If you are looking very seriously into debt reduction options, you are most likely to be drowning in debts that you don’t think you could pay off all by yourself. You desperately want to make all the necessary payments but at that point in your life you just cannot afford to. You have thought about filing for bankruptcy but that will definitely be your last resort. So you start looking at some potential companies that you believe will be able to help you achieve your target of settling your debts once and for all. You are also optimistic in the hope that by seeking help from professional experts, you can gain some insights on how to stay away from new debts.

In your attempt to find the best way to reduce your debts, you may probably make some common debt reduction mistakes. You are after all only human. But to be making mistakes so early on your quest to rid yourself of debts will probably do more harm than you think possible. To keep yourself out of debt, check out the list of common mistakes below so you can avoid making them when you are in the process of reducing your debts:

1. Going for consolidation loans

If you are already in the process of reducing your debt, why in the world would you be applying for consolidation loans at the same time? You might think you are going for some sort of a back-up plan should you fail to get the debt reduction relief you are so counting on. But instead of improving things, you will most probably end up making things worse. You have already appointed a debt reduction advisor to negotiate for you so put your trust in your advisor. You will only need to consider consolidation loans if your debt reduction advisor suggests for you to do so.

2. Canceling your credit cards with balance

While your advisor is working out the negotiation approach with your creditors, canceling your credit cards will only remove any form of leverage you have over your creditors. Maintain your status as your creditor’s customer and they will be more inclined to make things easier for you. You don’t have to cancel your credit cards; you simply have to stop using them for the time being.

3. Letting your debt reduction advisor do all the grunt work

Granted, when you appoint a debt reduction company to help you with your debts, you are basically saying to them, “Help me with debt reduction!” But you forget that they are only helping you out with the matters at hand. You need to sit down and figure out what was it that got you there in the first place. Is it your spending habit? Or is it that you are a compulsive credit card user? List down all the reasons you think got you nose-deep in debts and from there, work out a plan to stay away from incurring new debts.

4. Giving your creditors automated access to your bank accounts

It might sound like you are being openly honest with your creditors, but your savings and checking accounts should be off-limits to your creditors. Focus on settling your debts with your creditors through debt reduction only. If you need to make payments, simply do it via online banking but never ever give your creditors automated access to your bank accounts.

5. Reducing your debt without a plan

So you already have your debt reduction advisor working on a plan on the best way to approach your creditors and how to convince them to reduce your debt amount for you. But you also need to be proactive and start saving up for emergency funds or even simply a trust account that will only be accessible to you after a certain period of time. This way you will have some money for your use should the occasion calls for it.

There are many more common mistakes that a person can make while in the negotiation process of debt reduction. Although they are not deadly mistakes, some of them may actually affect your credit ratings and your future financial planning. After all, you enrolled into the debt reduction program to get rid of your debt. So why not plan to stay out of it too?

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Category: Finances
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