J. Arky

Thu, May 22, 2025, 12:01 PM3 min read

Those in the lower middle class may be trying to find a new way to climb to the next rung of the socioeconomic ladder, but there are those out there who would take advantage of it, pulling the rug out from under them with the allure of prosperity and wealth.

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If you consider yourself in this tax bracket, watch out for these kinds of plots that can work against you. Here are three money traps lower-middle-class folks can get tricked into.

Also see eight money traps millennials fell for that Gen Z avoids.

Sean Babin, CEO of Babin Wealth Management, advised steering clear of annuities, which are contracts between an individual and an insurance company. With annuities, an individual will purchase one in full or with payments and then the insurance company will make payments to them for a certain amount of time, per Investor.gov.

“Behind the scenes, these insurance companies have rigged the game in their favor through either high fees and/or caps on how much you can make,” Babin explained. “Annuities can have what’s called a ‘cap rate,’ meaning if your cap rate is 10% and the stock market returns 24%, like it did in 2024, the insurance company gets to keep all that growth over 10%.”

If your goal is to grow your wealth, Babin cautioned that an annuity is not the product to do it in. “If you have an annuity, discuss your options with a fiduciary, not the insurance company,” he said.

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Spend money on a credit card and earn points, cash back, miles and other rewards in return. For some, this might sound like a win-win, but it can be a lose-lose. That’s because you need to make sure you are paying off your balance in full if you choose to get one of these credit cards, according to Michael Rodriguez, founder of Equanimity Wealth.

“These cards deliberately target aspirational lower-middle-class consumers with promises of luxury perks and lifestyle upgrades, knowing many won’t be able to pay off their balances,” Rodriguez said. “When you pay such high interest to get pennies on the dollar for travel rewards, you end up losing more than you are gaining. I love using credit cards for the perks, but it is important to avoid the high interest credit card trap.”

“The average credit card interest rate is 22%,” Babin said. “If you spent that $5,000 to get the welcome bonus but could only pay $2,000 back, the annual interest owed on $3,000 is $660.”