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Being in debt is overwhelming. You may feel like you’ll never get ahead and are constantly stressed about making payments. Even with a payment plan to help you methodically pay down your debt, clawing your way out can be a long process, and it’s easy to make mistakes along the way. Avoid these common pitfalls as you work to pay down what you owe so you can reach your goals faster.

Ignoring consolidation options

If you have multiple high-interest debts like credit cards or personal loans, consolidating them into a single lower interest debt can save you money. Look into options like balance transfer credit cards, debt consolidation loans, or debt management plans. The lower interest rate will help you pay off the balance faster and reduce the total interest paid.

Of course, if you continue charging on credit cards after consolidating, it won’t help your situation. Before consolidating, have a plan to change spending habits and get organized to pay off your debts first.

Neglecting interest rates

I typically recommend paying off your highest interest rate debts first; the debts with lower rates can wait. Instead of spreading payments evenly across all debts, put as much money as you can towards the highest APR debt while making minimum payments on the others. For instance, paying off a 20% APR credit card balance should take priority over a 3% student loan.

Make a list of all your debts and their interest rates. This includes credit cards, personal loans, medical bills, etc. List the debts from highest interest rate to lowest. Targeting high-interest debt saves you the most money in interest charges.

Closing credit cards (after paying off)

It can be tempting to close credit card accounts once you’ve paid them off, but this can actually hurt your credit utilization ratio and lower your credit score. Don’t rush to close credit card accounts once you’ve paid them off, especially if they’re your oldest accounts. Keeping them open and using them can even help build your credit history. Just be sure to pay balances in full each month to avoid new interest charges. A better strategy is to keep accounts open, but avoid using them again. Having open credit available helps your credit profile.

Falling victim to lifestyle creep

Lifestyle creep is the pattern of spending more money as you earn more money as you slowly but surely adjust to a more luxurious new normal. As debts are paid off and your available income rises, it’s tempting to increase your lifestyle spending. Avoid “lifestyle creep” by continuing to live modestly. Instead, increase your debt payments, or boost savings with any extra income.

The road to getting out of debt can be long, but watching out for these common mistakes will help you reach your goal faster. Here’s our guide to getting organized to pull yourself out of debt. If you need a professional opinion for reviewing and managing your debts, here’s our guide to hiring a financial advisor who won’t rip you off.

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