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Paying down mountains of debt and not getting anywhere

Where am I going wrong?

By Ainslie RobinsonPublished 3 years ago 3 min read
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Paying down mountains of debt and not getting anywhere
Photo by Christian Erfurt on Unsplash

With 60% of Americans having not been able to cover a $1000 emergency even before the pandemic became an issue, it's no wonder more and more people are looking for ways of getting their personal finances under control once and for all. So what are some of the common slip ups people are making with their money.

Not having a budget - consumer culture is pervasive within our culture and especially with the rise of social media, consumers are being marketed to with every click of their mouse. Combining this with the ease of obtaining and using credit cards, it is easily to spend more than you earn. This is why it is important to set and stick to a realistic monthly budget every single month. Start by looking back on what you spent the last month and calculate what you monthly fixed expenses (such as rent/mortgage, transportation, food, electricity, water, insurances etc) are. Set aside at least 10% of your income to invest in retirement savings. After your needs and retirement have been entered into the budget, set aside an amount for debt repayment. This amount should be significantly higher than the minimum repayment otherwise you will never make any traction. Then set aside money for discretionary spending such as entertainment and other wants such as clothes.

Credit cards - if you have found yourself in consumer debt, the very next thing after setting a budget is taking a pair of scissors and cut up every single credit card so that you can not rack up any further debt. This way, you are forced to live on what you earn and you can focus on paying down the debt mountain.

Only paying the minimum repayment - there is a reason why credit card companies only insist on repaying a tiny part of your debt each month, and it is to ensure that you never really get on top of it. By only paying the minimum repayment each month, the interest on that debt will be increasing the size of the debt with more speed than you will pay it off. If you continue doing this, the finance company will own your soul forever. Throw every spare cent that you have into the principle part of the debt.

Focusing on more than one debt at a time - If you have more than one debt to conquer, it can seem really overwhelming and uncontrollable. This tends to leave people paralysed and unable to make real progress with debit repayments. But really, it's just one foot in front of the other. The best way to handle this is:

- ensure you pay the minimum monthly payment on ALL debts so you do not destroy your credit rating

- then, pick the smallest debt first and throw whatever money you have in your budget for debt repayment that month at the smallest debt

- once that smallest debt is paid down, you will feel a sense of self-efficacy and it will give you the boost you need to keep charging through the next biggest debt and so on

- by the time you get to the largest debt, you should have enough of a feeling of self-accomplishment to know that you can do it, and it shouldn't seem so overwhelming

Ignoring saving and investing for retirement - sure things are critical with debt right now but 'future you' will be very grateful for continuing to invest in your retirement account. You see, this debt is temporary and you can get through it, but the one thing that is the most useful for retirement investment is time. The money that you invest in your 20's and 30's is far more valuable in the long run than the money invested in your 50's.

And remember... you CAN do this!

how to
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