Keeping debt control can be rewarding and worthwhile. But when debt spirals out of control, it can lead to unhappiness and frustration. Studies show that people who struggle with debt have poor health and sleep quality, low life satisfaction, and low emotional well-being. That's why being able to reduce debts is crucial to personal financial success and overall well-being. Reducing debt, however, is not an easy feat. The journey has numerous pitfalls that can make one jump from a hot pan into the fire.
We don't want that to happen to you. So, in this post, we share five mistakes people make when trying to reduce their debt.
Let's face it. Struggling with debt has a bad rap. You can be tempted to look at it as a shameful personal weakness. But financial experts say that is not always the case. The inability to resist indulgences is just one part of a bigger puzzle that can push one to borrow more than they can pay. Research shows that a lack of financial resources and low income can make many people get into more debt than willpower.
Debt repayment is a widespread concern. According to a 2019 study by the Consumer Financial Protection Bureau (CFPB), low-income earners struggled more with debt and 20% of six-figure earners also faced the same challenge.
So, don't spend so much time and energy beating yourself. Instead, use that time and energy to learn how to avoid these other pitfalls.
Not Asking for Help When Reduce Your Debt
Getting out of debt is not easy. For some, there is a strong need to get into the nitty-gritty details of the underlying issue. You may need to find out why and how you got yourself here in the first place. And that can be overwhelming.
If you ever find yourself in such a situation, don't be afraid or too proud to ask for them. Fortunately, there are nonprofit credit counseling services that can help you. So ask for help.
Overlooking Financial Literacy
As mentioned, being in debt isn't just about losing control of spending habits. Financial literacy is extremely important to reduce your debt. Decades of research show that low-income earners with superb money management skills have lower debt. These researches show that financial literacy can help one make smart decisions on money. Therefore, it may be wise to improve your financial literacy to help you manage your debt effectively. Personal finance books, reputable online information resources, and magazines are some of the best places to get started.
Not Celebrating Your Wins
Our brains have a reward circuitry that can propel us to achieve almost anything, including financial goals when properly harnessed. The secret here is to create debt reduction challenges, competitions, and rewards.
While at it, monitor your progress, and when you hit certain targets, reward yourself. For example, when you pay off a large debt, reward yourself by buying the phone or shoes you've been yearning for. By celebrating your wins, however small they are, you remain focused and motivated to hit the next target. And that propels you to financial fulfillment.
Forgetting to Save For Rainy Days
When trying to reduce debt, it can be tempting to channel every penny into repayments. However, it's wiser to put some money aside for emergencies. The COVID-19 pandemic illustrated that life can take some twists and turns when you least expect it. So it's smart to save money to cover emergencies. The last thing you want when reducing your debt is to borrow more to cover an emergency.
Find More Ways to Reduce Your Debt
Reducing debt can be a rewarding journey. However, it can be extremely challenging if not done right. We hope these tips help you avoid making costly mistakes.