5 Simple Mistakes to Avoid While Paying Down Debt

Sarah Brumley

Sarah Brumley

We’re a little under ten years into our debt payoff journey and today I want to share a few of the mistakes we made so that you might be able to avoid them as you pursue the financial freedom that comes with being debt free. Sound like something you need? Well then, let’s get started.

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5 Simple Mistakes to Avoid While Paying Down Debt

Well hey there and welcome to the Financial Fix Up Podcast. I’m your host, Sarah Brumley, and today we’re chatting about mistakes to avoid when paying down debt.

And I love talking about finances, creating a budget, navigating the grocery store, and ways to save money, but one of my favorite topics is debt – not because it’s a fun topic to talk about necessarily, because it’s really not, but because when we actually take the time and make the effort to eliminate debt from our lives, we find so much freedom.

And while my own debt free journey is not completely finished yet, I do have to say that when we really got serious about paying down debt – almost ten years ago – we had somewhere around $150,000 of debt, not including our home. We were paying minimum payments on two vehicle loans, two student loans, multiple credit cards, a personal loan, and more. And no matter what we did each month, it felt like we were going nowhere. It wasn’t until we sat down and put together a plan that worked for us, that we started to see change take place and I’m so glad we did.

Now, does that mean it’s been easy? Absolutely not. We’ve had many ups and downs, have cleared out our savings multiple times for many different reasons, had to max out our credit cards to cover expenses related to our daughter’s need for residential mental health treatment a couple of years ago, and there are plenty of other setbacks I could mention, too.

The point is, though, that as of today, the debt we have left – not including our home – is one vehicle, our camper, and a personal loan. And, God-willing, we will be out from under all three of those within the next year or two.

That’s success, right? And let me tell you – it’s freeing to know that we aren’t tied to payments on credit cards, student loans, or even a second vehicle each month.

But it took work to make that happen and we definitely found the pitfalls along the way, which is why I want to spend some time today talking about five simple mistakes that should be avoided at all cost if you want to get results in your debt free journey. My hope is that you’ll be able to learn from our mistakes and be able to find your success much quicker than we did. Sound good? Well then let’s jump right in.

Mistake #1: Ignoring a Budget

The first mistake is ignoring a budget. Remember, a budget is just a plan that tells you where your money is going each month. But if you don’t have one in place, you are going to find it hard to actually allocate money to paying off debt.

So, if you want to find success in debt payoff, then creating and sticking to a budget is critical. By doing so, you’ll know not only where each and every dollar is going, but you’ll be able to see where you might make cuts to expenses in order to accelerate your debt payoff timeline.

And I will say that if this is something you are struggling to get in place, I highly recommend grabbing a copy of my Financial Fix Up Planner. I’ll walk you through the entire process so that you don’t have to guess when it comes to making those payments. You can get your copy today at lemonblessings.com/planner or by following the link in the show notes.

So, mistake number one is ignoring a budget.

Mistake #2: Making Late Payments

The second mistake to avoid is making late payments. And this might seem pretty straightforward, but I have to bring this up because it’s something that we really struggled with in our early years of budgeting. It wasn’t even purposeful, either, but we’d forget that a payment was due or miss the deadline by a day or anything along those lines. And that might not seem like a big deal, but the problem is that with most creditors, either the interest rate goes up or they tag you with a late fee – or in some situations it might be both. They might even choose to send you to collections. At that point not only are you making the payment you missed, but you are having to deal with potentially long-term consequences of missing the payment.

So, don’t miss those payments. Put them in your calendar as a reminder, set up an auto-draft, do what you have to do to make sure that you make each and every one on time.

Mistake #3: Only Making Minimum Payments

And that brings us to mistake number three and that’s only making the minimum payments. Of course you WANT to make the minimum payments AT LEAST – so don’t get me wrong there – but if you want to actually see results with your debt payoff plan, at some point you are going to have to go above and beyond.

Remember that budget you created? This is the perfect time to take a look at it and decide what you can cut or re-allocate to your debt payoff plan.

When we first started out on our financial journey, I really didn’t understand that just paying the minimums was going to hold us hostage for our entire lives. It wasn’t until we found ways to go above and beyond those minimums that we actually found success. And, remember, every little bit helps. If you only have $25 extra, start there. Then, as you can, increase the amount so that you can see bigger results. One of the things that Justin and I have done over the years is pay anything above his base pay toward debt.

So, we made our budget work entirely with his base pay, and that means that as things fluctuate from month to month – like maybe he took on a few extra hours or maybe he got a bonus – then that money is immediately redirected to debt payoff. You might consider doing something like that as well.

Whatever you choose, though, just know that the amount you make above and beyond the minimums is going to make the difference – I promise.

Mistake #4: Paying No Interest Debt First

The fourth mistake is paying no interest debt first. This is any type of debt that comes interest free. Medical debt is often a good example of this. If you have an interest-free loan or debt of any kind, that’s the one to make the minimum payment on for as long as possible – at least in most situations.

For example, let’s say that you have one medical debt with no interest attached and then you have a credit card with a high interest rate, you want to get out from under that credit card as fast as possible so that you don’t owe additional money in interest. Pay the minimum on the medical debt and get out from under the credit card first, then place your focus on the medical debt.

Now, you may have taken out a no-interest debt in the form of “pay no interest until a certain date”. If that’s the case, this is the same as a debt with interest attached because the moment that date is upon you, the interest will be, too. So, your focus might be better spent eliminating that debt prior to the date that interest will begin accruing.

All this to say that I really regretted that we focused on getting out from under some interest-free debt prior to the debt we had with interest attached. It’s definitely lengthened our debt-free journey so I hope that by bringing this to your attention now, you might be able to avoid this mistake we made.

Mistake #5: Using Debt to Pay Other Debt

The final mistake is to use debt to pay off other debt. It might seem tempting to take out a personal loan to pay off your credit cards or to incorporate your debt into a refinance of your home, but I want to remind you right here right now that debt is debt. And while there might be good reasons for consolidating debt or paying it off with a lower interest credit card or loan of some sort, make sure you aren’t just giving yourself the opportunity to accrue more debt in the future.

We refinanced our home about eight years ago, and one of the things I most regret doing was incorporating the credit card debt we had into that refinance. Sure, it allowed us to lower our monthly debt payment, but it made it really tempting to use those credit cards again now that they were no longer maxed out. In fact, we did use one of them and that set us back a bit when it came to getting to where we are today.

So, make sure you have a clear idea of how you’ll manage that suddenly free line of credit if this ever becomes an issue for you.

Mistakes to Avoid While Paying Down Debt

Alrighty, so the five mistakes to avoid while paying down debt are:

  • Ignoring a budget
  • Making late payments
  • Only making the minimum payments
  • Paying no-interest debt first
  • Using debt to pay other debt

…and I know there are others, but these are lessons I wish we’d learned earlier. So, I’m hopeful that you’ll be able to avoid them in your own journey.

And once again, if you want to get that budget up and going or need a refresh so that you can better pay off debt this year, then make sure to grab your copy of the Financial Fix Up Planner. It walks you through each step to take to set yourself and your finances up for success long-term. You can grab your copy at lemonblessings.com/planner or by following the link in the show notes.

Whatever you decide, just know that I’m cheering you on! You’ve got this! Have an amazing day and I’ll chat with you again next time!

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