Wednesday, September 28, 2011

7 Costly Debt Traps and How to Avoid Them

It’s incredibly easy to fall into a debt trap. Just a brief lapse in judgment and you could be in a downward spiral of indebtedness. What are these traps and how can you avoid them?
Kiplinger’s Personal Finance is here to offer help with the 7 costliest debt traps and the ways to avoid them. Traps include:
·        Buying too much house: You should not spend more than 28% of your gross income on housing expenses. Try to put 20% toward your new home to avoid paying private mortgage insurance and account for homeowners insurance and real estate taxes.
·        Co-signing a loan: Putting your name to someone else’s debt puts you in plenty of financial danger. What if the borrower doesn’t follow through with payments?
·        Raiding your 401(k): Despite the surface appeal, there are many risks involved in temporarily taking money from your 401(k). Depending on your age it can result in a tax bill and early-withdrawal penalties.

To find out more about what debt traps are costliest and what you can do to avoid them, visit:

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