As the balance on your credit cards increases, your anxiety about paying them off may as well. However, you should know that there are plenty of strategies you can implement to get that credit card debt back down to a manageable level. Part of understanding how you should properly attack this debt stems from knowing what you shouldn’t be doing. We have a list of the ten biggest mistakes you can make when paying off credit card debt. Don’t worry, though. We’ll also offer some positive tips on what you should do. You can tackle that debt — it’s just a question of how.
The Right Foot Forward: Begin With a Plan
The fact that you’re here, researching what you should and shouldn’t do when it comes to paying off credit card debt says a lot. You’re already prioritizing a game plan. That’s definitely the first step you should take — at least mentally — to prepare yourself for what’s ahead. After all, it’s much easier to stick to a plan (even if it’s haphazard) than to fly by the seat of your pants.
Here’s something else to consider; it’s okay if you’ve already made any of the these mistakes in the past. We all live and learn. It’s more important that you take what you’ve learned and apply it to the future. You can also pass what you’ve learned on to your friends and family as well. They may also be struggling with debt and need that helping hand to guide them. Who knows, you might even be able to support each other in the debt payoff process!
Mistakes to Avoid When Paying Off Credit Card Debt
Here they are, the no-no’s you should avoid when tackling credit card debt. Credit cards can be handy, but they are also a dangerous pitfall when not used properly. It’s quite easy to rack up thousands of credit card debt at not-so-friendly interest rates. So if you’re guilty of any of these mistakes, don’t be too hard on yourself. It happens to the best of us. Instead, take this chance to learn from your mistakes and grow towards a smarter financial future.
1. Not Understanding Why The Debt is Bad
Most people equate debt with “bad.” The truth is there are both good and bad debts. However, it’s more about what you do with the debt than how it’s necessarily categorized. Ultimately, not understanding why you’re paying off the debt could set you back from the start. While you don’t need to rush to pay off your mortgage (on an appreciating asset, no less) at 1.9%, that 22.9% credit card debt is pure deadweight.
“Having a clear understanding of your why will help motivate you when times get rough and things don’t go as planned,” advises EverythingFiance. A solid plan of attack will give you something to refer back to when paying down debt gets hard. Because it can, and you’ll need that motivation to keep going in order to be successful.
2. Continuing With Old Spending Habits
One of the hardest things for people who are paying down debt is putting down the plastic. A lot of times we think we can continue spending as we have been. But that means we continue to accumulate debt and in fact we could increase our total debt even more. Paying down debt requires a shift in your spending.
3. Applying For More Credit Cards
Having a credit card can be a great backup plan for unexpected expenses. If your car breaks down and you need it repaired, a credit card can save you and allow you to pay down the balance over time. However, you shouldn’t apply for more credit cards if you have high balances just because you want to maintain that emergency fund.
4. Prioritizing Rewards Over Smart Spending
Credit card companies offer a lot of incentives to apply for their credit cards. Cash back rewards and bonus points can sometimes cloud our judgment, especially if we’re applying for a card only to chase credit card rewards. The important thing to consider first is what you’ll be using the card for. If the rewards line up with your lifestyle, all the better.
5. Borrowing From Your 401(k)
Borrowing from a 401(k) might seem like a simple tradeoff between your older self and your younger self, but there’s much more to it.
“First and foremost,” warns Fool.com, “if you’re under 59½ and you make an early withdrawal, you’ll be hit with a 10% penalty. Withdrawals are also taxed at your ordinary income tax rate.”
While you might be able to cancel out some debt, you’re increasing it at the same time by incurring taxes and penalty fees.
6. Attempting to Pay Off Multiple Debts at Once
Motivation to pay off debt can dwindle quickly when our entire paycheck goes to payments. A lot of folks attempt to pay off multiple debts at once. While that may work for dedicated individuals, it’s much easier to tackle one debt at a time. Seeing a zero balance should give you motivation to move onto the next credit card.
7. Using Payday Loans or a Credit Card Cash Advances
Advertisements for payday loans or a credit card cash advance tempt many people to borrow against what they’ll receive on pay day. Take one look at the interest rate on a credit card cash advance, though, and you’ll see why this mistake only incurs more debt, sometimes at a faster rate than if you were to simply charge up your card.
8. Relying on a Single Source of Income
It used to be that you could hold a job for decades and retire without worry. These days, the career climate has changed, so relying on a single income can put you at risk. It may be a lot of work to put effort into a side hustle, but the dedication could pay off—metaphorically and in terms of debt, too.
9. Not Tracking Your Progress
Knowing how far you’ve come in your debt payoff journey gives you perspective and in some cases more motivation to continue on. If you’re not tracking your progress as you pay off debt, you could be losing the fight soon after it begins. To fix this, we suggest using one of the many useful budgeting apps to help keep you organized.
10. Abandoning Your Plan
Paying off debt can be hard, especially when it comes to having discipline and staying the course. Sometimes it might be easy to just accept the fact that you’re in debt and give up on overcoming it completely. Abandoning a payoff plan, however, can be just as detrimental as any of these other mistakes.
Debt-Free Strategies: Set Yourself Up for Success
As you can see, paying off debt can be a hard process with a lot of pitfalls. The important thing to remember is that paying off credit card debt isn’t impossible. With a plan and a bit of determination, it’s all about putting one foot in front of the other.
In fact, here at WalletGenius, we’ve got a ton of resources to keep you in the financial know and help you tackle debt the best way possible. We’ve got resources on credit card rewards, choosing a new credit card, why you should prioritize high-interest debt, tips to handle debt fatigue, and many more. You can even take advantage of this DebtBlaster Calculator to create the best plan to tackle your own credit card debt.
Take your financial future into your own hands today. Tackle that credit card debt the right way and you may soon find yourself enjoying the benefits.