Common mistakes made while consolidating debt

Another study out of the University of Pennsylvania showed that people who avoid impulse spending can save up to 23% on their grocery bills.

So if you learn to shop with cash, you can kill two birds with one stone: 1) you won’t use credit and risk getting into debt, and 2) you’ll protect yourself from impulse buying.

Meanwhile, many others are struggling to find enough money, after making their loan payments, to save for retirement. more than five times what it was just 20 years ago, “the consequences of managing that debt have never been greater,” says Heather Jarvis, an attorney who teaches financial professionals about student loans.

Among 401(k) participants with student debt in plans administered by Fidelity Investments, two-thirds say they have reduced or stopped their 401(k) contributions or have taken out a 401(k) loan or hardship withdrawal. What follows are six student-loan mistakes people commonly make and how you can avoid them. 1: Failing to consider income-driven repayment plans When it comes to government-backed student loans, many people stick with a “standard” repayment plan.

House purchasers consolidating non-mortgage debt in a mortgage must make down payments large enough that their loan meets the maximum ratio of loan to property value after the consolidation.

Some borrowers—particularly those who are cash-strapped—may benefit from an income-driven repayment plan.If you can avoid these pitfalls you will be on the right track to becoming debt free and enjoying financial freedom.If you attempt to repay debt without any strategy outlining how you’re planning to do it, you will eventually pay it off.It’s imperative that you understand what your plan is, and how you want to make it happen.Once you’ve planned it out in your mind, write it down on a sheet of paper.These plans, the newest of which became available last year, cap student-loan repayments at 10% to 15% of a borrower’s annual discretionary income—an amount that is determined by a formula that includes the borrower’s income and family size, among other factors.Using one, a borrower can free up cash for other long-term financial goals, such as saving for retirement. For those looking to reduce their monthly payments, these options generally are more attractive than older alternatives, including “graduated” and “extended” plans, says Ms. Graduated plans start with lower payments that increase every two years—and eventually surpass the standard fixed payment.They also offer the possibility of loan forgiveness after a set number of years of on-time repayments—from 10 to 25 years, depending on the plan and the borrower’s profession. Extended plans lower monthly payments by allowing up to 25 years for repayment.Borrowers whose debt is two-thirds of their income or more are likely to qualify for at least some of the various income-driven repayment plans, says Mark Kantrowitz, a financial-aid expert and the publisher of Cappex.com, a college scholarship and search site. 2: Failing to understand the loans There are two basic types of student loans: federal and private.Unfortunately, there are a number of traps that people can fall into that gobble up large chunks of their income and leave them with little or nothing.Here's our list of the 8 biggest, common money mistakes to avoid that cost people thousands of dollars and leave them broke every month.

Common mistakes made while consolidating debt