Strategies to Avoid Taking on New Debt When Paying Off Old Debt

Paying off debt can be a long, difficult process. Many times, when we’re focused on paying down old debt, it’s easy to accumulate new debt without even realizing it. New debt can quickly derail debt repayment plans and keep us stuck in the debt cycle. The good news is there are strategies we can use to avoid taking on additional debt as we work to pay off what we already owe.

Understand the Debt Payoff Process

Before diving into strategies, it’s helpful to understand the overall debt payoff process. Generally, financial experts recommend a few key steps:

• List all debts and organize by interest rate
• Create a budget to maximize payments to debt
• Pay minimums on all debts; put any extra funds to highest-interest debt first
• Once a debt is paid off, roll that payment to the next debt
• Repeat until all debts are paid

This process, known as the debt avalanche method, allows you to pay debts off efficiently by focusing on highest interest rates first. The key is diverting as much money as possible each month to debt payments. That’s where avoiding new debt comes in.

Reduce Spending to Free Up More Cash

One of the most effective ways to avoid new debt is to cut back on spending to free up more cash flow for debt payments. This may require some lifestyle adjustments, but they’re temporary. Here are some spending categories to look at:

• Housing – downsize, get a roommate, negotiate rates
• Food – eat out less, meal plan, buy generic brands
• Utilities – reduce usage, negotiate rates
• Transportation – carpool, use public transit, bike
• Insurance – raise deductibles, compare rates
• Subscriptions – cancel unused ones
• Shopping – develop a needs vs. wants mentality

Even small spending changes can make a difference. Pack your lunch instead of eating out. Brew coffee at home. Have a no-spend weekend. Every dollar you save from reduced spending can go toward paying off debt.

Increase Income with a Side Gig

In addition to cutting expenses, increasing your income is another way to get more money to put toward debt. Taking on a side gig gives you extra cash flow that can be used for debt payments. Side gigs like these are popular:

• Ride share driving
• Food delivery
• Freelance writing, design, etc.
• Online tutoring
• Selling handmade crafts
• Pet sitting or dog walking

The key is to ensure any income from side work goes directly to debt payments, not more spending. Even an extra $200 or $300 a month from a side gig can make a real dent.

Avoid Relying on Credit Cards

When cash flow is tight, it’s easy to rely on credit cards to cover expenses. But this leads to that dangerous cycle of new debt. To avoid this:

• Put credit cards away and use cash
• Delete card info from online accounts
• Leave cards at home when running errands
• Ask someone to hold your cards for you

Making credit cards less accessible helps avoid temptation to “just charge it.” Consider using debit cards or cash for necessities like gas and groceries. And definitely avoid using credit cards for discretionary purchases.

Say No to Financing Offers

Retailers and service providers often promote “easy financing” offers to get you to spend more. But financing furniture, electronics, car repairs, etc. leads to costly debt. It’s better to save up and pay cash, or forego the purchase altogether until debts are paid off. Other financing traps to avoid:

• High-interest personal loans
• Payday loans
• “Buy now, pay later” apps
• Taking cash advances on credit cards

These types of financing only offer quick cash with extremely high interest rates. They will intensify debt issues. Just say no to financing and borrowing while paying off debt.

Avoid Cashing Out Home Equity

With home values rising, it can be tempting to tap into your home equity by refinancing or taking out a home equity loan. But this turns your home into collateral and risks foreclosure. It’s better to find other ways to pay off debt than putting your home at risk. If you must use home equity, be very cautious:

• Borrow as little as possible
• Use funds only for debt payoff
• Get the shortest term possible
• Understand all fees involved

Again, it’s wise to exhaust all other options before turning to home equity financing when paying off debt.

Avoid Debt Consolidation Pitfalls

Debt consolidation can seem like an easy way to manage debt payoff, but it has risks. Transferring multiple debts to one loan or credit card usually extends repayment terms and increases interest paid over time. If you do consolidate debt, beware of these pitfalls:

• Extending loan terms too long
• Failing to close old accounts
• Running up consolidated accounts again
• Incurring high balance transfer fees
• Missing payments on the new consolidated debt

Consolidation can simplify payments, but don’t let it derail your overall debt payoff. Stick to short loan terms, always pay on time, and avoid using the accounts again.

Talk to Your Lenders

If you’re struggling to keep up with debt payments, don’t hesitate to call your lenders and explain the situation. Many will work with you by:

• Reducing or waiving interest rates
• Lowering monthly payments
• Waiving late fees
• Allowing skipped payments

This debt relief helps avoid delinquency or default while you get back on track. Be proactive in communicating with lenders early on.

Avoid Debt Settlement Companies

Debt settlement firms promise to negotiate with your creditors for reduced payoffs. But they charge hefty fees, damage your credit, and can leave you worse off. It’s better to contact creditors yourself. If you do use a settlement company:

• Research the company thoroughly first
• Never pay large upfront fees
• Don’t stop making payments to creditors
• Ask about impact to credit score
• Get settlement terms in writing before agreeing

Settling debt yourself, with credit counseling assistance if needed, is often a better option.

Know Your Rights

Debt collectors use aggressive tactics to get consumers to pay. But federal law protects you from harassment. You have rights to:

• Block unwanted calls
• Dispute and validate debts
• Stop contact
• Prevent contact at work

Don’t tolerate intimidation or threats from collectors. And don’t acknowledge debts that aren’t yours. Educate yourself on fair debt collection laws.

Seek Help If Overwhelmed

If debt feels completely overwhelming, don’t go it alone. Seek help from:

• Nonprofit credit counseling agencies
• Legal aid organizations
• Bankruptcy attorneys
• Financial therapists
• Debt support groups

Talking through your situation with others can help you see options, create a plan, and stay motivated. Debt relief assistance is available.

Stay Focused on the Goal

It can take years to pay off significant debt. The process requires discipline and sacrifice. To stay focused:

• Visualize life without debt
• Celebrate small milestones
• Find a community of support
• Review progress regularly
• Give yourself a non-financial reward

Debt freedom is within reach with consistency. Stay positive and don’t get discouraged. Little by little, you’ll get there.