won’t help you make real progress in paying off the balances since that money mostly goes towards interest, not the principal. This means it could take years to pay it off! 

Action item: Pick a debt payoff method like debt snowball (paying off the small balance first and working your way up to the next smallest balance) or debt avalanche (paying off the highest interest rate debt first and working your way down). Choose the method that’ll keep you motivated. Whichever you choose, pay MORE than the minimum balance on at least one account and then maintain the minimum balance on the rest.

3. Getting Into More Debt to Pay Off Debt

Before opening a new credit card with a 0% introductory APR rate or taking out a debt consolidation loan, consider whether you have the discipline to pay off the debt BEFORE that rate increases (typically between 6 and 21 months) or if you’re just moving the debt around without fixing the core issue of overspending or poor planning. 

Action item: IF you consolidate, fix the habits that led to your debt, and don’t charge anything new on the cards before paying off the balance.

4. Not Following a Budget

It’s easy to overspend when you don’t have a budget, aka a money plan. People underestimate how much they spend every month, preventing them from allocating more money towards debt. By tracking how much money comes in and how much money goes out to essentials, it’ll be easier for you to figure out how much money is left you can use to pay off your debt balances.

Action item: Track your income and all your regular monthly expenses to get an idea of your monthly costs. We go into the details of how to create a budget here.

5. Ignoring Emergency Savings

While paying off debt, you should also build up your emergency savings. Even though it might feel like every dollar should go to your debt, having no emergency fund could lead to even MORE debt if something goes wrong. There’s always an unexpected car or medical bill that could happen, and you’ll need to be able to pay it off without resorting to debt. 

Action item: Create a small emergency fund, like $500 to $1,000, while you’re paying off debt. This will help give you a financial cushion if anything happens, so you don’t have to add even more to your credit card balance.

The Money Move

Paying off debt is a marathon, not a sprint; it’ll take time, discipline, and a clear plan. Avoiding these common mistakes will help make your progress go smoother as well! You’re already on the right track by reading this, so determine how much debt you have, budget for it, make consistent payments, and you’ll be on your way to taking back control. 

No matter how small you might think your progress, it’s still progress, and by staying consistent, you’ll eventually get to where you want to be. You got this!