Everything is up in the air right now. The news cycle is constantly changing, and it’s hard to know what to believe. Since everything is so chaotic, people should be doing everything they can to secure their futures—this includes making smart financial decisions. This article overviews three debt traps to avoid so that people can be ready for whatever comes their way.
Millions of people lose their life savings by getting involved in the timeshare industry. Resort employees often sell people on a lie. These professionals promise folks they’ll have a dream vacation when the reality is actually a nightmare. Timeshares come with substantial maintenance fees that are known to increase every year. Salespeople often want a significant down payment when signing the contract, too. Timeshares are also difficult to cancel because lawyers must get involved, and the agreements are full of legal jargon. Thus, it’s best to avoid them at all costs.
Mishandling Credit Cards
Another debt trap to avoid is mishandling credit cards. It’s easy to swipe the card while making a purchase, but the consequences could be dire. For starters, those who make late payments will see their annual percentage rate increase. A late fee may also be attached when the payment is finally made. If a bill is significantly overdue, a person’s credit score may drop, which affects their ability to get a loan in the future. The APR will also rise if someone takes an advanced cash payment. Since there are so many risks involved, it’s best for folks to keep their credit card spending in order.
Dipping Into Your 401(k)
It’s tempting to borrow from a 401(k) because the loan rates are much lower than those associated with credit cards. However, people are only hurting themselves when they do this. A person’s retirement savings could be wiped out if they continually dip into the plan. Furthermore, the cash may have to be repaid in the future, making the situation even worse for borrowers. Thus, people should only dive into their 401(k) in an emergency.