Getting into debt can prove to be pretty easy for most Canadians; debt tends to sneak up on you. Unfortunately, getting out of debt is a whole different story. Many people would be shocked to see just how much money they are spending on interest every month.

Once you decide you have to make a change and get that debt paid off however, it can be easy to make mistakes that will keep you from eliminating debt efficiently. If you are trying to get out of debt, here are 11 mistakes to avoid:

1. Continuing to spend

The first step to getting out of debt is to stop adding to your debt. Although this might seem impossible, it’s a must. You will have to make some major changes to your spending habits, including depending strictly on cash.

You also have to look for ways to save, which will take some sacrifices including:

• Having your coffee and breakfast at home
• Making your own lunch
• Eating home-cooked meals: no takeout, delivery or restaurants
• Staying at home instead of going out to a movie, event, bars, etc.
• No more buying non-essentials

Once you begin these new habits, you will have more money to help pay down your debt.

2. Going it alone

Once your debt becomes a monster, you need to seek help. One of the major killers of carrying debt is interest. If you are able to rid yourself of the interest, you can concentrate on paying the balance. You will save money and pay your debt down faster. Speak to a certified credit counsellor to provide a debt management program. They can help before you fall in too deep and need to apply for something more drastic, such as a debt settlement or worse, bankruptcy.

3. Jumping into debt relief

When collectors are calling, or you live with the fear they will, it can be tempting to jump into a debt relief program to rid yourself of your debt burden. However, you have to consider all of the angles before doing so. These programs usually take 3-5 years to get your debt paid off and can negatively impact your ability to get major loans such as a mortgage or car loan. Work with a licensed professional to discuss your options and make sure you are fully aware of how it will affect your credit before committing.

4. Not having a budget

When you are in debt you have to have a budget. Sit down and write down all of your monthly outgoings and compare it to your income. Your list should include:

• Rent/mortgage
• Groceries
• Health care
• Insurance
• Utilities such as hydro, cable, etc.
• Cell phone
• Transportation such as gas or public transportation
• Non-essential spending such as eating take out, movies, drinks out, morning coffee, etc.

Once you see how much you are spending, you can look for ways to save money.

5. Paying multiple debts at once

It’s not uncommon to spread yourself too thin when you have more than one debt to pay off. When you try to make small payments to every single individual debt, it will make it impossible to get anything completely paid off.

Instead, begin with the highest interest debt and put all of your additional savings from your budget towards that debt until it is paid off. Continue to make minimum payments to your other debts. As each debt is paid off, take all of the extra money from those payments and put it towards the next largest debt, etc. until your debt is completely eliminated.

6. Closing credit card accounts

Once you pay off your credit cards, don’t close your accounts. Although this might seem like a good idea, when you close your accounts it can affect your credit score. Just refrain from using the card — cut it up if you have to — and your score could even improve.

7. Not contributing to retirement

Continue to contribute at least 5%-10% of your income to retirement savings whenever you can. You will be retiring sooner than you think. Keep working towards paying off debt but try to continue to save as well. To remain committed, make sure to list this expense in your budget.

8. No emergency savings

Just like your retirement savings, emergency savings are also essential. You should add at least 5% of your income into your emergency savings account if at all possible. Because you are not using credit and depending on cash, this money is a must should something come up such as car repairs, or even worse, job loss. This should also be listed as part of your monthly budget.

9. Not monitoring your credit report

Believe it or not, it is possible for mistakes and inaccuracies to occur on your credit report. You should monitor your credit report to look for discrepancies that can make your credit score worse. There are several free websites you can use for this or you can request a free credit report from the big credit bureaus every four months without it affecting your credit score. Look for issues and report them.

10. Not considering your options

You do have options that can make paying off debt easier. If you don’t look into your options you will miss out on the opportunity to reduce interest and make easier monthly payments. One of the most common options is debt consolidation. If you are still managing to maintain a good credit score, you could be eligible for a debt consolidation loan.

A debt consolidation loan is used to pay off all of your creditors and then focus all of your efforts on paying one monthly payment towards the lump sum. This offers many benefits including lower interest rates, easier to manage payments and, when done properly, increased monthly cash flow.

11. Seeking more credit

This is very common. As you realize you are overspending, you decide the best way to access more money is to seek more credit. This is always a big mistake as it just makes matters worse. Not only does it allow you to easily sink further into debt, but it can also reduce your credit score. Known as credit-seeking behaviour, whenever you start applying for several loans and credit cards the credit bureaus are informed. These are for “hard” applications, which means you have completed forms and applied for a loan or credit card.

It is always in your best interest to pay down debt as quickly as possible. Avoiding these mistakes will keep you on track and help you fall into common debt traps.

For more information about getting out of credit card debt, contact Charles Advisory Services at 416-486-9660 or contact us here.