Getting out of debt is not easy. In fact, it is really, really hard. It’s always admirable when you read about people who have paid off massive debt loads in a relatively short amount of time. But how did they do it? And what are the potholes they avoided, so we can avoid them too? Well, we decided to ask…
Here’s what seven personal finance experts — most of whom also conquered a huge amount of debt — had to say about the biggest mistakes holding people back from paying off their debt.
Take notes, give yourself a pat on the back, and then get to work…
They Don’t Choose A Method
“Not choosing a method…is the biggest mistake people can make on their journey towards debt freedom. Many people start off their journey wrong because they don’t take time to analyze their current financial situation and [they] just act on what a popular personal finance guru says or they try to imitate tips from their favorite blogger. What works for one doesn’t work for all…
Choosing [one] debt payoff method over the other won’t keep anyone from reaching their financial goals. In fact, no debt payoff method is the most effective way. The snowball method will help pay off debt faster and create momentum due to the quick wins; however, the avalanche method may help save you money in the end.
No one knows your situation, goals, and dreams better than you do…If saving money will keep you motivated to reach your goals, the avalanche method will work, but if you need quick results to help you stay on track, the snowball method may be a better fit. You may even discover that using a combination of both methods works best for your situation.
Remember to always do what’s best for you no matter what others proclaim is the best way. There isn’t an one-size-fits-all plan when it come to paying off debt.”
-Kayla Trapp, personal finance guru, currently paying off $145,000 of debt (@pHERsonalfinance)
They Don’t Budget For Fun
“The worst mistake people make when trying to get out of debt is failing to factor in the things they enjoy into their budget. When creating a budget that helps you pay off debt, the key to sustainability is making sure you have a moderate amount reserved for the things you enjoy. Obviously, the goal is to pay off debt. However, when you deprive yourself for long periods of time, you end up splurging. The splurge is usually paid for with credit cards and any progress [then get’s] completely undone.
Not only is past progress undone when splurging [happens], but you likely end up in a worse position then when you first started. When trying to get out of debt, the goal is to stop using debt. That means a specific and realistic budget is essential. The key to staying consistent with that budget, and your debt pay off efforts, is to include a moderate amount of money for the things you enjoy. It’s completely budgeted for, so you don’t need to feel bad if you use that money. If you don’t use that money, well, now you have even more that could go towards your debt.
The debt repayment journey can be a long one, so set yourself up for success by making sure you have a sustainable budget plan in place. Life is too short not to enjoy yourself…in moderation! You can enjoy yourself and pay off debt at the same time.”
-Raya Reaves, personal finance guru, paid off $23,000 of credit card debt (@citygirlsavings)
They Own A Home (And It’s Very Expensive Problems)
“Getting out of debt is far harder than getting into it. You can have the best debt payoff plan, and incredible motivation, but unexpected expenses tend to find a way to disrupt those plans. That is why I feel that the biggest mistake you can make while getting out of debt, is purchasing a home. Don’t get me wrong, I want you to own a house someday if that’s your wish, but with a house comes liability, as well as a whole host of expenses — both expected and unexpected.
Life is going to happen. The question is, how big of a setback do you want to handle while trying to maximize your debt payments? When you’re trying to get out of debt, the last thing you need is a leaky roof, a flooded basement, a broken washing machine, or a termite infestation. In my experience, household emergencies tend to cost thousands. Personally, [my husband and I] spent over $23,000 of our savings last year on unexpected repairs to our home. Owning our own home meant we didn’t have a landlord to call, and we had to pay for these repairs ourselves. There’s nothing cheap about home ownership. If we aren’t spending money to fix [the house], we often convince ourselves that we need to decorate it and fill our rooms with furniture and stuff.
It’s easy to get house fever, and to convince yourself that buying a home makes sense because you don’t want to be ‘throwing away’ your rent payments. I would challenge you to consider renting as a tool during your debt payoff process to keep the liability of home repairs and unnecessary household purchases off your plate. You’ll be in a great place to buy a home when you’ve paid off your consumer debts, have an emergency fund of three to six months expenses, and have a 20% down payment saved. Look for a 15 year, fixed rate mortgage where the payment is no more than a quarter of your monthly take home pay. Following these guidelines will have you prepared for emergencies, and having a small ratio of home expenses to income will allow you to continue crushing your financial goals.”
-Kendall Berry, personal finance expert, paid off over $53,000 of debt (@berrysonabudget)
They Can’t Stop Comparing Themselves To Others
“When it comes to getting out of debt a lot of us get stuck on how long it takes to get out of debt. We’re amazed by how fast we get into debt but get overwhelmed by how long it actually takes to get out of it. This is where we start judging and comparing ourselves to others. That is one of the worst mistakes people make while trying to get out of debt: They put themselves down when they should be getting pumped up about kicking their debt out of their life.
The first thing you can do is to take the many debt-free stories as motivation to fuel you to stay the course. You might see debt-free stories of couples or individuals getting out of a bunch of debt within 12 months. Don’t let their stories make you feel bad about your own unique journey. Embrace the lessons you’ll be learning during your debt-free journey like budgeting, living within your means, and avoiding debt. We all learn at different paces, so don’t put yourself down for running your own race.“
-Sahirenvys Pierce, personal finance guru, paid off over $99k of debt (@poisedfinancelifestyle)
They Simply Ignore Their Debts
“The worst mistake a person can make in regard to their debt is hoping it will go away on its own. Understanding your finances is scary, but confronting your debt is downright terrifying. Acknowledging that you are in debt, and identifying exactly what that number is, can be a very difficult step for many. The result of debt denial is that you allow your debt to build, all the while allowing the debt’s compound interest to grow exponentially. By the time you are forced to face the music, what could have been a manageable sum has turned into a nightmare.
By avoiding your debts, you are also missing the opportunity to take control of your overall finances. What many people fail to recognize is that debt is no one’s responsibility but your own. The sooner you own your debt, the sooner you can aggressively begin paying it down. Many people see debt management as simply making minimum payments every month without ever calculating just what it will take to pay back that money. In order to truly get your life back, you need to stare debt in the face and understand exactly what you need to do. This is so much more empowering than blindly trying to pay it off (or worse, ignoring it altogether) and hoping it will go away on its own.”
-Max Bernstein, finance expert (@Finance_Facts_By_Max)
They Run From Their Creditors
“If you can’t afford to make a [debt payment], say something to someone. Those creditors and bill collectors aren’t there to make matters worse for you. In fact, they’re there to help. If I can start out by paying something as opposed to paying nothing, sign me up. It’s definitely not worth accruing more late fees on top of past due amounts.
A few years ago, I graduated with an MBA in Finance from Nova Southeastern University. Upon completion of my degree program, I was required to enroll in a Capstone course. Unbeknownst to me, this course was not covered under financial aid and I was required to pay for a four hour course out of pocket (yikes!). Well, here I was unemployed and required to pay almost $2,800 for a required course. I didn’t have the money but I really wanted to take the course to complete all of my requirements to get my degree. So, I took the course but was told thatI will not have my degree or transcripts in my hand until I have paid off the outstanding balance. I couldn’t afford to pay it in full because as I mentioned earlier, I was unemployed. Therefore, I needed to set up a payment arrangement to cover the cost of the course.
When I initially received the first call from the creditor handling my account, the easy route for me could’ve been to save her number in my phone and ignore it every time she called. As much as I wanted to do that, I decided to talk to her and explain my situation. Fortunately for me it worked. I explained that I was in transition between graduation and finding a job. Times were rough. I told her that as soon as I found a paying job, I’d be able to pay my outstanding debt. The same creditor called me on a monthly basis for almost 10 months and I shared the same information with her. I didn’t want her to think that I was avoiding her and at the same time she had empathy for my situation. When I finally found a job, I provided her with my start date and we set an aggressive payment plan that would help me pay off my debts. After nine consecutive payments, my debt was paid and my MBA arrived in the mail.
In my case, I knew that I had an outstanding debt and I could not afford to pay it. However, I decided to keep the lines of communication open with the creditor. By paying off my debt I got what I wanted which was a physical copy of my Masters. People should stop wasting their time by running away from debt. It’s time to start adulting and take accountability by paying it.”
-Shatoria Smith, finance expert (@CoinCountInMama)
They Don’t Commit To It With Everything They Have
“The worst mistake is not fully committing yourself to getting out of debt. Getting out of debt, striving for financial independence, and living on your own terms is a conscious and deliberate choice. It just doesn’t happen because things are bad, or because you really want it to, the fact is, you really have to do it and be 100% intentional with getting out of debt and ultimately building wealth.
To commit to debt freedom, you really have to own your stuff. [Admit to yourself] yes, I have student loans. Yes, I have credit cards. Yes, I owe my parents money. Yes, all of this debt is mine. It’s not worth discussing how you’ve gotten into this situation. All you can do is own it and own your plan to get out of debt. A lot of times we like to look backwards and tell the story of how we got here, what went wrong, and sometimes point the blame, but none of that matters when it comes to getting out of debt. To focus on a goal, especially something big like getting out of debt, requires you to focus 100% on the future. Looking backwards wastes energy that you will need to focus on becoming debt free.
Getting out of debt really is a skill and for most people understanding debt and being debt averse isn’t something that comes naturally. Let’s face it, most of us have the skills to get into debt, but not the skills to get out of it and stay away from it. Being committed includes coming up with a feasible plan that is based on real budgeting techniques, real math, and real sacrifice. You have to plan to work and then work the plan. A lot of times, we will put in all this work to come up with a plan, but as soon as life happens or as soon as something tough or difficult happens we let our emotions take over and we usually abandon our plan. You have to trust that the plan you came up with will work and stick to it…
The day you tally up your debt and say enough is enough, you should find solace in the fact that this is the highest amount of debt you will ever have, because you will say no more. This is where you can really make a change, but you have to be committed in order for your debt free dreams to come true.”
-C. Butler, finance expert, paid off $47,000 (@ForBetterOrWorth)
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Feature Illustration: Laura Caseley For The Money Manual