- Remaining in the vicious cycle of repaying the burden of years of overspending have multiple drawbacks.
- Spending behaviour categorically dictates the mistakes and the goods and services which are being availed for no essential reason.
- By eliminating the potential areas of overspending, one can certainly clear off the existential liabilities.
Clearing debt obligations is the most important task if you want to live a financially independent life, as growing debt concerns certainly decreases your ability to think freely and hinder you from taking calculated risks. Remaining in the vicious cycle of repaying the burden of years of overspending have multiple drawbacks. While repaying your cumulative debt is always a good thing to start, people often commit several mistakes following which they end up falling into a debt trap.
Mistakes People Make Paying Off Debt
We take a look at some of the common financial mistakes one should avoid while repaying the debt.
Continuing to pay minimum charges
Paying the minimum bill amount charged to your credit card should be strictly avoided as it blocks the credit limit, alongside it, the banks or the credit card issuing agencies charge immensely high interest rates and other fees to carry forward the bills. If you are involved in such habits, you should immediately look forward to breaking the cycle of paying only the minimum bill. You should rather square off the maximum amount possible and the complete billed amount in order to reduce the additional credit charges.
Continuing overspending behaviour
When it comes to optimising financial habits, one should always start with the spending behaviour and frequency of expenses and the items on which a major part of the money is being spent. Spending behaviour categorically dictates the mistakes and the goods and services which are being availed for no essential reason.
Overspending is not a mistake, it is actually a behavioural disorder that leads you with empty pockets much before the end of the month and the arrival of your paycheck. Perpetually living on borrowed money is not at all advisable as you will be in deep trouble if there is an emergent requirement and you’re not having an adequate amount of money. In such cases, you will end by seeking fresh lines of credits, which may cost you higher as compared to other credit lines due to the urgent requirement, as a result of which, you will be subjected to apply for unsecured loans which carry a higher-than-usual interest rate.
By eliminating the potential areas of overspending, you can certainly clear off your existential liabilities, alongside saving a proportionate amount for your retirement fund.
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Continuous usage of credit cards
Invariable usage of credit cards at a time when you are servicing your ongoing debt obligations, can make the situation worse as you will be reaching a debt-free scenario in a longer-than-expected time as the amount you would spend through credit card will become a liability in next month, it will effectively counterbalance the amount you have repaid in the same month.
Even if 70-80% of your monthly income is going towards repaying the debt, then also you should not use credit cards unless there is a dire and unavoidable situation. You should cut your monthly expenses by a considerable amount to live within the means, choosing affordable solutions for periodic requirements such as travel, food and recreational activities.
Extensively applying for new credit
Applying for new credit lines could be devastating for your financial health when you are already repaying your extant liabilities. Seeking new credit lines will deteriorate the overall credit score, while at the same time, it will increase the cumulative debt obligation. Higher the debt, lower will be the purchasing power as whole income will be utilised in servicing the liabilities. You can consider applying for credit if there are options of balance transfer with a facility of lower interest rate as compared to the running rate on your loans or credit card advances.