Whether you’re looking into the market for a new house, or you’re attempting to purchase a new car, debt is everywhere. There are things that we expect to owe money for. Our homes, our cars, our shopping addictions, and our medical bills can all lead us to owe money. Big purchases can take a serious toll on our bank accounts and our credit score. However, there are several tricky, and surprising sources of debt that can catch anyone off guard; especially when you think you’re going to make some money while doing it.
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Be Careful With Financial Windfall
Just like getting a new job, financial windfall doesn’t appear as if it would take us anywhere but up. But, windfalls can also wreak havoc on our budget and our debt.
Whether you managed to gain a substantial amount in the lottery, by inheritance, or by a divorce settlement, it takes a very strong-willed individual to not mentally picture all the new things they’re going to buy. Most financial advisors will agree that mental buying is probably the worst mistake anyone can do with a large amount of money, though it happens very frequently. This can lead to a surprising source of debt.
Here are some good tips to avoid wasting your windfall
- Give yourself some time to think before deciding how to spend the money
- Talk with financial experts and family before committing to a purchase or investment
- Know how much money you’ll have after taxes
- Consider all possible uses for your money (like bills, school, investments, charity, and/or retirement)
- And review your estate plan
New Job Does Not Mean Better Pay
- Nothing can possibly be more empowering then the last two weeks you have at work. You know you don’t have to be there; your boss knows you don’t have to be there. And, you know that at any time, you can walk right out the front door with little to no consequences.
- Yes, getting a new job certainly has its perks. However, most people forget the stress and financial uncertainty that accompanies your new title. Lack of understanding a preparation for a new job and budget can lead to a surprising source of debt.
- While venturing optimistically towards your new job, you are overwhelmed by how wonderful you expect everything to be. You fantasize about this job being your big break out of the monotonous day to day. In most scenarios, this is not the case. Having a new and better paying job is great and may not seem to have any surprising sources of debt; but if you use your new job as an excuse to spend more, you can end up back in the same position.
- Getting a new job can be a fun and exciting change of pace in an otherwise mundane routine. But, it is important to be aware of all the challenges starting and maintaining a new job can cause. Just because you’re making more money, does not mean it’s a smart idea to spend more. Instead of spending away more money, you can use your new job as an excuse to budget as you would if you were working at your previous job and put the rest away for a rainy day or a big budget goal.
Leasing a Car is a Surprising Source of Debt
- Many people seem to forget about the many risks in leasing a car. While it may seem like a great way to save money, contracts can often include very expensive conditions that do not make it any easier to turn the car in and can prove to be a surprising source of debt.
- Contracts for leasing a car contain very strict mileage limits and can cost you an extra .10 to .20 cents for every extra mile. In addition to the ridiculous driving limits, drivers who lease a car can also be faced with various different fees. Acquisition fees and early termination fees are things that most leased car drivers get stuck with in an attempts to save money.
- In order to avoid stuck in a never ending cycle of monthly leasing fees, read the fine print and prioritize your spending.
Purchasing a New House
Buying a new house is one of the more obvious ways to find yourself in debt. A mortgage can be very expensive, especially if you have a low credit score. And, paying off your mortgage can take years. Even though it is expected to go acquire some form of debt through buying a house, most people do not consider the surprising sources of debt that can go beyond just normal mortgage payments.
The problem is the expensive renovations and furnishing that people often insist upon before moving in.
[Read: Is Your Debt Out Of Control?]
While already spending thousands of dollars on a house, people often don’t estimate the true cost of the furnishing. Some people can spend 20,000 dollars or so on furnishing without consideration for what they already have to pay for the mortgage on the house. The solution is to have a firm and reasonable idea of the interior of your new home before buying the house. This will allow you to assess how much money you can put aside for furniture and renovations and will usually be a lot cheaper.