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7 Debt Mistakes that You Must Avoid
25 May 2017
While taking a debt is essential at
times and it is very useful too, there are certain debt mistakes that should be
taken care of to make the debt repayment easy. We would now mention 7 debt
mistakes that can easily be avoided and tell you how to avoid debt.
minimum due amount
Loans, especially on credit cards,
require a certain amount to be paid every month. One of the biggest mistakes
people make is of paying only the minimum due amount instead of paying more
amount to pay off the debt completely. When you pay only the minimum amount,
the debt keeps on rolling over and interest keeps accumulating, making the debt
repayment even more difficult. So, pay as much amount as you can and forget
about the minimum amount due.
Whenever you miss the due date of
making your debt repayment, further interest is added on the due amount and
this increases the amount that you have to pay back. So, make sure you avoid
this debt mistake and save your additional money from being wasted. A good
approach would be to set a fixed date every month to make all your payments;
this would prevent the due date to pass by without the payment being made.
longer debt repayment tenure
Choosing a longer tenure for debt
repayment attracts people because it comes with the option of lower amounts of
installments to be repaid. While apparently, this may seem to be beneficial, it
is actually a debt mistake that needs to be avoided as it results in you paying
much more than the amount that you were originally supposed to pay. Instead of
going with the option of increasing the debt tenure, try to cut down on some of
your expenses and try to repay the debt in as less installments as possible.
This would allow you to save on the extra interest you would have to pay with
the longer tenure.
credit card limits
Usage of more than 30% of your
credit limit adversely affects your credit rating. This would negatively affect
your future chances of securing a loan at a good rate when taking a debt might
actually be a necessity. So, try not to go beyond the limit of 30% and save
your credit rating from being ruined.
5. Not going
through the terms of debt
When you get a debt, there is a
possibility that you might be so overwhelmed with the amount that you ignore
the terms at which you are getting that. This can also happen in the case of
credit cards; you might be enticed by some introductory offers so you might go
with the offer without realizing that there are more terms of the offer that
are mentioned in fine text below the main offer. Those terms would determine
what kind of a debt you are actually getting. Moreover, if you are aware of the
policies of the debt giving authority, that would be better for you as you
wouldn’t fall in any sort of trouble.
6. Taking debt
for luxury products
If you want to buy luxury products,
by all means go ahead. But do not take a loan for this purpose. You should only
go for luxury products if you can afford them and save the option of debt for
better investments such as a house mortgage or a student loan. This would
prevent unnecessary debt building up and you would be able to benefit at times
when it is actually needed.
debt repayment without setting a realistic budget
Setting a budget helps you in
cutting unnecessary expenses and saving on more money to repay debt. If you
ignore the need of making a budget, you would most probably miss the chances of
getting out of your debt as soon as possible. A budget helps you decide where
to spend and where to cut back on expenses. This allows for better management
of funds and instead of needing to borrow additional money, you can end up
saving money to repay your existing debt. So, never underestimate the power of
a realistically set budget.
If you want to make wise decisions
regarding your debt and want to know how to avoid debt, you need to follow
these guidelines along with being more prudent in your approach. Taking on debt
is not something bad but piling it up unnecessarily is definitely not good.
If you are careful about these 7 debt mistakes, you can prevent yourself
from being caught up in unnecessary debt easily. Just make sure that you do not
make a habit of paying just the minimum due amount, do not lose track of due dates
and do not go for a longer tenure of debt as all these increase your actual
amount to be paid. Moreover, avoid using high limit of credit cards, read the
terms of debt thoroughly, do not take debt for unnecessary items and plan
properly for your debt repayment.
About the Author
Steven is a husband, father, senior
debt advisor and a financial consultant at Sort My Debt. With over a decade of experience
in different financial verticals, Steven has helped many consumers in debt arragements and become debt free. While not doing that, you can find
him reading books and roaming with friends.