Wednesday, September 26, 2018

10 Debt Traps

I came across this article today about 10 Unexpected Debt Traps, and figured I would add ten more common debt traps that people still seem to fall for:

  1. Co signing for anyone for anything.  If you do this things might go along swimmingly for quite a while.  Until they don't.  And then that loan you cosigned for ages ago falls on you to pay off when the person you co-signed for decides that they either can't or won't finish paying off the debt.
  2. Buying when you can rent.  Jet skis, RVs, boats...if it isn't something you use ALL. THE. TIME. then it is probably better to rent the thing when you need it instead of buying it and paying all the fees that go along with ownership.
  3. Renting when you can buy.  Buying real estate can make some people squeamish but I have always been a fan of buying a place to live instead of renting.  There are many costs associated with home ownership but it seems like the ever-increasing costs of rent is more of an expense than owning.  Unless you won't be in a location for very long, it often pays to buy a place to live than rent (but obviously not at the top of the market!).
  4. Being "unbanked".  People who can't or don't want to have a bank account usually end up paying way more in fees than people with bank accounts.  I have accounts at three different banks (one bank and two credit unions) and pay no fees at all for any of my accounts.
  5. Payday lenders and car title lenders.  These places are huge rip offs when you look at the terms of the loans the provide.  400% APR anyone?  Sheesh.
  6. Emotional spending.  I think we all do this at one time or another--cast common sense to the wind and just buy buy buy.  But people who do this all the time usually end up in a great deal of never-ending debt.
  7. Playing roulette with your insurance situation.  I know some people who skipped car insurance for a few months to save money and almost invariably that is when they got in at-fault car wrecks.  Ditto skipping health insurance, life insurance, homeowners or renters insurance, etc.
  8. Student loan debt.  There are a lot of people who don't much like school to start with but feel like they have to go to college at all costs.  Then they end up with a mountain of student loans for a degree they can't even really use.  If a kid is brilliant school-wise they should definitely go to college to get a useful degree but if they are kind of meh about school, technical certificates and trade apprenticeships can be much more interesting and much less costly.
  9. Consolidating debt.  This is kind of a double-edged sword.  If you can consolidate all of your debt to a really low interest loan and pay the loan off ASAP, that's probably a good thing.  More often, however, people consolidate their debt then proceed to run up their high-interest credit cards again which just puts them in even more debt!
  10. Not planning for the future.  Whether it is putting an emergency fund together, planning financially for your retirement, deciding on what you would do if you needed extended care, etc., if you start doing these things when you are 60 and/or in a major crisis, you will be screwed.  People need to start planning--and saving/investing--for their old age sooner rather than later.


  1. That is a very good list. I am a fan of owning a house instead of renting.