7 Costly Money Mistakes And How To Avoid Them (2024)

Having made a few more money mistakes in my life than I’d care to admit, I’ve learned the hard way that we can’t always be prepared for every financial eventuality we might face. The good news, though, is that there are plenty of common pitfalls we can avoid when armed with the right information.

I’ll be sharing 7 of those potential pitfalls with you today. Knowledge is power, and this knowledge can help you avoid making some really costly decisions.

7 Costly Money Mistakes And How To Avoid Them

1. Choosing An Adjustable Rate Mortgage

Adjustable rate mortgages (ARMs) can seem like an attractive option at first due to the low interest rates they offer, but that doesn’t last. After a few years, your interest rate will change and you’ll have no control over where it ends up.

A standard fixed-rate mortgage is a less risky, more predictable option for most people. If you do have an ARM, that’s making life difficult, consider refinancing to a new fixed rate loan at today’s rate.

Purchasing a timeshare may add up to more of a commitment than it appears. The market for selling and buying timeshares is all but nonexistent, meaning that it will be hard to find a buyer should you ever want out of your contract.

Your fees will probably go up over time, as well, not to mention that you may not want to keep vacationing at that exact spot all the time. It’s a much smarter financial move to look for deals on hotels or condo rentals for each trip, rather than buying into a lengthy timeshare agreement.

3. Seeking Out “No Interest” Benefits

Deals that advertise “no interest for 90 days” always sounds like a great deal, but they often lure people into a false sense of security about their payments. Before you know it, the 90-day no-interest period has expired, and all of that back interest shows up on your bill! Rather than taking that chance, opt to wait until you can pay in cash.

Note: Keep in mind that “no interest” offers and “0% interest” offers are often two different things. The first type is usually an offer of deferred interest, meaning that you’ll be charged accrued interest for an unpaid balance at the end of the promotional period. The second type is usually a true 0% interest offer, meaning you won’t begin accruing any interest charges until after the promotional period expires.

4. Taking Out Payday Loans

While the service fees that cash advance businesses offer may seem reasonable, it’s the interest rates you should be concerned with. The average annual interest rates on payday loans are between 400-500%, which is astronomical!

Due to these ultra high interest rates, it’s all too easy to get trapped in a payday loan cycle where you’re borrowing and making payments several times a year. These borrowers account for nearly 90% of payday loan accounts, according to the Center for Responsible Lending, and it’s a slippery slope you’ll be much better off avoiding entirely.

5. Paying Off Low-Interest Debt First

If you are putting extra money towards paying off your house, but you’re also sitting on credit card debt, it’s time to rethink your strategy. It makes more financial sense to pay off debts with higher interest rates first before turning your attention toward lower interest rate debts.

Pay your bills each month in a timely manner, but focus your efforts on eliminating high interest rate debt first. That way, you’ll pay less in interest in the long run.

6. Paying For Private Mortgage Insurance

Many homeowners pay $100 or more each month for private mortgage insurance (PMI), but it may not have any real benefit. PMI is often required for buyers who put down less than 20% of the value of the house when they buy it, but you generally only need to pay for it until you’ve paid off 20% of your mortgage.

So it’s important to be aware of how much of your mortgage you’ve paid and when you’re no longer obligated to pay for it. Some mortgage insurance is automatically canceled once payments hit a certain limit, but that isn’t always the case, so it’s important to stay on top of it yourself so you don’t keep paying for something you don’t need.

7. Not Checking Your Credit Score

It’s easier today than ever for someone to make fraudulent charges on your accounts or steal your identity. The simplest way to catch these kinds of fraudulent activity is to sign up for a credit monitoring service that will monitor for suspicious activity and alert you when it spots any.

There are many credit monitoring services out there, and plenty of them are free too. CreditWise from Capital One is ranked among the best free credit monitoring services because it includes dark web scanning and social security number tracking on top of a handy credit score simulator tool. Plus, you don’t have to be a Capital One customer to use it—it’s free to anyone who’s over 18 and has a valid social security number.

What financial advice would you add to this list?