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3 Mistakes to Avoid When Repaying Debt

If you're making repaying debt and student loan debt, in particular, a priority, awesome. Way to go you. Do yourself a favor and make sure you aren't taking a step backward with every two steps forward. Avoid these mistakes:

1. Building Up More Debt While Repaying Debt

It's really hard to pay off your student loan debt when you're paying off other debt instead. Make sure you aren't incurring any more debt while you are repaying student loan debt.

Avoid Credit Card Debt

Notice I say avoid credit card debt, not credit cards. Though if you find yourself going over budget and overspending when using credit cards then maybe you should avoid credit cards.

It took a while after I'd paid off all my credit card debt before I could use them in my budget. Now that I've gotten control on my spending I use credit cards to build up travel rewards points.

How'd I do it? I got really good at budgeting, and for a while, the only credit card I carried around was wrapped in paper and tape and said, "Emergencies Only."

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Once I got used to staying in budget, I just switched from using a debit card to using my credit card. It's not to say I don't go over budget every now and then; I am only human, but it's not by too much.

Don't Take on a Car Loan

This is definitely one of those do as I say, not as I do situations. When my car got totaled in March of 2013, I got around $7k from my insurance. Did I just go and buy a perfectly fine used car using that money? Nope, I got a brand new car and a $16k car loan to along with it. I had no clue what I was doing. Were I in the same position now, I'd do my research and get a car that wouldn't require me to take out a loan.

So please, please do as I say and not as I did. Do whatever you can to avoid taking on a car loan when you are repaying student loan debt. Not super car savvy? That is what the internet is for, there are tons of posts on shopping for used cars, even for those that have no clue what they are doing.

2. Making Payments Only Once a Month

Yes, you have to make payments every month, but you don't have to make only one payment per month. Splitting your payment with make each payment go a bit further.

So long as each payment is covering the interest accumulated and some part of the principle, the closer the payments are the less interest accumulates between each payment. This is how I've managed to save so much on interest in paying off that car loan.

For example, let's say you have a $10,000 loan with 5% interest with a monthly payment of $200.

You make the first payment on the 15th of $100 (half the monthly payment), $20.55 would go towards interest, and $79.45 would go towards the principle. 

You make the second payment on the 30th of the month another $100 (the second half of the required minimum payment). Since the balance as of the 16th was $9,920.55 and $20.40 of the $100 payment goes towards interest (.15 less) and $79.60 towards the principle.

In total, you paid $40.95 in interest and $159.05. If you had just made a single $200 payment after the end of the month on the first, you would have paid $41.10 in interest and $158.9 towards the principle. Now, $0.15 may not seem like much but the more debt you have the more you'll save. Every little bit counts. 

Keep your coffee habit, and just split your payment each month when repaying debt.

If You Can, Make Extra Payments

The more you put towards your debt each month, the less interest you'll pay. Not only do I split my monthly payment to save on interest, I also make an extra payment. One way I'm making extra debt payments is with Qoins. Qoins will help you pay down debt faster by applying an extra payment for you using your spare change.

Best Debt Pay Off Tool

One way I'm making extra debt payments is with Qoins. When you sign up for Qoins, you connect your bank account and then spend as you normally would. Qoins will round up your purchases to the nearest dollar and put that change towards an extra debt payment.

Basically, Qoins will help you pay down debt faster by applying an extra payment for you by using your spare change. There is a $1.99 charge each month. However, they take it out of the spare change they set aside for you so you never see a charge in your bank account. If there isn’t at least $10 in your Qoins account they will roll that amount into the next month free of charge.

3. Not Prioritizing Your Debt

A lot of people and I'm guilty of having done this as well, will make debt a priority in their mind, but not in their actions. I would think about my debt a lot but it wasn't the first thing I would do with my money. The first thing you do with your money when you get it, that is your priority. And if you aren't repaying debt first thing, then it's not a priority.

I would tell myself I was just waiting to make a big payment. Ultimately that money (usually extra side hustle money) would get spent on something else that had come up. I have always been most successful at paying off debt when I made it the first thing I did with my money.

When I got paid, I'd create my budget for the month and I would know how much was going towards debt. I would then make all of my budgeted debt payments before I did anything else. Make sure you aren't just saying debt is a priority and that you are actually taking action too.

Wrapping it Up with a Bow on Top

Don't make your journey to debt freedom harder than it has to be. Avoid taking on any more debt when you are trying to pay the debt off. The two steps forward one step back, maybe some kind of cha-cha, but no one wants to dance with debt.

Make sure you don't just stick to making one payment per month. Lastly, check yourself, do you think you are prioritizing your debt or are you actually prioritizing your debt, remember actions speak louder.

Any other mistakes to avoid when paying off debt? Let me know in the comments!

student loan debt | pay off debt | debt repayment | student debt | millennial money tips
student loan debt | pay off debt | debt repayment | student debt | millennial money tips
student loan debt | pay off debt | debt repayment | student debt | millennial money tips
If you're making repaying debt and student loan debt a priority, awesome. Way to go you. Do yourself a favor and make sure you are taking a step backward wi

Liz

Liz is a blogger helping people with personal finance and working for themselves. She shares her own journey to debt freedom and helps graduates dealing with above average student loan debt on her site, Less Debt More Wine. She currently resides in NC after calling Massachusetts home for nearly a decade.

  • Taking on MORE debt and not prioritizing debt are the two biggest mistakes that I see a lot of people making post graduation. You see this a lot especially in the medical field (and pretty much in every high earning field). People get out of grad school and once they see that huge paycheck, they start taking out loans for cars, mortgages, etc. I see tons of doctors and dentists do this exact thing.

    Sure, when you’re making a ton of money, getting a big mortgage and a nice car is something that you can “afford” while you’re making that big paycheck. But you don’t give yourself freedom. You basically end up trapping yourself because now, most of that paycheck has to go out the door for other things.

    Now imagine if you take a few years, pay everything off, and still are earning that huge income. You can do so much with it then!

    • Liz says:

      Exactly! Even when people think they are making it a priority, a lot of times they really aren’t, they are thinking about it but not acting on it.

  • I love the hint about making multiple payments during the month…very smart way to whittle a little extra each month. Of course, easier if you are getting paid twice or more a month than if you get paid monthly.

    • Liz says:

      True! Though even if you are getting paid monthly, you can still find bits of extra money throughout the month (rebates, side hustles) that you can use to contribute more frequently to your debt.

  • I like the tip about making multiple payments per month. Not only does that help you get ahead with the interest, but it means less money lying around in your account that may get misdirected for some other purpose before the monthly payment comes around.

    • Liz says:

      Not only that but if you do have a financial setback you have some breathing room, with a payment not being due for a while.

  • I think part of the reason I was so successful with paying off my debt was constantly prioritizing it and funneling money at every opportunity – not only on due dates. Great points!

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