Most people have some form of debt whether it’s a car, mortgage, etc. As long as you’re making your monthly payments on time, it’s not a big deal. It can even help build credit history and boost your credit score. However, there are some types of debt that can quickly spiral out of control and cost you a lot more than you anticipated. Here are 3 types of debt to avoid at all costs.
Payday loans
Payday loans take advantage of people who are in a bind and need money fast. They’re easy to get because lenders don’t check your credit, but the high interest rates make them hard to pay back. It’s not uncommon for payday loans to come with an APR of 400% or more. The average loan is two weeks and usually you’re charged a $15 fee for every $100 you borrow. Let’s say you need $500. You’ll need to repay that amount plus an additional $75. For someone who’s already struggling to make ends meet, it won’t be easy to come up with the extra cash. If you’re unable to repay the full amount by the due date, some lenders will let you do a rollover to extend the due date. However, there’s yet another fee attached. According to the Consumer Financial Protection Bureau, over 80% of payday loans are rolled over or renewed within 14 days. So, if you’re considering a payday loan, expect to get trapped in a cycle of debt.
Credit card debt
Credit cards are great when used responsibly. They’re convenient, they can help you build your credit and you can earn rewards for your purchases. The key is to only charge what you can afford and pay it off by the due date. Unfortunately, credit cards are the most popular form of debt. Many people overspend and end up paying high interest rates. Right now, the average credit card interest rate is 16.15%, but you can expect to pay even more if you miss a payment. Once your payment is more than 60 days late, credit card companies can apply a penalty APR up to 29.99% to current and future purchases. That’s an expensive mistake that can really ruin your finances. So, think long and hard before you swipe your credit card.
Unpaid taxes
Trying to outrun the IRS to avoid filing and paying taxes will only lead to expensive consequences. First, you’ll be penalized for missing the tax deadline. The penalty is 5% of your unpaid taxes for each month it’s late. After 60 days, the minimum penalty jumps to $435 or 100% of your unpaid taxes, whichever is less. You’ll also be penalized for not paying your tax bill on time. The penalty starts at 0.5% of your unpaid taxes each month it’s late and can climb up to 25%. You’ll also accumulate interest on your tax debt. If you continue to ignore your taxes, the IRS can put a lien on your property, garnish your wages, make you forfeit future refunds, and revoke your passport. One way or another, they’re going to get their money. If you still need to file your 2020 tax return, ezTaxReturn can help. It’s the fastest and easiest way to do your taxes. If you owe money, but can’t afford to pay the full amount, we can help you apply for an installment agreement with the IRS. So, you can pay your debt off over time.
