Holidays, gas, groceries, home renovations, and bills—these are just some of the reasons consumers may pull out the plastic. Before you know it, your credit card debt is too high and you’re struggling to pay it back. Credit card debt can happen over time or all at once, but no one wants to be in debt or have it rule their life.
According to a 2021 study by ValuePenguin, Americans owe $807 billion across almost 506 million card accounts, with the average amount of debt at $6,270. Whether you’re almost out of debt or just starting to get serious about repayment, you’ll want to avoid making these mistakes:
Missing a Payment
One of the most common and easily avoidable mistakes you can make is missing a payment. When you don’t pay at least the minimum on your credit card debt, you risk taking a hit on your credit score and incurring potential penalties, which can mean you end up paying more than you already owe. Making your payments on time is key to paying down debt and avoiding interest rate hikes that only make repayment that much harder.
Only Making Minimum Payments or Paying Too Much
If the only payment you can feasibly make is the minimum, you should continue to do so. However, when you pay more toward your balance you will ultimately pay off your debt faster while avoiding spending more on interest. Either way, having a budget is vital to your financial well-being. If you end up paying more than you can afford, you could fall short on other bills, incur late fees, and take a hit on your credit score regardless.
Of course, if you can’t even make your minimum payment and it all seems overwhelming, seeking professional credit counseling can help set you on the path toward paying back your debt with the support and solid planning you need.
Not Prioritizing Higher-Interest Debts First
There is more than one method to pay off your debt. However, the debt avalanche focuses specifically on your high-interest loans, making it the best way to pay off debt while avoiding higher interest rates and spending more over time.
Neglecting Your Savings
Designating money toward savings is an important part of making sure that once you’re out of debt, you don’t end up back in debt. A popular approach is the 80/20 rule, which means you put 80% of your income each month toward your debts, household bills, and other necessities and 20% toward savings.
Other mistakes you should think about avoiding include: closing credit accounts, which you need to help keep your credit established; not taking the opportunity to become more financially literate, which has shown to help people make better financial choices; and forgetting to reward yourself along the way when you make progress.
While avoiding these pitfalls can help keep you out of debt, or from falling deeper into its clutches, it’s always good to seek help or counseling when it feels overwhelming. By following these guidelines and asking for help when you need it, you’ll be on your way to a more financially healthy lifestyle.