There seems to be an endless list of ways that we can get ourselves into debt. In the interest of helping others to avoid going into debt, I thought that I would share some of the things that people do that lead them into debt, debt, and more debt. Knowledge is power, and perhaps knowing about these debt traps can help you to avoid them.
One way that people get into debt is by doing someone else a favor and co-signing on a loan with them. Sometimes having a co-signer is the only way that that person will be given that loan, but unless you can truly afford to pay the loan if they default, politely refuse their request. This can be difficult if the person seeking your assistance is family or a close friend, but their relationship to you does not give you the extra money that you would need to pay for a default on the loan if such payment does not currently fit into your budget.
Another way that well-intentioned people get deep into debt is by taking on gigantic student loans without being certain that they will be able to pay them back later. Yours truly is guilty as charged. Everyone wants to think that they will get a great paying job after school especially expensive courses of study like law and medicine, but it is important to do what I did not do and think through to what you really want to do after school. Where do you want to live? Are there enough jobs available in your area of study that you have a reasonable chance of getting one where you want to live? How much do those jobs pay? What other life goals do you have besides work? How will those things factor in on your ability to pay off that gigantic loan? You get the picture.
A third way that people get themselves into debt is by driving a car that is worth less than what you owe on it. We have all heard sad tales of people who are upside down on their mortgages, but it is also possible to be upside down on a car loan. New cars depreciate very quickly, and if you make only a small down payment that depreciation could catch up with you within months and you will owe more than the vehicle is worth. As much as you enjoy driving that nice new car, you may want to sell it before you go upside down on the loan pay off the loan, and get yourself a nice used car which is probably less exciting but is certainly more affordable.
Photo by clarita on morguefile.com.