My dd started twisting her hair out just before she turned 4. I started by cutting her hair short, with her blessing. Then, I would remind her every single time I saw her doing it. No twisting. I noted the times she was likely to do it, and tried to find other things for her to transfer the habit onto like a necklace, toy, etc. It worked, and within a few months she no longer twists her hair, but she has asked to keep it short.
For lips, I might try something like a flavored lip balm or several different ones even. When she starts to do it, remind her to use the lip balm instead. You could also transfer the picking to something else. Would a necklace, beads, shell, worry stone, doll, something work? Even getting her to pick at her clothes might help. Keep her hands busy. Every time you see her doing it, gently remind her not to do it and suggest an alternate behavior. Hopefully, she will be able to adjust to something that won't cause as much damage.