Debt busting blunders

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Beware of debt busting techniques that could actually make your financial situation worse.

Have you decided to repay your debts? Even with the best intentions, debt busting requires planning and research.

Of course, there are plenty of effective ways to repay your debts – see ‘Five ways to ditch your debt’ and ‘Plan your way out of debt’.

However, we’ve rounded up some techniques that often don’t work.

Being too ambitious

Once you’ve decided to attack your debt, it can be tempting to get carried away by your enthusiasm. In all likelihood, it has taken several years to work up any debts you may have so you’re not going to clear them overnight.

When you decide to sort out your finances, try to do an honest appraisal of the situation and set yourself realistic targets. If you attempt too much too quickly, you could fail and become disillusioned with the process.

Borrowing to cover debts

You probably already know how effective balance transfer cards can be if you want to repay your credit card debt more quickly and cheaply.

However, balance transfer cards are something of a special case. If you’re not savvy, borrowing to repay an existing debt could exacerbate your financial problems.

If you are going to take out another loan to cover a debt, you should make sure you are getting a more competitive rate of interest. Otherwise you’re unlikely to make any progress.

Borrowing money to make the minimum repayments on another debt will probably send you further on the downward spiral. If you do reach this point, it could be a sign you need professional help with your debts.

Spreading yourself too thin

Although you might want to pay off all your creditors as soon as you can, this may not be the most effective debt busting technique.

Take a look at all your debts and the interest rates on each. It could be prudent to use a technique known as ‘snowballing’ in which you focus your efforts on repaying one debt – normally with the most expensive interest. Meanwhile, you continue to make minimum repayments on everything else.

As soon as this is paid off, you could turn your attention to another debt – until they are all cleared.

Over-reliance on family and friends

Taking a loan from your nearest and dearest could be an effective short-term solution if you’re experiencing cash flow problems.

However, it could well be a mistake to rely on these kinds of loans to cover regular outgoings and debt repayments.

If your family are always around as a financial safety net, there won’t be much of an incentive to stand on your own two feet. Likewise you’re probably not doing your children much good if you constantly bail them out of financial jams without talking to them about the cause of their problems.

**This material is for information purposes only and should not be considered financial advice. We strongly encourage our readers not to rely solely on this content, but to seek independent advice when making financial decisions.**

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