While taking steps to manage your debt is a great way to get back on track, your progress could be derailed if you fall into one of these common pitfalls. Read on learn more about the top 5 debt management mistakes to avoid
1. Not creating a budget
It might not sound that impactful, but creating a budget really is the best place to start when trying to manage your debts. It’s all about understanding how much money you have available to spend and where it goes. Without these insights into your income and outgoings, it can be difficult to get to grips with the root cause of your debts and make meaningful changes.
Don’t expect to be an expert overnight; getting a workable budget in place – and sticking to it – can take time. Go through all your essential bills first and then analyse your non-essential spending, this is the part of your budget that you could cut back. But don’t be tempted to make your budget too strict; if you don’t allow yourself some spending money for small treats, you’re much more likely to give up on budgeting altogether.
2. Only paying the minimum
Almost all debts, especially credit cards, have a minimum monthly payment amount that you must make to avoid falling into arrears. Making this payment each month might feel like you’re successfully managing your debts, but this habit could actually be hindering your progress.
When you just pay the minimum each month, it’ll take you more time to pay back the debt and you’ll likely end up paying more in interest. That’s why many experts say that taking this approach is the most expensive way to manage your debt. Instead, try to pay a little more than the minimum payment every month. That way, you’ll reduce the total amount of interest you’ll have to pay and make meaningful inroads into clearing the balance.
3. Not prioritising your debt
If you have more than one debt to manage, you need to have a strategy in place. If you simply make your minimum monthly payments and don’t take a more structured approach, it’s all too easy to lose track of the different payment amounts, neglect those with the highest interest rate, or miss the payments entirely. If you accidentally miss your priority debt repayments – the ones that can negatively impact your life if left unpaid.
There are two common debt management strategies to choose from: avalanche or snowball. With the snowball method, you start with your lowest debt and put all the disposable income you have towards clearing it. Once it’s paid off, you move on to the second lowest and so on. Avalanche works the other way around; you focus on paying off the highest debt first and then move on to your smaller debt repayments.
4. Not asking for help
Trying to manage your debts alone isn’t easy. Whether you’re putting off seeking help because you feel embarrassed or simply don’t know where to start, the earlier you find support, the better. Trying to manage everything yourself can impact your mental health and, on a more practical level, mean you miss out on accessing solutions that could help to improve your situation.
Seek professional debt advice as soon as you start finding it hard to manage your debts. Our friendly team of experts will take time to understand your situation, listen without judgement, and talk you through the different debt management solutions available to you so you can make the right choice for you and your circumstances.
5. Taking on new debt
When you’re struggling with your debt, it can be tempting to take out new loans, credit cards, or other types of finance to try and pay off your existing loans. While it might seem like a quick fix, this approach can make your situation more difficult and extend the length of time it takes to get out of debt. Break the cycle by exploring debt management solutions that are designed to help you tackle your existing debts with the disposable income you have available. There are formal or informal options available that can help you make lasting changes and get your finances back on track.
Looking for help managing your debts? Our team is here to help. Give us a call on 0161 8260 585 or send a message here
