How to make smart financial decisions in a low interest rate environment.*
The Federal Reserve, a.k.a. the Fed, was in the news for more than a decade for raising the federal funds rate. But the headlines have changed. In July 2019 the Fed finally cut its benchmark interest rate. The Fed raises or lowers the federal funds rate to influence the direction of the U.S. economy toward strong employment and stable inflation.
Alright, this may all seem pretty high level. It’s just a bunch of news for policymakers, economists and investors playing the market. Right? Not so fast. While it may sound like a fancy finance term, the federal funds rate is the interest rate banks charge each other to lend funds overnight. When that rate goes down (or up), the effects trickle down to you and the financial products you use every day—think credit cards, loans and savings accounts.
Even if you don’t typically follow financial headlines, understanding what happens when the Fed lowers rates can help you make smart financial decisions when it comes to borrowing, saving and spending. Read on to answer the question: What does a Fed rate cut mean for my finances?
What goes up and what comes down when the Fed cuts rates
What happens when the Fed lowers rates? One of the Fed’s goals with a rate cut is to make borrowing less costly. Translation: You could see lower interest rates on credit.
Economist and podcast host John Norris says that a Fed rate cut could actually be helpful to the average consumer. “If history serves as a guide, the prime rate will fall by the same amount as the Fed’s actions,” Norris says. “This means credit cards and home equity lines of credit (HELOCs) will be a little cheaper for consumers moving forward.” The prime rate, which is based on the federal funds rate, is the interest rate lenders charge their most creditworthy customers.
Broken down simply, here’s how a lower Fed rate impacts you and the various types of credit you may already have or be considering:
Credit cards: “Credit cards are almost exclusively variable APR,” says Greg Mahnken, analyst at Credit Card Insider. “This means that as the prime rate goes up and down, the interest rate of the card will fluctuate as well. Your card issuer must tell you the margin rate—that’s the margin added to the prime rate to get your credit card’s APR,” Mahnken explains. If you’re wondering how a lower Fed rate impacts you and your cards, you could be charged less to carry a balance and may see smaller minimum payments.
Mortgages: What happens when the Fed lowers rates? For mortgages, it depends on the type of loan. The rate could drop on adjustable-rate mortgages, for example, meaning a reduced monthly payment. How a lower Fed rate impacts you could be different for a fixed-rate mortgage. This type of mortgage may not be as directly impacted by a Fed rate cut and is influenced by other factors.
Home equity lines of credit: If you have a HELOC or are in the market for one for home repairs, you could see a rate decrease following a Fed rate cut, lowering monthly payments.
Other loans: If you’re wondering how a lower Fed rate impacts you, know that it could influence lower rates on auto loans for car owners, but factors including industry sales and financing offers also come into play. If you have a private student loan and a regular payment schedule, you could see a lower monthly payment.
Now, what does a Fed rate cut mean for my finances when it comes to saving? Savers could see interest rates decline on deposit accounts like savings accounts, money market accounts and certificates of deposit (CDs). A lower interest rate here means you’ll earn less in interest on your savings balances.
“Banks make money by making a spread between what they pay for deposits and what they charge on loans,” Norris says. “When what they can charge on a loan goes down, it makes sense what they pay on deposits will eventually do so as well.”
How to manage a rate cut as a borrower, saver and spender
What does a Fed rate cut mean for my finances is only half of the puzzle. The other half is determining how to manage your finances in a lower rate environment so you can achieve your financial goals. Follow these tips when you consider how a lower Fed rate impacts you for borrowing, saving and spending:
If you’re borrowing:
Look for lower rates on new credit cards: “Credit card users should always be on the lookout for lower variable rate formulas, and a rate cut or two is a perfect time to do a little homework when looking for new cards,” Norris says.
Ask for lower rates on existing credit cards: When you’re learning what happens when the Fed lowers rates, consider that negotiating better rates on borrowed money could be easier in a lower interest rate environment. For example, you can check with your credit card issuers to see if you can get a lower interest rate on the credit cards you have already.
Refinance high-interest debt: “If your issuer/lender won’t lower your interest rate despite a cut to the Fed/prime rate, look into refinancing or consolidating your debt with a lower-interest loan,” Mahnken says.
If you’re saving:
Find a competitive savings account rate: Even though lower rates on savings is often what happens when the Fed lowers rates, banks could still offer competitive savings rates. For instance, online banks can often pass savings on in the form of higher interest rates on their deposit accounts because they save money by not maintaining brick-and-mortar locations. Discover, for instance, offers a high-yield savings account with an interest rate over 5x the National Savings Average.1 So while rates may go down on average, you can possibly earn a higher interest rate on your savings than you had in the past with a high-yield account.
You earned it. Now earn more with it.
Online savings with no minimum balance.
Discover Bank, Member FDIC
Lock in a higher fixed rate: If you anticipate more Fed rate cuts in the future, then explore savings vehicles with a rate that you can lock in. With a fixed-rate certificate of deposit, for example, the CD rate is fixed for the entire term. If you open a 5-year CD, your savings will continue to earn the same interest rate despite rate cuts. Note that CDs often come with an early withdrawal penalty if you withdraw your funds before the end of the account’s term, so they’re best used for savings you won’t need to touch for a set period of time.
If you’re spending:
Decide to buy, but do it wisely: Since one answer to “What does a Fed rate cut mean for my finances?” is that borrowing costs less, it could make sense to go ahead with that large purchase you’ve been planning for ages. “When it comes to spending, lower interest rates can encourage bigger purchases, such as home improvements, cars and homes,” Mahnken says. “But before making a big-ticket purchase, make sure you have a budget so you can see how the purchase will affect your monthly cash flow.”
Pursue a passion that requires capital: If you can get access to borrowed money at lower rates, some of your personal goals that require credit could be more achievable. Maybe you’ve been preparing to start a business endeavor or pursue higher education to advance your career. Now could be the time to set things in motion.
Fed rate cut or not, there’s always room for financial improvement
Even if financial news isn’t your thing, paying attention to trends like a Fed rate cut (or hike) can help you manage your money most effectively. Despite the interest rate climate, though, it’s still important to remain disciplined in your financial strategy. This includes setting financial goals, creating a plan to reach them and educating yourself on tools and methods that can help you in the process. Whether interest rates are low or high, you’ll always win with this approach.
* This should not be considered tax or investment advice. Please consult a financial or tax advisor if you have questions.
1 The Annual Percentage Yield (APY) for the Online Savings Account as of 01/01/2021 is more than five times the national average APY for interest-bearing savings accounts with balances of $500 as reported by Informa Research Services, Inc. as of 01/01/2021. Interest rates and APYs are subject to change at any time. Although the information provided by Informa Research Services has been obtained from the various institutions, accuracy cannot be guaranteed.
Take a moment. Think about being your best self — living your best life.
What do you really want to do with your life? Raise a happy family? Travel the world? Buy a nice house? Start your own business?
Reality check: To accomplish any of those things, you’re going to need to know how to save money.
Unfortunately, Americans are bad at saving money, and we’re getting worse. Thanks to rising costs, stagnant salaries and student loan debt, we’re saving less than ever.
Table of Contents
Step 1: Develop Savings Goals and Strategies Step 2: Pick Budgeting and Debt Repayment Methods Step 3: Choose a Financial Institution and Accounts Step 4: Automate Your Finances Step 5: Establish a Budget-Conscious Lifestyle Step 6: Make More Money
Here Are Our Best Tips to Save Money
Are you ready to actually start saving money? What you’re reading is a step-by-step guide on how to do it — how to come up with savings strategies, choose a budgeting method, pick the right financial institution, automate your finances and live a budget-conscious lifestyle.
Pour yourself a cup of coffee and buckle up. It’s time to get serious about this.
Step 1: Develop Savings Goals and Strategies
You’re probably asking yourself, “How much should I save?”
Your first move is to set specific savings goals for yourself — emphasis on specific. Naming your goals will make them more real to you. It’ll help you resist the temptation to spend your money on other stuff.
Think Long Term and Short Term
What exactly do you want to save money for? How much will you need to save? And what do you need to save for first? Think short- and long-term:
Short-term: Save for a real vacation or nice holiday gifts. But first, save enough to have a decent emergency fund — three to six months’ worth of living expenses, in case you run into an unexpected car-repair bill or lose your job, for example.
Long-term: This involves big-picture thinking. Here, you’re saving money for things like your children’s college fund or for your retirement plan.
Analyze Your Income
How much can you realistically save for these goals, now that you’re making them a priority?
Write down your income and expenses — all of your expenses, from utility bills to your Netflix subscription. There are probably more ways to save money than you realize. Don’t forget your student loans or credit card debt. Make sure you know what you’re spending in every budget category. Pay special attention to what you’re spending on non-essentials, such as eating out.
An easy way to automate this process is to use Trim, a little bot that’ll keep track of all your transactions.
Connect your checking account, credit card and savings account for a big-picture look at your spending habits. Then, take a closer look by checking out each of your transactions. Set alerts that’ll let you know when bills are due, when you’ve hit a spending cap or when you’ve (hopefully not) overdrafted. This will help you stick with your savings plan.
Check in on Your Credit
Do your own credit check. Keeping tabs on your credit score and your credit reports can help guide you to a financially healthier life — especially if you use a free credit-monitoring service like Credit Sesame. It gives you personalized suggestions for improving your credit.
The better your credit, the better off you’ll be when you’re getting a home or car loan. Credit Sesame can estimate how big a mortgage you might qualify for, for example.
Here’s our ultimate guide to using Credit Sesame.
Step 2: Pick Budgeting and Debt Repayment Methods
It’s time to start making a monthly budget and sticking to it — especially if you have debt.
This way, you can put savings right into your budget. It’s never an afterthought.
Here are five different budgeting methods. We can’t tell you which one to choose. Be honest with yourself, and choose the one you think is most likely to work for you. This is how to save money on a tight budget.
The 50/30/20 Rule
This one was popularized by U.S. Sen. Elizabeth Warren, a bankruptcy expert, and her business-executive daughter Amelia Warren Tyagi.
Split your income into three spending categories: 50% goes to essential bills and monthly expenses, 20% toward financial goals and 30% to personal spending (all the stuff you like to spend money on but don’t really need). Put the money earmarked for your financial goals into a separate savings account.
Good for: People who worry they won’t have a life if they’re on a budget. Here’s our complete guide to 50/30/20 budgeting.
So-called envelope budgeting is traditionally a cash-only budget. Every month, you use cash for different categories of spending, and you keep that cash for each category in separate envelopes — labeled for groceries, housing, phone, etc.
Prefer plastic? Here’s our review of Mvelopes, an app that lets you digitize this method.
Good for: People who know they need help with self-control. If there’s nothing left in one envelope toward the end of the month, there’s no more money to spend on that category, period.
Here’s how you draw up this budget: Your income minus your expenses (including savings) equals zero. This way, you have to justify every expense.
Good for: People who need a simple, straightforward method that accounts for every dollar. Here’s our guide to the zero-based budget.
This debt-repayment method helps you budget when you have debt. Pay off your debts with the highest interest rates first — most likely your credit cards. Doing that can save you a lot of money over time.
Good for: People with a lot of credit card debt. Credit cards generally charge you higher interest than other lenders do. Learn more about the debt avalanche method here.
Money management guru Dave Ramsey champions the debt snowball method of debt repayment. Pay off your debts with the smallest balances first. This allows you to eliminate debts from your list faster, which can motivate you to keep going.
Good for: People who owe a lot of different kinds of debts — credit cards, student loans, etc. — and who need motivation. Here’s how to use the debt snowball method to eliminate debt.
Step 3: Choose a Financial Institution and Accounts
You might be thinking, I already have a bank. And of course you do. If you’re like most of us, you’ve had the same bank for years.
Most people don’t give this a second thought. They figure it’s too inconvenient to switch. But it’s worth shopping around for a better option, because where you bank can make a real difference in how much you save.
What to Look for in a Bank Account
Does your checking account pay you interest? What are the fees like? What other perks does it offer?
Did you know the biggest U.S. banks are collecting more than $6 billion a year in overdraft and ATM fees?
Maybe it’s time to try another financial institution. We’ve found some great online bank accounts to help you avoid fees and get features you won’t find with the brick-and-mortar banks.
Here’s one example: There’s a mobile baking app called Varo Money.
The FDIC reports that the average savings account pays a paltry .08% APY*, but when you open an online checking and savings account with Varo, it will pay you more than 20 times that amount on your savings account.
We know opening a new bank account isn’t exactly everyone’s idea of fun, but Varo makes it easy. You can open an account with just a penny, and more than 750,000 people have already signed up.
Oh, and there are no monthly fees.
Want more options? Here’s our ultimate guide to help you choose the right account.
To free up more money for savings, try to spend less paying interest on your debts — especially if you have high-interest credit card debt.
These days, credit card interest rates often climb north of 20%. How can you avoid paying all that interest? Your best bet is to cut back on your expenses and pay off your balance as soon as you realistically can.
Start by using the right credit card for you, based on your situation and needs. Would you prefer a card that gives you cash back or travel incentives, a balance-transfer card, or a card that’ll help you build credit?
Also consider paying off your high-interest debt with a low-interest personal loan. It’s easier than you might think. Go window-shopping at an online marketplace for personal loans. Here are some we’ve test-driven for you:
AmOne allows you to compare rates side-by-side from multiple lenders who are competing against each other for your business. It’s best for borrowers who have good credit scores and just want to consolidate their debt.
Fiona is also a marketplace but allows you to borrow more money and borrow it for a longer period of time — if that’s what you want to do.
Upstart tends to be helpful for recent grads, who have a young credit history and a mound of student debt. It can help you find a loan without relying on only your conventional credit score.
Step 4: Automate Your Finances
That’s right. We’re deep into the 21st century, here, so make technology do the work for you.
The best ways to save include automation. You’ll save time, and time is money. Here are a few money-management steps you can take today to ensure you won’t have to think about money for more than a few minutes every month.
Automate Bill Pay
Most bills are paid online now, reports the Credit Union Times. But you can take it a step further. Set it up so you’ll receive and pay all of your bills online through your bank. That simplifies things so you’ll never miss a payment.
Here’s how: Go to your bank’s online bill-pay feature. Enter all the companies that bill you, and the account numbers for each. Arrange to receive e-bills from whichever billers will do that.
You can also have your bank send digital payments to individuals (like a landlord).
Whatever you need done financially, there’s an app for that. We’ve put several to the test.
Digit is an automated savings platform that calculates how much money you can save. Here’s our review of Digit.
Long Game Savings combines online games and saving money.
Also, see whether your bank offers automatic savings transfers that will move money from your checking account to your savings account each month.
You don’t have to be Warren Buffett to be an investor. You don’t even have to follow the stock market, read The Wall Street Journal or watch CNBC.
You can take advantage of these apps offering easy, automatic ways to start investing — the “set it and forget it” method. They’re useful for tricking your brain into saving more. You’ll do it without even realizing you’re doing it.
Stash lets you start investing with as little as $5 and for just a $1 monthly fee for balances under $5,000. Bonus: Penny Hoarders get $5 just for signing up!
Acorns connects to your checking account, credit and debit cards to save your digital change. It automatically rounds up purchases with your connected cards and invests the digital change into your chosen portfolio. Bonus: Penny Hoarders get $5 just for signing up! Read our full review of Acorns here.
Blooom is a company that offers a free “health check-up” for your 401(k). Then, for only $10 a month (Penny Hoarders get the first month free!), it’ll optimize and manage your retirement savings for you. See how Blooom helped one Penny Hoarder make the most of her 401(k).
You can automate your budget, too. There’s an app for that. Actually, we’ve found several.
Charlie is a money-saving penguin who lives in your SMS text messages or Facebook Messenger (your choice, though Charlie is more fun and reliable on Messenger). He helps you save money through things like making sure you’re getting the best deals around (ahem, overpaying $24 a month on that cell phone bill?).
Mint lets you see all your accounts, cards, bills and investments in one place.
Medean for iOS ranks your finances based on how they stack up to those of people of similar age, income, location and gender. It calls itself a “health index for your finances,” and helps assess your situation and find ways to save money.
MoneyLion offers rewards to help you develop healthy financial habits and will literally pay you for logging onto the app. You can earn points in the rewards program by paying bills on time, connecting your bank account or downloading the mobile app.
Step 5: Establish a Budget-Conscious Lifestyle
Here’s the harsh reality: To save more money, you’ll need to spend less money. (Or make more money, but we’ll get to that next.)
That doesn’t mean you have to live like a monk. Nor do you have to survive on ramen noodles and the dollar menu, wear scuffed shoes and patchy clothes, or cut your own hair with hedge clippers.
You just have to be smart and strategic. Here are some of our best tips to help you spend less:
Save Money Around the House
Your home is your castle. But castles are so, like, expensive. Fortunately, there are lots of ways to save money around the house.
Your priciest purchases — like appliances and furniture — are a natural place to look for savings. Try repairing your appliances instead of replacing them. And here’s a good list of other tricks for saving on furniture and appliances.
The cost of cooling, heating and lighting your home is massive. Try installing thermal curtains and a programmable thermostat. Or check out these creative, energy-saving ways to slash your utility bills.
Find Free Entertainment
Entertainment can cost an arm and a leg. But hey, we have to live, right? So do it for free! Next time you’re planning a night out, take advantage of one of these free date nights or group outings.
If you’re going to stay in, cut the cord. More and more people are doing this, because their cable bill has gotten so expensive.
If you’re thinking of switching to an online streaming service and you’re wondering which would be best, we’ve got you covered with our comparison of Netflix, Prime Video and Hulu. We compared costs, type of content, number of available titles and more.
You also should reconsider that gym membership if you’re not really using it.
Cut Your Food Budget
Groceries are a huge part of everyone’s budget, so they’re a big target for savings. Next time you’re putting together your shopping list, make sure to check out our favorite tricks to save money at the grocery store:
Not loving the supermarket? Nearly 70% of us say we spend too much on take-out or going out to eat. Here’s how to save money at restaurants, too.
Find out If You’re Wasting Money on Insurance
Buying insurance can be confusing and overwhelming, because there are so many options.
Here’s how to find affordable insurance:
For Your Car: Auto Insurance
Here are the blunt facts about how to get lower car insurance premiums: Have fewer accidents, get fewer traffic tickets and boost your credit score.
Automotive experts also gave us the following tips:
Buy a used car.
Participate in your insurer’s safe-driving program.
Shop around for better rates. One easy way is The Zebra, a car insurance search engine that compares your options from more than 200 providers in less than 60 seconds. Here’s how one guy is saving $360 this year on car insurance because of The Zebra.
For Yourself: Health Insurance
Let’s face it: Health insurance can be confusing and intimidating.
If you’re buying insurance for yourself, start with the federal health insurance marketplace at Healthcare.gov to see whether you qualify for any discounts or assistance.
Finding affordable health care coverage is a huge challenge for freelancers. Here’s how to get covered if you’re self-employed.
For Your Family: Life Insurance
Life insurance pays your dependents a set amount of money if you die. Whether to buy it is a judgment call.
Life insurance is considered more important if you’re married or have children. You might also want a basic policy that would pay off your funeral, mortgage or other debt.
You’ll probably be asked to choose between two options: term or universal life insurance. If you’re like most of us, you’ll choose term — the simplest, cheapest and most popular kind of life insurance policy.
To help you save money and navigate this complicated industry, modern companies are updating the old model:
Policygenius is an online-only platform that offers instant quotes from top carriers to help you make a quicker decision. Once you choose a life insurance company, you can apply right online, and a Policygenius rep will give you a quick call to ask a few follow-up questions.
Haven Life can insure you quickly based just on the health information you provide online.
Ethos can get you term life insurance in less than 10 minutes — with no medical exam — for coverage up to $1 million. Ethos offers a digital application, and customer service is available if you have questions.
Step 6: Make More Money
How can you increase your income? It’s easier to save money if you’re bringing in more money to begin with.
Here are a couple of simple ways to make extra cash at home:
Share Your Opinion
You won’t get rich taking surveys, but if you’re just vegging out on the couch, why not click a couple buttons and earn a few bucks? We’ve tried a lot of paid survey sites, and two of the best we’ve found are My Points and InboxDollars.
Clear Your Closets
Sell your old stuff! Use the Decluttr app to get paid for your old DVDs, Blu-Rays, CDs, video games, gaming consoles and phones.
You can also sell nearly anything through the Letgo app. Just snap a photo of your item and set up a listing in about 30 seconds. If you have more free time, try selling items on Craigslist or eBay.
Find a Side Gig
For our best ideas to boost your bottom line, check out the following:
Mike Brassfield ([email protected]) is a senior writer at The Penny Hoarder. He’s slowly getting better about saving money.
If you want to buy a house but have student loan debt, you may be wondering if it’s possible.
This article will look at how your eligibility for a mortgage loan can be affected by student loan debt and provide tips to help you qualify.
Rate Search: Check Today’s Mortgage Rates
How Student Loans Affect Getting a Mortgage
Student loans affect your debt-to-income (DTI) ratio, which is the amount of your gross monthly income that goes towards your monthly debt obligations such as minimum credit card payments, auto loans, and student loan payments.
Front-end DTI ratio – Your front-end ratio is your debt-to-income before factoring in your estimated monthly mortgage payments.
Back-end DTI ratio – Your back-end ratio is your debt-to-income after factoring in your estimated monthly mortgage payments.
For example, if your gross pre-tax income is $5,000 per month and your monthly student loan payments are $300, a $300 monthly auto loan payment and credit card payments total $400 per month. Your total monthly debt payments are $1,000. Your front-DTI ratio is 20%.
DTI Ratio Needed for a Mortgage
Mortgage lenders typically require a front-end DTI ratio of 28% and a back-end DTI ratio of 43% to 50% to qualify for a mortgage. The maximum DTI required depends on the type of mortgage you get and your credit rating. Government home loans such as FHA loans and USDA loans allow for higher DTI ratios up to 50%. Conventional loans allow for a maximum 43% DTI ratio.
Maximum DTI Ratio Requirements by Loan Type
FHA Loans – 50%
VA Loans – 50%
USDA Loans – 50%
Conventional Loans – 43%
Home Possible / HomeReady Loans – 50%
Improve Your Debt-to-Income Ratio
If you have student loan debt and a high DTI ratio, you should improve it to increase your chances of being approved for a mortgage.
Refinance your loans – You may be able to refinance your student loans, personal loans, or auto loans to a lower rate and payment.
Contact your creditors – Your credit card creditors may be willing to work with you to lower your interest rates and monthly payments.
Increase your income – Maybe it’s time to ask your employer for a raise. You can also get a second job or put your skills to use by doing freelance work on the side. Improving your income isn’t always as difficult as it sounds, and it will increase your DTI ratio.
Defer Your Student Loans
If you have federal student loan debt, you can defer them if you meet the criteria. You may be eligible if you are enrolled in a graduate program, are a veteran, or have financial issues. Check if you meet the requirements to defer your student loans on the Federal Student Aid website.
Improve Your Credit Score
The higher your credit score, the lower your interest rate will be. A higher score also allows lenders to accept a higher DTI ratio. Before you apply for a mortgage, you should work on improving your credit score.
Pay down your credit card debt – Your credit utilization ratio is the amount of available credit you’re using, and it accounts for 30% of your fico score. Try paying down your balances to less than 25% of your credit limits to maximize your score. You can also contact your creditors to ask them to raise your credit limits.
Dispute negative accounts – You can dispute anything on your credit report you believe is inaccurate with the credit bureaus. They have 30 days to contact the creditor to validate the account, or it must be removed from your credit report entirely.
Pay your bills on time – Your payment history is the biggest factor in determining your credit score, making up 35% of your overall fico score. You need to stay on top of your payments; a single late payment can significantly impact your score.
Tips on how to increase your credit score in 30 days
Get Pre-Approved First
Getting pre-approved for a mortgage is the first step in buying a home. It will tell you if your debt-to-income ratio is too high, so you can take the steps outlined in this article to lower your DTI. You can be pre-approved quickly. A lender will need to pull your credit and verify your income and assets. Have the following documents to speed up the process.
Last two years w2’s and tax returns
30 days of pay stubs
Last two months of bank statements
Get Pre-Approved and Check Today’s Rates
Consider all Loan Types
You will not qualify for a conventional mortgage with a DTI ratio above 43%. Government home loans have less strict DTI requirements allowing borrowers to qualify with up to a 50% DTI ratio.
FHA loans aren’t just for first-time homebuyers but you could be eligible with a 580 credit score, a 3.5% down payment, and a DTI ratio as high as 50%.
Home Possible / HomeReady Loans
Fannie Mae and Freddie Mac created the Home Possible and HomeReady loan programs for low-income buyers whose income is below 100% of the area median income (AMI). You can qualify with up to a 50% DTI ratio, a 620 credit score, and just 3% down.
First-Time Home Buyer Programs
You may be eligible for first-time homebuyer programs that provide down payment and closing cost assistance. You can also check for local first-time homebuyer programs in your state by going to the HUD website.
The Bottom Line
You can buy a house with student loan debt. Just remember the monthly student loan payments count against your debt-to-income ratio, so you should work on improving it.
Paying down debt, getting a second stream of income, and raising your credit score can help you.
You should also check if you’re eligible to defer your federal student loans.
It’s amazing how things change when you have kids. Before kids, weekend getaways and trips were fairly easy. When we needed to take a break, I remember we could look at the calendar and twenty minutes later, have a few dates to run by work for time off. Even the destinations would already be top of mind and after looking for deals on travel sites and asking around, we’d settle with whatever had the best price. Pretty easy.
Fast forward a few years and now we’re parents of an eight-year-old and a four-year-old.
Those first few years with our little ones were honestly rough. We’re trying to coordinate between two jobs and one school schedule. It was tough finding the perfect time to take a week or so off. Once we had our dates, we’d then have to make sure that we could find a deal. Thankfully, we’ve gotten a little bit wiser. We found our footing and came up with our little system for timing our vacations and snagging some good savings.We’ve also found some spots that allow us to unwind without breaking the budget.
Affordable Family Vacations to Take This Fall
While school is back in season, that doesn’t mean you have to write off the rest of the year. You still have time to take one last getaway to recharge your battery, have some fun, and connect as a family.
To make things easy for you, I want to share a few of our favorite spots that both we and the kids enjoyed. The cherry on top? They’re also affordable spots!
Daytona Beach, Florida
If you’re looking to escape and have some beach time, then Florida is the way to go. However, staying in Orlando is not on the list if you’re looking for a chance to relax and actually save money.Instead, soak up some beach time before the weather gets too cold and hang out for a bit in Daytona Beach.
When we did our trip last October in Florida, it couldn’t have been more perfect. The weather was still warm, the large crowds of tourists were gone (along with the overpriced hotels), and there were plenty of things to do around.
Racing fans can enjoy the Daytona International Speedway or if you’re in the mood for stars, you can head over to MOA’s planetarium. And if your kids really want to visit the Magic Kingdom or Universal Studios, you can make it a more affordable day trip rather than blow your budget by spending your whole time there. We once went to Universal right after Thanksgiving and were able to skip waiting in line because it was so quiet.
Charleston, South Carolina
We took trips to Charleston for the last few Decembers and I have to say, we’ve enjoyed every one. While the temperatures have cooled down a bit, making beach time minimal, we still managed to be out and about. Throw on a jacket, wear your fall layers, and you’re all set to hit the town and enjoy some history and food.
You have to visit The Tavern at Rainbow Row. Besides being the oldest liquor store in the country, the vibe there is incredible. It’s small, but the selection is wide. Want to have an incredible lunch that’s still cheap? Try out The Blind Tiger. The truffle duck, bourbon bread pudding, buffalo cheese curds are delicious.
Asheville, North Carolina
One of our favorite low-key trips we’ve taken was a camping adventure with some friends just outside of Asheville. Being able to see the mountains shift into autumn colors was incredible.If you’re a photographer or love being outdoors, you have to take a trip here. It’s so peaceful and the views are amazing. For the parents, Asheville is the hot spot for fantastic food and a wide array of awesome breweries.
After spending your days enjoying the parks and maybe getting some tubing in, treat yourself and the kids to Double D’s Coffee and Dessert. It’s a cool double-decker bus in the city that’s also nearby Wicked Weed brewery.
Tuxedo, New York
If you absolutely love New York City but also relish some peace and relaxation that a more rural spot gives, then you should check out some of the small towns upstate.
I may be a little biased since I lived here for a few years, but fall is pretty much the best time to visit. You can truly have the best of both worlds with renting a spot in a town just outside the city. The Metro-North Railroad means you can take a train to New York City, allowing you to enjoy a scenic ride and skip put on the nightmare of driving in Manhattan.
Have your day trips to shop, visit the museums, and explore some of the best restaurants. You can then head back to your affordable getaway spot and enjoy some of the local events including celebrating autumn with exquisite apple cider.
Saving Up for Family Trips
While you hunt for the deals, you can start now saving up for your trip. You can create a vacation fund as separate savings to keep you motivated.
Using a tool like Mint makes it easy to track your progress and help you find ways to trim your budget a smidge so you have more money for fun during your trip. Knowing our money leaks allowed us to try some fun monthly challenges to sock away an extra couple hundred dollars. Keep your vacations debt-free also means there’s less stress as you don’t have to worry about a bill afterward. Double win in my book!
If you’re looking for tips, please check out my post on how to shift gears and become a savvy saver. It’s much easier than you think and you’ll be surprised at what you can accomplish in one month.
Your Take on Family Getaways
Wherever you go, I hope you have a wonderful time together. Now that you know my favorites, I’d love to hear about your spots. What have been some of your best vacations together?
The new year may bring higher insurance bills for drivers in five states.
Those states are the only places in the nation where typical car insurance rates will rise in 2021, according to ValuePenguin’s “State of Auto Insurance in 2021” report.
The report found that across the nation, the average rate will fall by 1.7% this year. That marks the first time in more than a decade that auto insurance costs have declined.
In some states, the typical fall from 2020 to 2021 is especially significant. The biggest declines are in Arkansas (4.8%), Ohio (4.3%) and Michigan (4.3%).
However, a handful of states will see typical rates rise in 2021, compared with 2020. Those increases are:
New York: 1.2%
Rhode Island: 0.1%
In compiling its findings, ValuePenguin analyzed 15 million quotes from ZIP codes from coast to coast.
ValuePenguin notes that falling car insurance rates are the exception rather than the rule in recent years. Nationwide, premiums have jumped by 106% since 2011.
Other findings from the ValuePenguin research include:
At a typical annual cost of $7,406, Michigan car insurance rates are 353% higher than the national average. Florida’s rate of $2,795 and Rhode Island’s rate of $2,482 are 71% and 52% higher than the national average, respectively.
At the other extreme, drivers in Maine ($865), North Carolina ($976) and Indiana ($987) pay the lowest annual rates in the country. These rates are around 40% lower than the national average.
It pays to drive carefully, the research shows. A traffic violation is likely to result in an average premium increase of 117%, ValuePenguin says.
Cutting your car insurance costs
One way to cut your car insurance costs is to shop around. You can do so by gathering quotes from multiple insurance companies on your own, or by using a service like The Zebra or Gabi. Such services gather quotes for you so you can pick the best rate.
Money Talks News founder Stacy Johnson tried Gabi and found it worth his time. He wrote in “How I Found $546 in Car Insurance Savings in Under 10 Minutes“:
“I’m currently insuring two cars with USAA at a combined cost of about $2,400. Gabi said Progressive could give me the same coverage for 22% less, saving me $546. All I had to do is give Gabi the go-ahead and my driver’s license number. Then, Gabi would confirm the rate and even do the switching for me.”
To learn more about shopping for car insurance, read:
Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.
Ever wondered what other professionals in your industry earn, or how you can remove the guesswork if you’re negotiating salary? The U.S. Bureau of Labor Statistics (BLS) has done some of your homework for you, thanks to its huge database of median salaries.
The BLS provides estimates of salaries by profession for an exhaustive list of job categories and titles. We’ve cross-referenced some of the biggest job groups in their database with job categories on our site to provide you with the median salaries of flexible and remote-friendly career fields.
Architects (the building and design kind, not IT architects) earned a median pay of $80,750 a year in 2019, according to federal figures.
Arts and Design
The median annual wage for occupations in arts and design (including graphic designers, interior designers, and animators) was $48,130, with art directors making more than $94,000.
Business and Financial
In 2019, the median annual salary for business and financial professionals was $69,820; personal financial advisers earned top median salaries in this category, making $87,850 a year.
Community and Social Service
This category, which includes counselors, therapists, and social workers, earned a mean annual wage of $46,090, with the greatest growth projected (12%) in the health care and social assistance specialties.
Computer & IT
Computer and IT professionals earned a median salary of $88,240 in 2019, with growth in this job sector expected to grow some 11% by 2029. Top-tier professionals in computer and IT earned more than $107,000.
The BLS data grouped education, training, and library occupations in one category and reported a median annual salary of $50,790; post-secondary teachers topped the list, earning a median salary of more than $79,000.
The median annual pay in the engineering field topped out at more than $137,000 for petroleum engineers; overall, the median pay in the combined architecture and engineering fields was $81,440, according to BLS figures.
Entertainment and Sports
Analysts placed entertainment and sports occupations in the same category and showed a median annual wage of $45,250. (Note: There was no annual median figure for actors, musicians, dancers, and other more art-focused careers.)
This broad category, which includes physicians, registered nurses, and dental hygienists, had a median salary of $68,190 in 2019, with physicians and surgeons earning more than $208,000 at the top end. Health care support roles, including nursing assistants, home health care aides, and medical transcriptionists, earned a mean annual salary of $28,470.
In the legal profession, the median pay depends on the level of expertise; lawyers earned $122,960 a year, for example, while paralegals and legal assistants earned a median annual pay of $51,740.
The median annual salary for management occupations was $105,660 in 2019, although managers at the top rungs in engineering and computer fields can bring in more than $144,000 a year.
The median pay for math occupations was $90,410, but actuaries can earn upward of $108,000. The median pay for mathematicians and statisticians is around $92,000 annually.
Media and Communications
Media and communications occupations — including reporters, writers, editors, translators, and photographers—had a median annual salary of $48,270 in 2019. Technical writers made the highest median wage of $72,850.
Office and Administrative Support
These commonly remote jobs paid a median annual wage of about $37,580, according to federal data.
Although the reported median annual salary in this category in 2019 was just over $29,000, some professionals earned significantly more, with sales engineers leading the way with a median salary of $103,900.
Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.
In 2017, wholesale RV shipments reached their highest level ever, topping 500,000, according to the RV Industry Association. Part of the reason for the rise in demand for RVs is due to millennials, who are looking for ways to enjoy a mobile lifestyle by bringing home along with them.
If you’re interested in hitting the open road with an RV, you probably need a loan. After all, a recreational vehicle or motorhome is as expensive as a car — and even a house. Chances are, it will be difficult to save up enough to buy an RV outright with cash.
Here’s what you need to know about how to get an RV loan.
How does RV financing work?
Most RV loans are available for between 5 and 15 years, although you might also be able to finance for 20 years, depending on how expensive the RV is. If you go to a bank or credit union and ask to borrow money for an RV, you might be subject to greater scrutiny.
The reality is that recreational vehicles are considered luxury items, and some RVs depreciate rapidly, much like cars. As a result, RV loans can be more difficult to obtain, especially without good credit and a large down payment.
Motorhome and RV Financing Options
When it comes to RV financing, several different types of lenders offer RV loans. To make sure you get the lowest interest rate and best loan terms, you will want to compare options from multiple lenders.
RV dealers, banks, credit unions, and online lenders all offer RV loans. Below, we will dive deeper into each of these options.
Financing an RV Through a Dealer
Many dealers offer RV financing and it can sometimes be easier to just do everything at the dealer. Sometimes the RV dealer can even offer the best loan options. Depending on the situation, you might have access to special promotions and pricing when going through a dealer.
Use the RV dealer in your comparison shopping scenarios. Visit your bank or credit union and get pre-approved for an RV loan before you start visiting dealers. You can use your pre-approval letter as leverage when you bargain on loan terms.
Additionally, it can make sense to visit other RV dealers and even look online if you can. RV shopping is similar to car shopping in that you want to show different dealers what offers you’re receiving from others. This can help you get a better price on your RV, plus get you better financing options, especially if you have good credit.
Banks or Credit Unions
Getting pre-approval from a bank or credit union can also provide you with more choices when shopping for an RV. You can look at private-party RVs, rather than focus only on what’s in a dealer’s lot. Make sure you weigh all the options before moving forward with an RV purchase at a dealer (and using dealer financing).
If you don’t have the credit or income to qualify for a dealership or recreational loan, another option is a personal loan. It’s easier to qualify for this type of loan, but it may not cover your RV purchase as most lenders have a maximum loan amount of $35,000 to $100,000.
Some lenders offer personal loans for borrowers with bad credit, with credit scores as low as 580. However, these loans also come with higher interest rates.
How much can you afford?
Before you start shopping around for RV loans, you need to know exactly how much you can afford. Just like making any other major purchase, you want to be sure you can handle monthly payments.
Carefully consider the following factors as you decide how much RV you can afford:
Income and cash flow: Think about your income and cash flow. How will you make your RV payments? Do you have enough income to make your monthly payments with ease? What might you have to give up to keep your cash flow smooth?
Living situation: Consider your reason for buying an RV. If you plan to buy the RV as a supplement to your situation, using it only for vacations, you might not be able to afford an expensive RV. On the other hand, if you plan to use the RV to replace your current housing, you might be able to handle a bigger, more expensive RV because you won’t be making rent or mortgage payments.
Current debt level: Before you go into debt for an RV, consider your other obligations. Do you have other debts taking a chunk of your cash flow? If so, it might make more sense to pay down some of your other loans before taking on RV debt.
Only get an RV loan if it makes sense for your situation and if you can afford it. And if you do finance, make sure you only borrow what you can afford. That might mean getting a smaller RV so you aren’t borrowing more than you can handle.
How to Qualify for the Best RV Loan Rates
Getting a good rate on an RV loan is important if you want to save money overall on your debt. Lenders will consider different factors when deciding what interest rate to offer you.
Market factors impact the interest rates you can get on an RV loan. You can get a pretty good idea of what RV loan rates are doing by looking at car loan rates. Additionally, you can also watch Federal Reserve benchmark rates and consider overall credit conditions to get an idea of which way the wind is blowing.
Your Credit Score
While market factors influence interest rates, personal factors also go into determining your RV loan APR (annual percentage rate). As with almost any other loan, your credit score is going to make a big difference. If you want to get the best offer, improve your credit score before applying for an RV loan.
It’s possible to find RV loans with bad credit, but they are few and far between — and you have to be prepared to pay much more in interest over the life of the loan.
Your Down Payment
Lenders will also look at your down payment when quoting you a loan rate. For many consumers, it’s a good idea to put down at least 10% of the purchase price. However, some lenders might ask for more — and others will actually finance 100% of the cost of the RV.
The bigger your down payment, though, the lower your RV loan interest rate will be. If you plan to live in your RV and you currently own a home, you can see a big reduction in what you pay in the long run by selling your home and using a portion of the profits for a down payment.
With a bigger down payment, not only can you save on interest, but you also end up with a smaller loan, so your monthly payments are likely to be smaller.
Don’t forget to shop around for the best deal on your RV loan. Check out both new and used RVs. Get quotes from two or three lenders before making your decision. You can also use a loan calculator to compare interest rates, terms, and fees. Then, choose the RV loan that works best for your situation.
Types of RVs and Motorhomes
Choosing the right RV depends on how you intend to use it. If you plan on using it for a few week-long or weekend trips per year, you may want to consider something smaller and less expensive. However, if you’re planning on living in it, you may want something bigger and more expensive.
Here are the are four main types of RVs and motorhomes:
Class A: The largest and most expensive RVs on the road. A great choice for full-time, dedicated travelers.
Class B: Often referred to as the camper vans, Class B recreational vehicles are easier to drive and much less expensive than Class A’s.
Class C: Midsized RVs that range from 23 to 36 feet. Class C campers have extra sleeping space or storage area above the driver’s cab. They’re usually a little more expensive than Class B’s.
Travel trailers: A travel trailer is an RV that is towed by a truck, van, or SUV that can handle the weight capacity and are usually cheaper than the others.
Other types of RVs include popup campers, teardrop trailers, hybrid trailers, and fifth-wheel trailers.
Do your research before you purchase an RV. Make sure it’s what you really want before you move forward, and shop around. Don’t forget to make efforts to improve your credit score ahead of time and save up for a down payment to reduce the amount of debt you end up with.
A recreational vehicle can be a great way to live and see the country. Just make sure you only buy what you can afford and finance as little as you can get away with.
Personal loans are typically unsecured loans offering up to $50,000 with a term of up to 5 years. They come in several shapes and sizes and interest rates, fees, and terms can differ greatly, but the average personal loan in the United States is between $7,000 and $8,000 and charged at a rate of 11% and 12%.
Get approved fast for a Personal Loan!
Compare multiple loan options from the nation’s top lenders.
Attention: Still Open During the Financial Crisis…
Tip: Apply now to see if you qualify for a personal loan today!
Steps to Getting a Personal Loan
Check Your Credit Report
Compare Rates and Terms
Get a Pre-Qualification
Look at the Fine Print
Look at Alternative Options
Receive Final Approval
1. Check Your Credit Report
The better your credit score is, the lower the interest rate of the loan will be. You can get a free credit check from all three of the main credit bureaus (TransUnion, Experian, Equifax) once a year and use this to see what the lenders will see.
Your credit report will show your credit history in intricate detail, as well as your personal details and all active accounts. If your credit score is below 600, you’ll likely be refused a personal loan; if it’s lower than 700, you may succeed, but won’t necessarily get the best rate.
In any case, it always helps to build your credit score and it’s also very easy to do. If you follow the steps below, you may see a sizeable improvement in a few short months:
Increase Credit Limits: Your credit utilization ratio calculates your debt in relation to your credit limits. Someone with a debt of $100,000 is not necessarily worse off than someone with debt of $10,000 if the former has a credit limit of $2 million and the latter has a credit limit of $20,000. By judging debt in this way, your credit score builds an accurate and relative picture of your financial situation. By increasing your credit limits, you can improve this part of your credit score in one quick move.
Payoff Debt: Debt is the other half of the credit utilization ratio and works just as well as increasing your credit limit. If you have a debt of $5,000 and a credit limit of $10,000, your credit utilization is a high 50%. If you repay just $1,000 and increase your credit limit by $1,000, this ratio drops to a respectable 36%.
Get a Secured Credit Card: A secured credit card uses a security deposit as collateral, allowing you to sign-up even if you have very bad credit or no credit at all. It can build your credit in as little as 6 months as all payments are reported to the credit bureaus. Your deposit will set your credit limit and is completely refundable.
Stop Applying: Every time you apply for a new auto loan, personal loan, credit card or mortgage, you receive a hard credit inquiry, which can reduce your FICO credit score by between 2 and 5 points. What’s more, every new account will reduce your score even more and make it harder to quickly build a strong score. Keep applications to a minimum and only apply when you absolutely need a new account.
Keep Making Payments: Your payment history accounts for 35% of your FICO credit score, which is more than anything else. It takes a long time to build your score this way, but as soon as you miss a payment, your score can drop by over 100 points and undo all your hard work, while making your task considerably harder.
At the same time, however, your credit score is not the only thing that matters. There is a misconception here, one that claims you can get pretty much anything you want as long as you have an excellent credit card. But that’s simply not the case.
If you are self-employed with an inconsistent income that never goes higher than $15,000 a year, it’s still possible to have an excellent credit score. After all, as long as you keep credit applications to a minimum, meet your payment obligations on time and keep a strong credit utilization ratio, you can build a great credit score.
But does that mean you’ll be offered a $200,000 mortgage or a $50,000 personal loan? Of course not. You’re not making enough money to cover those debts. You might be offered a low limit credit card with relative ease, but you’ll struggle to get a sizeable personal loan and may be refused outright.
2. Compare Rates and Terms
An estimated rate is, as the name suggests, just an estimate. It can vary greatly depending on your credit score, income, and a few other factors. However, your eventual rate will always fall into the estimated range and by looking for the best ranges and comparing the most likely rate based on your current credit score, you can avoid wasting your time on high interest loans.
Many borrowers will look for the lender they are most familiar with, including the ones they have a bank account or mortgage with. But your checking account is irrelevant here and by skipping the comparison shopping you could end up with a much higher rate than you can afford.
Look for the cheapest rates and compare these to the best loan amounts. Calculate how much you will need and whether or not you can sacrifice a few dollars here and there to save more on interest.
3. Get a Pre-Qualification
A pre-qualification will give you an idea of what sort of loan you can get based on your credit score and income. You can then use this information to compare and contrast, ensuring you find the best and most suitable loan for you.
You will need to supply all of the following information, and this will be used to determine if you’re a good fit or not:
Your Social Security Number
Your full income and debts (debt-to-income ratio)
Your date of birth, home address, phone number, and email
All your previous addresses dating back a fixed number of years
Details of your education
If your income is too low, your debt-to-income ratio is too high, your credit score is poor or you have made too many credit applications, you may be refused a pre-qualification.
4. Look at the Fine Print
Does the loan have a prepayment penalty? Does it charge high fees and penalty rates? Is there an origination fee? This information may not be included on the main offer page, but it’s essential for determining the worth of a loan, so dig around in the terms and conditions, and make sure you’re getting the best loan possible in terms of the lowest rate as well as the lowest fees.
5. Look at Alternative Options
A personal loan is not the only option at your disposal, and it may not even be the best one. Depending on what you need the money for, there are a host of better alternatives out there, ones that may be more forgiving of your credit score and more willing to give you a large sum and a low rate.
It’s not all about banks. There are online lenders, credit unions, and a host of other financial institutions willing to help you out.
We have outlined some of the best alternative options a little further down this article.
6. Receive Final Approval
Once you have browsed multiple loan offers, checked loan rates, and decided on the best option for you, it’s time to apply and get final approval. You will need to provide some additional info, including W-2 forms and pay stubs, and then the lender will check your credit score and you’ll receive a hit of between 2 and 5 points.
If there are no issues, the loan will be finalized. Some online lenders offer to pay your funds by the next business day and other lenders offer instant payment on acceptance of the loan application. However, many will pay within 1 week.
What are Personal Loans Used For?
You can use a personal loan for a variety of reasons and in most cases, the lender doesn’t care which one you choose. As long as you meet the monthly payments and have a respectable credit score, they don’t care if you’re blowing it on a vacation or launching a business. Here are a few reasons to apply for a personal loan, some of which make more sense than others.
If you have a lot of credit card debt, you can use an unsecured personal loan to clear it. You’ll still have debt, as you’re essentially swapping one debt for another, but you may be charged a lower interest rate or smaller monthly payment.
There are debt consolidation and debt management companies that specialize in this service and can do all the hard work for you. However, these companies focus mainly on reducing your monthly payment and interest rate in exchange for a prolonged-term. You’ll pay less per month and may have an APR that is several points lower, but the increased term means you will pay much more over the length of the loan.
If you have a strong credit score, are in a good financial position and have several high interest credit card debts, you can get a low rate, short-term loan. You’ll pay more per month, but over the term, you could save thousands of dollars in interest payments.
It’s rarely a good idea to accumulate debt just so you can enjoy the vacation of a lifetime. But what if it’s the only chance you have of taking that vacation? What if it would be a life goal realized and you’re confident that you can make the monthly payments and eventually clear the debt?
In such cases, while we would never recommend it, using a personal loan for a vacation is understandable. It’s something that many older married couples do to pay for cruises and trips across Europe. It’s also a method used by young married couples to have the honeymoon they have always dreamed of.
Student loans aren’t always readily available, nor are they the best option. And while they are usually more preferable to personal loans, they may not provide the coverage that you or your grandchildren need.
In the last decade or so, there has been an over 1,000% increase in the number of senior student loan borrowers. This isn’t the result of an influx of mature learners, but rather it’s because they are assuming debts on behalf of their grandchildren and children, co-signing to help them through college.
Pay for a Major Expense
Life can throw several major and unexpected expenses your way, and if you don’t have any money in your savings, a personal loan may be your only option. Many couples live their lives relatively debt and problem-free until one of the following expenses raises its head and they opt for a personal loan.
Marriage: A marriage is not something that happens unexpectedly, unless you’re a parent and your child is the one getting married. In either case, it’s a massive expense that can cripple you financially, with the average wedding costing over $30,000.
Adoption: The average cost of adoption in the United States ranges from between $40,000 and $50,000. Like a wedding, it’s not necessarily something that happens unexpectedly, but also like a wedding, when the time is right and the need is there, it’s something you feel like you have to do.
Funeral: Funerals can cost upwards of $10,000 and often occur out of the blue. If the deceased is insured or has assets, it’s not a problem, but there are countless people who are not insured, don’t have assets, and die unexpectedly. If you’re the closest person to them, you may find yourself assuming responsibility for their funeral.
Medical Services: If you fall ill and need a specific type of treatment or surgery that your insurance won’t cover, a personal loan could be the only option. Medical treatments are very expensive, and many Americans simply can’t afford to cover these costs out of their own pockets.
Launch a Business
Launching a business is another risky way to use a personal loan, but one that many borrowers are submitting to every year. This is the golden age of entrepreneurs, and there has never been a better time to launch a business.
Of course, grants and business loans are also available, but the former often requires you to work in specific niches and abide by specific terms, while the latter will be weighed against your personal finances if your business is small or new. A personal loan, therefore, may be the only option for business owners seeking to launch a new project.
Alternative Options to Personal Loans
A personal loan isn’t your only option when you need a little cash. You can borrow money through several different avenues, and the best option for you will depend on what you’re using the money for:
You need credit to build credit; you need a credit card or a loan before you can get the FICO score you need to get a credit card or a loan. It can feel like a Catch-22 situation, but it’s not as complicated as it might initially appear.
If you have no credit or bad credit, you may be offered a super high interest rate loan or credit card and that can help you to build a respectable score. However, it’s a risky way to do it and there are many better options out there if your only goal is to build credit.
For loans, you can use something known as a credit builder loan. Much like a reverse loan, a credit builder loan requires you to complete many of the same steps as a traditional loan, only the lender keeps the lump sum amount and moves it to a secured account.
That loan payment earns you a small rate of interest and this helps to offset some of the interest you pay the lender. Every month, you make a payment on the loan, paying some of the principal in addition to the monthly interest, and the lender will report your payments to the three major credit bureaus (TransUnion, Experian, Equifax).
Every month, your score will improve slightly as your payment history receives a boost and then, at the end of the term, they’ll release the lump sum to you, and you’ll get most of your money back (minus the interest) in addition to the credit score boost.
Paying Off Debt
A personal loan is a great way to clear debt, but it’s not necessarily the best option. If you’re struggling to meet your monthly payment obligations, it’s not the right option at all, as your monthly payments will increase as your term decreases.
Instead, you can look into the following options:
Debt Payoff: Sometimes, simple debt payoff strategies like the Debt Avalanche and the Debt Snowball are enough to clear your debt and can do so in a way that won’t cost you dearly or damage your credit score.
Debt Settlement: One of the best and cheapest ways to clear credit card debts, debt settlement works by agreeing reduced settlement amounts with your creditors.
Debt Management: A form of debt consolidation performed by a specialist credit counselor. You will pay less every month and can receive greatly improved terms.
Launching a Business
Once you’ve cut costs, reduced expenses, and considered all possible ways to reduce your initial outlay for a business launch, then it might be time to consider crowdfunding. Sites like Kickstarter can help you to get the funds you need and if you have a good idea or product, along with perks, it can give you capital.
You can also sell shares in your business to friends and family, or simply ask them for a small loan.
Expanding a Business
One of the best loan options for expanding your business is something known as PayPal Working Capital, a program that we have touched upon and praised several times before. If you accept PayPal for your business and have processed many payments through your PayPal account, you’ll be offered a lump sum to help you grow.
The loan amount you’re offered will depend on how much money you receive every month. As for the repayment term, you need to pay 10% of the total every 90 days, and all payments are taken as a percentage of your income. If you opt for $20,000, you may pay a fee of $2,000, taking the total to $22,000, and be asked to pay $2,200 every 90 days for a 20% cut.
This means that for every $1,000 you earn, you’ll pay $200 back to your PayPal Working Capital loan, in addition to the usual PayPal fees. The application process is quick and easy, and you can have the money in your PayPal account in just a few minutes.
Paying for Education
While a personal loan can be a useful option when paying for your education or a family member’s education, student loans often provide better rates and loan terms. They can also cover most of the costs associated with college, although if you need extra money for living costs, then a personal loan can be considered.
Paying for Vacations or Other Expenses
If you are a homeowner and have built substantial equity in your home, then a home equity loan or home equity line of credit may provide you with better loan terms and a much higher loan amount.
A home equity loan or line of credit is a secured loan, as it uses your home as collateral. If you fail to make the payments every month and eventually default on your loan, the lender can simply take your asset and use it to recover the costs of the loan.
As a result, the annual percentage rate is often much lower. You will still need good credit and a respectable debt-to-income ratio to apply, but the best home equity loan is typically much more favorable and cheaper than the best personal loan.
Considering a no-interest balance transfer offer? Laura talks about the pros and cons of balance transfers and whether moving debt multiple times can help or hurt you.
Laura Adams, MBA
September 23, 2020
balance transfer credit card is also known as a no-interest or zero-interest credit card. It’s a card feature that includes an offer for you to transfer balances from other accounts and save money for a limited period.
You typically pay an annual percentage rate (APR) of 0% during a promotional period ranging from 6 to 18 months. In general, you’ll need good credit to qualify for the best transfer deals.
Every transfer offer is different because it depends on the issuer and your financial situation; however, the longer the promotional period, the better. You don’t accrue one penny of interest until the promotion expires.
However, you typically must pay a one-time transfer fee in the range of 2% to 5%. For example, if you transfer $1,000 to a card with a 2% transfer fee, you’ll be charged $20, which increases your debt to $1,020. So, choose a transfer card with the lowest transfer fee and no annual fee, when possible.
When you get approved for a new balance transfer card, you get a credit limit, just like you do with other credit cards. You can only transfer amounts up to that limit.
Missing a payment means your sweet 0% APR could end and that you could get charged a default APR as high as 29.99%!
You can use a transfer card for just about any type of debt, such as credit cards, auto loans, and personal loans. The issuer may give you the option to have funds deposited into your bank account so that you can send it to the creditor of your choice. Or you might be asked to complete an online form indicating who to pay, the account number, and the amount so that the transfer card company can pay it on your behalf.
Once the transfer is complete, the debt balance moves over to your transfer card account, and any transfer fee gets added. But even though no interest accrues to your account, you must still make monthly minimum payments throughout the promotional period.
Missing a payment means your sweet 0% APR could end and that you could get charged a default APR as high as 29.99%! That could easily wipe out any benefits you hoped to gain by doing a balance transfer in the first place.
How does a balance transfer affect your credit?
A common question about balance transfers is how they affect your credit. One of the most significant factors in your credit scores is your credit utilization ratio. It’s the amount of debt you owe on revolving accounts (such as credit cards and lines of credit) compared to your available credit limits.
For example, if you have $2,000 on a credit card and $8,000 in available credit, you’re using one-quarter of your limit and have a 25% credit utilization ratio. This ratio gets calculated for each of your revolving accounts and as a total on all of them.
Getting a new balance transfer credit card (or an additional limit on an existing card) instantly raises your available credit, while your debt level remains the same. That causes your credit utilization ratio to plummet, boosting your scores.
I recommend using no more than 20% of your available credit to build or maintain optimal credit scores. Having a low utilization shows that you can use credit responsibly without maxing out your accounts.
Getting a new balance transfer credit card (or an additional limit on an existing card) instantly raises your available credit, while your debt level remains the same. That causes your credit utilization ratio to plummet, boosting your scores.
Likewise, the opposite is true when you close a credit card or a line of credit. So, if you transfer a card balance and close the old account, it reduces your available credit, which spikes your utilization ratio and causes your credit scores to drop.
Only cancel a paid-off card if you’re prepared to see your credit scores take a dip.
So, only cancel a paid-off card if you’re prepared to see your scores take a dip. A better decision may be to file away a card or use it sparingly for purchases you pay off in full each month.
Another factor that plays a small role in your credit scores is the number of recent inquiries for new credit. Applying for a new transfer card typically causes a slight, short-term dip in your credit. Having a temporary ding on your credit usually isn’t a problem, unless you have plans to finance a big purchase, such as a house or car, within the next six months.
The takeaway is that if you don’t close a credit card after transferring a balance to a new account, and you don’t apply for other new credit accounts around the same time, the net effect should raise your credit scores, not hurt them.
RELATED: When to Cancel a Credit Card? 10 Dos and Don’ts to Follow
When is using a balance transfer credit card a good idea?
I’ve done many zero-interest balance transfers because they save money when used correctly. It’s a good strategy if you can pay off the balance before the offer’s expiration date.
Let’s say you’re having a good year and expect to receive a bonus within a few months that you can use to pay off a credit card balance. Instead of waiting for the bonus to hit your bank account, you could use a no-interest transfer card. That will cut the amount of interest you must pay during the card’s promotional period.
When should you do multiple balance transfers?
But what if you’re like Heather and won’t pay off a no-interest promotional offer before it ends? Carrying a balance after the promotion means your interest rate goes back up to the standard rate, which could be higher than what you paid before the transfer. So, doing another transfer to defer interest for an additional promotional period can make sense.
If you make a second or third balance transfer but aren’t making any progress toward paying down your debt, it can become a shell game.
However, it may only be possible if you’re like Heather and have good credit to qualify. Balance transfer cards and promotions are typically only offered to consumers with good or excellent credit.
If you make a second or third balance transfer but aren’t making any progress toward paying down your debt, it can become a shell game. And don’t forget about the transfer fee you typically must pay that gets added to your outstanding balance. While avoiding interest is a good move, creating a solid plan to pay down your debt is even better.
If you have a goal to pay off your card balance and find reasonable transfer offers, there’s no harm in using a balance transfer to cut interest while you regroup.
Advantages of doing a balance transfer
Here are several advantages of using a balance transfer credit card.
Reducing your interest. That’s the point of transferring debt, so you save money for a limited period, even after paying a transfer fee.
Paying off debt faster. If you put the extra savings from doing a transfer toward your balance, you can eliminate it more quickly.
Boosting your credit. This is a nice side effect if you open a new balance transfer card and instantly have more available credit in your name, which lowers your credit utilization ratio.
Disadvantages of doing a balance transfer
Here are some cons for doing a balance transfer.
Paying a fee. It’s standard with most cards, which charge in the range of 2% to 5% per transfer.
Paying higher interest. When the promotion ends, your rate will vary by issuer and your financial situation, but it could spike dramatically.
Giving up student loan benefits. This is a downside if you’re considering using a transfer card to pay off federal student loans that come with repayment or forgiveness options. Once the debt gets transferred to a credit card, the loan benefits, including a tax deduction on interest, no longer apply.
Tips for using a balance transfer credit card wisely
The best way to use a balance transfer is to have a realistic plan to pay off the balance before the promotion expires.
The best way to use a balance transfer is to have a realistic plan to pay off the balance before the promotion expires. Or be sure that the interest rate will be reasonable after the promotion ends.
Shifting a high-interest debt to a no-interest transfer account is a smart way to save money. It doesn’t make your debt disappear, but it does make it less expensive for a period.
If you can save money during the promotional period, despite any balance transfer fees, you’ll come out ahead. And if you plow your savings back into your balance, instead of spending it, you’ll get out of debt faster than you thought possible.
As of February 2020, student loan debt in the United States reached a record total of $1.6 trillion. Many people are struggling to pay student loans and taking part in various deferment and other assistance programs. As COVID-19 and related shutdowns caused economic issues across the nation, the federal government passed the CARES Act, which included some stimulus relief for student loan holders. Find out more about stimulus help for student loans below.
The CARES Act Stimulus Package and Student Loans
The CARES Act included a number of stimulus benefits for student loan holders. Some of the main benefits related to student loans are listed below. It’s important to note that these benefits are only applicable to federal student loans and do not impact private student loans or federally backed student loans held by commercial lenders.
Federal student loans went into automatic forbearance. From March 13 to September 30, 2020, federal student loans don’t have to be paid. Automatic payments have been put on hold during this time as well. You can continue to make payments if you want. The automatic forbearance simply means you don’t have to pay your loans during this time. The amount you owe will be added on to the back end of the loan to be paid later.
If your loan is automatically paused during this time, the creditor is not supposed to report missed payments to the credit bureaus.
Suspended payments will still count toward income-driven repayment forgiveness programs as well as Public Service Loan Forgiveness Programs.
Federal tax returns in 2020 are not being withheld to cover defaulted student loans as long as the process to take the refund was not started before March 13. Wage garnishments for defaulted student loans were also paused.
It’s important to note that the CARES Act mandated all of these changes, but the Department of Education and others couldn’t roll them out overnight. Some borrowers saw continued garnishment of wages, automatic loan payments, or the taking of tax returns. Others reported negative items appearing on credit reports because of paused payments.
Lawsuits were filed and the various organizations are working to correct all these issues. But it’s important to keep track of your student loans, even if they’re on administrative pause, and check your credit regularly to ensure inaccurate information isn’t being reported. Luckily, you can access your credit reports for free weekly through April 2021 via AnnualCreditReport.com. And if you want to dig in even further, sign up for ExtraCredit: you can keep track of 28 of your FICO scores and your credit reports from all three bureaus.
The HEROES Act, the HEALS Act, and Student Loans
HEROES stands for the Health and Economic Recovery Omnibus Emergency Solutions Act. The House of Representatives passed this bill in May 2020. On July 27, the GOP leaders in the Senate finally announced its version of the Act—the Health, Economic Assistance, Liability protection, and Schools (HEALS) Act—which will now be subject to negotiations with congressional Democrats before being voted on. Unfortunately, the GOP version has removed many of the consumer protections originally included in the House’s HEROES Act. The final version will likely fall somewhere between the two proposed acts, with Democrats.
Both versions of this second stimulus bill include another round of stimulus checks for Americans. Under the House’s version of the act, student loan payments would be paused through September 2021—that’s a year longer than the loan payments are paused under the CARES Act. The proposed GOP plan currently allows individuals to defer student loan payments, but only if they have no income. Otherwise, payment will be 10% of your income, after expenses.
The version of the HEROES Act passed by the House also
extends the student loan assistance to some loans not covered under CARES.
Those include Federal Perkins Loans and HEAL and FFEL Program loans that aren’t
owned by the Department of Education. The Senate bill does not currently
include this provision.
Under the HEROES Act, certain loan holders—both private and federal—could also experience cancellation of up to $10,000 in student loan debt. That’s because the United States Treasury would be required to make payments up to $10,000 for each borrower during the time when payments are paused for individuals. The HEALS Act does not include this provision either.
Now we will have to wait for the House and Senate to
negotiate the final terms before we know what will actually be included.
Other Features of the HEROES Act and HEALS Act
Another round of stimulus checks. Both versions
propose another $1,200 per person, but they differ on the amount available to
An extension of the extra weekly unemployment
benefit through 2021. The version passed by the House kept the benefit at $600
per week; Senate Republicans have proposed lowering the amount to $200 per
The version passed by the House includes $100
billion in rental assistance and $75 billion in homeowner assistance.
The version passed by the House includes hazard
pay for essential workers; the GOP’s proposal does not include this funding.
Reaching Out for Help with Student Loans
HEROES hasn’t passed, and not everyone qualifies for
assistance under the CARES Act. But many commercial lenders are offering their
own assistance programs. If you are struggling to pay your student loans during
this time, reach out to your lender and find out what help they can offer.
when you know you can’t pay your debt typically makes the situation worse, so
communicate with your lender as soon as you think there might be an issue.
Check out the Credit.com COVID-19 Financial Resource Guide for more information on managing your personal finances, credit, and debt during this time. There are many programs for assistance and tools you can use to make life during COVID-19 more stable for you and your family.