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10 Money Traps to Avoid

Picture this: You’re minding your own business and making pretty good progress on your money goals. Then suddenly, you get hit with another one of the eight gazillion marketing messages you see every day—it’s a “deal you don’t want to miss” or a “once-in-a-lifetime opportunity.” For a second, you might think about checking it out. Who wants to miss out on a really good deal, right?

But those offers aren’t good deals . . . they’re money traps! And often, they’ll lead you straight into the arms of debt. Here are 10 of the biggest money traps to avoid (just like you avoid Grandma’s minced meat pie at Thanksgiving).  

1. No-Money-Down Plans

So, you’re ready to start adulting and buy yourself a brand-new couch (the one you got from the thrift store 10 years ago finally bit the dust). This is a big deal. A rite of passage even. So don’t ruin it by signing up for a payment plan with no money down.

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Look, putting 0% down might sound like a no-brainer, but the no-money-down trap is just another way to get you locked into making long-term payments on stuff you need to pay for up front. Never mind the fact that you’re financing something you sit on—but now you don’t actually own that couch either. Instead of putting no money down, here’s a better idea: Save up some cash and put all the money down!

2. Car Leases

We’ve all been there. You’re driving your grandma’s paid-for, hand-me-down Buick, when your friend drives up in a brand-new BMW with high-quality speakers, heated seats and temperature-controlled cup holders. Fancy.

That beamer looks a lot sweeter than your beater.

Your mind starts wandering. Wouldn’t it be great to trade in your Buick for a nice car—something like that? Who cares if you don’t have all the money for it right now. You can afford the monthly lease payments, right? Wrong.

A fancy car is nice—but only if you can afford to pay for it with cash, people. Leasing is the most expensive way to drive a car. Talk about a money trap! Avoid getting fleeced by saving up and buying your own (new-to-you) car.

3. Timeshares

Imagine this: Someone offers you a free vacation. Heck yes! The only catch? You have to come to a “business meeting” while you’re there. Sounds easy enough. But here’s what’s really going to go down: In this little, innocent-looking meeting, you’ll get pressured to buy a timeshare (but they’ll never tell you that ahead of time). Psst . . . that has money trap written all over it!

Here’s the thing: Timeshares are usually marketed to people who can’t afford them. That’s their whole marketing strategy. And if you do buy one and ever want to sell it, good luck. You can’t give the dang things away. So, if you’re thinking of buying a timeshare—don’t. You might as well chuck your money in a trash can.

4. Adjustable-Rate Mortgages (ARMs)

About 15 years ago, adjustable-rate mortgages (ARMs) were the hip, cool way to buy a home. With ARMs, you lock in a low interest rate for a short period of time, and after that, your rate can go up yearly (or every few years) at the market rate.

And if that rate is sky-high, your mortgage payments will be too . . . potentially leaving you unable to pay your mortgage. Ouch. That’s exactly what happened back when the housing market crashed in 2008, causing foreclosures and bankruptcies galore.

Look, it doesn’t matter if it’s a three-year or a five-year ARM—the fact is, your interest rate is adjustable (which means your rate isn’t locked in forever and will go up!), and you’ll have zero control over it. When you get an ARM, you’re playing with fire—why take the risk? Instead, play it safe with a 15-year fixed-rate mortgage and get that house paid off sooner.

5. Home Equity Line of Credit (HELOC)

When you’re living paycheck to paycheck, there’s no room for emergencies. Especially ones with zeros on the end. So, what can you do? If you own a home, you might think a home equity line of credit, or HELOC, could be a good idea. After all, you’re just borrowing money from the value of your home. What could go wrong? You’ll pay it back, right?

Stop what you’re doing right now and throw that idea back where it came from. Taking a loan from your home’s equity is a bad idea. Not only are you going into more debt, you’re putting the roof over your head at risk. If you take out that loan and can’t pay it back, your house is on the line. Just don’t do it.

6. Playing the Lottery

Everyone dreams about becoming a millionaire overnight. But instead of putting in the work, people would rather pay for a chance to win big . . . in the lottery. Sure, a $10 scratch card is a small price to pay when there are 10 zeros on the line. But the odds of you actually winning the lottery are slim to none.

Instead of spending your hard-earned money on the super-rare chance of winning more money, why not get on track to getting rich quick (the right way)? Spoiler alert: We’re talking about hard work and following the Baby Steps all the way to becoming a millionaire.

7. Subscription Scams

Okay, we already told you how much we like a good deal. But what we don’t like are shady companies trying to take advantage of you. And that’s what some subscription companies do.

Here’s how you can tell a good one from a scam: If the company offers you a free trial but doesn’t tell you up front what the cost will be after the trial period—run. Look all over the website. If they're hiding or leaving out this important detail, it’s a trap!

If canceling that free trial is impossible and no humans are available to talk to, again—run.

Hey, a free trial can be a great way to test out a service—especially one you're already interested in. Just make sure you know the cost that comes after and the cancellation terms . . . just in case.

And while we’re on the subject: Make sure to budget for your subscriptions! An app here, a subscription or two there . . . it adds up fast! (Download EveryDollar and set up your budget for free.)

8. Surprise Contest Winnings

Pro tip: If you ever get an email saying you won a contest or the lottery, and they ask you to pay a fee to claim the prize—it’s a scam. Especially if you don’t remember entering!

Do not click on pop-ups that say you won an Amazon gift card or something crazy like that. It might seem like a no-brainer to not click on stuff like that, but you’d be surprised by how many people fall for it. We get it: Who doesn’t want “free” money? No matter how enticing it may be, don’t fall for it!

9. Payday Loans

Life happens. Sometimes life hits us with those out-of-the-blue money emergencies—the transmission goes out, your HVAC unit dies, you have way too much fun on the dance floor at your cousin’s wedding and wind up in the ER with a broken ankle . . .

Your emergency fund won’t cover the bills, so maybe some quick cash from a payday loan lender would help? Forget that! Don’t let your panic call the shots for your wallet—especially when it comes to payday loans.

These guys are the worst of the worst in the financial industry. Payday loans are a rip-off and a money trap. Those people don’t want to help you. They want to take advantage of you and make you end up paying crazy, ridiculous interest for that loan.

Here’s what you can do: Create an emergency fund. Pick up an extra job or side hustle. Sell some stuff you don’t need (who needs 20 throw pillows?) and avoid debt like the plague. Whatever you do, stay away from slimy payday loan sharks.

10. Investment Scams

Don’t ever give your money or personal information to someone who offers unwanted investment advice or pressures you to invest in something “right now” so you don’t “miss out.” People like that know that FOMO (fear of missing out) is real, and they prey on it.

That should send up all kinds of “money trap” red flags in your mind. You might even get a phone call or email that seems legit, but watch out if they promise a high return with zero risk. Just like Grandma always says: If it sounds too good to be true, it probably is.

If you’re looking for real investment help with the Ramsey stamp of approval, sign up to be matched with one of our SmartVestor Pros. We’ll match you with five pros in your area for free!

Bonus Money Traps to Avoid

Credit Cards

Credit card companies know how much we love freebies. They hope that by offering you all this free stuff, you’ll sign up. Yeah, we know you want the free pizza and T-shirt that come with applying for a credit card, but before you know it, you’ll rack up a ton of debt like it’s nothing. So, when the sleazy credit card companies come calling: Just. Say. No.

And don’t even get us started on those stupid rewards points they promise you. All the airline miles, cash back and discounts are just strategies to get you to use credit cards more—and go into even more debt because of it. And once you factor in taxes and hidden fees, the rewards end up being way less rewarding than you thought.

Don’t play the credit card company’s game—it’s just not worth it. Be smart, avoid debt, and keep more of your own money in your pocket.

Buy Now, Pay Later (BNPL)

One of the most popular money traps on the rise is the digital installment plan (or buy now, pay later plan). If you haven’t heard of it, BNPLs are essentially your parent’s version of layaway—on steroids.

Yep. That means if you want something and you can’t pay for it, BNPL let’s you “purchase” that sweater you just had to have for a fraction of the price. Then, you pay installment payments over a six-week period until you’ve paid in full.

Many BNPL brands promise no interest, but here’s where they get you: the late fees. The best way to avoid this money trap is to only buy what you can afford! Instead of spending money you don’t have on something you’re going to forget about in two weeks, why not wait until you have the cash in hand? Make a budget, folks. It’s the best way to keep your money (and your life) in check.

Student Loans

The huge lie that you have to take out student loans to be able to afford college is maybe the biggest money trap in our country today—and it’s led to a more than $1.58 trillion student loan crisis.1

Here’s a truth bomb for you: There are plenty of ways to pay for college without loans. You could save thousands on your education by choosing an affordable school, applying for grants and scholarships, getting a tuition reimbursement, having a job, and knocking out some credit hours at a community college before transferring to a four-year school. Trust us, the student loan industry doesn’t want you to win—they want to take your money. Don’t give it to them.

If you want more tips on avoiding debt and money traps, check out Financial Peace University (FPU). This nine-lesson course teaches you how to save money, pay off debt, spend wisely, and invest for your future—without the complicated financial blah blah blah.

You can get ahead with your money. It starts with knowing these 10 traps, learning how to manage your money the right way, and deciding no scammy company calls the shots with your money. You do. Go ahead and start FPU today!

Ramsey Solutions

About the author

Ramsey Solutions

Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners. Learn More.

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