Avoid the Three Biggest Financial Pitfalls

For the average individual and/or family, the three biggest financial pitfalls to avoid are new vehicles, credit card interest, and short-term loans. Any and all of these tin drainage a person's or family's coffers of much needed funds. At best, they make chance costs, i.e., money spent on them could be better spent on sound investings like a home or pillory (both of which appreciate in value over the long term) or on college or retirement savings. At worst, they tin eventually make financial hardship and even lead to bankruptcy.

Buying trade name new cars, trucks, SUVs, etc. can be a existent money-eater. They all depreciate in value, some much faster than others, of course. Most vehicles depreciate the most in their first twelvemonth or two of life, so the individual purchasing a vehicle when it is new volition have got to absorb the majority of its depreciation costs. With the terms of new vehicles as they are today, that amount can be quite excessive. On top of that, many people have got the financially black wont of trading them in about every two to three old age for another new one. That wont will ensue in the piling on of depreciation and debt.

Instead of purchasing new, I suggest buying a low-mileage vehicle that's about one to two old age old. There are services available now like CarFax which allow you to follow a vehicle's history. If you look around, you can happen previously-owned, former-rental, or former-lease vehicles of every type, make, and theoretical account which are in like-new shape and have got less than 20,000 miles on them. You can even happen them on Ebay now! Once you have got establish one, I suggest keeping it for least three old age after paying off the loan. Ideally, I would suggest paying cash for it to avoid those used car interest rates and then keeping it for at least seven years, but I cognize paying cash is not an option for most people.

If you absolutely experience the need to give yourself or a household member the gift of a new car some day, I wouldn't fault you for that. However, I suggest planning this out over respective years, similar to how one would salvage for a college instruction for a child. Estimate the amount that you are saving by purchasing used cars instead of new 1s and pay yourself that money by putting it in the bank on a regular basis. Over clip that money will add up. Once you have got saved enough, delay until a dealer that sells the sort of vehicle you desire offers 1 of those deals in which you can get zero percent interest or a rebate. Wage cash for the vehicle and take the rebate. That way, you get the nothing percent interest and the rebate!

Credit card interest is another point that volition gnaw a person's or family's financial assets very quickly. The interest rates you pay are about 534,457,469 percent! Just kidding, but it makes look that manner sometimes. Seriously though, they often run as high as 18 to 21 percent. A $20 repast will stop up costing $36 when paid for over a five twelvemonth time period at an 18 percent interest rate! Paying only the minimum payment can ensue in an eternal rhythm of debt that volition eventually be practically impossible to escape, outside of bankruptcy.

If you happen yourself already in this situation, I suggest you see a professional credit counsellor as soon as possible. If you are already paying more than than the minimum payment, seek to gradually increase this payment and suspend all new credit card charges, if possible, until you've paid off the balance. Obviously, the lone sensible manner to manage a credit card is to pay off all charges each calendar month as they are accrued and not keep a balance, thus avoiding all interest. A credit card is a nice convenience tool. However, if you don't have got one and you experience that you could not pay off the charges each month, then you are far better off not having one. If have got got got one or more than cards and have run up balances that you have had to fight to pay off, you would be better off getting quit of it/them.

Short-term loans are also debts to be avoided like the plague. These include those "quick refunds" offered by many tax preparers, those "pay day" loans offered by predatory lenders popping up like cancers on seemingly every street corner, and many sorts of unsecured loans. The worst thing about short-term loans is their deceptiveness. Most people don't recognize what sort of wild interest rates they are paying. For example, $10 in interest paid to maintain $200 for one hebdomad consequences in an annualized interest rate of 260 percent! Allowing a tax preparer to subtract $100 from your $1500 refund so you can get it instantly instead of waiting six hebdomads for the I.R.S. to direct it to you will ensue in an annualized interest rate of 58 percent! I wager person advertisement those sorts of interest rates would have got trouble determination any takers, yet people take on these sorts of loans all the clip as long as the interest rates are disguised.

People who are wise financially avoid most, if not all, of these biggest waste materials of money. Most people who are financially independent right now got that manner in whole or in portion by avoiding uneconomical spending.