“My lesson learned was to not allow a person to influence you into things that could haunt you in the long run, no matter if they are family or not,” she says. “It has taken me years to finally get these items off my credit and cleared up. Money spent on things I never seen or enjoyed.”
6. Buying too much home
This worst debt decision was more popular around 2000 when home loans were easier to get for people with poor credit, but it’s still an important lesson to remember for anyone who wants to buy a bigger and more expensive home than they can afford.
“We just went through a big, teachable moment with the recession,” says Paul Golden, a spokesman for the National Endowment for Financial Education, or NEFE.
Home buyers should avoid the upsale from their real estate agent and mortgage broker, and stick to the rule of thumb of having no more than 30% of their income go to housing expenses, Golden says.
7. Get a student loan when you don’t need it
A student loan can be a lifesaver for a college student who really needs it. It can also drag down their finances for years as they repay the loan. For a student who really doesn’t need the loan, it can be the worst debt decision of their young life.
[pull_quote align=”left”]”The ease to attain it created a frivolousness that didn’t allow me to look ahead. All I saw was what I wanted,” says Marcus Carter of his student loans.[/pull_quote]That’s what happened to Marcus Carter, a military veteran who returned home from overseas in July 2001 and was able to afford to go to a state university for free with his military benefits. Carter says he “greedily” applied for student loans even though he didn’t really need the money because his military benefits paid for his education.
Carter borrowed $45,000 and spent it on things such as “alcohol, women, clothes, weed,” as he puts it. “The ease to attain it created a frivolousness that didn’t allow me to look ahead,” he says. “All I saw was what I wanted. Right at those moments. I was able to live a life other people my age couldn’t, and could afford to embellish on that.”
He now has “as much debt as any other college grad, but mine is because I wanted a little extra money and didn’t think long term,” Carter says of his worst debt decision.
His student loan debt is now down to $43,000, and he’s on track to pay it off in about 10 years.
Student loan debts are outpacing credit card and auto loan debts in the U.S., and students should be wry of using them for living expenses, a spring break trip to Mexico or for other purposes not related to education, says NEFE’s Golden.
8. Consolidating debt can be worst debt decision
Putting all of your credit card debt in one bill can be appealing for people burdened by debt, but they should be aware of the extra fees. Interest is front-loaded onto the debt consolidation loan, Golden says.
People who do this should also close the credit cards they consolidated, otherwise they run the risk of using the cards again and doubling their debt, he says.
Those are the eight worst debt decisions we found. What’s the worst debt decision you’ve ever made and how did you learn from it? Tell us in the comments section below.