If you find yourself in over your head when it comes to debt, there may be a number of reasons why. Your debt may even be increasing due to poor management. Here are the top 4 reasons your debt isn’t diminishing and some necessary steps to ensure minimal costs!
Buying more before you pay off existing debt
If you come into a large sum of money such as a bonus or birthday money- do you spend it? You may buy yourself the latest iPhone on a plan or even a new car on finance. The worst financial mistake you can make is buying new items, or worse, buying new debt, before you pay off your existing debt! New debt results in double interest rates and double the amount of time to pay it off. Extra money should go towards paying off existing debt, not creating more.
You do not have emergency funds
Saving a small amount in an emergency account every month can save you from financial disaster. Financial emergencies are bound to arise such as car repairs and medical bills. Having emergency funds can save you from topping up your loan every time these extra costs occur. It will also save you a lot of stress when life throws you a hard knock!
You are living outside of your means
If your debt doesn’t seem to be diminishing, you may be spending more than you can afford; you should always be spending less money than you earn. If you have debt that needs to be paid, you may need to limit luxuries such as gym memberships, mani-pedis and the latest gadgets. Just because you have the money does not mean you should spend it! You definitely should not rely on credit cards to purchase luxuries!
You are paying off the wrong debts
You may want to pay off large loans in a hurry. Even though it seems like a huge weight off your shoulders when you do, these debts are not necessarily hurting your finances. Debt with the highest interest rates should always be paid off first; these are usually small, short term loans. Take your time to pay off ‘good debt’ such as student loans or mortgages; it is those credit cards and personal loans that need attention.
Disclaimer: The above information is general in nature and not intended to be financial advice. You should consider seeking professional advice before following any suggestions in this blog/website.