The best way to catch a wild animal is to set a trap. Well, money traps are no different. They are always lying around waiting for their next victim to fall for them. Today we will share with you some of the most common money traps you should avoid.
An Adjustable-Rate Mortgage (ARM)
The mortgage rate typically 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 may change periodically. You are highly advised never to pick adjustable-rate mortgages as once the interest rate adjusts; you will have no control over where it goes. Getting a fixed-rate mortgage will help you avoid this money trap; at least you will be sure of a fixed maximum amount you are paying, even if the mortgage rate goes up. The other option is when looking to buy a house, start with what you can comfortably afford rather than what you can borrow.
A Common Investment Scam
At some point in our lives, there will come offers that will sound too good to be true. So when someone comes offering unsolicited investment advice, be keen. Deals that offer outstanding fixed returns over the next few years are likely to be scams. Especially the ones that make you think that you are missing out on a good offer. Do not fall into such investment scams. Before you accept the deal, take a seat and navigate through the deal. You can even ask for a contract and investigate the company.
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 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 what happens 90% of the time. Unfortunately, it happens to everybody, and most of the time, the monthly charges after the trial turn out to be way more expensive.
No Emergency Funds
Urgent expenses, no matter how small, always push us into debt, and that is why we are always advised to have savings for rainy days. The conventional wisdom says that if you don't take control of your money, it will very quickly take control of you. It's always hard to figure out how much to save and how much to spend, and these decisions impact our net worth, quality of life, and most importantly, our stress levels. The golden rule says that saving at least 10% of your monthly income is quite enough, but we suggest saving as much as you can actually afford.
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 them. Credit card firms are quite clever in enticing new clients with incentives when they sign up for their cards. The bad thing about credit card companies is that they usually apply relatively high-interest rates. To avoid these problems, first, make sure to have only one credit card for emergency purposes and cancel all others which you don't use. Second, avoid buying things you don't need, and third, make sure to pay all card debts and don't 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.
A no money down trap is essentially another trap to get you locked into making long-term payments on stuff you can just pay upfront. Putting zero percent down might sound legit and convenient, but you forget that you will have to pay for that item someday. The problem comes when you cannot pay off the product before it's 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 can have with less if you had saved up for it. The only way is to buy something only when your wallet says you are ready. But if you cannot wait, it's advised that you first make sure to compare prices. As soon as you acquire the item, start saving up, do not wait for the due date; it will mess you up.