It's never fun being broke or having to live paycheck to paycheck. Wondering if you'll be able to pay your bills is stressful, and access to money is often limited. Those who have escaped debt will tell you that it is both a struggle and one of the most rewarding things you can do for yourself and your family. Maybe you just see the potential for trouble on the horizon and want to avoid total financial disaster. Whether you're crawling out of debt or hope to avoid its pitfalls, here are just ten debt traps to avoid in 2017.
1. Spending Too Much on a Home
Buying too much home is a common mistake that gets many people in over their heads in debt. A standard monthly benchmark for housing is 30% of your income. Many go up to 40%, but too many families fail to consider such things as property taxes, insurance, upkeep, and repairs in their budget.
2. Overusing Credit Cards
One of the most common forms of debt, aside from household mortgages, in the U.S., is revolving credit card debt. If you are using more than 30% of your available credit, or even have your cards maxed out, you're likely already in trouble. With most interest rates well above 20%, aim to pay off credit cards in full each month.
3. Co-Signing a Loan
Agreeing to take on someone else's debt is often a recipe for disaster. Cosigning a loan, even with the best of intentions isn't a good idea. Your best response when asked is to just say no. If you do agree to this, make sure that you have the means to make payments should the primary lender default.
4. Borrowing from Your 401(k)
Borrowing from your 401(k) is taking money away from your future. If you don't pay back the loan, you'll get hit with penalties, plus you no longer have that money working for you to earn investment dollars.
5. High-Interest Loans
High-interest lenders target people with debt issues, and these loans just compound the problem. These are payday loans, car title loans, income tax return loans, and pawn shop loans. Avoid them all as you'll be paying interest rates that could reach triple digits!
6. Buying a Fancy Car
Who doesn't want a fancy ride? Unfortunately, these come with a price. Not only will you pay a fortune for that vehicle, but you will also probably now have to buy premium gas and pay more for auto insurance. Stick to a sensible set of wheels.
7. The Student Loan Trap
The student loan debt in this country is now at $1.4 trillion. An education is important, but student loan debt can quickly get away from you. Be sure only to borrow as much money as you need for school and research alternatives to taking on more debt that could stay with you for decades.
8. You Deserve a Vacation
We all deserve a break, but maybe your break should be to the local park or beach instead of that 2-week trip to Paris. If you're spending on vacations that you can't afford, it might be time to get realistic or start a small vacation savings fund.
9. Other Shiny Objects
Advertising today makes it tough to resist the latest electronics and fashion items. These aren't necessary to lead a happy and fulfilling life, particularly if they don't fit in your budget. If you're having trouble resisting, get rid of the credit cards and avoid the ads.
10. Credit Repair
If you have gotten in trouble with debt, resist the temptation to sign up with a credit repair company. They'll just charge you more money that you can't afford. Instead, create a careful plan to curb your spending and cut down on debt. If you need help, find an affiliated credit counseling service to offer some advice.
Avoiding debt troubles in the new year is a noble goal. As is looking out for your family's financial future. Another great way to protect your family's financial future is with life insurance. If you don't have life insurance in place, contact us to start a quote now.
Knowledge is power. The more you know, the easier it is to make an intelligent choice. Everyday life, as well as certain events and circumstances, require you to make choices. And peace of mind is gained when you feel good about the decisions you make.
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