Managing debt responsibly opens up opportunities for significant and valuable investments and experiences. Whether it’s purchasing a home, financing education, handling unexpected expenses like roof repairs, or acquiring a vehicle, the ability to make purchases now and repay over time facilitates these essential aspects of life.

Excessive personal and household debt can lead to significant unhappiness and frustration. Research shows that individuals who become overwhelmed with debt often experience lower life satisfaction, diminished emotional well-being, and poorer overall health and sleep quality. Therefore, having the ability to manage and repay debt is crucial for achieving personal financial fulfillment and overall happiness.

Repaying debt can be challenging, and borrowers often encounter pitfalls on the journey from being debt-burdened to becoming debt-free. Here are ten typical mistakes people often make when trying to repay their debts:

Over-indebtedness often carries a negative stigma. Feeling overwhelmed by monthly loan obligations might lead one to view it as a sign of personal weakness. However, experts in household finance point out that succumbing to desires is just one aspect that can lead to borrowing beyond one’s ability to promptly repay. Decades of research indicate that low income and limited financial resources may play a more significant role than willpower in this regard.

In any case, over-indebtedness is a prevalent issue. In May 2019, over two out of five U.S. consumers reported to pollsters from the Consumer Financial Protection Bureau (CFPB) that they had difficulty paying a bill or expense in the previous year. This challenge was particularly pronounced among individuals with lower incomes and lower credit scores, although nearly one in five six-figure earners also faced difficulties. Rather than focusing on self-blame, channel your energy into avoiding these common mistakes.

You don’t have to face the challenge of paying off your debts by yourself. A nationwide network of nonprofit credit counseling services offers personalized, face-to-face assistance to help you take control of your debt and finances. These services can help you create a plan for managing and eventually eliminating your debts, typically for a small fee. The National Foundation for Credit Counseling (NFCC) can provide referrals to local services in your area.

Being in debt isn’t solely attributed to a lack of self-control. Financial knowledge also plays a crucial role. Research from the United Kingdom indicates that individuals with low incomes but strong money management skills tend to have lower debt-to-income ratios. This highlights how financial literacy leads to more informed borrowing decisions. For example, those who grasp the implications of compounding interest are less inclined to engage in high-cost borrowing practices.

Improving your financial literacy can be achieved through studying personal finance books, magazines, and online resources such as Forbes Advisor. Additionally, nonprofit organizations like the National Endowment for Financial Education have supported the creation of several research-based programs aimed at enhancing financial literacy.

No debt repayment strategy can succeed if your spending habits remain unchanged. Developing a budget is essential to gaining control over your expenses. Simply track your income and expenditures, ensuring that you spend less than you earn to maintain financial stability. By following a few straightforward steps, even those resistant to budgeting can create a practical plan to manage spending and align it with income.

Important aspects involve monitoring your progress and celebrating milestones by rewarding yourself. For example, after paying off a high-interest credit card, you might treat yourself to a piece of clothing you’ve had your eye on. Personal finance applications like Digit and Qapital utilize gamification strategies to motivate you toward achieving financial goals.

Seeking protection from creditors through Chapter 7 or Chapter 13 bankruptcy provides an established method to eliminate your debts and begin anew. However, bankruptcy also comes with limitations and notable drawbacks, such as enduring negative impacts on your credit report.

While bankruptcy can be a helpful tool in certain situations, it may not be the most suitable option for all borrowers facing overwhelming debt. Exploring alternative approaches, such as credit counseling, before resorting to bankruptcy is often recommended.

Both for-profit and nonprofit debt relief programs can provide valuable assistance to borrowers facing financial difficulties. These programs offer services such as credit counseling, debt management plans, and help with debt settlement strategies. This includes negotiating lower interest rates, adjusting repayment terms, reducing total amounts owed, consolidating debts, and refinancing loans.

However, it’s important to be cautious, as scammers often target vulnerable individuals with debt relief programs that impose high fees, obscure terms, and promise unrealistic outcomes. The Consumer Financial Protection Bureau (CFPB) maintains an online database of complaints regarding debt relief programs. For reliable assistance, the National Foundation for Credit Counseling (NFCC) and the Financial Counseling Association of America can offer referrals to reputable and legitimate programs.

Paying off debt and preventing a return to debt requires more than just managing expenses. It’s crucial to have sufficient income to sustain your lifestyle while making progress on debt repayment. Therefore, increasing your income can play a crucial role in successfully paying off debt.

Decades of research have consistently shown that the amount of disposable income consumers have is a critical factor, often the most significant, in determining their ability to manage debt effectively. One strategy to potentially increase your income is to optimize your savings and investments.

Another effective method to increase your income is to start a side gig or part-time job. Regardless of the source, earning additional income provides more resources to accelerate debt repayment and reduces the likelihood of falling back into debt in the future.

While it’s possible to become debt-free, it often requires time and sacrifices. Instead of attempting to eliminate all debts simultaneously, a more practical approach is to tackle them one by one. The debt avalanche method is a strategic approach where you prioritize paying off your highest-interest debts first, then move on to the next most costly debt until all are cleared. While it requires time, focus, and discipline, it’s a realistic strategy compared to expecting to eliminate all debts in one swift action.

Other borrowers find motivation in using the debt snowball method, where you start by paying off your smallest debts first to build momentum towards your goal of becoming debt-free.

While it can be tempting to allocate every available dollar towards debt repayment after covering essential bills, it’s generally wiser to allocate some funds toward building and maintaining an emergency fund.

Having a solid emergency fund—traditionally advised to be three to six months’ worth of basic expenses—can help you avoid needing to borrow money for unexpected expenses like medical bills, car repairs, or periods of unemployment. Considering that three months’ worth of expenses could amount to several thousand dollars, starting with saving $1,000 is a commendable beginning. By setting aside just $100 each month, you can achieve this level of emergency savings in less than a year.

These mistakes aren’t the only pitfalls you can encounter when trying to get out of debt. For instance, another misstep could be taking out a loan secured by your home or other assets to pay off unsecured debts, as this poses the risk of losing your collateral if you are unable to make payments on time. But these are among the most common debt repayment mistakes. By steering clear of them, you can make it significantly easier to reduce your debt and enhance your overall happiness.