Avoid These Mistakes When Trying To Pay Off Your Debt

"Debt is the worst poverty."
- Thomas Fuller

Today, I will complete our discussion about debt by suggesting to avoid certain mistakes when trying to pay it off. Before I give the actual list of suggestions, I ask you, once again, to look back at why you wouldn't even need to borrow money in the first place.

Most people borrow money for the wrong reasons. Did you borrow money to have enough cash to invest so that your money can grow and you can start generating passive income? Did you borrow money because you wanted to open up your business and you just needed start-up capital? Or did you borrow money because you wanted a nicer car? Did you borrow money to buy a new TV, get a fancy phone and live above your means?

My goal is to make you reflect on your decisions. Some people might be struggling to pay off the money they borrowed and are caught in a hamster wheel, just trying to make ends meet. Depending on your situation, I would advise you to avoid these four traps when trying to pay off debt. 

Don't use any payday loans
If you like to be caught in a trap, get a payday loan. Before I met with a few of my clients, I honestly never knew what a payday loan was. It's a very clever lender, however, if you're the lender's customer you will be trapped for some time. The payday loans give you quick cash but they charge you a fee to take out that cash and they have access to your bank account so they will take your money regardless. Most people who get payday loans think it will only be a 'one time' thing. They believe they will only take out a loan just once, pay it off and forget that it ever happened. However, most people will get caught trying to get more cash and it becomes an endless cycle. Most people don't have the discipline to only borrow once. If you don't have the discipline to borrow money, don't borrow money. 

Don't get caught up with 0% interest
People love free stuff. When people see '0% interest,' it's like they're getting something for free. People get excited knowing that they have a whole year to pay off a loan before it begins to accumulate interest. However, going back to my first suggestion, most people aren't that disciplined. If you take out a $5,000 loan and you're trying to pay that off in six months, before the interest kick in, you'll have to pay on average $833.33 a month to make that happen. Before you take out a loan of any kind, work out the numbers. Don't be afraid of doing some math on your own. Educate yourself before you get yourself in a whole.

Avoid getting loans to pay off other loans
Let's say you owe some money to a few credit card companies. You think the best solution is to take out another loan to pay off those credit cards. Your idea gets even better when you find out that you don't have to pay interest for the first 6 months on the loan you're planning on taking. This is a huge trap! Again, most people don't have much discipline and will continue to take out loan after loan to pay off other loans which they took to pay off other loans and this cycle won't stop for a very long time. At the same time, do the math. If you owed a total of $5,000 on those two credit cards, and now you're thinking of getting a $5,000 loan with no interest for six months to pay it off, guess what you're getting yourself into. A trap. 

Don't use all your tax return to pay off your debt
A few years ago I had a great idea: I'll use the money I receive from my state and federal tax returns to pay off my debt. So one year, I used that money immediately to pay off some debt. By the end of the year, I was living paycheck to paycheck trying to figure out where all my money is going. It was still going to paying off debt! So then, I got another genius idea: I'll use the money I receive from my state and federal tax returns to pay off my debt. This happened so frequently for a few years, that I no longer was living paycheck to paycheck. Instead, I was living refund check to refund check! (Read Before You Spend Your State Or Federal Refund Check, Read This!). Although it might seem like a good idea to use this money to pay off debt, it is not. Pay yourself first and read all my blogs so that you know which route is best for you. 

Most of what I recommend is really from experience and research that I had to do. In other ways, I had to learn the hard way. Some of you  might be learning the hard way right now. For those that aren't in any trap, follow my advice and don't try to learn anything the hard way. Good luck to all and enjoy your weekend. 

Don't forget to share this blog so you can encourage others: family, co-workers, friends. Give them something to get motivated! You never know what they might be going through. A few words of encouragement can go a long way.