There are few pandemics that you need to be wary of when you enter the big bad world, but none is more terrifying, ferocious and persistent than the debt trap. Yet, it seems to be something we have gotten comfortable with. Don’t ask us how this happened but, for some reason, we’ve become okay with paying for things using credit and then trying to pay them off later.
Is it good advertising? Maybe. Is it the need for instant gratification? Probably. The point is: it’s all too easy to get caught in the kind of nasty debt trap that could derail your finances and stop you from making your dreams come true.
That’s why we’ve been on the hunt for the most dangerous debt traps out there and what you can do to avoid them:
1. Credit Card Rewards
Apart from Brad Pitt in Mr & Mrs. Smith, nothing in this world is more attractive than the idea of earning free trips and cash back from credit card reward schemes. The problem is, most people who hope for the best end up falling into a world of debt and that’s because we can resist everything except temptation, meaning an extra purchase here and there is too hard to avoid. Our advice: only get a rewards credit card if you can guarantee you’ll use this card responsibly and pay off the balance every month. Otherwise, avoid, avoid, avoid.
2. New Car
Everyone dreams of driving a shiny new car out of a sparkly showroom and onto a picturesque mountain road. That’s the power of advertising. It’s why every car advert has a sultry voice explaining you only have to pay 36 monthly payments of $410. What they don’t mention is the interest on that amount. Our advice: pay for a car upfront, even if that means using this website to get the best loan rates possible. Or, better yet, avoid new cars altogether (spoiler alert: they depreciate immediately) and get yourself a cracking deal on a used car instead. You’ll get a lot more for your money, that’s for sure.
3. Student Loan
If you look at the student loan situation three decades ago and then compare it to now, we can guarantee your jaw will hit the floor before you can even gulp. But do you know why it has skyrocketed? Because the cost of higher education has skyrocketed. It has grown faster than pretty much everything else on earth. Trust us, a degree is great, but is it worth $40,00-plus after three years. A lot of graduates would say no. Our advice: think very carefully about whether this is the direction you want to go down, make sure you’re picking the perfect course and have a look at alternative ways to finance your education dreams.
4. Traveling The World
This has become a rite of passage for so many, and for good reason too. Traveling totally rocks. But it can also cost a small (read: large) fortune, which is worth knowing because no one should get swallowed up by debt just because they want to appease their wanderlust. Our advice: make sure you learn how to travel on a budget and know how to save up the money for the trip beforehand.