7 Things You Should Never Do If You Are Trying To Get Out Of Debt

You are deeply in debt and desperate to get out. I’ve been in your shoes. Regardless of how you got here, you can get out, and you need to have a plan. But just as important as the “do’s” to get out of debt are the “don’ts.” You may not see these tips on your favorite financial blog. Most people deal with the positives instead of the negatives. But, one misstep when you are trying to get out of trouble can cause a financial avalanche. So here is my list of the 7 things you should never do if you are trying to get out of debt.

1. Don’t get more credit. I know, seems like this should go without saying. Most of us get into debt due to lack of discipline and excessive spending. Credit debt has become an epidemic and many people suffer from what can only be described as a “credit addiction.” Let me say this as clearly as I can: more credit will NOT solve your problem. In fact, it will make it worse. You’re going to have to get used to doing without some of those extras and getting by with less for a while. And whatever you do, don’t take out a home equity line of credit. The last thing you want to do right now is put your home in jeopardy and erode the equity you’ve built up.

2. Don’t deprive yourself of all the extras. I know this may seem contrary to my statement above, but I did say that you have to get used to doing without SOME of the extras, not ALL of them. One of the first things you will be advised to do is reduce your expenses by cutting out everything that is not a necessity. Here’s why it’s not a good idea for most. It’s hard to go from buying everything you want whenever you want to buying only what you need. While it’s possible, it’s very likely that you’ll start to feel deprived, which could lead to an impulse buy to feel better. Figure out where your money is going first, then make reasonable reductions that still allow you to enjoy life, but also help you live within your means.

3. Don’t stop paying or fall behind on payments. Make sure you pay at least the monthly minimum. If you start to fall behind on your bills, you will find that your interest rates will increase, making it even more difficult to pay your bills each month. It doesn’t even have to be a missed payment with your credit card. Did you know that falling behind on your mortgage payment can increase your homeowners insurance? Late and missing payments have a ripple effect on your overall credit health. If it seems like you don’t have enough money to pay everyone this month, find a way to bring in a little more money.

4. Don’t take a loan out of your 401K. This is too risky a proposition. If something were to happen and you lose your job, you will have only 90 days to pay this loan in full or face early withdrawal taxes and penalties. You’re also lowering your portfolio balance and interrupting the compound interest returns on that money, which affects the total amount of funds you’ll have when you retire.

5. If you must buy, don’t buy new. Of course, the best example of this is a new car. Did you know that a new car loses 20% of its value in the first year and up to 4% of its value after two years? Even if you only need one dress, consider Goodwill or a thrift store. Often you can get something new with the tags still on for a fraction of the price you’d pay at a retail store. Better yet, see if you can trade or barter for something you need. If you get a haircut and want a new website, see if you can trade services with a website designer.

6. Don’t be the Lone Ranger. Depression is a very real danger for people facing debt. Make sure you have a responsible partner and friend that you can talk to when you feel cornered or feel like you just have to go shopping. Meet every week and talk about where you’ve spent the money, if it’s still on track, and where you need support. Especially in the first few weeks, when you’re trying to adjust to life on a budget, it can be difficult. Many times you think you have everything, only to discover that you forget one of those annual bills like insurance that took you completely out of budget. At times like that, you’ll really appreciate having someone to talk to who understands what you’re going through.

7. Don’t forget to pay yourself. Even before you pay your bills, you have to pay yourself. One of the keys to not get into more debt is to have an emergency savings fund. Life is full of little emergencies. Like it or not, the washing machine will break down one day. So will the dryer, HVAC unit, refrigerator, tires, etc., etc. Be sure to set aside some money each month to cover those little unexpected emergencies that never seem to come at a convenient time.

It may not be an easy journey, but being debt free is one of the best destinations I can think of. I know. I was there, I did that and I have the jersey.