Tips to Avoid Debt Mistakes

by : Jay Moncliff

Each year people resolve to eliminate their debts but end up going deeper and deeper into them. Here, some common mistakes have been pinpointed so that they can be avoided in the year ahead. Reading them well and identifying your lapses will ensure that by the end of 2007, you are absolutely debt free.

Mistake No.1: Ignoring your credit report
Always make sure you scrutinize and tally your credit report at least once a year. This will help to iron out the errors and verify if you are paying surplus interest. If there are any errors they should be sorted out as soon as possible. Failing to do so will affect your ability to obtain loans or even augment your interest rates along with your insurance premiums. If the report is precise, you should then try to increase your credit score and be punctual in paying your monthly bills.

Mistake No.2: Drifting away from the budget
The prime reason for planning and setting up a budget is to control the finances. Proper budgeting will ensure that the spending is effectively managed and does not go overboard. Sticking to the budget planned will ensure that the debt is paid off and will drastically reduce your stress. It gets very tough to decide if your finances are on track in the absence of a budget.

Mistake No.3: Preferring credit cards over cash
Although they are more compact, credit and debit cards go a long way in inflating your debts. You should take only the cash you have decided to spend while going out shopping. This will prevent unnecessary purchases.

Mistake No.4: Paying the minimum amount due
You should save the maximum amount possible each month and pay it so that you can get rid of the debt at the earliest. Paying just the minimum stipulated amount will only prolong the debt period and cause more stress.

Mistake No.5: Unpunctual in paying the bills
Lack of punctuality in paying the bills will only increase your burden. It will result in you paying as much as a $39 late fee and your interest rate will be increased by 25% to 31%, depending on your card agreement. In certain cases, the card companies may raise the rate on the card as well. A delay of more than 30 days will also affect your credit score. Thus it is imperative to pay your bills on time and avoid these additional hassles.

Mistake No.6: No contact with the creditors
In the event that you cannot pay on time or so, it is essential to stay in touch and inform the creditors. This makes them aware of the situation you are in. Doing so may enable you to negotiate with them later and they may even be sympathetic towards your cause and extend the deadline.