Sign up FAST! Login

Common “Debt Traps” That Keep You Living Paycheck-to-Paycheck

Stashed in: Stress, Poverty, Investing, Don't Get Me Started, Poverty

To save this post, select a stash from drop-down menu or type in a new one:

Skimping on Insurance

In a book called Scarcity: Why Having Too Little Means So Much, authors Sendhil Mullainathan and Eldar Shafir study how not having enough causes us stress, and that stress leads to poor decision making, and those poor decisions lead to us not having enough.

They give an example: skimping on insurance. They point to money saving advice that instructs readers to raise their car insurance deductible so their monthly premium can be lower. But that's a risk. And some people take that risk up a notch and decide to save money by forgoing insurance altogether.

But, as the authors point out, this is a short-term solution to a long-term problem: the trap of scarcity. And it's this type of short-term solution that keeps people stuck in that trap. One accident and you're set back even more than you would have been.

SolutionsStill, most of us can't (or just don't want to) afford a super high premium to pay for the best insurance possible. So the "short-term" advice makes sense. But the solution is to find a happy medium. If you're struggling, you're not going to pay for rental insurance with all the bells and whistles. But that doesn't mean you should risk it by opting for a deductible you could never afford, or worse, not having insurance altogether.

The Simple Dollar offers a solution for raising your deductible without setting yourself up for failure:

Raising Deductibles to Save Money on Insurance: Does It Work? - The Simple DollarOne common, painful bill that we all face is the insurance bill. Whether you're talking…Read on thesimpledollar.​com

The solution is simple: if you have a well-funded emergency fund in a savings account somewhere, you can raise your deductibles some without worry. A well-funded emergency fund means a minimum of a couple months' worth of living expenses, plus more if you have dependents. If you have that kind of cash that can be accessed with ease, then by all means, raise your deductibles.

Consider saving up this amount before you make any changes to your insurance policy. 

Why do I get the impression my insurance will never cover whatever it is that I happen to get?

Right?  However, Progressive for my car has been GREAT.  For cars I think it is prudent to carry a low deductible as the probability of an accident where I live is higher than, say, a hurricane.  


With medical insurance there's always this uneasy feeling that they're gonna try to get out of paying.

You May Also Like: