Bad Borrowing Behaviors
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7 Strategies to Avoid
"Just because you can, doesn't mean you should." This adage is as true for borrowing money as it is for poking yourself in the eye with a sharp stick. But, unlike eye poking, which has few benefits, borrowing has good points and bad.
There are right and (many) wrong ways to borrow money. Click through our gallery to see seven loans that are best avoided.
Read Bankrate.com's Full Article
First Up: Payday Loans -
Lenny Ignelzi, AP
Payday Loans
With interest rates often running high into the triple digits, payday loans can bury borrowers if they can't pay off the original loans or need to keep returning to the service. Because of the high interest rates and the fact that they are designed to be extremely short-term, these loans throw borrowers in a cycle of debt that can be difficult to break.
More on Payday Loans
Next: Car Title Loans -
Car Title Loans
Car title loans are illegal in some states, and in others limits are imposed on the amount of interest that can be charged. Here's how they work: Borrowers secure their loans with their fully paid-for cars at one of these shops. This means that failing to pay back the loan can have predictably severe consequences. If you don't or can't pay back the loan, the lender will take your car and sell it. And the lender doesn't have to give you back the change either.
More on Car Title Loans
Next: Tax Refund Anticipation Loans -
Tax Refund Anticipation Loans
One argument against refund anticipation loans is that they cost a lot for what you get. They usually have a high interest rate, so you really have to read the fine print. The interest rate is essentially the penalty for getting your money right away. Fortunately, taxpayers have several options when it comes to avoiding refund anticipation loans.
More on Tax Refund Loans
Next: Buying Stock on Margin -
AP
Buying Stock on Margin
Because you can buy more of a stock than your funds would otherwise allow, borrowing money from your broker to buy stocks is a good way to make a lot of money, but also can be a good way to lose a lot of money. If you can't cover the margin call, your securities can be sold at the discretion of the company. If your portfolio really tanks, you can end up with no stocks and owing money.
More on Buying Stock on Margin
Next: Co-Signing a Loan -
Co-Signing a Loan
In addition to dealing with all of your own bills, co-signing gives you all the responsibility of another financial obligation with none of the benefits. All too often co-signers find themselves left holding the bag long after the other person on the loan has stopped paying it due to other more pressing debt obligations.
More on Co-Signing a Loan
Next: Wedding Loans -
Wedding Loans
According to TheWeddingReport.com, $28,732 is the average amount spent on the one-day festivities of a wedding. Why start off your marriage with this much money down the drain? Plus, if you're starting off your marriage in debt, you're leading to potential future problems. Set back the date and save for it. Experts highly caution against borrowing for it.
More on Wedding Loans
Next: Home Equity Loans -
Home Equity Loans
It's not always a terrible idea to borrow from home equity. It depends what you're borrowing it for. If you are going to use your home equity to pay off credit card debt, then think twice. Typically, the reason people are in consumer debt is because they have a spending problem. So they pay it off with home equity and feel good for a while, but then keep borrowing.
More on Home Equity Loans
More on AOL: Steps to Be Debt-Free -
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10 Steps to Living Debt-Free
Now that you've seen which types of loans and borrowing strategies to avoid, take it one step further and learn how to live without any debt! CNBC has tips to get you started on the road to being debt-free.
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Recent Comments
Undrgrndgirl 07:49:53 PM Sep 25 2008
you should also have included funeral loans...an 80 y.o woman i know (who is on a fixed income and barely lower middle class financially) took out a $10,000.00 loan to bury her husband. because neither of them had discussed final arrangements she of course gave him "the best" - sealed vault, etc....largely because the funeral home took advantage of her grief and guilt.
Sadiemae1214 01:03:00 PM Sep 23 2008
All this talk about payday loans, interest rates and bounced checks makes me crazy. Anybody ever try a pawn shop? If you don't ned a lot of money, it's worth it. The interest (actually it's a service charge) is minimal and most shops give you 3 months to pay off the loan and claim your merchandise ( some will give an extension if necessary). I had to do thia when my cat got sick and I was between paychecks. Worked out great and all it cost me was a $15.00 service fee on $150.00.
MixxedStudd 11:54:45 AM Sep 23 2008
I used to work at a title loan store. I can say first hand that in most cases they do hurt the consumer. For the people who can afford to pay them back very VERY quickly, they can be helpful in a pinch, but most people who get these loans only pay their minimum payment (which is usually only the interest that has compiled over the month) streaching their loan out for months and even years. The cycle is a great way to take peoples hard earned money and these companies are well aware of it. Fast cash stores of all sorts need to be put out of business.
Getwau 11:20:40 AM Sep 23 2008
These payday loans and title loans are a needed service for the unbanked. Yes, they cost more, but so do loans for people with bad credit. There are many families that wouldn't be eating dinner tonight if not for these services. One of the best books you'll ever find about finance is "How to Become Filthy Rich on Your Current Income" at www.how-to-become-rich.com. If people read books like this one we wouldnât have the current situation we do.
Geotoyou 10:49:04 AM Sep 23 2008
Don't get me wrong. It's another tool we can all use but we have to use it properly, problem is some of us don't. I've seen too many down and out people borrow from these quick cash lenders and get locked into a viscous borrow and payback cycle.
Keithkryka 10:47:26 AM Sep 23 2008
Gettoyou you keep saying their screwed can you ellaborate
Geotoyou 10:37:27 AM Sep 23 2008
Never used the service, never had to. When I need quick cash I use a credit card and pay it off as soon as possible. The problem with you people is, you loan to people with little or no credit and if they can't pay it back on time they're screwed worse than they were to start with!! Why do you think so many states are taking action against your lending practices?
Cwilly79 10:16:03 AM Sep 23 2008
Listen up Geotoyou It is a way for people to get help. Think about this what is cheaper, the $18.00 fee or the $35 overdraft fee from the bank! It sounds to me like you used the service and did not pay your bill. Only those that do not pay the bill have a problem with the service.
Geotoyou 09:40:31 AM Sep 23 2008
It was a mutual split but the subject was "Payday Loans". I'm glad Ohio finally did something about their lending practices.
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