I Grew Up Poor: Here Are 5 Debt Traps To Avoid If You’re Trying To Build Your Savings
Written by
Jamela Adam
Edited by
Amber Barkley
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Growing up poor taught me a great deal about money — mainly what not to do. I’ve seen firsthand how easy it is to fall into debt traps that can derail your financial goals, especially if you’re trying to build savings. But here’s the good news: Recognizing these traps early can save you a ton of stress (and money).
Here are some common debt traps to avoid if you’re trying to build your savings from scratch.
Payday Loans
Payday loans might seem like a pretty good deal when you’re scrambling for money and need a quick solution. But in reality, they’re a financial black hole.
According to the Consumer Financial Protection Bureau, a payday loan with a $15 fee for each $100 borrowed and a two-week repayment term is an APR of almost 400%. And if you can’t pay back a payday loan, that interest will be added to the balance and snowball bigger and bigger. Some lenders may even send your unpaid payday loan to collections and take legal action.
What To Do Instead
To avoid resorting to this debt trap, build an emergency fund — even if it’s just $20 a month. If you desperately need money, consider asking your friends or family first or seeing if your local nonprofit or community organization offers financial assistance programs.
Credit Card Debt
Responsible credit card use is a great way to build credit and improve your creditworthiness. But if you’re constantly going over a 30% credit utilization ratio and not paying off your balance in full and on time each month, it’s doing you more harm than good. When you leave a balance on your credit card, that amount can snowball quickly, thanks to interest rates that often hover around 20% or more.
And though making minimum payments may seem manageable, they’re designed to keep you in debt. Here’s why: If you just pay the minimum due on your card, the remaining balance will still continue to accrue interest and increase your credit utilization, which not only makes it harder to get out of debt but could also damage your FICO score.
What To Do Instead
Only charge what you can afford to pay off in full each month. If you’re already carrying a balance, consider transferring it to a card with a 0% APR introductory offer, also known as a balance transfer card.
High-Interest Personal Loans
When money’s running low, taking out a personal loan might seem like a convenient solution to consolidate debt or cover unexpected expenses. But if the interest rate is 15% or higher, you could be trading one problem for another. Business Insider reported that the average personal loan interest rate is around 21% as of Feb. 4, 2025. But if you have poor credit, expect your interest rate to be much higher than this, since lenders will see you as a risky borrower.
And remember, though some lenders advertise low monthly payments, they often stretch out the loan term, so you’re paying way more in interest over time.
What To Do Instead
Take the time to shop around for the lowest interest rates, ideally under 10%. Better yet, consider alternatives like borrowing from a credit union — which often offer better rates — or using a 0% APR credit card for short-term needs.
Buy Now, Pay Later Plans
Buy Now, Pay Later (BNPL) plans like Afterpay have become super popular in recent years. But even though BNPL plans might seem pretty harmless, they can make it tempting to overspend, and you’ll often end up with multiple payments that are hard to track. Plus, if you accidentally miss a payment, you’ll get hit with late fees or other consequences.
What To Do Instead
Before using a BNPL plan to buy something, ask yourself if you really need the item. If you can’t afford it outright, it’s probably better to wait.
Student Debt
Student loans are often marketed as “good debt,” but they can still weigh heavily on your finances, especially if you borrow more than you can reasonably pay back. And though subsidized federal loans do not accrue interest while you’re still in school, the interest on other types of student loans typically starts accruing interest the moment they’re disbursed.
What To Do Instead
Before taking out student loans, make sure you fully understand the loan terms, including the interest rate and repayment policy. You’ll also want to research the earning potential for your chosen field and borrow only what you absolutely need.
Don’t forget to also look into grants, scholarships and work-study programs to reduce the amount you take out.
Build a Safety Net, Not a Debt Pile
Debt traps are easy to fall into if you aren’t aware of your spending habits and don’t have a budget in place. If you haven’t already, set aside a few dollars each week to start building a safety net. When you have a financial cushion to fall back on, it’s much less likely that you’ll resort to high-interest debt in tough times.
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