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6 Mistakes to Avoid When Paying Off Debt

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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On the surface, getting debt-free sounds like a simple process. Make your minimum payments each month and get your balances to zero, then you’re across the finish line. But with interest rates steadily on the rise, this isn’t much of a strategy. It’s a surefire — and expensive — way to keep yourself chained to debt for much longer than you need to be.

The truth is that saving the most money and getting out from under debt as quickly as possible comes down to learning the basics.

Here’s a rundown of the top mistakes to avoid while on the road to debt-free living.

1. Continuing to accumulate new debt

Deciding to take charge of your debt once and for all is an empowering move, especially when you start seeing those balances go down. But accelerating your payments on one account while continuing to rack up new debt is hardly a solution.

“You may feel better because you’re sending an extra $500 to your credit card every month to pay it down, but if you’re using a different credit card to buy groceries, you’re just cycling the debt around,” Michaela Harper, director of community education at the Credit Advisors Foundation, told MagnifyMoney.

This all-too-common scenario underscores how important it is to have an effective budget in place, which requires a firm grasp on your monthly income and expenses. If you’re spending more than you’re earning, you’ll never break the debt cycle.

Vid Ponnapalli, a New Jersey-based certified financial planner, recommends looking back and tracking your spending over the past six months. This should highlight any gaps between your spending and your income.

“If you’re bringing in $4,000 each month but spending an average of $4,500, you need to remedy that deficit,” he told MagnifyMoney. “This means either reducing your expenses or increasing your income.”

Crafting a solid budget is your best defense.

2. Focusing on the wrong debt

Not all debt is created equal. When you’re in over your head, Harper said to focus first on “people who can mess with you — [anyone who has] a judgment against you or has the ability to put liens on you.” Having your wages garnished or your car repossessed are never scenarios in which you want to find yourself.

From there, high-interest balances should be front and center because you’re paying the most to keep them around. This is precisely why it makes sense to roll these balances over to accounts that have lower interest rates. This process is called debt consolidation.

Let’s say your debt looks like this and you’re paying $150 a month on each account:

  • Credit card No. 1: $5,000 at 19% interest
  • Credit card No. 2: $2,000 at 14% interest
  • Credit card No. 3: $1,000 at 10% interest

Going that route will take you four years to pay everything off, and you’ll dole out $2,383 in interest alone (if you stick to $150 payments even after certain cards are paid off). But if you take all that debt and pay it off with a two-year debt consolidation loan at 8%, you’ll cut your interest payments by almost $1,700, lower your monthly payment by about $100 — and be debt-free in half the time.

Many debt consolidation loans come with an origination fee of up to 6%, but your savings could very well make up for it. To explore your loan options, consider using this debt consolidation loan tool from LendingTree, MagnifyMoney’s parent company. The tool could match you with up to five different lenders offering competitive loan options.

3. Tapping your 401(k) to pay off debt

Let’s talk 401(k) loans, which let you borrow from your future self and then gradually pay it back with interest, usually via automatic payroll deductions. You have five years to repay these loans, and the interest rate is generally the current prime rate plus 1%.

When face to face with a mountain of debt, it can be very tempting to use your retirement nest egg to wipe out your balances and start over, but think very carefully before doing so.

First, there can be significant tax implications. You’re putting pretax money into a 401(k). But when you’re paying back a 401(k) loan, you’re using after-tax dollars, Ponnapalli said. Then you have to pay taxes again when you withdraw the money during retirement.

What’s more, Ponnapalli said if you fail to make good on your loan terms, the loan is then considered a distribution. If you’re younger than 59 ½, you’ll also pay a 10% penalty.

“And if you leave your job for any reason, the balance will be due, in full, much sooner than originally planned,” he added. (Check your individual plan for details.)

By taking your money out of the market, you’re robbing yourself of future gains as well. Where retirement savings are concerned, your No. 1 weapon is time. The longer you’re invested, the more money you’ll have waiting for you come retirement.

4. Falling for a debt relief scam

When you’re overwhelmed by debt, navigating the situation on your own can feel impossible. Credit counseling is a legitimate option if you go with a reputable company that has your best interests at heart. American Consumer Credit Counseling and the National Foundation for Credit Counseling have strong reputations.

Through these groups, you can connect with professionals who’ll review your financial situation, educate you on personal finance basics and — hopefully — empower you to get back on the right track. Credit counselors also help clients create a plan of attack for addressing their outstanding debt.

But consumers are wise to beware of shady debt relief organizations. For-profit credit counseling groups are generally a red flag, as are companies that make too-good-to-be-true promises or guarantees about debt relief.

Harper said initial counseling sessions should be free and have no strings attached. He recommended going with one of the nationally recognized groups. “You’ll have assurance that you’re dealing with a reputable organization and staff that knows what they’re doing,” Harper said.

5. Neglecting your other financial goals

There’s nothing wrong with being laser-focused on paying down debt as long as it doesn’t impact your ability to move the needle on your other financial goals. Whether it’s saving for retirement or building up your emergency fund, you don’t have to ignore your other goals in the name of debt repayment.

Speaking of emergency funds, Ponnapalli recommends building yours up to at least three months’ worth of expenses, but this can be a tall order for those at war with debt. An alternative strategy is to gradually fund a mini-savings account of $1,000 until you’re debt-free. This should be enough to cover most pop-up expenses. After that, you can top off your emergency fund to that three-month mark, then start saving more aggressively for other financial goals.

No matter what, kicking into a 401(k) that offers an employer match should always be a top priority, even while you’re paying off debt. (It’s free money, after all.) As for the big things, Harper suggests breaking down these goals into bite-sized pieces. If you want to save $5,000 to put a down payment on a house in three years, how much do you need to save every month to get there? Is it possible to do this while still making progress on your debt payments? It doesn’t have to be an all-or-nothing situation.

6. Putting all your eggs in the bankruptcy basket

It isn’t all that surprising that money is America’s leading cause of stress, according to a 2018 Northwestern Mutual study. When you’re buried under tremendous debt, bankruptcy can feel like a gift that wipes the slate clean. In the face of financial catastrophe, it might make sense, but it’s a last-resort option.

Any reputable counselor will guide you toward bankruptcy if it is your best path forward, but Harper warns that it isn’t without consequences. While many of your debts might be forgiven, you could lose other assets, such as your home or car, in the process. Your credit score will take a hit as well. Chapter 7 bankruptcy stays on your credit report for 10 years, while it’s seven years for Chapter 13. The silver lining is that, according to a study put out by LendingTree, roughly 75% of those with a bankruptcy on their record end up restoring their credit after five years.

“I’m a big believer that if it’s the right thing to do for your family in order to move forward, and it’s truly an insurmountable situation or amount of debt, then by all means grab it with both hands, do it and focus on rebuilding behaviors,” Harper said.

For folks who are overwhelmed by debt, Harper said credit counseling is often the best medicine for understanding what you’re up against and making a plan to get out of it.

The most important things to remember

The road to getting debt-free isn’t always straight and narrow — sometimes life gets in the way — but knowing the basics can make course-correcting a whole lot easier. Pushing pause on accumulating new debt is crucial. From there, put out the biggest fire first. Tapping your 401(k) to pay off debt or ignoring your other financial goals, while tempting, could also come back to bite you.

It’s about prioritizing debt repayment without putting your future self at risk.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Marianne Hayes
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Marianne Hayes is a writer at MagnifyMoney. You can email Marianne here

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The Fastest Way to Pay Off $10,000 in Credit Card Debt

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Disclosure : By clicking “See Offers” you’ll be directed to our parent company, LendingTree. You may or may not be matched with the specific lender you clicked on, but up to five different lenders based on your creditworthiness.

Before you read on, click here to download our FREE guide to become debt free forever!

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Updated – January 10, 2019

Digging out of credit card debt can feel frustrating, intimidating and ultimately impossible. Fortunately, it doesn’t have to be any of those things if you learn how to take control.

Paying down debt is not only about finding the right financial tools, but also the right psychological ones. You need to understand why you racked up credit card debt in the first place. Perhaps it was a medical emergency or a home repair that needed to be taken care of immediately. Maybe you’d already drained your emergency fund on one piece of bad luck when misfortune struck again. Or maybe you’re struggling with a compulsive shopping problem, so paying down debt will likely result in you accumulating more until the addiction is addressed.

You also need to understand what motivates you to succeed. Do you want to pay down your credit card debt in the absolute fastest amount of time possible that will save more money or do you want to take some little wins along the way to keep yourself motivated?

Here’s a couple strategies consider as you learn the best way to handle credit card debt — and pay it off quickly.

2 common credit card debt repayment strategies

These repayment strategies can help you pay off credit card debt quickly. Keep in mind, you can use these strategies even for non-credit-card debt:

  • Debt avalanche: Focus on paying off the credit card with the highest interest rate first. Then, work your way down. This strategy can save you money on interest and get you out of debt sooner.
  • Debt snowball: Pay off your smallest debts first. Doing so can motivate you to continue making payments as you climb out of debt.

You don’t necessarily need to pick the repayment strategy that gets you out of debt the fastest. After all, if your repayment strategy doesn’t keep you motivated, you may not stick to it.

Using a personal loan or balance transfer credit card

As you seek to repay your debt, you could consider a personal loan or balance transfer credit card with a lower interest rate than on your existing debt. Transferring your debt to one of these financial products could help you reduce long-term interest costs.

But you’ll first need to learn whether or not you’re eligible. Your credit score will play a big role in determining your eligibility for a personal loan or balance transfer card. Use our widget below to figure out if a personal loan or a balance transfer is the best option for you!

What’s the best option for me?

Please enter information below and we’ll provide the best option to consolidate your credit card debt!

If you have a credit score above 640, you have a good chance of qualifying for a personal loan at a much lower interest rate than your credit card debt. With new internet-only personal loan companies, you can shop for loans without hurting your score. In just a few minutes, with a simple online form, you can get matched with multiple lenders. People with excellent credit can see APRs below 10%. But even if your credit isn’t perfect, you might be able to find a good loan to fit your needs.

Not sure what your credit score is? Click here to learn how and where to find out. If you know your credit score needs some work but not sure of what can be done, click here.

If you have a score above 700, you could also qualify for 0% balance transfer offers. We will talk more about balance transfers below but this option is the best way to pay off credit card debt if you’re able to qualify for a 0% APR balance transfer credit card.

A credit score of less than 600 will make it difficult for you to qualify for either option. If you have a credit score less than 640, struggling to make monthly debt payments and would like to explore your options to reduce your debt by up to 50%, then please click our option below to customize a personal debt relief plan.

Custom Debt Relief Plan

Now let’s talk about the financial tools to add to your debt repayment strategy in order to dig out of the hole.

Let’s say you have $10,000 in credit card debt, and are stuck paying 18% interest on it.

You already know that putting as much spare cash as you can toward paying down your debt is the most important thing to do. But once you’ve done that, so what’s next?

Use your good credit to make banks compete and cut your rates

You could save $1,800 a year in interest and lower your monthly payments based on several of the rates available today. That means you could pay it off almost 20% faster.

Here’s how it works.

Option One: Use a Balance Transfer (or Multiple Balance Transfers)


If you trust yourself to open a new credit card but not spend on it, consider a balance transfer. You may be able to cut your rate with a long 0% intro APR. You need to have a good credit score, and you might not get approved for the full amount that you want to transfer.

Your own bank might not give you a lower rate (or only drop it by a few percent), but there are lots of competing banks that may want to steal the business and give you a better rate.

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MagnifyMoney regularly surveys the market to find the best balance transfer credit cards. If you would like to see what other options exist, beyond Chase and Discover, you can start there.

promo-balancetransfer-halfIt also has tips to make sure you do a balance transfer safely. If you follow them you’ll save thousands on your debt by remaining disciplined.

You might be scared of a balance transfer, but there is no faster way to cut your interest payments than taking advantage of the best 0% or low interest deals banks are offering.

Thanks to recent laws, balance transfers aren’t as sneaky as they used to be, and friendlier for helping you cut your debt.

Sometimes the first bank you deal with won’t give you a big enough credit line to handle all your credit card debt. Maybe you’ll get a $5,000 credit line for a 0% deal, but have $10,000 in debt. That’s okay. In that case, apply for the next best balance transfer deal you see. MagnifyMoney’s list of deals makes it easy to sort them.

Banks are okay with you shopping around for more than one deal.

Option Two: Personal Loan

If you never want to see another credit card again, you should consider a personal loan. You can get prequalified at multiple lenders without hurting your credit score, and find the best deal to pay off your debt faster.

Personal loan interest rates are often about 10-20%, but can sometimes be as low as 5-6% if you have very good credit.

Moving from 18% interest on a credit card to 10% on a personal loan is a good deal for you. You’ll also get one set monthly payment, and pay off the whole thing in 3 to 5 years.

Sometimes this may mean a higher monthly payment than you’re used to, but you’re better off putting your cash toward a higher payment with a lower rate.

And you’ll get out of debt months or years faster by leaving more money to pay down the debt itself. If you want to shop for a personal loan, we recommend starting at LendingTree. With a single online form, dozens of lenders will compete for your business. Only a soft credit pull is completed, so your credit score will not be harmed. People with excellent scores can see low APRs (sometimes below 6%). And people with less than perfect scores still have a good chance of finding a lender to approve them.

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If you don’t want to shop at LendingTree, you can see our list of the best personal loans here.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Brian Karimzad
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Brian Karimzad is a writer at MagnifyMoney. You can email Brian at brian@magnifymoney.com

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How to Manage Debt as a Single Parent in 2019

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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When student loan deferment ended for Samantha Gregory, a single mom and founder of site Rich Single Momma, she had one reaction to her payments: sticker shock. “The amount they were asking for was so astronomical, it was bananas,” she said.

As a single mom in debt, these high payments were added to the already steep financial demands of covering household expenses and supporting her children, including one with special needs — all on one income.

Adding debt to the significant challenges of single parenting “puts a strain on not just your finances, but your emotions, your mental health,” she said. “It’s like, ‘I have this burden over my head so how am I going to take care of it and take care of my family?’”

It’s a question any single parent in debt may find themselves asking. There’s no one right answer, but the good news is that there are smart steps a single mom or dad can use to tackle debt. Here are some tested and certified strategies for how to manage debt as a single parent.

8 strategies for a single parent in debt

1. Keep debt on your radar

A key to managing money as a single parent in debt is to keep an eye on what you owe. Gregory warned against letting debt slip in your money management juggling act. “I know for me in the past, I’ve tried to ignore it and hope it would go away,” she said. “But it doesn’t go away. It’s still there, lingering.”

Keep your debts on your radar, so you’re not losing track of them, falling behind on payments or damaging your credit. If you don’t know what you owe, pull your free credit report and look up each outstanding debt you have and record the balance, interest rate, monthly payment and due date. Start a habit of reviewing these accounts regularly.

2. Work with your lender

Once you know what you owe, see if your lender offers any help or accommodations that can make this debt easier to manage.

You’ll have the most options for dealing with federal student loans, as servicers must provide you with options to forbear or defer payments, or switch to a different repayment plan.

Even for other types of debt, it can’t hurt to ask your lender if they’re willing to work with you. They might be open to giving you an extension on your payment, and some lenders will let you skip a payment now and tack it onto the end of your repayment period instead.

3. Claim benefits and support

Help isn’t always easy to come by as a single parent, so make sure you’re claiming the benefits and child support to which you’re entitled.

Federal assistance programs such as Women, Infants and Children (WIC), Supplemental Nutrition Assistance Program (SNAP) and school lunch programs can ease pressure on your budget while keeping everyone fed, for example. Other programs can assist with fixed monthly costs such as housing, child care or health insurance. Many state and local programs can offer additional help.

Single parents should also consider filing for child support. If you’re already entitled to such payments but the other parent isn’t paying, or you feel it’s not enough, consider pursuing legal steps to get adequate support for your family.

4. Revisit your budget

As a single parent with debt, living within your means is the foundation of your financial security. Review your budget to see if there are areas you’re wasting money on things you don’t need or use, whether it’s a neglected gym membership or a house you’re realizing is roomier than necessary. Consider lifestyle changes and sacrifices — big or small — that you could make to lower your monthly costs.

Look for ways to free up some of the mental space you’re using for your money, too, Gregory suggested. She likes to automate payments, for example, to ensure they’re going out on time with less effort on her part.

5. Sell your extra time and stuff

To the single mom in debt, Gregory suggested looking for ways to generate some extra cash. “I’m a firm believer in side hustles,” she said. “There are so many options out there available to create a side hustle, start a business or just get another part-time job or work-from-home job.”

Then, “look around your house and if you have something valuable you can sell, sell it,” she said. Doing so can bring a fast cash infusion that can help you stay current on debt payments, or even make an extra payment.

It can be a tough and even emotional to sell some belongings, Gregory acknowledged. But, “It’s just things and they’re replaceable, whereas your peace of mind, your family and kids, and your health are not replaceable,” she said.

6. Make extra debt payments

If you can carve out extra savings, that’s money you can use to pay off your debts faster. One method to do so is the debt snowball:

  • Figure out how much more of your monthly income you can afford to devote to making extra debt payments. Include this as a line item in your budget.
  • Put that extra cash toward your debt with the lowest balance, and make the minimum payment on all of your other debts.
  • Watch the balance on your high-priority debt decrease faster.
  • Once your first debt is gone, “roll over” the funds budgeted for your monthly payment and the extra payment and apply them to the next low-balance debt.

Making extra debt payments will lower your principal faster which will, in turn, lower your interest costs. As a result, this strategy could avoid hundreds of dollars in interest and shave months or even years off your debt repayment.

7. Consider debt consolidation

For a single parent, debt consolidation can be another way to get ahead. Consolidating debt makes the most sense when doing so will lower the interest rates you’re paying.

A credit card balance transfer is one way to accomplish this. You can open a credit card with a 0% introductory rate. Then, transfer existing balances to this new credit card (note that this will often incur a balance transfer fee) and you can repay this debt interest-free.

If you have higher debt balances or prefer a fixed repayment plan, a personal loan could be the way to consolidate debt. To do so, you can take out a new personal loan with the rates, term or payments you would prefer and use the loan funds to pay off and replace existing debts. You can compare various lenders with our debt consolidation comparison page to get an idea of the terms and rates for which you could qualify.

8. Tap your community for support

Managing debt as a single parent can be hard on you because, at the end of the day, paying them comes down to you alone. “In the back of your mind, you’re thinking ‘There’s no one who can help me with this,’” Gregory said.

However, you don’t have to go it alone — there are often people who are ready and willing to help as close as your own backyard. So let them! Family and friends can help you out in a variety of ways, from spotting you cash in a tight month to helping with child care. You can also get assistance from your church, community and local nonprofits or programs.

Even if you don’t always find the help you need right away, asking around can start you on the track to getting the recommendation or referral that leads you there. Gregory also suggested online communities, such as local or single-parent Facebook groups, as a way to crowdsource solutions and get connected with helpful resources.

Pass your debt and money lessons on to your kids

Debt can be a big regret for many single parents. “If I had more information when I was going to college, I wouldn’t have taken out so many loans,” Gregory said.

But these ideas for how to manage debt as a single parent can help you push past regret into action. In doing so, you’ll be creating the financial security that your kids need, all while modeling what good money and debt management look like in action.

Gregory, for example, used her experience with student debt to warn her daughter away from borrowing to pay for college. As a result, “She’s really blessed that she doesn’t have to take out student loans, so she won’t be saddled with that big debt when she graduates from college,” she said.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Elyssa Kirkham
Elyssa Kirkham |

Elyssa Kirkham is a writer at MagnifyMoney. You can email Elyssa here

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