Being in debt is not necessarily a bad thing if you’re actively making efforts to pay it off. Many Americans, in fact, have debts to pay. According to Statista, the American credit market is owed over $15 trillion in personal loans, mortgages, student loans, credit card loans, and other consumer debts.
Paying off your debt can be a great way to improve your financial standing. It can improve your credit score and open up new doors to financial assistance and service from institutions like banks and insurance companies. There is no good reason not to make an effort to pay your debt.
What’s more, Rescue One Financial and other financial advisory services are ready to assist you in getting your debt affairs in order. As you clear your debt, here are three mistakes that you should try to avoid.
Poor Payment Plan
It helps to make a solid payment plan and stick to it. Make a list of all your debts and income channels then create a debt payment budget that highlights how much money you owe, and the funds set aside for repayment. Make a priority list for which debts to pay first and how to schedule the payments.
Getting Deeper into Debt
Don’t make the mistake of taking on more debt to clear other outstanding debts. This may leave you in an even worse situation than before; in fact, this is how many people end up with multiple unmanageable debts in the first place.
Think of other ways to source funds for debt repayment other than additional loans, for instance, you can liquidate some of your assets.
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Not Having an Emergency Fund
As much as you should devote a significant part of your income to clearing debt, you should still set aside some cash as an emergency fund. Although this may seem counter-intuitive, it’s for a good reason.
An emergency fund cushions your wallet as you make debt payments; it should also keep you from taking more loans to cover emergency expenses. Paying off debt requires a high level of commitment and discipline.
You may need to readjust your lifestyle as you pay off your debt. But the sacrifice and effort are worth it in the end.
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