Wanna know the mistake that makes auto loans, personal loans, home loans and almost any other type of loan a catalyst for debt?

You really want to know?

It’s allowing someone else to tell you what you can afford.  It’s telling a car salesman that you want to make $500 monthly auto payments.  It’s letting a realtor know that you want a monthly mortgage of $1500.

The reason is that sales folk will then do all they can to get you to that number; rarely will they suggest that you try to find a less expensive car that would cost less per month.  And realtors will always try to get you to buy more home (the higher the price tag on that four bedroom mini-mansion, the higher their commission).

So what does that mean for you? Well, for one thing, it means being active in your finances; don’t depend on others to look out for your best interests.  Before you go to the car dealership or call a realtor, talk to your bank or another lender to see what kind of interest rates you qualify for.

The bonus is that you’ll have a more powerful bargaining chip, because the sales folks will then have an incentive to get you a lower interest rate and more favorable borrowing terms.

And stick to your guns.  If you’re determined that after examining your budget and your needs, you’re going to buy a $10,000 car, don’t leave the lot with a $40,000 one.  It’s a salesperson’s job to get you to buy more (remember, their commission depends on it), but it’s your job as a consumer to think about major purchases and how they will affect you a month from now, six months from now, a year from now when the salesperson is long out of the picture.  Will you really care that you have a sunroof on your coupe when you have to eat cereal for dinner every night because your budget doesn’t allow for anything more? Will you really care that you have a six bedroom home on the lake when you have to work 80+ hours a week just to keep up with the minimum mortgage?

If you have to, don’t be afraid to step away from the sales process.  Don’t let anyone “bully” you into signing anything you’re not comfortable signing.  In fact, if you find yourself in that situation, walk out and don’t come back.  Keep telling yourself, “I’m not going to make the mistake of letting someone else tell me what I can afford.”  You’ll be better off.