Real-life money mistakes you can't afford to make

money mistakesWe here at Walletpop recently told you about some of the worst things you could do with your money -- and what you might want to think about doing instead. Now we're back with some real stories from readers willing to share their biggest money blunders in the hopes that you won't follow in their footsteps.

Jacqui Brownstein of Lancaster, Pa., found herself struggling to pay bills last year when her freelance income dried up. She turned first to her credit cards, but she still couldn't catch up. Then she made a fateful decision, she tells WalletPop. "I took about $3,000 in cash advances [on my credit cards] to pay my taxes for 2009. I also took cash advances to pay my rent on too many occasions," she confesses. "I would go to an ATM and take a cash advance. Then I would deposit the cash in my checking account so I could write a check for my rent or taxes.
For this privilege, she paid nearly 20% interest, several percentage points higher than her regular credit card interest rate. She ended up owing more in credit card debt than she earned all of last year.

"You can't keep juggling between getting a cash advance to pay your credit card bill and charging your rent on another credit card," says Kathleen Day, a spokeswoman for the Center for Responsible Lending. "If you need a loan in a hurry, borrow from relatives or friends."

But Brownstein, 63, got lucky. Because of her age, she was able to start collecting Social Security, providing her with a reliable income stream while she attempts to dig herself out of that debt hole it was all too easy to slip into.

Cash advances are one of the sneakiest ways a bank can trap you into a cycle of debt, warns Day. But she says there are a handful of other debt traps you should avoid at all costs. Short-term, high-rate payday loans and car title loans are notorious for sucking people in, Day warns. "You may think you can get in and get out, but it's financial quicksand. You should avoid things like that," she advises. "If it seems too quick and too easy, it's a trick."

Another type of loan that's actually disguised as a financial service is overdraft protection, Day says. When your account hits zero and overdraft protection kicks in, the bank is essentially loaning you money -- and charging you for that privilege, calling what they charge an overdraft "fee."

Running up multiple overdraft fees can give you the equivalent of a sky-high interest rate for what's essentially a short-term loan. If you do need to take out a loan, Day advises, "Shop around. Don't go to the person who comes to you." In other words, the solicitation you get in the mail probably isn't going to be your best bet.

Co-signing a loan, as our previous story pointed out, is another generally bad idea (and another money trap we've warned you about in the past). If you want to give money to a friend or family member, just consider it a gift, experts advise. The reason? You'll probably never see that cash again.

Sometimes it's what you do with the loan that can sink your financial ship faster than a torpedo. Barbilee Hemmings of Alberta, Canada, made the fateful decision to take out a personal loan to the tune of $15,000 in order to invest in an online gaming company recommended by a colleague. Her colleague had said that the company was going to go public and then would deliver a nice return on investors' contributions. This was in December 2007.

The company didn't go public (and still hasn't, Hemmings says), leaving her money "sitting somewhere not earning us anything," as she told WalletPop in an e-mail. All the more galling, she adds, is she's still forking over $450 every month to pay off that loan.

Day trading on the stock market is another bad idea that can get you into a lot of money trouble. A few years ago, CNN profiled a blogger who lost boatloads of money -- a quarter of a million dollars -- trying to win it big playing the stock market online. He was so embarrassed by the amount of money he lost, he would only give his name as "Debt Kid," after his blog (a plea for anonymity he reiterated to WalletPop when we asked about his story).

If you've made one of these debt mistakes, don't be embarrassed. Just take a deep breath and resolve to tell someone -- a friend, a family member -- so they don't fall into the same trap. The more people hear about these money mishaps, the less likely it is that we'll make them.
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