It's probably around this time that you're starting to see bills come in from your holiday spending.
It's also around the time that you might be wavering on that resolution to spend less, save more and pay down your debt. It's a bad combination: Just when your resolve is faltering, you get big credit card bills in the mail and you may want to just give up.
There's no reason to feel alone in your battle against debt. CommonWealth One can help you with practical advice and support so you can keep your resolution and stop feeling so overwhelmed.
Here are five common mistakes people make when trying to pay off debt — and ways you can avoid making the same errors.
1. Not seeking help when you need it. When we said above that there's no reason to feel alone, we meant it! There are a lot of methods to use to pay off debt (the interest-focused method, the snowball method, etc.) and it can be hard to figure out what method will work for you. CommonWealth One has certified financial counselors who will sit down with you, your bills and your budget, and help you figure it out. And we offer this service to our members at no cost. Before you start to search the Internet for "personal loan," come talk to us. Help is just a call or a click away.
2. Paying only the minimum. Thanks to laws passed a few years ago, your credit card bills come with information about how long it will take you to pay off a bill if you only pay the minimum. Those estimates assume that you will not run up any more charges! But, life happens, and you might need to use that credit card again. If you only pay the minimum, it will take you a lot longer to pay off your bill than if you throw even an extra $50 per month at it. Pay more the minimum and your debt will go away faster.
3. Using credit cards to pay off debt. Credit cards can be useful, but only when used properly. It's not a good idea to use one credit card to pay off another (unless you can get a very, very low balance-transfer offer and pay it off really fast). You shouldn't use a credit card to pay off a car loan, a student loan, or other debt when you can avoid it, because interest rates on credit cards are really high. A better solution will be to talk to your lenders and negotiate a payment plan or a lower interest rate first!
4. Not having an emergency fund. At some point this year, you may have to make an unexpected trip to the hospital, pay for a car repair or fund some other unpleasant surprise. It's hard to budget for the unexpected, but having an emergency fund can help a lot. It's ok to start small, but try to build up an emergency fund so that you can pay for those expenses without using a credit card.
5. Borrowing from the future. It might be tempting to raid your 401(k) — all that money is just sitting there! — but don't do it! There can be big tax penalties when you take money from your retirement savings, and leaving it untouched for retirement, when you really need it, is the best move. Instead of borrowing from your future self and paying hefty fees to do that, go back to our advice in #1 and call CommonWealth One! We can help you come up with a lot of other, easier and financially smarter solutions to your debt problem.
