There are many reasons we fall into debt: Medical issues, school tuition, starting a business, buying a home. In some situations you don’t have much of choice, such as a medical procedure. In other cases the debt’s for a good reason. If you’re paying for college, that’s an investment in your future, and in the long run you’ll make up for it. Ray Jamali is a finance enthusiast and creator of FinancialHighway.com, a blog that discusses money-saving ideas and long-term planning strategies to help you grow your wealth. He says unfortunately, there are also some bad ways many of us accumulate debt. For example.
- Financing the latest gadgets. If you can’t afford the newest Apple Macbook or some other high-end device, a lot of electronic stores will finance them for you! Great idea, right? Hardly. Jamali says it’ll take about five years to pay off something that’ll be obsolete in one – and you’ll end up paying three times what it was worth! That’s not smart debt.
- Next bad move: Upgrading stuff. You can supersize your fries and drink for $0.58. For just $10 extra a month you can get the “VIP” gym membership. As long as you’re spending $200 on a cell phone, what’s another $50 to upgrade to a better one? Plus, add another $5 a month and you’ll get 100 more minutes on your cell phone plan! The point is – the so-called “little things” add up quickly, and when they do, they’re no longer little. You want to keep your expenses as basic as possible.
- Another dumb way we accrue debt: Using credit cards. It’s the same idea as in-store financing. You want something you can’t afford, so you put it on a credit card, only to pay 19.99% interest on the item. The result? That $150 purchase ends up costing you over $300 in a year! You’re much better off saving for the item and paying cash.
- Investing in the lottery is not smart debt. Look at the statistics. Jamali says you’re more likely to get hit by a lightning than win the lottery.