5 Spending Traps to Avoid in 2024: The Bad and The Ugly

3 min read

Anthony O'neal
5 Spending Traps to Avoid in 2024: The Bad and The Ugly

Your hard earned money is so important to protect, use wisely, and ultimately make it work for you right back. With a lack of financial literacy, protecting your hard-earned money becomes more complicated because it’s often hard to spot spending traps. Or, certain spending traps have become habits that are hard to break. 

Regardless, let me tell y’all 5 spending traps to avoid in 2024 and why you should avoid them like the plague. 

Klarna and After Pay 

I’m sure you’ve seen some form of buy-now-pay-later app or offer while browsing online, the more common ones are Klarna and After Pay, and they are dangerous to say the least. Essentially, these platforms give you the ability to split payments of a purchase into smaller chunks over a period of time - yes that’s a loan. Unlike a traditional loan however, you can use these apps on the simplest things like an Amazon purchase or a food order, things you shouldn’t be using a loan to get. 

How does Klarna work?

Klarna gives you four options when using their “services” to split up your purchase. 

Option 1

  • You can split your total into four payments after paying the first 25% of the total purchase and the rest gets paid every two weeks until the item(s) paid off

Option 2

  • You can get your items right away and you have 30 days to make the full payment (this is still a red flag - it sounds tempting but the interest rates are the catch) 

Option 3

  • By far the most terrifying option - you can split up your total into monthly payments for anywhere between six months to two years - and this is where the 29.99% interest rates come into play. 

How does After Pay work?

With After Pay you download the app and connect it to your Apple or Google wallet account and when you shop online or in person you just have to use it to pay 25% of the total price and the item is yours. If you’re in a store, this means that you get to walk out with the item, the store gets the full amount from After Pay and you only paid 25% of that - sounds great, right? 

Absolutely not. After Pay allows you to keep racking up payment options on various items with no consequences or limits, until you forget to make a payment. Once that happens, you’re hit with the added fee that they hid in the fine print. 

Why are these major red flags? 

The biggest reason for apps and platforms like Klarna and After Pay is because they’re essentially making it seem like a grand idea to get a loan for a shirt, or your grocery order - something that would sound absolutely ridiculous if apps like this didn’t exist. 

Not to mention, both Klarna and AfterPay do a soft credit check on your credit every time you click "pay monthly", which means the credit bureaus are getting that report and your debt to income ratio skyrockets. Now it may seem to some that doing this may help you improve your credit because you’re making payments on smaller purchases - nope still a no-go. 

Here’s an example of why these apps should be avoided.  Let's say you are shopping and see a $500 coat you like, when you go to check out you see that Klarna is an option and allows you to pay it off in two years (you think you're saving money by only having to pay $150 now and you'll get your coat).

The interest rate is 29.99%, so for example, instead of a $500 coat you'll end up paying $671 for that coat because of interest - which is absolutely ridiculous. 

Payday loans

I’m sure by now, hopefully, payday loans have gotten enough of a bad rap that you’ll avoid them; but just in case let’s break down what they are and why they should be avoided. 

What are payday loans? 

They are money that’s borrowed from speciality lenders usually of $500 or less, that is required to be repaid in two to four weeks, typically when you get your next paycheck. Essentially it’s a loan marketed to help you “make it through until payday” hence why it’s called a payday loan. 

You see these types of places all over, and they can seem appealing, but trust me when I say they are not, and frankly not any better (probably worse) than the buy-now-pay-later apps we just talked about. 

How do payday loans work? 

You will request a loan amount of $500 or less at these payday loan places, most of the time without previous credit history or other outstanding debts being considered - hence the appeal. Once you get your loan, you’re required to pay the amount you borrowed and any fees back once you get your next paycheck. 

Fees are the issue here as they’re typically $15 per $100, so that $500 coat we mentioned in the previous example, would mean you’d have to pay a total of $575 from your next paycheck. Depending on the state you’re in and their regulations, interest rates may even be as high as 500% or 600% which is astronomical when you like about a typical interest rate on a credit card being about 16%. 

The other red flag, most can’t keep up with the balance once they get paid, so they have to take out payday loan after payday loan and can’t ever repay the full balance. So, these end up becoming a perpetual cycle of debt. 

Impulse shopping 

Impulse shopping may not seem as bad, and I guess when you compare it to the two spending traps we just talked about, in a way it’s not as bad, but it’s still a habit you should break. Impulse shopping has a direct effect on your finances, your available income, being able to stick to a budget, creating a savings account, building up an emergency fund, and ultimately becoming debt free and financially stable. 

You walk into a store with three items on your list and you walk out of the store with 15 things and $200 less in your bank account - the dangers of impulse shopping. This is one of the spending traps that most of us are probably guilty of, and it happens often. 

Let’s talk about the red flags of impulse shopping: 

  • It’s often stuff that’s completely unnecessary
  • You probably already have a version of this product
  • It doesn’t serve a purpose that will make your life easier OR it’s just a better version of something you have that serves a purpose and still works
  • It’s way beyond your budget 

The list for these could go on, but these are the basics, and a perfect time for the phrase “if it’s not broke don’t fix it” to come into play here. When you impulse buy you will likely end up with a different version of something you already have, or you’ll get home and realize you have no space for that thing you just bought, the list is endless. Overall, try to stick to the items you need, like actually need, when you go shopping and if something catches your eye, think on it for a few days and if it’s still something you want - budget for it! 

Not having a budget

There will never be a day where I don’t talk about the importance of having a budget, and how when you don’t have one, your finances are way less likely to be stable. Having an established budget that you stick to is truly going to transform your finances, and you will see so much increase. 

Understand how much income you’re bringing in, what you have going out, and what you then have leftover to make work for you! You can then budget in for the extra little things that you might be tempted to buy that weren’t on a list, but you’ll have money set aside for just that purpose, and set to a specific amount. 

Living above your means

This one can be tricky to recognize and to overcome, but it’s one that makes it incredibly easy for your income to disappear and constantly live in the cycle of debt. Within your realm of income, there are certain things that you are able to afford without straining your wallet and furthering the cycle. 

Purchasing homes and vehicles that are well out of your price range, and cause you to struggle to make payments while also taking forever to pay off is the biggest culprit of living above your means. 

Avoid the peer pressure and “group mentality”

We’re often compelled to spend more money when we go out with friends, have a few drinks and put the tab on our card, to show our appreciation for the friendships, or go on larger vacations. However, this can cause bigger problems when you truly can’t afford to do these things. 

Friendships that are genuine won’t require spending huge amounts of money whenever you hang out. Sure a night out here and there is normal, but lavish vacations, shopping outings, constantly going out and spending a ton of money are friends you’ll definitely want to avoid when you, again, truly can’t afford to do these things. Focus on spending quality time with the friends in your life, not dropping your entire savings on them. 

Let’s Recap 

While some spending traps can be fairly obvious, others can hide in plain sight and disguise themselves as a good time, but these spending traps that can become habits, are detrimental to your long-term financial goals and being able to live debt-free. 

Avoid the big red flags like the buy-now-pay-later apps and payday loans, those will get you into a deep hole and a perpetual cycle of paying off debt making it feel like you’re trying to dig yourself out of that hole with a broken shovel. That being said, you also want to avoid the spending habits that feel like a good time - impulse shopping and living above your means can also trap you in the perpetual debt cycle. 

The best thing you can do for your finances, right now, is create a budget and pay off your debt, while avoiding these five major spending traps we just talked about. Don’t let the group mentality of going out with friends, and those end-cap impulse traps at the store prevent you from living the financially free life you want.

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