You want to make your hard-earned money work for you and the road to financial security can be winding and treacherous. There are plenty of organizations who shout about making you rich then whisper about the dangers involved. Turning control of your money over to someone else is risky. Here are three common pitfalls and how to avoid falling into their traps.
Credit Cards
Credit cards are convenient, short-term loans. They are easy to use, but they come with high-interest rates if you don’t pay off the full balance each month. Maxing out your credit cards, making only minimum payments, or missing payments can not only lead to mounting interest causing more debt over time, but also damage your credit score. This makes it harder to get loans in the future. For example, as of the end of Q2 2024, Americans had a total credit card debt of $1.28 trillion. Here in Ohio, our average household credit card debt was $9116. To avoid these pitfalls, you can set up automatic payments in your bank’s app to prevent missing due dates and make it a priority to pay off your balance each month. If you’ve already built up debt, consider consolidating it with a lower-interest personal loan. Or you could transfer your balance to a card offering zero-percent interest to accept your debt. If you’re thinking about transferring your balance to a new credit card, call your current credit card company first, tell them you are thinking about leaving them, and ask for a lower interest rate. It’s cheaper for them to keep your debt than lose you as a customer.
Cryptocurrency
Many people see it as a way to get rich quickly, but the truth is cryptocurrency is highly volatile. Just look at what happened to Bitcoin after a presidential debate where cryptocurrency wasn’t even a topic. Prices can rise and fall drastically in a short time. If you invest without fully understanding how these currencies work, you will lose a lot of real money when the market dips. To avoid pitfalls, don’t assume once you purchase cryptocurrency that it will keep growing. It’s an investment and is subject to the risks of any investment vehicle. Limit your exposure to the risks by not putting more of your savings into cryptocurrency than you can afford to lose. Diversify your investments by including more stable options like stocks, bonds, or mutual funds and review your portfolio at least annually to make sure you have a good balance of safer and riskier investments.
Personal Loans
They can seem like a quick fix, especially in emergencies or when you’re planning a major purchase. But they often come with high-interest rates, particularly if your credit score is low. Juggling multiple loans can strain your finances and make it harder to get out of debt. If you’re tempted to borrow money for non-essential purchases, like a vacation, stop and think about the long-term cost. If the loan has a high-interest rate, calculate how much money repaying the loan will really cost future you. It could easily double the cost of your trip. Your best move is to only use personal loans as a last resort, and only for emergency expenses, like medical bills. If you’ve already taken out a loan, create a plan to pay it off quickly. Tackling the principal early can save you a lot of money on interest. If you have multiple personal loans, consider consolidating them into one loan with a lower interest rate to make repayments easier.
How do you avoid financial pitfalls? Please share in the comments.