12 Things to Avoid Doing When You’re in Debt
by: Remie Longbrake | June 29, 2020
In these challenging times, debt can certainly take hold and make it much more challenging to pay bills. If you already have credit card debt, you need to do all you can to avoid going deeper into the financial abyss.
Unfortunately, the Covid-19 epidemic has certainly made times more challenging, along with debt most families already have, have indeed made the circumstances even more real.
Of course they are many reasons to a family’s financial challenges. In general prices inflate and when earnings stagnate and many are furloughed from work, the situation isn’t improved.
So what can be done for those who are facing credit card debt? Follow the steps below to increase your knowledge about debt and what ways to avoid financial disaster.
1. Increasing Your Debt
Often the biggest challenge once in debt is getting out of it. It’s a slippery slope to continue to let debts accumulate even more. With interests rates on many cards as high as 30%, getting in financial trouble is easy to do. A good step is to talk with your credit card company and see what can be done to lower payments or arrange possible payment options. It’s too easy to continue using cards. Keep them at home if needed or cut them up completely, and use cash where possible.
2. Paying Late on Your Credit Cards
While sometimes unavoidable, paying credit cards and bills late is a bad idea. Unneeded fees and surcharges will break an already fragile situation. Do all possible to at least pay some amount, even if that is not the minimum payment due. It’s better to at least pay something then to go without paying anything. Be sure to speak to your creditors about your circumstances and let them know what is going on.
3. Paying the Minimums
Although not as bad and skipping payments altogether, paying the minimums is not a good strategy either. Sometimes it takes getting creative to make ends meet. Again, talk with creditors and see what your options are. Sometimes they will be willing to move a payment date, which could be beneficial and perhaps that would fall after a paycheck making things a bit easier.
4. Opening Up New Credit Cards
Only in certain circumstances should opening up another credit card be considered an option. If already in debt, this is not the best time to do so in most cases. One valid case could be if transferring a balance to a lower interest rate. However, always consider the fees and APR. Also, consider the new cards credit limit if transferring the balance. If that balance is lower then what you have on the current card, it will impact your credit, and possibly more negatively then keeping the balance on the current card. There are many downsides to adding another card. Among the most negative being that there would be another payment to make each month, which more than likely isn’t going to help your situation.
5. Applying for New Credit
If your credit is already negatively impacted, applying for new credit is likely not the best approach. Just simply applying will usually drop your credit score 3 -5% points, sometimes more. Your credit will be impacted regardless if approved or not, so always consider what the immediate and long term benefits will be to new increase in credit.
6. Using Cash Advances
Using cash advances are one of the more costly means to utilize. Generally coming with very high interest rates with interest accruing right away and no grace periods. Add in fees on top of those fees already being charged, it is very easy to get in more financial trouble.
7. Using Payday & Title Loans
Payday and Title loans are extremely risky. With fees upwards of 200%, it can be quite the ripoff that often prays upon the least fortunate. These loans should only be considered in the most dire circumstances. These loans work in a number of ways and do very by state and region. Many use future earnings, such as from a paycheck or direct deposit and then take their commission for those earnings. The Title loans will take collateral such as from an owned vehicle. Always, do your research, and get all the fees in writing, fulling realizing what the outcome will be if cannot pay these on time.
8. Refi’s & Heloc’s
A refinance or home equity line of credit can be one of the better ways to pay down debts. They still can be risky however, primarily because it is using collateral of some sort against the loan in addition to the interest being accessed. You definitely want to be careful and make sure the loan payments are affordable. Also, it is very important to roll over the current debts only, not take on more debt in the process.
9. Spending Excessively
Day to day living does not come cheap. In these times especially, it is too easy to spend excessively. With a swipe of a credit card, debt can rake up quite quickly. Online shopping is also very convenient and very easy to spend. A way to overcome this is to ask yourself if what you are about to purchase is really needed and how it will be used once purchased. For the time being at least, it may be wise to cut back on entertainment, clothing, and eating out. Use your budget to help keep you and the family on track. If you don’t already have one, we have a free budget available for print.
10. Not Saving
It is easy to not allow yourself to save while in debt. It depends on the situation, however if at all possible you want to pay yourself first, a fundamental step to sound finances. How much does vary, but even a little bit helps. The compounding of interests is a powerful one that you can add to your financial tool belt. However, credit card companies know this too, and will most certainly charge you the interest going in their favor. Always, do what you can to save what’s possible.
11. Not Taking on More Work
Doing extra work is hardly fun, but it is often needed, especially when times are more challenging. More and more people are working two or more jobs just to help make ends meet. Fortunately today, it is easier to get started, even working remotely. Newer conveniences, such as grocery deliveries, food deliveries, and Uber do help with your options. With the pandemic, many people are not going out, making these type of jobs more available to those who are open to it. Of course, there are other options, and given your skillset, you may have those that are in demand, pay more, and may be more enjoyable for you.
12. Going without a Financial Plan
The one who does not plan, only plans to fail. The truth certainly applies to our finances as well. That plan can, and often will change, however going day to day without a plan is what gets so many in trouble in the first place. Just as a budget will help guide you, so will someone who can help develop a plan for your needs and help clear a path forward.
The stress of not being able to pay down debts can be exhausting. It is important to do all your best to be resourceful and stay in contact with creditors. Challenges will come and go, however, it is wise to keep on top of these debts and pay down what you can. Always consider your options before making any financial decisions.
We are here to help you understand these options.