Monday, December 6, 2010

Detours On the Road To Be Debt Free

Basic creditcard / debitcard / smartcard graph...Image via Wikipedia

You made the decisions to get organized and knock out that debt. With a budget in one hand and Dave Ramsey's book in the other hand, your being all gazelle intense. But be careful there are going to be some bumps in the road to the debt free life. Here are a few of the bumps you may hit.
Being too ambitious
Once you've decided to attack your debt, it can be tempting to get carried away by your enthusiasm. In all likelihood, it has taken several years to work up any debts you may have so you're not going to clear them overnight.
When you decide to sort out your finances, try to do an honest appraisal of the situation and set yourself realistic targets. If you attempt too much too quickly, you could fail and become disillusioned with the process.
Borrowing to cover debts
You probably already know how effective balance transfer cards can be if you want to repay your credit card debt more quickly and cheaply.
However, balance transfer cards are something of a special case. If you're not savvy, borrowing to repay an existing debt could exacerbate your financial problems.
If you are going to take out another loan to cover a debt, you should make sure you are getting a more competitive rate of interest. Otherwise you're unlikely to make any progress.
Borrowing money to make the minimum repayments on another debt will probably send you further on the downward spiral. If you do reach this point, it could be a sign you need professional help with your debts.
Spreading yourself too thin
Although you might want to pay off all your creditors as soon as you can, this may not be the most effective debt busting technique.
Take a look at all your debts and the interest rates on each. It could be prudent to use a technique known as 'snowballing' in which you focus your efforts on repaying one debt - normally with the most expensive interest. Meanwhile, you continue to make minimum repayments on everything else.
As soon as this is paid off, you could turn your attention to another debt - until they are all cleared.
Over-reliance on family and friends
Taking a loan from your nearest and dearest could be an effective short-term solution if you're experiencing cash flow problems.
However, it could well be a mistake to rely on these kinds of loans to cover regular outgoings and debt repayments.
If your family are always around as a financial safety net, there won't be much of an incentive to stand on your own two feet. Likewise you're probably not doing your children much good if you constantly bail them out of financial jams without talking to them about the cause of their problems.
It's taken you years to get into such deep debt, it will probably take a few more to get you out. Just stay on your budgets, don't make dumb mistakes and you will be debt free soon. Just be patient.


  1. Great article. I am afraid I tend to fall into the 'over ambitious' category when it comes to trying to pay off my mortgage early... I need to remember to keep a bigger cash reserve on hand.

  2. I must say I have done all these stupid things. But I have learned from the mistakes.


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