There’s a time in most people’s life when they’re broke. Super broke, sometimes! Well, if you ever dream of getting out of the vicious cycle of working paycheck to paycheck, read these 10 money mistakes that most people make when they’re broke.
- Not Reading the Fine Print
Failing to read the fine print of any contract is a mistake. Companies like to hide things in the fine print that can end up badly for you. This can be anything from a balloon payment on an installment loan, which is a large payment at the end, or an increase in interest rates after a few months. Before you sign any contract, be sure to read it completely to avoid any surprises.
- Getting a High-Interest Loan
Loans are a necessity of life sometimes, but that doesn’t mean you should get a high-interest loan. These can include cash installment loans, bad credit auto loans, or a business that offers a loan without a credit check. If there is a mention of a monthly interest rate, calculate what that adds up to over the course of a year. Some interest rates can be as high as 400%.
- Taking Out a Payday Loan
A payday loan is a high-interest loan that is given to you until your next paycheck. These loans may be as low as $200, but you may have to pay interest as high as $50. Many people are still unable to repay the loan on their next paycheck, meaning they will accumulate even more interest.
- Paying Credit Cards with other Credit Cards
Once in a blue moon it may be necessary, but try to avoid paying credit cards with other forms of debt as much as possible. If it is a continuous habit or if you’re thinking of paying off a credit card using debt, you should know that this will severely damage your credit. And not only that, but you’ll also become stuck in vicious cycle of debt that will never go away. Pay your debt as best you can. Work on one credit card then another and never pay debt using debt.
- Not Paying on Time
If you do need to get a loan for any reason, always make sure to make your monthly payments on time. If you fail to remember your monthly payment several months in a row, then this will negatively affect your credit score. Not only this, but you could also accrue massive late fees if you are not careful. A late fee may be added and interest will further compound on the debt owed, which can really start to add up.
- Getting a Loan Higher than You Need
One of the largest money mistakes people make is getting a loan that is more than they actually need. Sure, you can get something nice with the money, but don’t forget that you will still have to pay the money back. Also, this is debt that you’ll end up paying extra for due to interest rates. Your best bet is to just save up for that nice television, phone, or whatever you have your eye on instead of including it in a loan for something else.
- Failing to Look at the Payback
At first, a loan may seem pretty amazing, but you have to ask yourself, “Can I really pay this off?” If the answer isn’t an immediate yes, you may want to think twice about the loan. Failing to look at the future toward paying off your loans on the front end can lead to late payments and incredibly high interest rates. Calculate your monthly payment, how long you’ll be paying, and how much you’ll be paying overall and make sure this is a number that you can realistically handle.
- Taking Out a Loan for Someone Else
Cosigning is a mistake, but some people take it one step further. They take out a loan in their own name that is meant for someone else. It happens more often than you’d think. Parents may borrow money for their children or a family member may need bail money to get someone out of jail. Before you know it, you’ll be stuck with their debt. Your credit score will take a plunge and you’ll lose whatever you put up for collateral if you cannot make the payments.
- Lying on Paperwork
Lying on your paperwork may seem like a good idea at first. This will allow you to increase the amount of your total loan, but it’ll still catch up to you in the end. Telling the truth is for your benefit. If you get a higher loan, you’ll have higher payments, and these payments may not be possible for you to keep up with in your current financial situation.?
- Using Credit Cards as Extra Income
Credit cards are easy to get and they can be very useful at times. However, many people choose to use credit cards as an extra source of income. This is a giant mistake. Failing to pay off a credit card can get you sued, and even cause you to lose everything you’ve worked hard to obtain. You could even have your paycheck garnished. A responsible credit card customer should be able to pay off their credit card in full at the end of every month to avoid these kinds of consequences.