by If you feel like I did when my family was drowning in debt, you understand the disabling feeling of barely keeping your head above water, the worries of being one paycheck away from financial disaster, and the dreadful sense of being stuck there for eternity.
Debt can cause tremendous stress, as it spills over to other areas of our lives – our relationships, our health, and our psyche.
Though we may not chat about our debt with friends over drinks, it is a widespread issue facing countless individuals. In fact, the average American household is approximately $130,000 in debt.
Making the choice to wipe out debt is the first, most crucial step toward debt freedom.
But diving into debt repayment hastily, without any preparation or prior thought, can lead to crucial mistakes which slow, or even halt, progress.
Granted, mistakes are natural and teach good lessons, but a little prep work and know-how can give you a head start and keep you moving in the right direction.
Related: How I Paid Off $40,000 of Student Loans in 18 Months!
The 4 biggest mistakes (and how to prevent them)
1. Adding to debt
You start slashing away at that debt, successfully paying extra on the principal balance for a couple of months, then BOOM, your insurance bill comes and you don’t have the extra money to pay it. You decide to charge groceries for the month on your credit to enable you to pay the insurance bill.
Adding to debt while trying to repay it, though counterintuitive, is a common mistake, and can be avoided by funding the all important emergency savings account prior to starting debt repayment.
How much to save in an emergency fund? It’s an individual decision – $500, $1000 or the oft recommended equivalent of 6 months living expenses are all better options than having nothing at all.
2. Not prepared for the unexpected
Unexpected expenses should be expected. It’s rare for the average person to get through a month without an unexpected expense, whether it’s a birthday gift, car repairs, medical expenses, or a dead washing machine.
The aforementioned emergency fund is an absolute necessity, but further your preparedness by getting organized.
Look ahead a year and list potential “unexpected” expenses, considering the age and condition of your car and appliances, as well as gifts you will buy and any upcoming travel (e.g. weddings, family reunions, or vacations). Plan to sock enough away in emergency savings to prevent these expenses from causing further debt accumulation down the road.
Read also: How to Stay Positive While Paying Off Massive Debt
3. Cutting expenses too much (or not enough)
Are you like me and dive head first into new goals and ventures? If so, debt repayment could look something like this: the first month you drastically cut expenses – you don’t go out to eat, reduce grocery spending to the bare minimum, stop going out with friends and save a boatload of cash. Though you’re on the right track, after a couple months you start to feel the deprivation. By the third or fourth month, life is such a drag, debt repayment doesn’t even seem worth it. I mean, why sacrifice today for tomorrow? YOLO!
The opposite end of the spectrum can be equally as bad. You want to pay off the debt, but just aren’t willing to make any sacrifices in spending to get you there. You enjoy your life the way it is and, although your want the debt gone, you just can’t see any areas you want to cut back on to make it happen.
Experiment to find a happy medium that works for you, one where you don’t feel constant deprivation, but still allows you to reduce expenses enough to make progress.
Related: This Couple Paid Off $170,000 of Student Loan Debt By Garage Selling!
4. No specific plan
If you headed out on a cross country road trip without navigation or a map, would you get to your destination? I’m guessing no, no you wouldn't.
As with any other goal, the roadmap for debt repayment is an important piece of the puzzle, and without it, chances are you will never get to your destination.
Research has shown people who write down their goals, the steps necessary to reach those goals, and create accountability for their progress are much more successful at reaching their target goal.
Are you ready to knock out that debt? Avoid these four mistakes and, with a little planning and prep work, eventually you will turn your dream of debt freedom into reality.
Amanda’s family successfully paid off over $100,000 in debt on one income, while still living an abundant life. She blogs about debt and living a “rich” life over at centsiblyrich.com.
About Millennial Money Man
Bobby Hoyt is a former band director who paid off $40,000 of student loan debt in 18 months on his teaching salary and then left his job to run Millennial Money Man full-time. He helps other Millennials earn more through side hustles, save more through budgeting tools and apps, and pay off debt. He is a personal finance expert who has been seen on Forbes, Reuters, MarketWatch, CNBC, International Business Times, Business Insider, US News, Yahoo Finance, and many other personal finance and entrepreneurship media outlets.
Comments
The Green Swan
Good advice Steve, thanks for the post. It definitely requires a change of behavior to get out of debt quick.
Amanda @ centsiblyrich
Agreed! A change in behavior with a little forethought and planning can put you on the road to debt freedom more quickly.
Brian @ Debt Discipline
The math part is easy, the behavior change will be more difficult. Once realizing the reasons why you want to get out of debt, freedom, reduce stress, better future the change will get easier to handle.
Amanda @ centsiblyrich
Definitely true, Brian! You really have to want it and know your why to make the necessary lifestyle changes. Once I got a small taste of debt freedom and realized how much lessened the stress levels in my life, I wanted it even more.
Scott @ Couple of Sense
Some great points and thoughts on what to avoid – especially setting a plan. I think once you have your plan it becomes much easier to avoid the other 3 items on your list. If it wasn’t so sad it would be comical how many people run into “unexpected expenses” on a consistent basis. At a certain point inexperience transitions to ignorance.
Amanda @ centsiblyrich
Exactly, Scott! The plan should include all of the “unexpected” expenses, which is why it’s so important to look ahead. Those unexpected expenses are generally just expected expenses that were never planned for.
Allan Liwanag @ The Practical Saver
Great advice, Amanda. You are absolutely right with your statements. I particularly like the “not prepared for the unexpected”. I was also swimming in debt before. I realized that it wouldn’t make sense for me to just pay my debt and not saved because I knew that there might be times that unexpected circumstances might happen. So, I decided to save more than pay more towards debt. It worked out for me and my family. In just 2.5 years, I was able to pay off $40K of debt and saved $70K at the same time.
Amanda @ centsiblyrich
Thanks, Allan! It’s great that you were able to simultaneously save a ton of money while still paying off your debt. Doing both at the same time is a good option if you are able to make it work. Sounds like you really hustled!
Martin - Get FIRE'd asap
It’s been a very long time since I was ‘swimming’ in debt but like all traumatic events in one’s life, I remember what it was like before I had a plan and just feeling a sense of hopelessness. Each payday we would pay off the overdraft back to almost $0 and then live the next two weeks going back into the debt. So, in effect, we were just living on the bank’s money. This cycle went on for some time before I realised that something had to be done. I put a budget in place which included repayment of part of the overdraft and we stuck to it. Little by little, the overdraft was paid off and we were living on positive funds. I then cancelled the overdraft and we never went back.
So, the lesson from me. Once you’ve made the commitment to do something about your debt, make a workable plan, and bloody well stick to it.
Great post.
Amanda @ centsiblyrich
Thanks for sharing your experience, Martin! It can be an endless cycle of catching up, only to fall behind again and, without actionable goals, it’s hard to break that cycle. It’s great that you were able to stick to your plan and move forward!
Latoya @ Life and a Budget
We’ve made the mistake of adding on debt while in debt, and always justified it because it was a “different type of debt”. As long as it wasn’t additional student loans it was justified, but I’m plain over it. I don’t plan on financing anything else until those suckers are gone.
Amanda @ centsiblyrich
Latoya, we did the same thing when we were working on debt repayment several years ago. Once the student loans were gone, we financed another car. We finally decided enough was enough. Good to hear you’re on the right track! Thanks for sharing.
Phil Danley
I believe the #1 cause of plan failure is going too Spartan. It’s fun and exciting the first few weeks to cut way back and see some money staying in your bank account. But then it starts to get old. You decide to go out “just once”, then feel guilty and eventually give up because “it’s too tough”.
Just like trying to lose weight. You can lose some right away if you eat nothing but kale and celery. But after a couple of weeks pizza starts to sound way too good because you have deprived yourself. “I will have just two slices” turns into eating the whole pie. And you soon give up because who can live on kale and celery for a year?
Keep one “frivolous” expense if you can afford it. Like going out to dinner once a week. Something that keeps you in the game for the long haul. On paper you’ll pay your debt slower but in reality you will make it to your goal of debt freedom!
Amanda @ centsiblyrich
Great advice, Phil! Thanks for the example. The deprivation we start to feel after a short time can definitely get the best of us – it’s important to include at least some of the expenses that we enjoy. Better to take a little longer on the debt repayment than to stop altogether!
Andrew @ Debt Freedom Journey
Focus less on interest rate and more about what you’re going to do to get out of debt.
It’s fine to refinance or transfer balances to safe on interest, but ultimately if your plan is to pay off debt, figure out how to do it THIS YEAR. If you do it this year, interest rate doesn’t really play a big part. Focus on cutting expenses and throwing money at the debt.
Millennial Money Man
I agree about doing it NOW vs. waiting, a lot of people don’t act soon enough on this stuff
Jeannie
Agree with all. The one thing I would add, maybe as a subset to the plan, is to focus paying down one account at a time. I used to make the mistake of paying extra on several accounts, so I wouldn’t feel any traction.