It’s the last day in this series of how to eliminate credit card debt . Today we’ll be looking at the pitfalls and mistakes some people make as they attempt to get your finances back in order.
So far, we’ve covered off some ideas like snowballing debt and ways to make money which can then be used to help you pay off your cards even faster. Now you have a formidable arsenal at your disposal. What could go wrong?
Actually, there are quite a few potential hazards in your path. Let’s take a look at them.
You’re Aiming Too High
Wouldn’t it be great to whisper, “debt be gone” and see all your money problems vanish into the night? Fast? Yes. Effective? Yes. Realistic? No.
In all likelihood your accumulated debt has taken a fair amount of time to build up. A little here, a little there and, before you know it, you owe nearly enough money to furnish your bank manager with a lifestyle on a par with a Roman Emperor!
Unless you have a large chunk of disposable cash it’s not likely that you’ll clear your loans overnight. Temptation might be whispering in your ear, “go hard, go fast and live debt free tomorrow” but you need to ignore those words.
Setting yourself an unrealistic time-frame will result a in big, fat Freddy (F for failure). If your plan is to clear off all those loans in 4 years then stick to the plan. Think of it the same way as you would when you want to get fit. Would you really expect to go out and a run sub six minute miles after 5 years sat on the sofa doing nothing?
Not Tracking Your Progress
Remember in the first installment when I talked about tracking all the money that comes in and goes out? This is probably the most important step you’ll take. Without a sound understanding of the state of your finances you’re on a slippery slope to failure.
There are plenty of tools available to you:
www.mint.com is probably the finest example of and online tool for tracking your finances. More importantly, it’s free.
GNUCash is a free piece of software you can download and install on your Mac, PC or Linux computer. Pack full of features you normally only see in high price products, it will continue to be useful once your debts are paid off.
Spreadsheets are the simplest way to keeping track of your money. If you’re not sure how make your own go to budgetworksheets.org and download a copy.
Borrowing From Your Savings
Borrowing money from your savings fund is a massive no-no. Slush fund, money for a rainy day, call it what you want, it’s there for a reason. You may have been diligently putting this money aside for your retirement or simply as a pot of spare cash to cover something as simple as your boiler breaking down. Whatever you do, don’t touch this cash. Some financial guru’s may disagree with my views; tough! I’m right, they’re wrong.
Let’s say you £5,000 in savings and £6,000 on credit card debt. Logic says that you should use the money to clear as much of your loan as possible. Once you’re done you simply start replenishing your money pot. How long will this take you to do? What happens if disaster strikes?
How Long Will It Take To Save £5000?
If it took you more time to save that money than it will to pay off your debt using the snowball method then steer clear. Let’s say you can pay off all your loans in 3 years. Does it really make sense to use your savings to speed up the process just so that you can go into a cycle of saving for another five years in order to save another £5000? If you ask me, that’s just stupid!
Lightning Can Strike Twice
And so can mini-disasters. Here’s a scenario for you. You have 3d party car insurance and you crash your car. You’re at fault. The insurance company isn’t going to pay for your mistake and you have £4,000 repair bill. Let’s say your job is dependent on you travelling a long distance to work. If you’ve paid off your loans using your slush fundan’t afford to be without your car you’re in a bind. How do you pay for repairs? Without financing this work on your cards you may have to buy a new car.
Can you see how quickly things can go wrong? Don’t touch your savings!
Never, Ever Give Up
Giving up is easy. Giving up means you’ve surrendered to the will of the bankers (if that doesn’t get your hackles up then all really is lost).
You have a blip. You buy on your credit card and add several hundred pounds to your balance. You have several months where you pay only the minimum balance. So what? It happens now get over it and get back on the horse.
We all have failures in life. In fact, if you don’t fail at something you’re never going to learn. When the walls are closing in and everything seems pointless ask yourself, “What would xxx do?”. If you don’t know who this guy is then you really need to read this article about Nick Vujicic.
Pulling yourself up off the floor (aka bootstrapping) is something you need to get used to. If you can’t help yourself then don’t expect anyone else to do it for you. Harsh but true.
Cashing In Your Retirement Fund
Are you serious? This is probably one of the worse ideas you can ever have. Paying your way into your golden years is only going to get harder. The cost of living is rising every year. The demands on the planet rise with every new child being born. The next generation can’t be expected to pay for themselves to live, to fund your retirement AND save for their own pension.
Don’t expect the government to throw cash at you either. Ask most retiree’s receiving a state pension how well off they are. Most will probably laugh at you (and then just get on with it because many know what real hardship is). Currently, the pension deficit for the public sector alone is approaching £1 T-R-I-L-L-I-O-N.
Cashing in part, of all, of your pension fund might seem like a good idea especially if you have massive debts. Before you you take this step think about how long it took to save for your retirement. Do you really want to go back to day one and start all over again? Do you have enough years left in your to even consider doing this?
That’s a wrap. Hopefully you’ve enjoyed this series on articles on how to reduce and destroy your credit card debts. I’ll see you again on Monday. Until then, feel free to leave some comments, retweet this post, share it on Facebook or +1 it on Google.