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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.

1.    Paying the 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.

2.    Missing the due date

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.

3.    Choosing a 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.

4.    Using high 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.

7.    Planning 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.

Summary:

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.  

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