Debt consolidation essentially requires you to repay your existing loans and debts with a new loan (one that has a lower rate of interest, preferably) or a balance transfer credit card. Many people believe that debt consolidation is the only thing that can help them manage their debts. While debt consolidation has its benefits, it’s not something that will help you in the long-term if you don’t refinance to the right type of loan. So, here some facts about debt consolidation that you need to know.
- There’s No Guarantee You’ll Get a Lower Interest Rate: The rate that you get on your new loan is dependent on your credit score and your past payment history. Given this, there’s really no guarantee that you’ll be able to get a new loan at a lower rate.
- Low Rates Can Change: If you get a balance transfer card, keep in mind that the APR is likely to be low only for an introductory period, after which the regular rate will set in. So, in this case, you’ll have to ensure that you repay your debt within this period. Not doing so will again attract a high rate on your outstanding balance.
- You May Remain in Debt Longer: When consolidating debts, many people get a loan that has a lower monthly payment than what they are currently paying. While this can be helpful, it’s likely that the payment is lower only because the loan term is actually longer. So, although the low monthly payment may come as a relief to you, it’s important to be aware of the fact that you will most likely be in debt longer and pay a higher lifetime interest charge, as a result.
- Debt Consolidation Does Not Get Rid of Your Debts: Many people mistakenly feel like their debts have been eliminated after debt consolidation. Keep in mind that debt consolidation only restructures your debt, and it doesn’t eliminate it.
- You’ll Have to Change Your Behavior With Money: While debt consolidation can be a good starting point in helping you manage your finances, it can only help in the long-run if you change your behavior with money. So, start by creating a budget, putting together an emergency fund, and making investments in the stock market so you can achieve your financial goals.
Home loans are a long-term financial commitment for most people, so it’s important to do your research and select the right type of loan. So, we’ve put together a quick guide explaining how you should shop for a mortgage, what you need to do to qualify for the loan, and how to finally choose the right loan offer.
Shopping For A Mortgage
Before you begin shopping for a mortgage, it’s a good idea to check your credit score since it has an impact on the interest rate that you will be quoted. Next, you should compare loans from different lenders, either online or in person. When you compare loans, you’ll want to check the interest rate, charges associated with the loan, and the loan terms. Customer service is important too. The lender you pick should be easy to contact and responsive to your concerns and questions.
Qualifying For A Mortgage
Qualifying for a mortgage can seem intimidating, however, it’s not as difficult as most people expect it to be. The process begins with the lender doing your credit check. You’ll then have to submit certain basic information or documents to the lender. Prepare to submit your W-2s, tax returns, pay stubs, and bank account statements. You may also have to submit an application form to the lender. While certain lenders will allow you to do this online, some will require you to either visit them in person and submit the documents or mail it to them. Once your paperwork is in, the lender will approve your loan and issue a pre-approval letter.
Choose A Mortgage
The mortgage you choose should be based on your resources and goals. For instance, you can choose a private or government loan, adjustable-rate or fixed-rate mortgage, and a 15-year or 30-year term, based on what your goals are and what you can afford. Once you decide which loan you want to proceed with, you can finalize the loan by paying the closing costs.
The Bottom Line
In the future, if your credit score improves significantly, you may want to consider refinancing your loan to one that has a lower rate and term. This will help you save even more money in the long-run.
While you can technically manage your money out of a single checking account, having only one account will probably make you miss out on rewards and high-interest rates. Here, we’ve listed 3 types of bank accounts that everyone should have to effectively manage everyday expenses and long-term financial goals.
- No-Fee Checking Account: It’s important to have a checking account since it will help you manage your day-to-day transactions. However, if your bank is charging you a monthly or annual fee to maintain your checking account, you may want to switch to a bank that doesn’t. Given that consumers now have more choice than ever before, switching to a bank that doesn’t charge you fees to maintain a checking account will help you save a good amount of money every year.
- High-Interest Savings Account: You need to have at least one savings account. You could use this account to build your emergency fund. Even if you have a secure job, it makes sense to build an emergency fund with enough cash to help you cover your living expenses for at least 3-6 months. Of course, based on what your financial goals are, you may want to have more than one savings account for different financial goals like saving up for a down payment, buying a car, etc.
- Investment Account: In addition to managing your daily expenses, you also need an investment account that will help you secure your future. The money that you set aside for your retirement should ideally earn you a high rate of interest that will beat inflation. If you’re just getting started with investments, you may want to consider a robo-advisor or low-fee mutual fund. If you are comfortable taking investment decisions yourself, you can open an investment/brokerage account for yourself.
In addition to the above-mentioned accounts, you should also try to get yourself a rewards credit card. While it isn’t technically a type of bank account, you still need it, given that it can help you earn rewards, build your credit score, and make transactions securely.
Before you open any type of account, ensure that you review the fees and charges associated with the account. Make sure to not open accounts that have extremely high fees, since you’ll probably end up spending more on the account than what you earn in interest.
If you need access to a large sum of money at a relatively competitive rate, a personal loan is your best bet. Given that most lenders don’t impose any restrictions on how the loan amount can be used, there’s a lot you can do with the money. While personal loans are certainly a powerful financial tool, it’s also a serious responsibility. So, we’ve listed a few things that you should know about personal loans before you consider borrowing one.
- Loan Terms: Before you start shopping around for personal loans, you should know the common loan terms that are used by lenders. So, make sure you understand what terms like principal, interest, APR, monthly payment, and unsecured loan mean. Doing this will help you compare the right aspects of different loans.
- Credit Report and Credit Score: Your credit score has an impact on the interest rate that is offered to you. Before approving your loan, lenders will check your credit so they know how creditworthy and reliable you are. So, make sure to check your own score before you apply for a loan. If your score is toward the lower end, you may have to pay a higher interest rate. Keep in mind that checking your own report will not affect your score.
- Shopping Around: Personal loans are offered by a number of financial institutions, like commercial banks, online banks, and credit unions. So, don’t limit yourself to the quote that your bank gives you. Make sure to compare the loans offered by different lenders. Typically, online lenders and credit unions will offer you better rates.
- Impact of Inquiries: When you apply for a loan to a lender, the lender does a hard inquiry into your score, which is noted on your report. Hard inquiries can lower your score slightly. So, if you are applying to multiple lenders, ensure that you do so within a short time frame, so the inquiries don’t hurt your credit score too much. Generally, multiple hard inquiries made for the same credit product will be counted as a single event, provided they occur within a short span of time.
Personal loans have their own set of pros and cons. So, it’s important that you manage your personal loan wisely and make your payments on time. This will ensure that your credit score is not negatively impacted.
Many people stop investing in stocks as they near their retirement age. While it’s not wrong to invest in more conservative options as you get older, it’s important to hold at least a few stocks in your portfolio to protect yourself financially against inflation. Here are some reasons why stocks make a good buy even for older investors.
- You May Live a Lot Longer: The reality is that life expectancy has been on the rise. So, most retirees will need money to last them at least 30 years, if not more. The only way to ensure your money lasts for this long is by investing in some stocks.
- Not All Stocks Are Risky: Stocks have a reputation for being volatile and risky investments, but this is not always true. Many stocks, especially those of large-cap companies, are relatively safe and can bring stability to one’s investment portfolio. Dividend stocks are a good option since they generate a steady source of income for the investor, and their prices don’t fall or rise dramatically. So, as you get older, instead of laying off stocks entirely, look for ones that are more stable.
- Markets Will Pick Up: It’s not uncommon for the market to take a big dive. But, fortunately, it also always rises. So, as long as you stay invested, you will likely earn back all the money you lost in a market downturn (and more possibly) in the following years.
- Diversify Your Stocks: Just because stocks are a good option to have in your portfolio, it doesn’t mean your portfolio needs to comprise only stocks. They could just comprise 20-25% of your portfolio, thus helping grow your money without adding too much risk.
- Cash and Bonds Don’t Offer the Best Returns: While cash and bonds are relatively safe options, they, unfortunately, do not offer good returns, and it is very likely that inflation will outpace the returns you get on these instruments. This is why it’s important for you to also invest in stocks.
Investing money in the stocks market and witnessing it grow over time can be extremely fun and rewarding. The good news is that once you retire, you’ll have more time to watch over your investments and make the right decisions with regard to your stocks.
Most people know that having a good credit score is key to getting the best credit cards and loans at good interest rates. However, although the credit score is integral to one’s financial standing, not too many people know what makes up the score, how to check it, or how to improve it. Given this, we’ve listed some surprising facts you may not have known about credit scores.
- Credit Scores Did Not Exist Till the 1950s: Before credit scores came into being, you would have to meet a banker to get a loan. If the banker didn’t feel you were trustworthy or didn’t like you, your loan application wouldn’t be approved. It was only in the 1950s that credit scores (more precisely, FICO scores) were founded by Earl Issac and Bill Fair.
- Your Credit Score Could Predict the Length of Your Marriage: The Federal Reserve conducted a study and found that couples who have larger gaps between their scores right at the start of their relationships were more likely to separate. In other words, the closer your score is to your partner’s, the more likely it is that you will stay together.
- Employers Can’t Just Access Your Credit Score: Many people assume that employers can just look up your credit score, and base their hiring decision on the score. This is far from the truth. In fact, if the employer wants to check your credit report, they will need to request your permission. And, even then, what they see is a different version of the report you see.
- Your Degrees and Bank Balance Have No Impact on Your Credit Score: Your education level and bank balance do not affect your credit score. The factors that affect your credit score are all related to payments and debt. Also, your salary, employment status, and stock portfolio don’t impact your credit score.
- You Can Get a Mortgage Without a Credit Score: If you’ve never had credit cards or borrowed loans, your credit score will essentially be 0. But, even if you don’t have a credit score, you may be able to qualify for a mortgage by way of a process known as mutual underwriting. This is when the lender takes all your monthly bills and assets into account, based on which your application is approved.
Some credit cards stand out in terms of the rewards they offer, their rates, or the fees. But no single credit card can be perfect for everyone. Given this, it’s best to get a credit card that has features that you can benefit from. For instance, credit cards that have excellent rewards programs are unlikely to have the lowest interest rates. This is because people that tend to earn a lot of rewards usually don’t carry a balance on their cards. So, assess your needs and pick a card accordingly. To make your job easier, we’ve listed the 5 best credit cards of the year below.
Chase Sapphire Preferred® Card
The Chase Sapphire Preferred® Card offers an excellent initial bonus of 60,000 to new cardholders if they spend at least $4,000 within 3 months of opening their account. The rewards rate on this card is 2 points for every $1 that’s spent on dining and travel and 1 point for every $1 spent otherwise. The average APR ranges between 15.99% to 22.99%. For all this, you only have to pay an annual fee of $95.
Bank of America® Cash Rewards Secured Credit Card
If you are looking to build credit, the Bank of America® Cash Rewards Secured Credit Card is the perfect pick for you. It has a $0 annual fee and cardholders can earn cashback ranging between 1% – 3% on their purchases. The regular APR is 23.99%. Since this is a secured credit card, cardholders are required to make a minimum deposit of $300.
U.S. Bank Visa® Platinum Card
The U.S. Bank Visa® Platinum Card is one of the best balance transfer cards available. It gives cardholders an introductory APR of 0% for the first 20 months and also a 0% APR on balance transfers for 20 months. What’s more, the card also has a $0 annual fee. One thing to watch out for is the interest rate, which will kick in after the introductory APR period comes to an end.
Chase Freedom Unlimited®
The Chase Freedom Unlimited® offers great, well-rounded benefits. New cardholders get an initial bonus of $200 if they spend $500 within the first three months. The rewards rate for the card ranges between 1.5% – 5%. The card also has a $0 annual fee.
Petal® Visa® Credit Card
The Petal® Visa® Credit Card is the best credit card for beginners. It has a $0 annual fee, reports payments to all three major credit bureaus, and offers rewards ranging between 1% – 1.5% on purchases. The card offers everything that you could want from your first credit card.
If you’re on a 30-year mortgage, it can seem like there’s no end to your mortgage payments. But, you can cut your loan term significantly by using the strategies mentioned below.
- Pay Every Two Weeks: Rather than pay your mortgage lender every month, consider making bi-weekly payments. By the end of the year, you would have paid the equivalent of at least 13 monthly payments. If you use this strategy, you can shave at least a few years off your 30-year mortgage, helping you save a significant amount of money over time.
- Make an Extra Payment Each Year: If you don’t want to go through the hassle of making two payments every month, you should at least try to make an extra payment once a year. A bonus at work or a tax refund could provide you the cash to make this extra payment. Ensure that you budget for this right from the start of the year.
- Refinance Your Mortgage: If your credit score has improved significantly since when you first got your mortgage, you may want to consider refinancing your loan. But, when you do this, ensure that the new loan has a lower interest rate and a shorter term. While your monthly payment may be slightly higher, it will help you repay your loan a lot quicker and save on interest, as well.
- Opt for a Flexible-Term Mortgage: Most home buyers opt for a loan term of 15 years or 30 years. However, many lenders offer flexible-term mortgages, so you may be able to choose loan terms between 15 and 30 years.
- Round Off Your Payments: If you can’t make a whole payment every year or make bi-weekly payments, consider rounding off your payments. So, if your mortgage amounts to $1,140, consider paying $1,200 every month. If you keep doing this, you’ll likely be able to pay off your loan much quicker.
While paying off a mortgage fast is great since it can help you save up for other financial needs, it’s important to remember that mortgages typically have lower rates in comparison to credit card debts. So, if you are carrying a balance on your credit card, consider paying that off first. Also, building a substantial emergency fund should take precedence over repaying your mortgage loan.
So, you’ve decided to buy life insurance, but you’re confused about whether you should opt for a term insurance policy or a whole life insurance policy. Here’s a quick guide on the difference between these two types of policies.
Term Life Insurance
For most people, a term insurance policy will suffice, given that it offers adequate coverage at an affordable price. Here’s what you need to know about term insurance.
- Term insurance lasts for a specific number of years, usually a period ranging between 5 and 30 years.
- If you pass away during the policy term, your beneficiary will receive a payout, called the death benefit, from the insurance company.
- Once you reach the end of the term, your policy will simply cease to exist unless you extend it.
- Your annual premium usually remains constant for the duration of the term.
- How much you pay for the policy will be based on factors like your health, age, the coverage amount you choose, and the policy term.
Whole Life Insurance
Whole life insurance offers you two benefits – life insurance coverage and a cash value. Here are a few things that you should know about whole life insurance plans.
- Part of the premium you pay goes toward building your cash value.
- Due to this, whole life insurance policies are more expensive when compared to term insurance policies.
- You can borrow against the cash value in your account or surrender your policy and withdraw the cash value.
- As the name suggests, the policy also lasts for life. No matter when you pass away, your beneficiaries will receive the death benefit.
- Your premium stays the same till you pass away or cancel the policy.
Which Is The Right Choice For You?
Most people can make do with a term insurance policy alone. It makes sense to buy a term insurance cover, especially if you don’t want to spend too much. However, if you would like to buy a policy that also serves as an investment tool, you may want to consider getting whole life insurance. Also, if you need coverage for a much longer period, a whole life insurance plan makes more sense.
Chances are you got your home insurance policy when you bought your home and you haven’t really thought about it since then. The thing is, you should review your policy each time there’s a change in your lifestyle or home. Doing this could help you save hundreds, if not thousands, of dollars over time. Further, reviewing your policy will also ensure that you have adequate coverage at all times. Here’s a look into 5 situations when you might want to update your coverage.
- You’ve Recently Renovated Your Home: If you’ve added a new bedroom, built a pool in the backyard, or completed a similar large remodeling job, you should let your insurer know about this. Keep in mind that the value of your home could have increased after the renovation, making it more expensive to rebuild if a disaster happens to destroy your home. So, you’ll likely need to increase your coverage after the remodeling job.
- You’ve Purchased Valuables: If you’ve recently purchased big-ticket items like artwork, furs, electronics, or jewelry, you’ll need to let your insurance company know. The insurance company can increase your coverage so the policy covers the value of these items.
- You’ve Retired: Given that retired people spend more time at home, their homes are less likely to be broken into, thus reducing the risk taken on by the insurance. So, if you’ve recently retired, make sure to let the insurance company know about this. Many insurers offer discounts of up to 10% to retirees, provided they are over 55 years of age.
- You’ve Installed Security Equipment: If you installed security equipment like an alarm system in your home, informing the insurance company about this could help you get a discount since it makes it less likely for thieves to break into your home. You could secure a discount of up 5% a year by installing security equipment in your home.
- You’ve Quit Smoking: In addition to being great for your health, ditching nicotine could also help you save money on your homeowner’s insurance policy. Most insurance companies reduce premiums by a bit if you don’t smoke. Insurers usually consider smokers riskier to insure since there is a higher risk of a fire destroying your home if you smoke.