Money Traps – The best way to catch a wild animal in the wild is to set a trap. Well, money traps are no different. They are always laying around waiting for their next victim to fall for them. Today, we will share with you some of the money traps you must avoid.
10 Money Traps You Must Avoid at All Cost
1. No-Money-Down Plans
Want that big TV, fancy mattress, or comfortable sofa, but have no money? Well, there seem to be ways to have your heart’s desires even before having the money to pay for them. A no-money-down trap is essentially another trap set up well with roses to get you locked into making long-term payments on stuff you can just pay upfront.
Putting 0% down might sound legit and convenient, but you forget that you will have to pay for that item someday and the payment terms usually go from 12 months period to 36 months period. The problem comes when you cannot pay off their product before it is due. From there, they will start backdating the interest charges to the date of purchase. Most of the time, you will end up paying even more for an item you could have taken with less if you had saved up for it.
So how can you avoid this kind of money trap? The only way is to buy something when your wallet says you are ready. But if you can’t wait, it’s advised that you first make sure you compare prices. Be sure you are paying a fair price for your item. Secondly, as soon as you acquire the item, start saving up for the money. Do not wait for the due date. It will mess you up.
2. Car Leases
You are parking your old Honda, ready to get off and head to your office, when your colleague drives up in a brand new Audi R8 and parks the majestic beast right beside yours. With its tinted windows, silver car body, high-quality speakers, and luxurious leather seat, it is everything you have ever wanted in a car. I bet you would want that Audi R8, wouldn’t you? And I think you would even trade your Honda for a car like that.
Just imagine the astonishing look on your friends seeing you with such a car. The look is so satisfying, right? Too bad you cannot afford it, but you can lease it. Okay, I know what you are thinking, and I have to tell you, it’s a bad idea. Please do not do it! It’s human nature to be tempted by luxury, but if you cannot afford it, do not lease it.
Leasing a car or anything luxurious can be one of the most expensive expenses you can ever make. And although leasing is cheaper than buying, leasing is always bad news for personal finance. It means you are falling for a lifestyle trap, and spending over what you can afford, just to look good.
You already have a nice comfy Honda, why get rid of it, to lease a new Audi R8 that you probably would have lost interest in by the time you finish paying up for it? The only way to avoid such traps is by spending on what you need, not what you want. Never overspend your budget. I would rather drive my small car and put the $5000 towards savings that will go to something else like a vacation.
3. Student Loans
You want to go to university, but you don’t have enough money to afford it. What do you do? You get a student loan from your government right. Student loans are great, in the fact that they give most students, who wouldn’t have had the chance to go to university and study something they wouldn’t have been able to. However, student loans are the biggest money trap in most countries today!
There is approximately a $1.6 Trillion student loan crisis in the world. There are few ways to go to college without getting a loan. Other than paying for it out of your own pocket, you can apply for grants and scholarships. However, if you aren’t successful, you could choose an affordable college, or go to a community college before transferring to a university. Thus keeping your money and saving thousands on your education. Graduate with zero debt and be ready to conquer the world.
4. Adjustable Rate Mortgages (ARMs)
The mortgage rate normally comes in two forms; A fixed rate, where the interest you need to pay is fixed for several years and a variable rate also known as adjustable rate, where the interest you need to pay changes from time to time. I would advise you to never pick the Adjustable Rate Mortgages. Whether it is a four-year or a six-year ARM, once the interest rate adjusts, you will have no control over where it goes.
Getting an Adjustable Rate Mortgage is simply playing with fire. So how can you avoid this money trap? If it is a must, get a fixed-rate mortgage. At least you will be sure of a fixed maximum amount you are paying and that there is no nasty surprise in the future of the mortgage rates going up. The other option is when looking to buy a house start with what you can comfortably afford rather than what you can borrow.
5. Risk-Free Trials
Even the name of this trap sounds precarious. Making someone believe something is risk-free is the scariest trap. One of the ways companies get you to pay more than you planned is by telling you to sign up for a free trial. The trial activates after putting in the information to your debit card.
The key to this trap is that they expect you to forget to cancel and usually that is exactly what happens 90% of the time. It happens to everybody and most of the time, the monthly charges after the trial is way more expensive and it will just get charged to your account. The pain comes when you receive a bill of $167 when you had a $1 or $0 trial. If you are wise, do not do the risk-free trials. That is my advice.
6. Surprise Contest Winnings
Ever gotten an email saying you won a contest that you don’t remember participating in? Well, that was a bit, and if I tell you how many people have fallen for that stuff, you will be surprised. Most of these emails ask you to pay a fee to claim the prize. Now that is total trash. No contest or lottery winner pays a fee to claim a prize.
Some of these traps come as a pop-up ad that says you have won an Amazon gift card. I know you want the Amazon gift card but sorry those are just traps that want to take away your money. Be cautious! Most of the time when you click the pop-ups you will find yourself in a trap, you do not know how to get out of. It all starts with a message.
7. Payday Loans
What can be worse than a credit card debt from Netflix? A payday loan. Paydays are nothing but trouble. One will end up paying a crazy interest for that loan, making you regret why you had thought of it in the first place. I know life can be tricky, and sometimes you may have unexpected financial emergencies that not even your emergency fund will cover the bill. When it comes to these, NEVER take a payday loan. Those guys are the worst of the worst in the financial industry.
Now imagine how bad it is for something to be termed as the worst of worst. A credit card may give you some form of benefits such as cashback and points for using money, but a payday loan only does one task, it takes out all your money immediately after payday with a ridiculously high-interest rate.
I would tell you to get an extra job or sell some stuff that you don’t need, but do not even think about going to the payday loan shops. It is a legal loan shark that will suck out all your money which will take years for you to crawl out of.
8. Investment Scams
At some point in our lives, there will come offers that will sound too good to be true. First of all, it probably is just like grandma’s sayings. Most people want to make more money with zero risks, and we forget that it doesn’t work that way. Use the money to get money. So when someone comes offering unsolicited investment advice, be keen. Deals that offer a 10% or more fixed return over the next few years are most likely to be scams.
Especially the ones offered to a selected few and make you think that you are missing out on a good offer. Do not fall for such investment scams. Always stay vigilant and always ask yourself questions like why is it offered to you and not to your friend Peter or Jane? Before you accept the deal, sit down with yourself, and navigate through the deal. You could even ask for a contract and investigate the company. Do not fall for these investment scams.
9. Credit Cards
You might find it hard to believe, but credit cards are a money trap. This is because, when you think you are saving money by using credit cards, you are actually spending more because of the credit cards. Credit card companies are very wise by hooking new customers with freebies when they sign up.
Now, let us count all those college students who have a dozen credit cards. Take keen interest that these students have not started to earn a dime, but simply because of possessing a credit card, they are already thousands of dollars deep in credit card debt. If we add up the taxes and hidden fees, the fees can be comparable to a loan shark if not more.
So how can we avoid this problem? First, make sure to have only one credit card for emergency purposes and cancel all other credit cards which you do not use. Second, you should avoid buying items you do not need, and third, make sure to pay all card debt and do not allow the credit card debt to roll over.
With these few tricks, you can be sure not to have unimaginable credit card debt. Remember to always keep your budget less than your income, and always stick to it.
10. Lack of savings
They say without saving, you are vulnerable, which is true. Unexpected expenses, no matter how small, always push us into debt, and that is why we are always advised to have savings for rainy days. A wise man once said that if you do not take control of your money, it will very quickly take control of you. It is always hard to figure out how much to save and how much to spend, and this decision impacts our net worth, quality of life, and most importantly, our stress levels.
The golden rule has always been to at least save 10% of your income, but I say save as much as you can. You never know what will happen. For instance, for someone to think of buying a house, they should be having a down payment of 20% and more, enough money to cover moving expenses, and remain with a decent contingency fund.
For all these to happen, you should have a lot in your savings account. We need to fund our dreams, and for that, savings can help a lot. Having all these money traps in mind, I hope you will be wise enough to avoid them. It now comes as a reality that debt is big business, and falling into this money tarps only makes other people rich. If you want to fund your dreams and enjoy your hard-earned money, then your choices need to be different. I hope you enjoyed it and found value in it.
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