9 scary things consumers do with their money

The upside of fear

Fear can be fun. That’s why we like to watch horror movies, dress up as ghouls and goblins for Halloween and ride roller coasters. But fear can also be a useful tool. It motivates us to keep our cholesterol down and be cautious drivers, for instance. With that in mind, here are nine scary things consumers do with their money. If you’re guilty of any of the following, be afraid — be very afraid.

Auto title loans

With this scary loan, you leverage your car to get quick cash. Often, no background or credit check is necessary. You hand over the title to your car, and all you have to do is pay back the loan, plus interest. You will pay the loan back, of course. But because you may not be able to afford the interest rate (often 25 percent), you’ll probably take out another auto title loan. Don’t do it — this road is a dead end.

Payday loans

According to The Pew Charitable Trusts, 69 percent of first-time borrowers use a payday loan to fund a recurring expense, like the mortgage or food, and not an unexpected emergency. This is worrisome because if you’re having trouble paying regular bills and need a payday loan, you probably don’t have extra cash to pay for this loan. Like an auto title loan, payday loans are predatory. The lender is the predator. You are the prey.

Buying rent-to-own products

Rent-to-own stores are popular for a reason. If you need a refrigerator, a bed or a television, you can furnish your home for a low weekly price. But you’re going to live with a lot of financial stress. Many rent-to-own stores charge 100 percent or more for furniture, appliances and electronics. Over several years, you can easily find yourself paying $3,000 to own a $900 TV.

Carrying a large balance on your credit card

Carrying a balance isn’t cause for panic if you can pay off the balance in a short period of time. What’s scary is when you carry a large balance you can’t pay off for years. If you owe $10,000 on a credit card with an interest rate of 15.2 percent, it will take you 12 years to pay off the card if you’re just making the minimum payment (often 4 percent of the balance). You would pay $4,539 in interest on the $10,000 principal.

Racking up bank overdraft fees

If you’re spending freely and don’t realize your account balance is dangerously low, you can easily accrue overdraft fees. The problem? Not only are the fees high, but the banks are making a fortune out of your misfortune. The Consumer Financial Protection Bureau explains how devastating these fees are: “Put in lending terms, if a consumer borrowed $24 for three days and paid the median overdraft fee of $34, such a loan would carry a 17,000 percent annual percentage rate.”

Gambling

Do we really need to explain why this is a bad idea? Last year, The Wall Street Journal analyzed a database of 4,222 Internet gamblers from 2005 to 2007. Of the top 10 percent of bettors, approximately 95 percent lost money. It’s one thing to go to a casino once a year or play the lottery occasionally, but when you’re doing it fairly regularly, you’re risking money that could pay your mortgage, credit card debts, retirement or your child’s college.

Claiming Social Security too early

This isn’t on par with gambling or taking out a dangerous loan, but the money you’re giving up is frightening, especially if your finances are wobbly. The earliest you can claim your benefit is age 62, but it will be 25 percent smaller than if you wait until your full retirement age of 66 or 67. If you’re in good health and can wait to claim, you’ll get an extra 8 percent a year between your full retirement age and age 70.

Chronically paying bills late

To forget every once in a while is human. But if you’re constantly paying bills late, like your mortgage, cable and utilities, consider that every bill likely has a late fee of 10 to 15 percent of the total monthly payment. That means you often have 10 to 15 percent less cash than you expected every month. And with credit cards, late fees often cause interest rates to climb, not to mention damage your credit score.

Not saving for a rainy day

According to Bankrate.com, 26 percent of Americans have no savings reserved for emergencies, and 24 percent have less than three months’ worth of savings. This often isn’t due to reckless behavior; for many, it’s just an unfortunate reality. But not saving for a rainy day deserves to be on this list. If you haven’t saved for an emergency and something bad happens, you might think you have no choice but to pay bills late or worse, take out a very scary loan.

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9 Scary Things Consumers Do With Their Money originally appeared on usnews.com

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