19 Money Traps to Avoid at All Costs

THIS POST MAY CONTAIN AFFILIATE LINKS. PLEASE SEE MY DISCLOSURES. FOR MORE INFORMATION.

Welcome, money-savers and financial adventurers, to our latest blog post dedicated to uncovering money traps.

Get ready to arm yourself with knowledge as we expose the 19 most dangerous pitfalls that can drain your bank account faster than you can say “money trap.”

Whether you’re a seasoned investor or just starting your financial journey, it’s crucial to stay ahead and avoid these cunning snares that can cripple your savings.

From subscriptions and impulsive spending to deceptive marketing and hidden fees, we’ll guide you through the murky waters of financial peril.

So, tighten your belt and conquer these money traps for a brighter, more prosperous future.

#1. Extended Warranties

While the sound of extending your warranty sounds like a smart money move, oftentimes it isn’t.

For the majority of people, they are a waste of money.

This is because most extended warranties have so many exceptions, they hardly cover any repairs.

In addition, you usually have to pay a fee upfront just to make a service call.

Sadly, with so many things being produced today with subpar quality, it is better to assume the item will only last a few years and prepare on replacing it.

#2. Eating Out

It can be tempting to eat out a lot.

With a wide variety of food choices, you can get anything your stomach desires.

But the cost of eating out has skyrocketed to the point where even a simple lunch out can cost your close to $20.

Do that 5 days a week for a month and you paid $400!

Learn to cook some basic meals and save yourself some money.

#3. Playing the Lottery

A lot of people call the lottery a “stupid people tax”. 

While this may be a little harsh, there’s a kernel of truth to it. 

The likelihood of winning the lottery is extremely low. 

Even though it’s nice to fantasize about it, you’re probably going to only earn a couple of bucks from your tickets. 

While those who have the money likely don’t mind spending a couple of bucks here and there, those who need it shouldn’t be spending a ton on tickets or getting addicted to the potential of winning. 

#4. Car Leases

Many people turn to leasing to make high-end cars more affordable. If they chose to finance, they could not make the monthly payment. But with a lease, they can.

The problem is that you turn the car back in at the end of the lease term.

In other words, you made payments every month but have nothing to show for it. When you finance a car and finish making payments, you can sell the car according to its resale value.

While you will never get back the entire amount you paid, getting something is much better than getting nothing.

#5. Lifestyle Creep

More money, more problems, as the saying goes. 

A lot of people think that those who make more money are comfortable, but that’s not always the case. 

Those who make more money tend to encounter lifestyle creep, which happens when more money encourages you to make certain lifestyle choices that then eliminate that boost in income. 

For example, those who make more think they might need to get a bigger place, drive nicer cars, and wear better clothes. 

Always live below your means if you want to experience the benefits of your extra cash. 

#6. Debt Consolidation Loans

Debt consolidation loans sound like a good idea on the surface. Instead of paying multiple debts every month, you roll everything into one and have a single monthly payment.

The problem is that some debt consolidation companies charge you high fees for this. Some even advise you to stop making payments so they can negotiate with your creditors to lower your overall balance.

Not making payments ruins your credit score, making it more expensive when you need to borrow money.

If you are struggling financially, contact the National Foundation for Credit Counseling, which will help you make wise decisions about getting out of debt.

#7. Adjustable Rate Mortgages

This type of mortgage shows up on this list because you have no control over your monthly payment, as the rate you pay can change.

This is what hurt so many people when housing went into the tank during the Great Recession.

However, as with other items on this list, there is a time and a place for adjustable rate mortgages.

For instance, if you know you will only be in a house for less than ten years, you might consider a 10/1 ARM, which has a locked-in rate for the first ten years and adjusts annually afterward.

Going this route could lower your interest rate, saving you a good amount of money.

#8. Timeshares

When timeshares burst onto the scene, they were a great option for people who wanted to vacation and see different parts of the world.

But over time, they have become one of the worst financial moves you can make. You are paying higher maintenance fees annually, and many resorts have more blackout dates than ever.

And that isn’t even the worst part. Some timeshares have a perpetuity clause, meaning when you pass away, the timeshare passes down to your heirs, and now they are stuck with the headaches of owning.

Do yourself a favor and run, not walk, away from any timeshare.

#9. Delaying Saving for Retirement

Depending on how old you are, retirement can seem like a thing that you won’t have to worry about for decades. 

But years can pass by in the blink of an eye. 

If you’re not prepared by the time you reach a certain age, you’re setting yourself up for an extremely hard life in your golden years. 

Early savings and investing allow you to take advantage of compound interest and account benefits so that you have a nice nest egg when it comes time to retire. 

If you wait until you’re near the finish line, you’ll have to work longer and try to survive only on what Social Security gives you.

#10. Cable TV

You might think you are doing the right thing by calling to try to get a better deal on your cable service.

But too often people fall for a common trap.

You call to lower your bill but are presented with a package that offers more channels for the same price or a slightly lower price.

Your mind gets confused and you take it.

But you aren’t saving money. You are paying close to the same monthly price.

And when the promotion ends, you’ll be paying twice as much or more.

#11. Buy Now Pay Later

As inflation has increased and the economy has started to stagnate, we see far more buy now, pay later options than we used to. 

For those struggling, this can seem like a helpful feature that makes things much more affordable (although we’re starting to see this for basic living essentials like groceries too). 

However, it’s often much more predatory than it actually seems. 

Besides making it easier to spend a ton of money and delay paying on a wide range of products, you might be spending more on hidden fees and interest than you’re led to believe when you select this option at checkout. 

A good rule of thumb is if you can’t afford to buy it outright, don’t buy it. 

#12. 401k Loans

When you take out a 401k loan, you rob your future self.

Many people will argue that a 401k loan is smart because you must pay the loan back, and the interest you pay on the loan is paid back to you, not a bank.

While this is true, the problem is that you are missing out on the power of compound interest while your money is out of your retirement account.

When you run a retirement planning calculator, you will see that you will have significantly less money for retirement if you take out a 401k loan compared to not taking one out.

So if you need money for a large expense, consider other options. Your future self will thank you.

#13. Student Loans

Dave is also against student loans, as too many graduates end up with so much debt it negatively impacts their financial and emotional lives after college.

But like credit cards, when used wisely, they can be a wise option to help pay for college.

The key is only taking out a small amount so they don’t significantly impact your life after you graduate.

#14. Whole Life Insurance

There is an argument to be made for whole life insurance for the uber-wealthy to help them with tax planning. But for the majority of people, whole life insurance is a waste.

Agents pitch it as an investment and insurance product rolled into one. But they don’t tell you the extraordinary fees you are paying or the commission the agent gets from selling you the policy.

Because of the fees, you are better off buying a term life policy, which is far cheaper, and investing the difference into a low-cost index fund.

In 20 years, your investment will be miles ahead of what the whole life policy will be worth.

#15. Credit Cards

If you follow Dave Ramsey, you know he is against using credit cards at all costs. Using them makes it easy to get into debt and ruin your finances.

As such, they appear on this list. However, I disagree, and for those who are disciplined, credit cards are an excellent way to get cashback and reduced trips using points.

The key is paying off your balance in full every month. If you can do this, credit cards are a great way to build wealth.

#16. Giving Into Advertising

Advertisers have become very skilled at tricking us into thinking we need the things they are selling.

They have mastered how to tap into your emotions.

As a result, you need to be be on guard to protect yourself from wasteful spending.

Before buying, ask yourself if you truly need the item in question.

The more you do this, the less money you waste.

#17. Payday Loans

Payday loans are an easy way to get your hands on cash if you are in a bind. But the interest rates can quickly crush you financially. In some cases, the annual interest rate is over 100%!

So while you think you are borrowing this one time, people end up in an endless cycle of paying more and more on these loans because the interest builds so quickly.

Before you know it, you are in a much worse financial position than when you started.

Better alternatives include using a credit card with a lower interest rate or seeing if the people you owe money to will work out a payment plan with you.

#18. Same as Cash Financing

Many people confuse same as cash financing as not paying interest when they borrow money.

But this is far from the truth. What happens is interest accrues over the loan period, and if you do not pay off the loan by that time, all the interest is added back.

If you are on top of your finances, you can use this option to get a zero-percent loan, assuming you pay off the balance before the loan term is up.

But if you aren’t careful, you can end up paying a lot more as many times the interest rate on these loans is higher than average.

Get Back on Your Feet Financially

When financial setbacks happen, you have two options. You can either give in and accept a life of struggle and stress, or you can do something about it.

If you want to do something about it, here are the steps you need to take in order to get back on your feet.

HOW TO GET BACK ON YOUR FEET FINANCIALLY

How To Get Free Money

The idea of free money sounds like it can’t be true. But it actually is.

There are many ways you can get free money, from playing games, to watching videos, and more.

Here are the best ways you can get free money without having to work for it.

HOW TO GET FREE MONEY

15 Gas Hacks For Free Gas

You’ve probably wished you could get free gasoline, but thought that was impossible. But the reality is, it isn’t impossible.

There are many free gas hacks you can use to save money on fuel ups. Here are 15 ways to lower the cost of gasoline, and in effect, get free gas.

15 FREE GAS HACKS YOU NEED TO TRY

Get Free PayPal Money

If you have a PayPal account, there are countless ways you can get free money.

Here is a look at the easiest ways to put some cash in your PayPal account today.

HOW TO GET FREE PAYPAL MONEY

21 Habits Of Wealthy People

Do you what separates the wealthy from everyone else? It’s their habits.

The good news is learning their habits is simple which means with a little effort, you too can become wealthy.

21 HABITS OF WEALTHY PEOPLE