5 Common Debt Repayment Mistakes

While I maintain that the hardest part about becoming debt free is actually getting started in the first place, there are still situations along the way that can cause heartache.

When you’ve gone to all the trouble of actually getting started on the road to a debt free life, the last thing you want to do is to stumble part way along.

Today then I’d like to discuss some of the more common mistakes people make when they’re trying to repay debt. Some of these are mistakes that I made myself when paying off my debt, and others are mistakes I’ve seen others make (I’ll let you guess which are which!).

All of them however are best avoided. Hopefully by pointing out these mistakes to you, you’ll be better armed to avoid them – or at least deal with them promptly if you see them occurring.

Ignoring Psychology

Starting any new habit or lifestyle can be an exciting proposition.

If you’ve ever joined a gym or started a diet you’ll know the enthusiasm with which you get started.

This energy can propel you effortlessly through the first few weeks of your new habit.

However inevitably this inspiration starts to wane over time.

As these energy levels start to drop, it becomes ever more likely that you’ll give up and go back to your old ways.

If you’re serious about paying off debt then it’s essential that you do whatever you can to keep this “fire” burning for as long as possible.

And the secret? Psychology.

In other words you need to find ways to “trick” yourself into staying motivated. Some examples might include:

Set up a spreadsheet so you can track your progress. Every time you receive another debt statement or send off another payment make a note in your spreadsheet so that you can see your debts dropping each month.

Consider putting most effort into repaying your smaller debts initially. In this way you can rapidly eliminate one or more of these and watch your total number of creditors dropping rapidly. This process – known as the “debt snowball” – can be highly motivating.

Visualize what your debt free life could look like. Imagine what you’ll do with all that “spare money” you’ll have when you don’t need to repay any debt. Keep this picture alive in your mind and try to dip into it from time to time. Remember: all you need to do is keep on repaying your debt and this life is inevitable.

The key is essentially figuring out what psychological methods and techniques will help you to keep on the straight and narrow. Spend some time to think about your personality and what helps to keep you motivated, then employ as many of these techniques as possible to help you stay the course to a debt free life.

Adding To Your Debt

There’s nothing sadder than the debtor who spends half their life repaying their debt, and the other half having to put expenses back on their credit card. Talk about insanity.

The most common reason for this debt-fuelled cycle is not creating a realistic budget. All too often debtors get over-excited about paying back their debt and “overstretch”.

In doing so they pay off more debt than they can really afford that month, and then as time goes on they realize that they’re going to need to rely on their credit card to make ends meet.

Not to worry – they’ll just pay off even more next month. And so the cycle begins again.

The key to avoiding this debt repayment mistake is therefore to create a realistic budget before you actually begin paying down your debt. In doing so you can be certain that you have economized as much as possible and have enough money left over to meet your otherwise meagre needs.

You can then repay your debt each month without concern over whether you’ll have enough money left; you can be certain that you will.

Taking Frugality Too Far

In order to get out of debt as quickly as possible it is normally necessary to become very frugal. By under-spending in as many areas of your life as possible you’ll manage to put aside money towards paying down your debts.

However it is possible for this frugality to go too far. Like the dieter trying to live on nothing but salad, when you’re too extreme it’s almost inevitable that sooner or later you’ll have a big “blow out”. The dieter realizes they’ve just stuffed themselves with an entire pack of fresh donuts. The debtor, however, end up blowing money on something unnecessary.

So while living frugally is important for getting out of debt, it is also possible to go too far. No matter how much debt you have, and how desperate you are to become debt free, I would also caution you to include at least a little “fun money” into your budget.

As a result, you will still be able to live a very frugal life, yet you’ll be able to treat yourself from time to time. And these little rewards can be very strong motivators for keeping you on the journey to a debt free life.

Easing The Pressure Too Much

Of course the opposite is also true.

When it comes to being more frugal and cutting unnecessary spending, many of us cut as much as we possibly can to begin with. After all, this can be an exciting process to see just how much “spare money” we can find for debt repayments.

The first few months things go well. We live on a pittance, and manage to make impressive inroads into our outstanding debt.

However over time this “fire” can start to burn out. We become complacent. We relax a little too much. We buy ourselves a few things we want. Before you know it your formerly frugal life is slipping imperceptibly back to your old ways.

Next thing you know you can’t afford those same debt repayments you were making just a few months before.

In other words while you’re paying off debt, don’t let yourself get too relaxed. Aim to constantly monitor, manage and track both your spending and your outstanding debts so that you can spot any “issues” early on and nip them in the bud.

Not Planning For The Future

The last common mistake that many people make when paying off debt is failing to plan for the future. In other words, their budget doesn’t take into account future purchases like Christmas presents or car maintenance; the types of purchases that simply don’t happen every month.

Then all too soon one of these purchases rears it’s ugly head and your whole budget goes up in smoke as you struggle to both meet your financial obligations and repay your debt.

What mistakes have you made paying off debt? What common errors do you see other people making? Please leave your experiences in the comments section below…