Summary: Why don’t some people in debt can’t seem to get out of debt fast? Find out some of the common reasons in this article.
One of the main goals of this website is to share my opinion on how to eliminate and get out of debt fast. And I am sure other bloggers out there share that same goal. Over the years, I have come to realize a common mistake people in debt make when trying to get out of debt fast is to give up. People in debt give up all the time when they shouldn’t, because if you give up, the bigger the debt will get. This article explains the 8 common reasons why people can’t get out of debt fast.
8 Reasons You’ll Never Get Out of Debt Fast
This brings us to the first reason people in debt can’t seem to get out of debt fast:
1. You Don’t know How Much Debt You Owe
It is generally very difficult and almost impossible for you to get out of debt fast if you don’t know how much you owe. In other words, you can’t solve a problem without facing the problem. So it is important to force yourself to know how much you owe and what is costing in late fees and interests each month.
So before you start getting rid of your debt, you need to, first, have a clear picture of how much you owe in total and what each debt is. List all your debt to know where you stand. Second, you need to prioritize your debts.
With a good idea of how much you owe on each debt, and how much money you can set aside as extra repayments, you need to work out which debts you are going to pay off first. Depending on how much and what type of debt you have, you could start by paying off the debt with the highest interest rate first, or paying off the smallest debt first so you feel a sense of achievement.
See making extra repayments on your debt for more information.
What do you think it takes to get out of debt?
2. You Pay Only the Minimum
When I first started to pay my small Sallie Mae loan, I was amazed at how difficult it was to pay off the debt. I would make my monthly payment on time, and after two years, the loan was about the same as it was when I got it. The problem was that I was only making the minimum monthly payments set by Sallie Mae.
If you only make the minimum payments on your debt each month, you will pay a lot of interest and it could take you a long time to pay off your balance. So, the solution is to pay more than the minimum repayment each month. For example, let’s say you have a credit card debt of $10,000 with an interest rate of 20%. The monthly minimum payment is $200.
If you only make the minimum repayments, it would take you 66 years to pay off your debt and you would pay over $40,000 in interest. But if you decide to pay more each month, let’s say $300, you will pay off your debt in about 4 years and you would save almost $40,000 in interest.
3. You Keep Adding to Your Debt
One of the mistakes I see people with a lot of debt make all the time is adding to their debt. But what they fail to realize is that your debt will never go away if you keep adding to it. Interests will increase how much you owe and keep you in debt longer. So a good solution is to cut the number of your credit cards or refrain from using them until you reduce your debts significantly or pay them them off.
4. You Spend More Than you Earn
For most people, spending more than they earn is probably what get them into debt in the first place. They have no idea where their money is going and they don’t have a spending limit. So it’s good to track where your money goes so you don’t live beyond your means.
5. You Don’t Have Money for Emergencies
An emergency fund is the money you set aside to cover unexpected expenses. Having an emergency fund means that you won’t need to borrow money if a crisis happens and you need money quickly. It can give you peace of mind and give you financial breathing space when things go wrong, like the car breaks down or you receive unexpected medical bills.
The more you have in your emergency fund, the better off you will be.
6. Your Car Loan is Too Long
Some people take out car loan without shopping around or without knowing whether they can afford it. A car loan is a loan that you take specifically to buy a used or new car. You borrow an amount that you have to repay within a certain period of time. The time you have to repay can vary from 12 months to 5 years, etc. The longer it takes you to repay the loan, the more money you will end up paying interest fees.
7. You Rack up Late Fees
One of the ways banks, credit card companies, etc, make money is by collecting late fees from you when you fail to make timely payments. Late fees add up to your balance. The solution is try to pay as much as you can every month to reduce interest. Pay at least the minimum monthly repayment to avoid late payment and late fees.
8. Your Interest Rates Are Too High
High interest add up to your balance just as late fees. Some people when they sign up for a credit card, they do not bother to check the interest rate. They do not even check the interest charged for late or missed payments. Interest is an extra amount you have to pay as a cost of borrowing.
You pay interest on the amount of money you owe, so the quicker you pay off your loan, the less interest you pay. So before you sign up for credit card, find out what the interest rates are. Even a small difference in interest rates can make a big difference to your repayments.
For more information on how to reduce debts, see the following articles: