“As borrowers, we may feel guilty about running up debt, anxious about making payments, and resentful of the constraints that old obligations (and old credit records) impose on our current choices. We may find it too easy to buy things we may later regret”. — Virginia Postrel
You could fall into the debt rut because of a number of money mistakes. For example, you may sink deeper into the debt hole for sudden overwhelming medical costs, skyrocketing school or college tuitions, floating a startup or failing at one, and may be buying a plush apartment or home. Some of these costs are inevitable (read: medical bills or home purchase) and they are good for you. But, there are other expenses that you can scale back to fit into to your budget and avoid breaking your bank.
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Here are some not so good money mistakes that make you fall into debt – ones you may either choose to avoid or be one of its victims:
1) Credit cards
Plastics are good until you start misusing them. You keep flashing your cards at the slightest pretext to purchase things you can ill-afford. You continue adding more balances on your credit cards only to be robbed of your hard-earned dollars at an interest rate of 19.99%. As a result, your purchase of $150 would cost you $300 at the year end. If you want to undo the monetary damages you caused till date, you could consolidate your debts and turn all your financial obligations to zero!
2) Car loan money mistakes
If you’re already strapped with astronomical debt figure, then how is it possible for you to afford another $50,000 car loan? In terms of return on investment, a car loses its value by 25% the moment it’s driven out of the showroom. Imagine you’re stuck with a white elephant for the next 5 years or longer paying off its loan that loses its value faster than any stock due to a market crash. Financing a new car is one of the worst money mistakes around.
You have an obsession and foolish fetish for costly shoes and purses, or any other accessories of your liking. If you’re not purchasing items that add value to your portfolio, then that’s a dumb way to break your bank, eventually.
4) Car lease
You pay hundreds of dollars toward a car lease, for say 10 years, in a row, only to return it after almost paying more than the actual price of the car! Add to that the interest and penalties that come with it. You spend your money on an item for years and have nothing to show at the end. Does it make sense at all? Leasing a car is by far the most expensive way to own a car.
5) Rented home interiors and appliances
For you, the idea of rent-to-own may prove more affordable than buying expensive home interiors or appliances. Take, for instance, you pay $100 per month as rent for a $1000 leather couch for the next 2-3 years. Smart. Is it? Try buying used first. If you can’t find what you are looking for always find a place willing to negotiate and make sure you get the best deal possible.
6) Gamble or lottery
You play lottery or gamble to make a killing. Instead, you are hit with a heavy lightning for every attempt you make that siphons off several precious dollars for nothing.
7) Co-sign loans
If you want to ruin your relationship with a family member, friend or colleague, you may give them a loan or become a co-signer of their loans. As a thank-you note, you’ll have a sizeable debt burden to share, besides seeing your relationships turn sour over time.
8) High-end hobbies
Pursuing expensive hobbies for recreation when you’re already stuck deep into the debt rut is another silly money mistake to worsen your fiscal health. It could be playing golf, sky-diving, scuba diving, mountain climbing, and so on. So, avoid them unless you can afford them.
9) Sophisticated gadgets
Gadgets like the latest Apple Macbook, iPhone 4 crystal docking station, Stax SR-009 ear speakers, etc. may seem affordable to you since you have the ‘Best Buy’ option to get them. But, you enjoy your gadgets at thrice their actual worth by paying monthly EMIs for the next 3-5 years. Talk spiraling your debts, anyone?
10) Lifestyle upgrade
To achieve the now-elusive ‘American Dream’, you may hike the size of your fries and gulp down drinks at 58 cents. Maybe you could do yourself a favor by having clinched that VIP gym membership. Isn’t it? Moreover, you spend $200 on your cell phone, then why not bump it by another $100 and get a better one? Wouldn’t it be fine to switch over to a new cell phone plan that offers you 100 extra minutes at $5 per month? No. Never. Literally, all these petty costs add up and contribute to your debt problems.
If you want to surmount your overwhelming debts, then you’ll have to take a hard, unbiased look at your financial health. To wipe out your debts and develop good money habits, you must create a sound budget you can implement. You can increase your disposable cash at hand by cutting back on unnecessary expenditures. Apart from that, you could have your costly loans restructured or consolidated to pay off your loans easily. Talk to a personal finance expert, to find out suitable alternatives to retire your debts faster and more efficiently.
Are you wanting to see if refinancing your student loans is right for you? LendEDU is a free tool to use to compare refinance rates with 12 of the top rated lenders around.
Author Bio: Andy Masaki is a freelance journalist living in Oakland. He works for Oak View Law Group, a leading consumer, and bankruptcy law firm based in CA and operational across the US.