As you go through life, you’ll get advice left and right from people who will tell you what to do with your money, from investing it wisely to spending it frugally. Today’s blog is about what not to do, and what money choices never to make, because they’re just ridiculously bad and very damaging to your financial health. Once you know them, you can more easily avoid them. Enjoy.
1) Getting a Payday Loan
We’ve all seen them, usually in a seedy strip mall right next to a chiropractor and a liquor store. We’re talking about the payday loan store, the one with the sign in the window tells you that you can easily “cash your paycheck” or get a “payday advance”. Some will even let you take out a loan on your tax refund the day you send it in.
It all sounds great until you realize the charges you’ll pay to get your paycheck a little bit early, and the whoppingly high interest rates between 391% and 521%, typically. And no, those aren’t typos. What happens with most people who take out these loans is that they end up “flipping” them because they can’t pay them off. If that happens 8 times (which is not unusual) the actual cost to borrow $325 will, in the end, be $793.
2) Taking out Student Loans and using the money for anything besides college
We’ve all seen the headlines in the last couple of years stating how college loans have become ridiculously huge and how it’s getting almost impossible for students to repay them. But what if you’re a student who takes out some college loans and, instead of putting the money aside for college expenses, you use it to get new cars, televisions, trips and furniture?
This isn’t just a problem with young people who don’t know how to handle money, but also with older consumers going back to school, many of whom are low income to begin with. Once they qualify for student loans that pay for their tuition and more, the end of spending it before they realize how hard it’s going to be to pay it back. And pay it back they must, because student loans can’t be dismissed through bankruptcy.
3) Using a debt settlement company to get out of debt
Debt settlement companies will tell you that, if you use their services, they’ll save you thousands of dollars and lots of stress by negotiating payments with your lenders and handling the process for you. While their advertisements might make them seem like they’re going to help, the fact is that debt settlement companies are a business just like any other and don’t do things out of the kindness of their hearts, but with their profit margins firmly in mind.
In some cases, they’ll actually collect money from you and let your accounts go further into the red until they even begin any negotiations. In the meantime, your debts accrue interest and get bigger. In fact, using a debt settlement company might just leave you further in debt than you were when you actually started using them.
Hopefully we’ve made our point about these three unwise money choices. Any business that offers to “help you” for a fee, or any loans for something that you simply don’t need, will always end badly.