Liz Weston: Free of debt - with regrets

Stories about how ordinary people pay off debt quickly can be amazing, inspiring — and somewhat deceptive.

These tales often mention the sacrifices debtors made but may gloss over the cost to their quality of life or the misguided choices they made. Becoming debt-free can be a worthy goal, but understanding the pitfalls can keep you from repeating others' mistakes.

THERE'S MORE TO LIFE THAN DEBT

Zina Kumok wishes she hadn't been in such a frenzy to pay off $28,000 of student loans. She did so in three years on an average annual salary of around $30,000.

"I was so focused on getting rid of debt that I didn't spring for things that could have really helped me, like going to a therapist or even attending networking conferences," says Kumok, a Denver resident who blogs at DebtFreeAfterThree.com.

Financial planners consider most student loans to be the kind of "good debt" that needn't be paid off in a hurry. Federal student loans offer relatively low, fixed interest rates, deductible interest and numerous repayment options, including several years of deferral or forbearance plus the possibility of forgiveness.

While Kumok is happy her loans are paid off, she advises others not to go overboard in their debt repayment zeal. At one point, she debated with herself for 20 minutes about whether to spend $1 on a Redbox video rental. That was taking frugality to the point of obsession, she says.

"I think I could have improved my life a lot if I had let go a bit," Kumok says. "Spending an extra $50 a month wouldn't have killed me."

YOU MAY HAVE MORE OPTIONS THAN YOU THINK

Aja McClanahan of Chicago, who with her husband, Kelvin, paid off $120,000 in debt, wishes she'd understood more about old debts and statutes of limitations.

"There were some bills we could have negotiated down and others we actually didn't have to pay because of how old they were," McClanahan says.

For example, she settled one defaulted private student loan for $3,600 — the original principal — after interest and fees had ballooned the bill to $12,000. She found out later the debt was well past the state statute of limitations , which limits how long creditors can sue after someone stops paying a debt. While creditors can continue trying to collect out-of-statute debts, the McClanahans wouldn't have faced the potential lawsuits, wage garnishment or bank account liens that can come from ignoring in-statute debt.

Debt settlement can have other pitfalls. Bankruptcy attorney Ed Boltz of Durham, North Carolina, has had clients who paid $5,000 to $10,000 to debt settlement companies without getting the relief they were promised. Some creditors refused to compromise, and some debt settlement companies were fraudulent outfits that vanished without a trace.

"People think they're doing the right thing but . their credit scores are trashed, they're out all that money," says Boltz, a past president of the National Association of Consumer Bankruptcy Attorneys.

DEBT-FREE, BUT NOT AT ALL COSTS

Another mistake people frequently make is using their retirement funds or home equity in a vain attempt to pay off overwhelming debt.

Retirement fund raids typically trigger income taxes and penalties, while home equity loans put the borrower's home at risk of foreclosure. The worst part, Boltz says, is that people are using up assets that would have been protected in a bankruptcy filing.

Before making extra payments on any debt, you should have a game plan that makes sense.

—First, determine whether repaying your debt is realistic. If you're struggling to pay the minimums or it would take you five years or more to pay off most of your unsecured debt — primarily credit cards, medical bills and personal loans — consider debt relief instead. A nonprofit credit counselor can advise you about debt management plans, but you also should talk with an experienced bankruptcy attorney.

—Next, prioritize toxic debt. It doesn't make sense to pay off low-rate, potentially deductible student loans or mortgage debt ahead of nondeductible, variable-rate credit cards.

—Don't forget to save. You may be tempted to throw every dollar at your debt, but that can be an expensive mistake. You can't get back the company matches, tax breaks or compounding you miss by not contributing to retirement plans. You'd also be smart to keep at least a small emergency fund to avoid adding to your debt; $500 is enough to start.

Ultimately, your financial health is worth more than setting any speed record for paying off debt.

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This column was provided to The Associated Press by the personal finance website NerdWallet .

Liz Weston is a certified financial planner and columnist at NerdWallet, a personal finance website, and author of "Your Credit Score." Email: lweston@nerdwallet.com . Twitter: @lizweston.