BeckyYour journey to debt freedom is a BIG step, but along with it comes trials and errors. I’d like to help you avoid 6 of the biggest errors made while on the debt free journey.
Let’s get started!
Not Making a Debt Free Plan
First and foremost, I believe the FASTEST way to get out of debt is to make a plan. Without a plan, you’re throwing spaghetti on the wall and seeing what sticks.
I know it’s terrifying to see the monster that has become your finances. However, you need a place to start from.
We used the debt snowball method where you list your debts smallest to largest and pay off the smallest debts first to gain traction on the bigger debts.
Regardless, there are various ways to pay off your debt.
Compile all of your debts. Add up how much you need to pay off. Then, plan how you’re going to get rid of your debt and FAST!
A good tip is to break your plan up into smaller goals. Once you have a plan in place, take your goals and break them down to quarterly or even monthly goals.
Say you set a target to pay your student loan down by $10,000 from January to June. That gives you 6 months to pay that sucker down!
You now have options on how to pay down that $10,000.
Maybe you decide to pay $5,000 each quarter ($5000 January-March and $5000 April-June).
You could also break down that $10,000 per month, which would be $1,666 per month the first 6 months of the year.
Another good tip is to plan lump sums of money you anticipate getting throughout the year to go directly to your debt.
Perhaps you know you’ll receive a 3% bonus in March. You could aim to use that whole bonus towards paying down your car loan.
Or maybe you intend to use your tax return this year to pay down your debt.
Either way, make a plan and make that plan attainable by breaking it down into bite-size pieces. Many debt free journeys take time. They’re not a 3-month project.
Making a plan helps keep the motivation flowing!
To see how we paid off our debt the first time around, take a look at THIS post.
Not changing your spending habits
One of the biggest errors made during a debt free journey is not changing the spending habits that created the debt!
Buying coffee every morning on the way to work? Going grocery shopping without a list? Upgrading your phone to the newest version? Picking up dinner on the way home from work?
If the same spending habits continue, you will never gain traction and will most likely lose your motivation from burn out.
Find other substitutes for your old habits.
There are lots of coffee recipes on Pinterest and TikTok that taste the same, if not better than the coffee you would buy.
Try making a grocery list and sticking to it! You would be AMAZED at how much you can save when you shop with a list.
Tempting as it might be, do NOT spend unnecessary money on the newest iPhone. Chances are there isn’t much of a difference from the previous version anyway!
Now that you’re trying to shop with a grocery list, there’s potential that you can meal plan for the upcoming week and make a few meals at home instead of getting takeout.
I know it’s hard changing those spending habits. When you find yourself struggling or falling back into those same old patterns, remind yourself why you want to get out of debt.
Allow yourself to dream. Picture the peace you would feel right now if you didn’t owe anyone anything.
You can do this! Change your spending habits because in doing so, you’ll gain more freedom than you thought you had before.
Continuing to Accrue Debt
Ummm…hello! Isn’t this a no-brainer????
In the words of Ham Porter from the movie, The Sandlot, “You’re killin’ me smalls!”
Guys, continuing to accrue debt while you’re trying to get out of debt is so counter-productive.
All I see in my head when thinking about this is a person digging dirt in this deep hole and another person dumping dirt back into said deep hole.
See what I’m getting at here?
You want to talk about losing motivation? Keep accruing debt while you’re already trying to get out of previous debt.
Stay clear of things like credit card usage, personal loans-basically anything that will keep you from paying off the current debt you already accrued.
The whole point of starting your debt free journey is to get out of debt and STAY OUT OF DEBT!
Not Having an Emergency Fund
A very big mistake is not having an emergency fund while you’re trying to get out of debt.
You need the safety net of an emergency fund when paying off debt. I would suggest at least $1,000 before getting started on your debt free journey.
One bad expense can happen and wipe out all the hard work you put in to pay off your debt.
Summer of 2021, my husband and I had to replace our HVAC system when it broke on one of the hottest days of the summer!
Can you imagine if we didn’t have an emergency fund to cover that expense? What a hassle to take out a loan or use a credit card for an expense like that!
By having an emergency fund, setbacks like the one I experienced aren’t really setbacks because you have the funds to cover any emergency while continuing to pay off your debt.
You then have a chance to regroup and rebuild your emergency fund. There are several ways to do this. 2 ways would be either temporarily pausing your debt free journey to build up your emergency fund or continuing to pay smaller amounts on your debts while you rebuild your emergency fund.
Regardless, don’t get caught without an emergency fund!
Neglecting Help
It goes without saying that having a lot of debt can be embarrassing!
Some people don’t want their friends and family to know their financial situation because they worry that they would be judged if anyone knew.
This is where I think some of you are missing a great opportunity!
Although it can be embarrassing telling some family and friends how far in debt you are, having a community is key staying motivated and having support during such a tumultuous journey!
One of the most overlooked resources is social media! There are so many others who have gone before you, while even more are on their own journeys to get out of debt too.
Use that to your advantage and make connections with others who are in similar situations.
Don’t forget that you can find people (like me!) who help you work your way out of debt by offering one on one couching and other resources. Also, think of all the financial advisors that can give you tips on your finances.
Not Following a Budget
Following a budget is the cornerstone of getting out of and staying out of debt. That’s why I think this might be the biggest error made while on a journey to get out of debt.
This is a foundation to getting out of debt and staying on track with your money. Not only does it show you how much money you make each month to cover your expenses, but it also reflects how much you truly spend.
Find a copy of my printable budget form HERE.
In addition, I know you would save a lot of money to put towards your debt by following a budget. There’s something about seeing the numbers and being able to visualize them that makes it easier to save and pay off debt faster.
Although budgeting might seem like a hassle now, it will give you a sense of freedom knowing how much money you have.
Paying off debt is hard work! Whether you’re just getting started on your debt free journey or you’ve been on it for months (maybe even years), avoid making these 6 errors.
