Many people financially over-leverage themselves and are in long-term risks. When interest rates rise continuously, this could turn to a double-whammy situation. If you have debt issues, this should be the right time to quickly shore up your overall finances. When embarking on your debt-free quest, it is important to know why people still can’t escape their debt problems. Make sure that you avoid the following issues:
1. You neglect the root cause:
It is important to address various root causes that trigger your debt problems. In many cases, you face a random avalanche of unexpected expenses, such as car repair, family emergencies, medical bills and others. If it appears that random expenses begin to appear quite frequently, then you should start to accumulate an emergency fund. With this fund, you won’t need to apply for a huge debt and in some cases; you don’t need to apply for a debt at all. You need to build up the fund, even it means that you dine out less and cancel your cable services. If you are being serious, it is important to make some lifestyle adjustments.
2. You continue to use cards that are being paid off:
If you are struggling to pay off a card, then it is a bad idea to continue using it. This can be driven by the desire to earn extra rewards, such as cash back or airline miles. In reality, the extra interest that you incur far exceeds those alleged rewards. There’s no way around it, you need to stop using your credit cards completely.
3. You want to increase credit score with credit cards:
Your credit score matters only when you want to apply for a loan or mortgage. If you are able to pay off your debt, then your credit score will improve. It is often said that you can slowly increase your credit score by paying off your credit cards. However, if you overuse your cards, you will end up ruining your scores.
4. You don’t use bonuses properly:
Small windfalls, such as income from side gigs, work bonuses and tax refunds should be used to pay down your debts. If you use your extra money properly, you will be able to improve the overall picture. They should be used to create a safety net that can safeguard you against mishaps.
It is important to make sure that you have an actual financial plan and you should determine how much you can afford to pay toward the debt each month. Lump sum amounts should be treated like fixed bills, until your debts are all gone.