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Debt Repayment Mistakes That Are Holding You Back


Things to Avoid When Trying to Pay Off Your Debts If you’ve accumulated a significant amount of debt, paying it all off and becoming debt-free can seem impossible. But by maintaining good habits, remaining committed to paying off your debt, and avoiding these common mistakes, it can suddenly become possible to repay what you owe. […]

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Things to Avoid When Trying to Pay Off Your Debts

If you’ve accumulated a significant amount of debt, paying it all off and becoming debt-free can seem impossible. But by maintaining good habits, remaining committed to paying off your debt, and avoiding these common mistakes, it can suddenly become possible to repay what you owe.

Mistakes That Are Preventing You From Becoming Debt Free

Some of these might seem like no-brainers or simple, harmless things that everyone else does—but if you’re in serious debt, it’s time to get serious about paying it off. Here are the pitfalls to watch out for.

Failing to Budget

Budgeting is the most important thing anyone can do to help pay off debt and manage their finances. It allows you to develop a plan for the monthly income you earn. You then need to track your spending as part of the budgeting process. This will allow you to see where your money is going each month, and if you’re spending more than you are bringing in. Without budgeting, your debt can continue to grow without you noticing.

It doesn’t have to be complicated: A simple spreadsheet tracking income, expenses, and actual spending is all it takes.

Still Using Your Credit Card

It’s tempting to slap a card down whenever we see something we want or need. But if you’re trying to pay off an outstanding balance, running up more charges just prolongs the agony. It’s best to put the card on ice (literally, if you like) until you’ve settled your debts and can pay off any new charges each month.

Only Making Minimum Payments

If you’re making the minimum payment on each of your cards, you might think everything is fine. But you’re still being charged interest on the remaining balances, so your debt is increasing by more (maybe a lot more) than that token payment every month, on every card you have.

Missing Occasional Payments

Missing a payment once in a while is no big deal, right? Unfortunately, credit bureaus don’t agree: Every time you miss a payment, your credit score takes a big hit, and those interest charges keep piling up.

Furthermore, the interest rate charged on many credit cards will increase if you miss payments. Read the fine print of your agreement or contact the creditor to learn more.

Not Setting Up a Savings/Emergency Fund

Building up your savings may seem like a low priority when there’s debt to be paid off, but if something bad happens (like a house fire or a job loss), and you have no reserve fund, you could be forced to run up even more debt just to survive. Even saving a small amount each month is a worthwhile habit to get into and will continue to serve you well once your debts are repaid.

Not Working on Repairing Your Credit

Not paying bills on time damages your credit, so if you’ve missed payments, you’ll need to work to bring your score up. Make sure absolutely everything gets paid on time going forward, including credit cards, rent, and utility bills. Also consider getting a secured credit card or a car loan for an amount you can easily pay down to help boost your credit score. It’s also important not to close old accounts, even if they carry zero balance, as the length of your credit history affects your rating.

Not Considering Debt Relief Solutions When Things Get Out of Control

You’re missing payments, fending off calls from collection agencies, lying awake at night worrying about debt, and feeling like there’s no other way out except to keep trying to pay it all off. However, there are options for reducing or even eliminating your debt altogether. A financial expert such as a Licensed Insolvency Trustee can give you information about several debt relief solutions that might help, including debt consolidation, a consumer proposal, or bankruptcy.

Tips For Digging Yourself Out of Debt

If you’re ready to get serious about getting out of debt, here are six simple tips to get you started.

Set Goals

Goals that work well are SMART: Specific, measurable, achievable, relevant, and time-bound. “Pay off all my debts” is relevant and measurable, but not specific or time-bound. Consider SMART goals like “determine how much I need to pay each month to get out of debt in three years” or “set up a monthly budget” to break the problem into smaller, more manageable tasks.

Automate Payments

Pre-authorized bill payments are the best way to ensure you won’t miss a payment date again. But you must ensure that you have enough in your account each month to cover those payments.

Get Unnecessary Spending in Check

Track your spending to see where all your money is going, then determine if an expense is necessary (rent, utilities, food, and hygiene) or unnecessary (eating out, drinks at a bar, concert tickets). Set a hard limit on unnecessary expenses and redirect those funds to debt repayment.

Make Lump-Sum Payments

If you get a big tax refund or receive an unexpected windfall, consider making a lump-sum payment to reduce your debt. Bringing down the principal also substantially lowers your interest charges, so you can pay it all off faster.

Debt Consolidation

If you’re juggling credit-card payments and other debts, consider applying for a debt consolidation loan that lets you pay off all your balances and then repay just one lender, at a much lower interest rate. But be aware: You’ll need a good credit rating and some collateral to be approved for this kind of loan.

Consider a Consumer Proposal

If you’ve run the numbers and it seems you won’t ever be able to pay back everything you owe, at least not within a reasonable amount of time, talk to a Licensed Insolvency Trustee about a consumer proposal. Depending on your specific situation, it can reduce the amount of debt you owe by up to 70 percent, and also allows you to make a single payment each month for a fixed period of time. The downside is that your credit score will be affected, but you can rebuild that over time.

The Takeaway

Paying off debt isn’t easy, but there are ways to make it possible. It takes planning, commitment, and often, a little help from an expert. Reach out to our team at Baker Tilly if you need support to take control of your debt and start paving the way to financial freedom.

Baker Tilly Ottawa Ltd. is a Licensed Insolvency Trustee and Consumer Proposal Administrator. Its professionals have assisted thousands of individuals successfully resolve their debt crises and overcome financial turmoil since 2002. Its passion – its mission – is your health and well-being!

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Baker Tilly Ottawa Ltd.