Thanks to the rising interest rates, the nation is yet again suffering from credit card debt syndrome. The credit card debt level has crossed $1 trillion mark in the country, up 6.2% from the previous year.
Credit card debt statistics
How much Americans owe $1.0004
Average amount paid on interest $1,254 per year
Average monthly balance of Americans $9,600
Annual interest paid after making minimum payments $1,185
[Grounded Engineer: Wow, I can’t imagine throwing $1,185 away each year for a piece of plastic!]
Millions of consumers are in credit card debt. And the numbers will only increase this year since interest rates are expected to rise at least twice this year. If you’re one of those unfortunate people who are already in credit card debt and want to get out of it, then here are 5 deadly mistakes to avoid.
1. Doing it all alone:
It is true that some people can negotiate and pay off debt themselves. But there are also some people who don’t have requisite debt negotiation skills. They need professional help. If these people try to negotiate with creditors or debt collectors on their own, then following things may happen:
They may fail to grab a good debt settlement offer
They may fail to convince creditors to settle debt
If you don’t have good negotiation skills, then approach a debt relief company since they can give you a better payment plan. Moreover, they can help to waive off late fees and penalties.
2. Not reading the papers:
If you don’t read the agreement properly, then you can be in big trouble. A bad debt relief company may charge outrageous fees and you can do nothing before it is too late. Apart from reading the terms and conditions, check the affiliation of the debt relief company as well to know if you’re handing over the money in the right hands. You’re already in a financial crisis. I guess you would not want to worsen your situation.
3. Blindly trusting your credit report:
Some debtors start negotiating with debt collectors after finding a delinquent account on their credit report. They don’t even check if the debt is valid. This is a major mistake since there are several instances where debt collectors have listed an invalid or paid off account in the credit report. Plus, credit card inaccuracies are also rampant.
If you find any new delinquent account in your credit report, then your first job will be to send a debt validation letter via certified mail to the debt collector. If the debt gets validated properly, then negotiate with the collector. But if you aren’t satisfied or the collector fails to validate the debt, then send a cease and desist letter to the debt collector. Don’t pay money to the debt collection agency.
There is another thing you can do. You can dispute the account with the credit reporting agency. If they don’t give you a reply or verify the debt, then you can ask them to remove it from your credit report.
4. Not developing a budget plan:
Even God can’t help you if there isn’t a budget plan. A realistic budget plan helps you to get out of debt and stay out of debt. A practical budget can help you cover all your expenses – food, clothing, mortgage, education, insurance, etc. It will help you cover your living expenses when you’re busy in paying off your debts.
If you use credit cards to buy groceries, then you’re incurring fresh debt. There is no logic behind making additional payments towards your debts.
Related: How much time do you spend budgeting?
5. Not choosing the right plan:
Debt settlement, debt management, and debt consolidation are constantly advertised. But do you really need them? If you have a minor debt problem, you can easily solve it by using a smart budgeting strategy. You may not need to enroll in a debt management or a settlement program. Some debt relief companies may guide you in the wrong direction just to make money. If you follow their financial advice blindly, you’ll be in trouble. So, always ask questions to know the difference between these programs. Read articles to clarify your doubts. Share your problem in financial forums. Compare the pros and cons of these programs to make the best decision.[Grounded Engineer: Great insight – always trust but verify by completing your own research.]
You can make payments to your creditors every time and be happy to see your balance going down. But if you’re not changing your bad financial habits that got you into debt, then the old problem will crop up again. You’ll be again in debt.
Identify your bad financial habits that pushed you into debt problems. Don’t let those habits take control of you. Be cautious.