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10 Biggest Mistakes People Make When Paying Off Debt

Home > Debt Help Advice > 10 Biggest Mistakes People Make When Paying Off Debt

The decision to get yourself out of debt is a life changer, if you are willing to make the necessary commitment that goes with that.

You can learn how to get out of debt and how to avoid the mistakes that could torpedo the whole thing.

Getting out of debt involves more than just paying off a few credit cards. It means changing spending habits; learning to how to budget; knowing who and how much you owe; prioritizing debts; creating emergency and retirement funds; and knowing where to find help when you get off track.

In other words, there are a lot of decisions that need to be made and it’s possible – if not probable – you’ll make some mistakes along the way. Here are some  you can avoid that will make it easier to get out of debt.

1. Mistake: Same old spending habits.

People are creatures of habits and spending money is no exception. We shop at the same stores, eat in the same restaurants and drive the same car, because it’s comfortable. It’s also costing you more than you can handle financially. Remedy: If you won’t change your spending habits, you won’t ever get out of debt. Start with your morning habits (have your coffee and breakfast at home). Go to lunch with a brown bag, not a wallet. In the evening, watch games or movies on TV, while eating a home cooked meal. You will see an immediate impact on your daily spending habits. You don’t have to do without. You just have to make better choices with what you do.

2. Mistake: Trying to dig out of debt alone.

People are reluctant to ask relatives or friends for help dealing with debt. Remedy: Call a nonprofit credit counseling agency and get free help from experts. Credit counselors are trained and certified by national organizations like the National Foundation for Credit Counseling. They can suggest debt-relief solutions like debt management programs, credit consolidation, debt settlement or, if things are way over the edge, bankruptcy. The credit counselors advise you on creating budgets and recommend a solution that you can take or leave. And, it’s free! Take advantage of that.

3. Mistake: Signing up for a debt-relief program, but not understanding what is expected.

It is rare to get a quick-fix solution to debt problems. If that is one of the promises you hear, start looking elsewhere. Remedy: The first thing to understand is that debt-relief programs typically take 3-5 years, so be patient. Second, check up on the whatever company you choose for debt relief. The Better Business Bureau or local state attorney’s office are good places to start. Credit unions, universities and military bases should be reliable sources for recommendations. Be sure whatever organization you choose is licensed and doesn’t have a record of consumer complaints.

4. Mistake: Not creating a practical budget.

It is difficult, if not impossible to gain control of your finances unless you have a budget. People think it’s too much work … until they get $20,000 in credit card debt and wonder how in the world that happened! Remedy: Develop a realistic budget that addresses financial needs like housing, food, health care, insurance and education, but still creates room to make payments on debt. Put away the credit cards and only pay with cash. That might mean reducing (or eliminating) things like dining out, entertainment, shopping for new clothes, cars or electronics, but if you’re serious about eliminating debt, operating with a budget and paying cash is a great start.

5. Mistake: Trying to pay off multiple debts at once.

Consumers with multiple sources of debt – credit cards, mortgage, student loans, etc. – often try and address each one every month. Bad move! Remedy:  Go back to your budget, trim spending to bare bones on everything but essentials, and create a $100 (or preferably $1,000) surplus that goes directly at the credit card with the highest interest rate. When that’s paid off, go after the card with the next highest interest rate and keep going until all credit card debt is eliminated.

6. Mistake: Closing accounts when they are paid off.

Remedy: The solution to this problem is simple: Pay off the account, but don’t close it. The credit scoring systems rely not only on how much money you owe, but how much credit you have available. Having credit available, but not using it, shows restraint and can improve your score.

7. Mistake: You decide to stop contributing to a retirement account.

While it seems to make sense to devote every dollar possible to eliminating debt today, in the long run, it’s a costly mistake. Remedy: Contribute at least 5%-10% of your income to retirement savings as soon as you begin working and don’t let eliminating debt cut into that. Time is the most powerful tool in retirement savings. The earlier you start contributing to a 401(k) or other retirement fund, the better off you’ll be at retirement. Find other places in your budget to pay down credit card accounts.

8. Mistake: Not setting aside emergency savings.

According to research, more than half of American consumers (57%) don’t have enough cash to cover an unexpected expense of $500 or more. Remedy: It’s impossible to predict unemployment, car accidents or busted plumbing, which is why every home needs an emergency fund. Experts say put 3-6 months of expenses aside for emergencies. It might take a while to get there if you’re focused on paying off debt, but again, it has to be part of your monthly budget. Set aside at least 5% of your income in an emergency fund, at least until you have three months of expenses covered.

9. Mistake: Not verifying your credit report is correct.

Checking your credit report for inaccuracies is an important step in your journey to reduce your debt. Remedy: You are allowed a free credit report from each of the major credit reporting bureaus, Equifax, Experian and TransUnion. Split them up, one every four months. Check them closely for incorrect delinquencies and/or balances that hurt your credit score and could make a difference in your ability to buy a house or car, or obtain more credit.

10. Mistake: Not prioritizing your debt.

Everyone has bills and most everyone wants to get out of debt, but some people simply can’t get a focused. It’s not a priority for them. Remedy: The best solution could be to consolidate your debts and make just one payment every month. Another way to get focused would be to take a piece of paper the size of a credit card and write down the five debts you want to get rid of. Tape that piece of paper to your credit card. Every time you reach for that card, you’ll be reminded that you’re adding, not subtracting to the problems on that page.

Best Way to Get Out of Debt

Now, you know the steps toward avoiding debt, but there is still a stack of bills on the counter. What should you do?

Here are a few steps that should help getting out of debt. Many of them are first-cousins to the list of mistakes to avoid, but looking at the problem from different angles always helps produce better solutions.

  • Check your budget. There always are areas where you can shave a few dollars free and create extra cash to apply to the debt? One less night eating out (at least $20 saved). Take your lunch to work every day (at least $20 saved). Watch the movie or sporting event at home (at least $20 saved). Skip Happy Hour ($20 saved).
  • Bury your credit card. That is what got you in trouble. Keep one in your wallet for bonafide emergencies. Pay for everything else in cash. It’s a LOT more difficult to hand over a $20 bill than it is a credit card. Impulse buying almost disappears when you pay everything with cash.
  • Go shopping with a list. A grocery store or shopping mall is a dangerous place when all you take is a credit card. Make a list of what you want. Only buy what is on the list. Get in, get out.
  • Share the cost. Roommates cut the cost of everything in half, maybe more, if they’re really frugal. You spend less on rent, less on food, less on utilities, less on cable and even less on transportation. In most cases, the savings generated by splitting costs will be enough to drastically reduce your debt by itself.
  • Take one more look around the house. Do you really need a $100 a month worth of cable TV? Does paying $50-$75 for a round of golf make sense? Can you mow the yard and clean the house yourself? How about exercising without a gym membership? All those things are nice to have … if you’re not in debt. Dump them until you’ve paid off the last of your credit cards.
  • Get some help. If you are still flummoxed by debt, find a nonprofit credit counseling agency online and go through one of their free credit counseling sessions. They help you sort out your problem; help you set up an affordable budget; and advise you on which debt-relief option best suits your situation. The counselors are trained and certified so The greatest thing about it is that it’s FREE!

How to Pay Off Debt Faster

Or, you could take a few steps toward paying off debt faster and maybe still have enough money for an occasional night out or round of golf.

Here are some suggestions that once you’re committed to eliminating debt, will make the process go faster.

  • Generate more income. That’s a polite way of saying take on a second job. Most people respond: “I don’t have time!” But you do have time to visit restaurants, shopping malls, golf courses and gyms? Those take time and cost money. Use that time to make money. And put it all toward retiring your credit card debt.
  • Pay all bills on time. You’re just giving away money when you’re late paying monthly bills. Late fees are a gold mine for credit card companies, landlords and banks. They don’t have to do any extra work to collect extra money. Don’t give away your money.
  • Garage sale anyone? Nearly everyone has old TVs, computers, exercise equipment, furniture and clothes they simply don’t use anymore. Let’s someone pay you to take away your junk.
  • Unbudgeted income. You may get a tax refund or payment from an estate you never expected. Forget about a weekend vacation. Spend the money on reducing debt.
  • Ask for a rate reduction. If you haven’t looked at the interest rates you’re paying, especially on credit cards, take a look at your statement and find out. If you have been a consistent, on-time payer, your card company will want to retain your business. Tell them they can, if they drop your interest rate to the lowest levels. This is one area where “Ask and ye shall receive” should actually work.
  • Ask for a raise. Businesses have been flush with money for a while, but the recent tax cuts should make their bottom lines even bigger. Unemployment is at its lowest levels. The combination means it may never be a better time to get a raise. The worst that can happen is you get another “No!”

About The Author

Bill Fay

Bill “No Pay” Fay has lived a meager financial existence his entire life. He started writing/bragging about it in 2012, helping birth into existence as the site’s original “Frugal Man.” Prior to that, he spent more than 30 years covering the high finance world of college and professional sports for major publications, including the Associated Press, New York Times and Sports Illustrated. His interest in sports has waned some, but he is as passionate as ever about not reaching for his wallet. Bill can be reached at [email protected].


  1. Picchi, A. (2017, January 12) A $500 surprise expense would put most Americans into debt. Retrieved from
  2. NA, ND. Emergency Fund Calculator. Retrieved from