There’s a reason that the average Canadian’s non-mortgage debt hit $28,853 in 2014 and that’s because it’s hard to pay off debt. It’s a long, slow process and there is zero tangible reward to it until you get to the very end and can proclaim yourself debt free. That said, paying off debt is an important part of personal finance, and is entirely worth it in the end. It doesn’t have to be all bad either, if you’re having a hard time paying off your debt, it might be because you’re making a few key mistakes. Here are four big mistakes you might be making with your debt repayment.
You’re Not Tracking Your Payments
Have you been throwing money at your debt every month and then feeling discouraged when it doesn’t seem to make a difference? Well that’s because you aren’t tracking your debt! Every time I made a payment on my student loans and later my car loan, I recorded it in my debt repayment spreadsheet (download your free copy here!). At any given moment I knew exactly how much I’d paid that month and that year. I knew how soon my “debt free date” was and I knew how each payment would affect those numbers. Having this information at my fingertips helped me stay motivated and let me see that my payments were making a difference.
You Aren’t Setting Goals
Do you have a goal debt free date? Do you know how much debt you want to pay off this year? Setting goals is an important part of debt repayment because it keeps you accountable and gives you a plan of action. For example, if you want to pay off $10,000 in debt this year, you’ll have to pay at least $833 towards your debt per month plus interest. There, I just made you a plan for your goal, now go execute it. Without goals and plans like this, you might feel like you are just throwing your money away, which is a great way to lose motivation and slide back into old habits.
You Haven’t Set Your Debt Up as a Bill
The easiest way to pay off debt quickly is to ensure that making a payment is as quick and painless as possible. For my debt, I set up both my student loans and my car loan as a bill that could be paid directly from my chequing account online. That way, when I had a few spare bucks I didn’t even think about it – I put it directly on my debt (and then I recorded it in my debt repayment spreadsheet).
You Haven’t Tried to Reduce Your Debt
Have you tried to get a portion of your student loans forgiven? What about your interest rates lowered? Are there any debt relief programs in your area? I was able to get my student loans reduced by almost $16,000 thanks to a government program available to new graduates in my province, and I’ve been able to take advantage of some terrific tax breaks for students in my province as well. I honestly don’t know where I’d be if I hadn’t had those excellent tax breaks available to me, so do your research and see if there’s anything you can do to reduce your debt burden. Every little bit helps!
You Overestimated Your Debt Paying Abilities
It’s January, which means there’s probably a veritable army of personal finance amateurs out there declaring that this year is the year, the year I become debt free. They set out with grand plans to pay off all the debt, and within a few months they’re suffering from frugal fatigue. While this isn’t the end of the world, it’s best to avoid this scenario all together by sticking to a debt repayment plan that is sustainable, and don’t neglect that emergency fund!
Paying off debt is a long hard road, but don’t make things harder than they need to be, don’t make these mistakes and you’ll be debt free sooner, and you’ll be a lot less miserable in the process.
What’s the biggest mistake you’ve made while paying off your debt? I want to know!