Avoid pitfalls while paying down debt

There is really no one-sizefits-all when it comes to managing your debt elimination. Not all debt is created equal, but all of it is leeching away money that would be better used to improve your financial security.

While you’re trying to get out of debt, here are some things to avoid.

» Don’t get caught in the minimum-payment trap. Credit-card companies are not simply trying to make it easier for you by keeping your minimum payments low. They do it to make sure you pay for a longer term, which means they earn more interest. In order to avoid getting caught in the trap, put as much of your income toward your debt as possible so that you can minimize the amount you pay in interest and the length of time it takes to pay it off in full.

» Don’t wing it. The best thing you can do to get your debt paid off as quickly as possible is to have a plan. Include your financial goals in that plan to help motivate you to tackle the debt problem head on.

» Don’t take on new debt to pay off old debt. Debt consolidation can be helpful in a situation where you’re significantly decreasing your interest rate, but it can easily get out of hand and become a habit. It’s easy to do, and there’s no shortage of companies looking for new debtors. So reach out to your creditors and try to get some sort of temporary relief so you can get all your ducks in a row. Also, avoid taking on any new debt to finance purchases that aren’t necessary. Adding more debt while you’re trying to get out of it will leave you caught in a never-ending cycle.

» Don’t touch your emergency fund. If you have a huge mound of cash stashed away for emergencies, it may be tempting to throw it at your debt to get a good head start. But if an emergency happens you’re going to be right back where you were in the first place: taking on new debt to stay afloat. Instead, try to find ways to cut your spending. Realize that in order to reach your goals, you may have to live a little less comfortably and conveniently for a while.

» Don’t ignore your statements and reports. Believe it or not, credit companies make mistakes, and if they aren’t reported promptly it can be a nightmare disputing them. Checking your credit periodically can also help you catch any shady activity, plus it shows you how you’re doing overall with your credit. You can print out your credit report once a year from AnnualCredit Report.com.