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3 major financial mistakes to avoid

Posted at 11:00 PM, Nov 19, 2017
and last updated 2017-11-20 08:09:02-05

You work hard for your pay check. Unfortunately, unexpected expenses can pop up, or sometimes you may be looking to make a major purchase.But make sure you're smart with your money. Contact 13 looks at 3 major mistakes you could be making with your cash.

"We didn't have the money to cover bills," says Monique Parker.

She has some regrets when it comes to money. This valley mother of 2 says she's made some poor decisions when trying to cover medical bills and other expenses.

"In more than one occasion my husband and I have both taken out payday loans," says Monique.

And that's a mistake you want to avoid. Michele Johnson with the Financial Guidance Center says too many people are turning to these loans.

"It's just a vicious cycle. You get into the middle of it and you can't get out," says Johnson.

A 2014 study by the Consumer Financial Protection Bureau finds nearly two thirds of payday loan borrowers take out another loan to pay off the first.

"Trying to get out from under those payday loans is extremely painful," says Monique.

So consider your options. You can borrow money from family or friends or take out a cash advance from a credit card.

"It will certainly be safer. It will improve your credit as you're doing it," says Johnson.

Speaking of credit cards, there are some that can build your credit, and then there are others.

"The store cards do have a much higher interest rate," says Johnson.

Monique admits she's made the mistake of getting a store credit card.

"The interest is 27%," says Monique.

According to creditcards.com, the average store card carries an interest rate of 25%. Nearly 10% higher than the average credit card. The biggest offenders are Big Lots and Zales, with rates of 29.99%.

Johnson says any special incentive just isn't worth it.

"That's great, I'm gonna buy $300 and I'm going to save $60 today. So they put the charge on and that $300 is still being paid on, a year from now," says Johnson.

The final financial pitfall to watch for involves your next car purchase. The Consumer Financial Protection Bureau says 42% of last year's auto loans carry a payback term of 6 years or more.

"It's giving the dealer a lot more money, because you're paying all that extra interest," says Johnson.

And if it's a used vehicle, you'll be paying for a car that could require major work after just a couple years. Plus, 6 year loans are about twice as likely to go into default compared to a 5 year loan.

"My husband and I have actually both been in positions, where we had the cars repoed," says Monique.

In the end, Monique says she's learned her lesson. Before making any major financial decision, she says look at your budget.

"You've got to sit down and go... What do I have? What are our bills? How much do we spend on food?" says Monique.

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