Finance

Avoid These Five Types of Financial Junk Food

By picking healthy financial products, you can keep your finances healthy too.

Jul 21, 2016

Mom and dad told us to eat our vegetables, but junk food can be too delicious to turn down, even when we know that a steady junk food diet is bad. The same can be said for some junk financial products that seem appealing but are truly harmful to our financial health.

In honor of National Junk Food Day today, consider these five financial products that that could give you heartburn:

1. Payday Loans

In many communities, you will see more payday loan stores — and their cousins like cash advance stores and title loan stores — than fast food restaurants. They make it easy to get a small dollar loan, but easy does not come cheap. It is not uncommon for people who need a small $500 loan to end up paying an extra $500 or more in fees. Better to save up the money you would otherwise spend on these expensive fees and get the money from your own emergency fund.

2. Timeshare Condos

Anything that is sold to you using high-pressure tactics should give you pause. They may want you to make a quick decision because the numbers really don’t work in your favor. Also, the seller’s financing cost is usually higher than what you could get on your own. Many timeshares are difficult to resell if you decide you want out. With the rise of services like Airbnb, you may find the economics of timeshares don’t pencil out.

3. Extended Warranties

Extended warranties are a big moneymaker for businesses that sell them. This is because they can accurately predict the failure rate of their products and make sure they collect far more in warranty payments than they pay out in replacing or fixing their products. People are usually better off if they add the amount they would spend on a warranty to their emergency savings account and self-fund any replacements.

4. Children's Life Insurance

For most people, life insurance is to replace the income of an adult in the household. Since children don’t make money, there is no income to replace. Instead, you can usually get a rider to an adult life insurance policy that will cover burial expenses for a child for a very low fee.

5. "Guaranteed" High-Yield Investments

If someone says they can guarantee a high rate of return, hide your wallet. If something sounds too good to be true, it probably is. Of course the good news is that most financial products are more like French cut green beans than French fries.

A fixed-term mortgage can lock you into a house payment that will never go up and you will eventually own your residence free and clear. A car loan that gives you an affordable vehicle that can get you to a better paying job makes sense. A modest student loan that can land you a six-figure salary is a smart move.

By picking healthy financial products, you can keep your finances healthy too.
 

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