In this article, we will be sharing three debt management mistakes people make and how to avoid them.
Debt is inevitable, and knowing how to manage it is key.
It could be anything, from a mortgage you took for your house, a bank loan to prop your business or a few dollars you borrowed from a friend for gas.
While debt can be leveraged to help you achieve personal and business goals quicker, failure to manage it properly can be equally devastating.
To ensure you don’t fall into the same pitfalls, here are three common debt management mistakes that people make and how you can avoid them.
3 Basic Debt Management Mistakes People Make
1. Hiding From Your Lenders
With everyday challenging life situations, you may feel the need to go into hiding due to overwhelming bills and expenses. However, know that burying your head in the sand will not make your bills disappear.
The best course of action would be contacting your creditors. Reach out and tell them that you have fallen on hard times and find it hard to make payments consistently.
Often, creditors understand their borrower’s situation and may lower your minimum amount or interest rate for some time. Some may even allow you to skip a few payments until you have your affairs in order.
Therefore, please make a point to contact them to avoid being forwarded to a small business collection agency.
You might be surprised to know how accommodating your creditors can be when you have a proactive payment record.
2. Making Minimum Payment on Your Credit Card
It may be futile to pay off your debts while only making the minimum payment. Doing so will only lengthen the time it will take to get rid of your debt due to increasing interest rates.
To avoid ballooning debts, work out your finances and pay off as much as you can each month. A shorter repayment period ensures you pay less on your borrowed money, saving you money in the process.
3. Making Late Payments
You may experience financial strain and other consequences when you fail to beat the repayment deadlines.
For example, with late payments, you may have to pay a late fee; your interest rates may increase or even hurt your credit score.
As a result, you could be making it harder for you to secure loans in future when you need them.
Ultimately, you may end up down the rabbit hole of borrowing from predatory loan sharks with ridiculously high interests and unscrupulous means of recovering their debts.
In such a case, again, contact your creditors. This way, you can make different arrangements and keep your debt management strategies intact.
For example, your creditors may change your due date to a later date, which may grant you balance and avoid paying your debt late.
Conclusion
We hope this article about three basic debt management mistakes people make and how to avoid them has been helpful.
Debt is inevitable because in most cases we encounter unforeseen financial expenses that force us to take out a loan or apply for a credit card to pay for them.
Not everyone has the cash on hand to pay for them out of pocket.
The three smart moves you can make as a debtor are:
- avoiding late payments on your debt
- making more than the minimum payment
- talking to your creditors when you are unable to make payments on time
While it is always easier said than done, employing these strategies will help you manage your debt better and set you on the path to financial freedom.