Get Out Of Debt By Avoiding These 10 Temptations

 

OK, so this one is pretty obvious. Nevertheless, it's the most crucial factor in your success and, until you've managed to get your spending under control, you're unlikely to ever get out of debt.  If you need help identifying where you are spending your money "foolishly," consider keeping a journal or log of expenses.  A very basic Excel spreadsheet to track initial expenses is attached to this article below.  You can click the link below to download it for free. There’s not much to it other than a place to store your expense names on the left and monthly columns to record the total for that expense for each month. The fields at the top will automatically calculate how much you spend every month on average. Obviously, the longer you track your expenses, the more accurate this average field will become.

Over-budgeting is a common method people use to get their spending under control. By allocating every last penny they receive towards a specific use, people feel like they've prevented themselves from spending money on things they don't need. If you are really struggling to pay your debts, however, this is a practice best avoided. Keep at least a small cushion of unbudgeted money every month to use towards some of life's smaller unexpected expenses, or even to use as a reward when you've reached a financial milestone.

 

Over-paying is much like over-budgeting. Many debt-reduction plans recommend that you put as much money as you can into an "accelerator" or "booster" payment to help you get out of debt faster. This is a good plan, in and of itself. But it may not work in every situation. In some situations, people who overpay their credit cards every month find that they don't have any money left over for the unexpected expenses in life. So they end up using those same credit cards to cover the extra expenses. In certain extreme situations, it's better to put your "extra" money into your savings account than towards accelerating your debt repayment.

 

Generally, it's a good idea to look at the long-term picture to help motivate you towards success. However, when it comes to getting out of debt, excessive focus on how great life will be once your out of debt can sometimes lead to more fear and frustration waiting for that to happen. If you are too focused on the end results, you can easily lose track of what you've already accomplished and become frustrated with how long it's going to take to finally live debt-free.

 

I respect and admire the do-it-yourself attitude in most cases. But when it comes to financial matters, you're rarely in it alone. If you are married and/or have children, you certainly have other people who will be affected by your decision to try to get out of debt. Even if you don't have a spouse and children, you likely have friends and family members who may be put off if you suddenly stop spending money on or with them.

You need to let your friends know that you probably won’t being going out to eat, shopping, to the movies, etc. with them for a while. Explain that it’s not because you don’t want to spend time with them, but that you need to repay some debts and get your finances in order. They may have trouble understanding this, and try to convince you that you’re no fun to be around if you won’t go out and spend money with them. You’ll have to be firm in your convictions and hold your ground. If nothing else, this process will help you see who your real friends are.

If you are married, your spouse should already understand the reasons for getting out of debt, since they will be so close to your personal finances. But that doesn’t mean that your spouse will necessarily accept your decision to stop spending money the way you have in the past. Ideally, they will realize the importance of what you’re trying to do, and will be helpful and supportive in finding new ways to save money. But sometimes, they simply don’t understand or don’t care, and will try to pressure you into going back to your old habits, financially. This is the most difficult situation of all. It’s almost impossible to try to get out of debt if your spouse doesn’t recognize how important it is and offer you the support you need.

 

There are countless predators out there who will try to take advantage of the fear and frustration people feel when they are drowning in debt. Don't get me wrong. There are some great debt-elimination programs available that can help you. But you need to take the time to learn what they really offer. Be especially wary of programs that promise to help you "pay less than you owe."

 

I was once asked why I kept a $500 deductible on my insurance policy rather than a $1,000 deductible. I explained that it was so I could pay my portion more easily if something went wrong. The person then asked me if I could pay that $500 deductible today if something went wrong. When I admitted that I could not, I understood. It would be better to lower my monthly insurance premiums and save that money every month.

 

Much like insurance deductibles, your retirement contributions should be weighed against your need for money in your pocket. Naturally, how much you contribute to your retirement savings will depend on your financial situation as well as your age. But if you're drowning in debt, you'll do better getting out of debt sooner and then contributing more to your retirement plan later on.

 

Investing money in stocks, bonds, CDs, etc. is a good idea for most people. But if you are having trouble making ends meet, now is not the time to invest. A better solution is to repay all of your existing debts and, when you're debt free, take whatever money you're currently "investing" in your own debts and put it towards a "real" investment. In most cases, the best investment you can make is in repaying your debts.

 

The most important thing to avoid when you're drowning in debt is accumulating new debts. This may sound obvious, but it's a very common occurrence. People struggling with overwhelming debts may take out a debt-consolidation loan, a home equity loan, or some other new debt to help manage their payments. There's nothing wrong with doing this, but all too often people end up keeping their old credit cards and slowly start to use them again, accumulating even more debts until they are, once again, overwhelmed.

 

Just avoiding these ten common mistakes is not a guarantee that you will get out of debt. But, combined with a good debt-elimination plan, avoiding these pitfalls will help pave the way towards a brighter financial future.  For more information, contact The Law Office of Cohen & Jaffe, LLP 516.358.6900 or email directly at JaffeLaw1@aol.com 

 

 

By clicking the link below, you can download for free a very basic Excel spreadsheet to track initial expenses (See section 10 above).