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4 Mistakes to Avoid While Getting Out of Debt

On Behalf of | Mar 7, 2022 | Bankruptcy

Getting out of debt can seem impossible, but it can be done. Bankruptcy is one possible option for debt relief. So are things like debt consolidation and debt settlement. Whatever route you choose to take, watch out for these four common mistakes people in southeast Michigan routinely make.

Failing to budget

A significant step toward getting out from under debt is creating a budget of your monthly expenses based on your income and sticking to it. Staying within your budget will make it possible for you to avoid adding to your debt total and help you gradually pay it off.

When preparing a budget, it is important to be realistic about what you can spend, and more importantly, what you can save in different categories. Using a top-down approach, start by making a list of all of your most important expenses (mortgage/rent, utilities, vehicle expenses, etc.), then review your month-to-month spending in other, more flexible areas to find potential savings.

One of the most important things to consider is what spending can be reduced, or avoided altogether. For instance, a recent study shows that the average American family wastes over 30% of the food they buy. By creating a meal plan and sticking to it, you can avoid unnecessary spending, and greatly reduce waste. There are many online resources that offer free budget-friendly recipes and grocery lists to help you start saving immediately.

Another way to immediately save is to review what subscription services you are paying for. Many individuals sign up for low-cost services and forget that they are being billed monthly. While a $1.99 app subscription is not going to make or break your financial wellbeing, these small costs add up. There are several free services and articles that can help you to track and cancel unused and unnecessary subscriptions.

Ignoring financial literacy

One thing that might have contributed to your debt problems is a lack of knowledge of how finance works. There are low-cost financial literacy programs out there that can teach you how to keep your debt manageable. There are many free and inexpensive online courses that cover everything from creating a basic budget to high finance investing.

Using all your savings

Everyone needs savings in case of a job loss or other sudden or unexpected financial emergency. If you have started saving already, avoid the temptation to use it all to pay down your debt. Aim to keep an emergency fund of at least three months’ worth of household expenses in the bank. If you have little to nothing saved, start now. While it is recommended to save at least 10% of your income, putting away even $50-100 a month will help to keep your savings plan on track.

Trying to do it alone

You don’t have to tackle the challenge by yourself. There are professionals in the Metro Detroit area who can help you, such as credit counselors and bankruptcy attorneys. These resources can give you the information you need to decide on a strategy that fits your lifestyle. The attorneys at Gudeman & Associates have over 100 years of combined experience in debt settlement, Bankruptcy, and tax resolution. If you are facing large debt, aggressive creditors, or foreclosure, call to schedule your no-obligation consultation today, and we will review and recommend a plan of action to help secure your financial future and freedom.