If you are drowning in debt and are desperately trying to reduce it, then it is quite possible to commit some mistakes without fully understanding the possible implications of them in future. You can get into further financial problems by committing some awful debt reduction mistakes. These mistakes can sabotage your best efforts to reduce your debt burden. This is why it is important to avoid committing some mistakes when you are in the midst of erasing your debts. Have a look at the article to gather knowledge about 5 debt reduction mistakes that you should avoid by all means.
Debt reduction mistakes you must avoid
Go through the following lines to know about 5 debt reduction mistakes that may aggravate your financial situation:
1. Creating unrealistic debt repayment plan: Creating an unrealistic and impractical debt repayment plan will be a big mistake. You can't clear debts in one instant just like you can't lose 10kgs of weight in 1 day. It will take a few months to change your lifestyle to reduce your debt level. Make sure you make a debt payment plan that will help you fulfill your debt obligations with ease.
2. Managing all the debts simultaneously: You should not try to handle all your debts at the same time. When the debt amount is quite huge and there are multiple accounts to deal with, it will be quite problematic for you to manage them simultaneously. So, it is advisable to focus on 1 debt each time. Your sole focus will be to eradicate one debt at a particular time. This will help you achieve steady progress.
3. Canceling credit cards: It is better to not cancel the credit cards in a hurry. Canceling credit cards with balances will not solve your problem. Rather it will aggravate it. The reason is, it makes a negative impression on the credit card company. You will not be the customer of the credit card company after closing the accounts with them. Thereafter, the credit card company will have less interest to work with you. So, you should not close your credit accounts until you have paid off the outstanding balances.
4. Taking out second mortgage: A lot of consumers consolidate debts through second mortgage. But studies have shown that most of these consumers end up getting into credit card debt and mortgage debt problems in future. Some of them have even lost their homes to foreclosure. This is why, it is better to think rationally before consolidating debts through second mortgage. You should check whether you can afford to pay off the credit card debt without using second mortgage. Ask yourself whether you can make mortgage payments timely. This is because your home is at stake. If you can't make the required payments on second mortgage, then it is better to not pay off your credit cards through it.
5. Making large purchases: You should not make huge purchases with your credit cards when you are trying to eliminate your debts. If your television is damaged completely, then purchasing a brand new tv with credit cards will be a big mistake. Wait till you eradicate your debts completely. Once all the debts are repaid, you can gift yourself a television as your reward.
Apart from the above mentioned points, you should never reveal your account details to anyone over phone. It may happen that you get a call from a collection agency regarding a debt of yours. They may offer you a fantastic settlement offer and ask your savings account details. You should not give them your access details so as to grab the offer. The reason is, the moment you give them your account details, the collection agency will start debiting amount from your account without even informing you. You can tell them that you will make the required payments through online banking. But you should start making payments only after receiving a written settlement agreement from them.