As you’ve found, debt accumulates very quickly and can easily become an overwhelming burden. There are lots of products and services on the market that may promise temporary relief from your debt—and some of them can. But most of them are just debt traps that can make your financial woes even worse. Here are the 10 Debt Traps and tips on how to avoid them.
Debt Trap #1: Credit Cards
Credit cards are a double-edged sword. In other words, they can be very helpful when you are short of cash, but if you don’t manage your accounts wisely, credit cards can make your financial situation a lot worse. Here’s how:
Fees can be exorbitant:
- Late payment fees-If your payment is even one day late, you may be subject to a late fee of $39 or more.
- Over-the-limit fees-If you go over your credit limit by even one dollar, you may be subject to a fee of $35 or more.
- Cash advance fees-Most companies charge from 2%-4% of the amount advanced, with no maximum amount.
- Balance transfer fees-Some creditors charge as much as 5% when you transfer the balance from another card. That’s a $150 fee on a $3,000 transfer. So if your intention is to lower your interest rate, you may not achieve your goal when you consider the fee involved.