Paying the Minimum on High-Interest Credit Cards
Many consumers with a large balance on a high-interest credit card are only paying the monthly minimum. In fact, the minimum on some cards barely covers the cost of interest so depending on the balance amount, you may be paying interest only and years from completely paying off the balance. Pay the maximum monthly payment you can afford, not just the minimum monthly you are allowed to.
Missing a Credit Card Payment
Missing a credit card payment is always bad news but especially when it comes to balance transfer cards offered at zero percent. The card issuer usually has the right to revoke the deal the date you miss the payment and most likely will raise the APR to 15 percent or higher. If you’re prone to forgetfulness, setup an automatic direct debit payment to ensure you never miss a payment.
Not Setting a Budget
Setting a budget for virtually everything you spend (e.g. groceries, gas, etc.) is the only way to ensure you don’t spend more than you make. Overspending and racking up debt is alarmingly easy to do if you don’t keep a tight rein on your finances.
Incurring New Debt
If you’ve already got a stack of credit cards you are trying to pay off, the last thing you should be doing is incurring even more debt that you are unable to pay off. When you make a purchase on credit and don’t pay it off by the end of the month, you will end up paying much more than the original price. For example, a $3500 couch bought on credit may end up costing you closer to $5000.
Cashing Out Retirement Funds
Many Americans cash out their 401(k)s or take out loans against them which can permanently diminish the amount they’ve earned. Resist the urge to cash these funds out!
Not Building a Savings Cushion
When you are struggling to pay off debt, it can be hard to stash money into savings. But what happens if you end up losing your job and unemployed for six months? Or if you’re injured and unable to work? Building a savings with at least six months’ salary to cover living expenses is just as crucial as paying of that debt.