This post may contain affiliate and/or promoted links. Please read our disclosure for more info.
Eliminating massive debt can seem like an insurmountable task for any couple. Let’s face it, no couple just wakes up one day to suddenly realize they’re buried under consumer debt. If you and your partner have found yourself in this predicament, your first order of business needs to be accepting the reality of your situation. Next, you need to make a plan that involves protecting your family’s finances. So, if you’re in debt and want to break free from the shackles, read on to avoid some of the biggest mistakes couple make when in debt.
Not Prioritizing Debt Repayment
When you’re ready to make your debt disappear, it’s imperative that you prioritize debt repayment over all other non-essential spending. No more eating out and hitting a movie without serious consideration and planning. After all, that money can be put to better use.
First things first, track your spending to see where your money is going and how much you should have leftover each month to throw at your debt.
After you know where your money is going, make a budget. Make sure you’re making a budget at the beginning of each month to ensure you’re maximizing your income and not frittering it away before the debt is paid.
Any extra money should be applied to your debt in order to avoid paying massive amounts of interest.
The Debt Avalanche Vs. The Debt Snowball
Debt repayment is typically tackled with one of two notable methods: The Debt Snowball or the Debt Avalanche. Both methods ultimately achieve the same thing in the end, debt freedom. But the one you choose will depend largely on your personality.
Curious which one is right for you? Here’s the scoop.
When applying the Debt Avalanche, you’ll pay your debt off in the order of highest interest rate first. Using this method means you’ll be paying the least amount of interest on your debt.
Another way to tackle your credit card debt is to apply the Debt Snowball. The Debt Snowball means you’ll start paying your credit cards in the order of smallest balance first, regardless of interest rates.
The obvious choice might seem to be the Debt Avalanche, but the popularity of the Debt Snowball stems from an emotional standpoint, not a financial one. Oftentimes, when couples opt for paying the smallest balances first, they’re opting for quick wins to build momentum and keep motivation high. Just in case you were wondering, we went this route.
Either way, you’re going to end up debt free, so go with your gut.
If you’re interested in taking my free 5-day email course to help you and your partner take control of your money, sign up below!
Debt Consolidation Or Restructuring
Interestingly, debt consolidation is usually used interchangeably with debt restructuring, but the two are quite distinct.
Debt consolidation means rolling all current debt into one larger debt and one payment. Sometimes it makes sense to do this and sometimes it doesn’t. It’s all in the fine print. So read the fine print.
If you’re considering consolidation, you could try a reputable company, a local bank or credit union, or even another credit card, depending on the amount of your debt.
If you opt for another credit card, the new card should offer a very low interest rate or even no interest for a specified period of time. Optimally you would be able to pay off your debt within the introductory time period. If you can’t, you’ll be forced to do another balance transfer or pay the regular interest rate for the card on the remainder of the balance.
Feel free to check out best.creditcard to get an idea of current cards/interest rates available. Just beware, transferring balances isn’t free, so make sure you understand all of the terms.
Debt Restructuring, on the other hand, can also be done as part of consolidation, but it is not just consolidation. Debt restructuring is when your current debt terms are renegotiated to reduce the balance and/or interest rate. If you go this route, make sure you get the new terms in writing. This will often hurt your FICO score, but remember it’s better to restructure your debt than not pay it at all.
Other articles you might enjoy:
- Crush Your Student Loan Debt With This Simple Tool
- How To Pay Off Debt And Not Have To Live Under A Rock
- How We Slayed The Debt Monster
- Parents: Stop Taking On Student Loan Debt For Your Kids!
- How We Avoided Massive College Debt
- 5 Tips For Avoiding Designer Debt
- What I Learned About Money After A Decade Of Adulting
- Our Surprisingly Lazy (and Free) Money Management System
Not Investing Sooner
Aside from mistakes with debt, couples often also make the mistake of not focusing on investing.
There is an interesting article on investopedia.com all about the challenges of investing in a modern world. With the lightning speed of information being tossed around on news networks, the web, and social media, it’s easy to become confused and experience analysis paralysis.
But investing doesn’t have to be scary or difficult, for that matter. We have chosen a very simple broad market index approach. By doing so, we’re paying the lowest fees possible and diversifying at the same time. We like easy.
When it comes to investing, the worst thing you can do, aside from picking a high-cost, low-yielding vehicle, is to delay. To make the most of your money, consider investing as early and as much as possible. Remember, time is your biggest asset, regardless of your current age.
At the end of the day, if you resolve to be more financially responsible you’re bound to be successful with investing and debt elimination. And if you’re able to identify how you accumulated massive debt in the first place, you’ll be able to tweak your habits and make sure you never end up in the same situation again. Now, doesn’t that sound like a good position to be in.