If you follow the news, you have probably heard financial pundits expressing fear that the economy is heading for another crash in the near future. This crash could potentially cause the closing of more businesses, leading to a ripple effect of stock market plummets, real estate slowdowns and mass unemployment. Perhaps this alarm is only one more thing to add to your already full plate of worries.
Approaching a national economic crisis may be the last thing you need if you are overwhelmed with debt. Like many, you may be trying to prepare for such an eventuality — at the same time attempting to relieve the stress of your own financial situation — by paying down your credit cards and other debt. However, are you making any of the common mistakes Ohio consumers often make when tackling debt?
Making a plan
According to financial advisors, the best way to pay down credit card debt is to establish a systematic strategy. Without a plan to reduce your balances to zero and a commitment to eliminate the debt permanently, you may end up repeating the cycle of paying off and accumulating the debt over and over. Some of the most frequent mistakes people make when paying down credit card debt include the following:
- Continuing to use the cards after making a monthly payment
- Focusing on earning credit card points and miles instead of the interest and fees that outweigh the rewards
- Paying off old cards with new, low-interest promotional offers, then maxing out the new card
- Paying off old cards with new cards, then continuing to use both cards
- Making payments without a focus or plan to eliminate the debt
Many consumers also worry about their credit scores during this time. If you are struggling to pay down overwhelming debt, or if you have too many open and maxed out accounts, your score will suffer. Financial advisors suggest putting your attention to the task of paying off the debt, and the credit scores will begin to improve along with your efforts.
Getting to the bottom of it
Even if you are taking the right steps in the right order, you may be treading water if you haven’t dealt with the cause of your financial hardships. Have you lost your job but failed to adjust your spending? Maybe you have had another type of setback, such as a medical emergency, car repair or divorce. Often, it doesn’t take a national calamity to cause personal struggles in your finances.
If you encountered a serious financial crisis without the benefit of having an emergency fund, you may have discovered how quickly your resources dwindled, especially if your main resource was the available balance on your credit card. Building an emergency fund takes sacrifice and discipline. It also takes money. If your budget is stretched beyond the limit, you may want to explore the options for debt relief, including working with a legal professional to negotiate with creditors or filing for bankruptcy protection.