loans

Someone Took Out a Loan in Your Name. Now What?

Kat Tretina — Wed, 14 Apr 2021 20:33:27 +0000

Identity theft wears many different faces. From credit cards to student loans, thieves can open different forms of credit in your name and just like that, destroy your credit history and financial standing.

If this happens to you, getting the situation fixed can be difficult and time-consuming. But you can set things right.

If someone took out a loan in your name, it's important to take action right away to prevent further damage to your credit. Follow these steps to protect yourself and get rid of the fraudulent accounts.

1. File a police report

The first thing you should do is file a police report with your local police department. You might be able to do this online. In many cases, you will be required to submit a police report documenting the theft in order for lenders to remove the fraudulent loans from your account. (See also: 9 Signs Your Identity Was Stolen)

2. Contact the lender

If someone took out a loan or opened a credit card in your name, contact the lender or credit card company directly to notify them of the fraudulent account and to have it removed from your credit report. For credit cards and even personal loans, the problem can usually be resolved quickly.

When it comes to student loans, identity theft can have huge consequences for the victim. Failure to pay a student loan can result in wage garnishment, a suspended license, or the government seizing your tax refund — so it's critical that you cut any fraudulent activity off at the pass and get the loans discharged quickly.

In general, you'll need to contact the lender who issued the student loan and provide them with a police report. The lender will also ask you to complete an identity theft report. While your application for discharge is under review, you aren't held responsible for payments.

If you have private student loans, the process is similar. Each lender has their own process for handling student loan identity theft. However, you typically will be asked to submit a police report as proof, and the lender will do an investigation.

3. Notify the school, if necessary

If someone took out student loans in your name, contact the school the thief used to take out the loans. Call their financial aid or registrar's office and explain that a student there took out loans under your name. They can flag the account in their system and prevent someone from taking out any more loans with your information. (See also: How to Protect Your Child From Identity Theft)

4. Dispute the errors with the credit bureaus

When you find evidence of fraudulent activity, you need to dispute the errors with each of the three credit reporting agencies: Experian, Equifax, and TransUnion. You should contact each one and submit evidence, such as your police report or a letter from the lender acknowledging the occurrence of identity theft. Once the credit reporting bureau has that information, they can remove the accounts from your credit history.

If your credit score took a hit due to thieves defaulting on your loans, getting them removed can help improve your score. It can take weeks or even months for your score to fully recover, but it will eventually be restored to its previous level. (See also: Don't Panic: Do This If Your Identity Gets Stolen)

5. Place a fraud alert or freeze on your credit report

As soon as you find out you're the victim of a fraudulent loan, place a fraud alert on your credit report with one of the three credit reporting agencies. You can do so online:

When you place a fraud alert on your account, potential creditors or lenders will receive a notification when they run your credit. The alert prompts them to take additional steps to verify your identity before issuing a loan or form of credit in your name. (See also: How to Get a Free Fraud Alert on Your Credit Report)

In some cases, it might be a good idea to freeze your credit. With a credit freeze, creditors cannot view your credit report or issue you new credit unless you remove the freeze.

6. Check your credit report regularly

Finally, check your credit report regularly to ensure no new accounts are opened in your name. You can request a free report from each of the three credit reporting agencies once a year at AnnualCreditReport.com. You can stagger the reports so you take out one every four months, helping you keep a close eye on account activity throughout the year. (See also: How to Read a Credit Report)

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This article is from Kat Tretina of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

A New Lender Took Over My Mortgage — Now What?

Kat Tretina — Tue, 05 Feb 2019 18:40:18 +0000

When you were going through the home-buying process, choosing a mortgage company was a big part of that. You likely did painstaking research on each company and carefully considered loan offers before deciding on one.

Despite all that hard work, your mortgage servicer — the company that collects your monthly payments — can change. And there's not much you can do about it. If you receive a notice that your mortgage has been sold to a new servicer, here's what you need to know about the transition.

Why mortgages sometimes change hands

It's quite common for mortgages to be sold. One day, you might find a letter in the mailbox from your mortgage servicer stating that your mortgage has been sold. Mortgages servicers sell loans for several different reasons, including:

To raise capital: Because mortgages are often repaid over the course of decades, loan servicers would be strapped for cash if they tried to manage every mortgage themselves. Instead, they bundle a group of them together and sell them to other servicers or investment companies to raise capital.
The company is closing: Some loan servicers close, or merge with other servicers. To complete the transition, they sell the current mortgages to other servicers.
They're switching their focus: When a company decides to focus on another area of business, such as commercial real estate, they'll sell off their existing portfolio.

If your loan servicer sells your mortgage, it's nothing personal against you. It doesn't say anything about you or the home you bought. It's simply a business decision.

How to handle the transition

Here's how to handle your mortgage being sold to a new servicer.

1. Pay attention to notices

Many people don't pay enough attention to their mail. They'll skim through it and toss letters or notices from companies they don't recognize. However, that's a big mistake. If you have any type of debt, including mortgages or student loans, your loan servicer will typically communicate solely through the mail. If you're not careful, you could miss out on important notifications.

Get in the habit of opening every piece of mail that arrives to ensure you have the latest information on your mortgage and other financial accounts.

2. Check your credit report

It's possible to miss a notice. You could accidentally toss a letter from your loan servicer, or it could even be lost in the mail.

That's why it's so important to check your credit report on a regular basis. Your credit report lists all of your current and past debt, including your mortgage. It lists who you currently owe money to, as well. By checking it every four months — you can access a free credit report from each of the three credit bureaus every year — you can see if your loan servicer changed. Check your credit report for free at AnnualCreditReport.com. (See also: 2-Minute Read: What You Need to Know About Credit Reports)

If you see that your loan servicer changed, call the loan servicer and ask for more information, such as payment details and when the transition officially begins.

3. Confirm with your original servicer

Unfortunately, mortgage scams are common. If you get a notice saying that your mortgage has been sold to a new loan servicer, check with your original servicer by calling them directly before sending in payments to the new one. By double-checking, you can eliminate the risk of getting scammed and giving a fraudulent company your money. (See also: Why You Should Call Your Mortgage Lender Every Year)

4. Keep up with your payments

Your notice should detail when the transition is finalized and who you need to make payments to going forward. During the transition, it's important to keep making payments to your old servicer until the loans officially transfer over, or your credit score could drop. If you're unsure about who to make payments to, contact your new loan servicer. (See also: How to Boost Your Credit Score in Just 30 Days)

5. Maintain excellent records

Loan transitions can be overwhelming, so keep receipts of all your payments. And if you speak to a representative from your loan servicer, keep notes on the date, time, and the name of the person you spoke with in case there are any problems.

What to expect from the new company

Although your loan can be sold at any time without your consent, a sale doesn't change the terms of your loan. Your new company can't reduce your repayment term, for instance, or adjust your monthly payment. The only difference you'll notice is the name of the company you write on your checks.

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This article is from Kat Tretina of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Everything New Parents Need to Know About College Savings

Tim Lemke — Tue, 26 Jun 2018 12:40:58 +0000

You've just ushered a new baby into the world, and are working to get your brain around all that you need to pay for. Diapers. Food. Child care. College.

College?

It may be nearly two decades away, but thinking about your child's college education now can help you save lots of money for when it's finally time to foot the higher education bill.

Saving for college will require a lot of discipline and patience, but you can make it happen with the right tools and knowledge. Let's take a look at some key things you need to know to send junior off to college without going broke.

Understand the cost of college

Let's start with an understanding that college is costly. The College Board says the budget for a moderately priced public college now is over $25,000 annually, and more than $50,000 for a private college. Prices have nearly doubled in the past decade and costs are expected to continue to rise. It's obviously impossible to know what college will cost in 18 years, but you can make reasonable projections based on current costs and the rate of inflation. Estimating the cost of college is obviously the one piece of information you need when determining how much to save.

Understand value vs. cost

You may have dreams of sending your child to whatever school they wish to attend, regardless of cost. That's fine, but you should also educate yourself on the schools with great reputations at a reasonable cost. The bottom line is that the most expensive schools aren't automatically the best. There are many ways for a student to get an excellent education without going into debt or wiping out your savings. (See also: Why Saving Too Much Money for a College Fund Is a Bad Idea)

Explore community colleges

Some people dismiss community college, but that's a mistake. Community colleges are perhaps the most underrated components of the academic system. There are thousands of these great colleges that offer solid education experiences for a fraction of the price of four-year institutions. They are excellent for students who aren't quite sure what they want to study or are perhaps wary of going away to school.

At community colleges, a student can often take care of many of the core requirements of a major, then transfer to a four-year institution where they can get the rest of the key coursework they need. This can ultimately save families tens of thousands of dollars. Consider community colleges when exploring future education options for your young one.

Open a 529 plan

Most states offer special savings plans that allow you to invest money for the purpose of saving for educational expenses. In most cases, you can withdraw the money tax-free when it's time to pay for college or qualified educational expenses. In a sense, they work like a Roth IRA, only for education.

Some plans also let you deduct contributions from your taxable income. These savings plans can be powerful because you can sign up for them as soon as your child is born. And if you save aggressively over the course of 18 years, you can end up with a sizable fund, perhaps even enough to cover the cost of tuition entirely.

If your child ends up getting a scholarship, you can use the funds for other educational expenses, such as a computer or other similar needs. If they don't attend college, funds can be used for vocational schools as well. You can also assign the benefits to someone else, such as a sibling or even a nephew, and there is no time limit on when you need to spend 529 funds, so you could even hold onto them and pay for your grandkids. (See also: The 9 Best State 529 College Savings Plans)

As a last resort, you can just keep the money for yourself — but you will have to pay taxes on gains as well as a 10 percent penalty. You won't pay the penalty if the beneficiary passes away, gets a scholarship, becomes disabled, or attends a U.S. Military Academy. If a child is disabled and can't attend college, it's also possible to roll 529 funds over to a 529 ABLE plan, which is designed to help disabled people with living expenses and other needs. (See also: Here's What You Need to Know About 529 ABLE Accounts)

Consider a prepaid tuition option

Depending on where you live, you may be able to take advantage of a type of 529 plan that allows you to lock in rates of college tuition now, potentially saving you tens of thousands of dollars. This can be especially powerful given that tuition continues to rise. Note that there may be some restrictions on what colleges the student can ultimately attend. (See also: Should You Save for College Using a 529 Prepaid Tuition Plan?)

Don't cheat your own retirement

You may wish to selflessly pump as much money as you can into your child's college savings account, choosing to worry about your retirement savings at a later time. But this is a dangerous strategy. If you choose to postpone retirement saving, you run the risk of not having enough saved to make ends meet when you stop working. And unlike college, you can't borrow money to pay for your retirement.

With smart planning and frugal living, you may be able to aggressively save for both college and retirement — but if you have to choose which to put money into, pick the retirement fund. If it helps, remind yourself that it's a way to ensure that your children don't have to help you financially in your later years. (See also: How to Keep Student Loans From Wrecking Your Retirement)

Let family members know how they can help

Your child's grandparents may be eager to help with future college costs, and you may have other relatives willing to pitch in as well. You can help guide them as to the smartest way to help.

In many cases, relatives may also receive immediate tax breaks by contributing to college savings plans, and they may even be able to gift money for college as a way to avoid future estate taxes.

Understand how financial aid works

It's important to learn how your income and savings can impact the type of financial assistance that your child may receive to pay for college. To qualify for grants or federal loans when it's time for your child to attend college, you will have to fill out a Free Application for Student Aid (FAFSA) form.

Not all families receive financial aid automatically. A student's eligibility is determined by a formula that takes into account the total cost of college and the expected family contribution, or EFC. The EFC is somewhat complicated, because it takes into account family income, assets, and household size, among other factors. (See also: The 10 Most Common Financial Aid Mistakes — And How To Avoid Them)

Learn about loans and their impact

It may be your plan to save for college and avoid loans entirely, but there's no guarantee you won't need them, especially if costs continue to rise. Navigating the ins and outs and pros and cons of both federal and private student loans will require some research and patience. You should seek to understand the typical interest rates on college loans, and how quickly loans must be paid back. Know that student loans can't be discharged in bankruptcy and that defaulting on loans can hurt a graduate's credit score.

It's also important to understand how student loan debt may impact a graduating student. Many recent graduates are struggling with student loan payments — the average 2017 graduate has more than $39,000 in debt — and that has an impact on everything from the jobs a graduate can afford to take, the city they can afford to live in, and the amount of other debt they end up accumulating. (See also: What to Do When You Can't Afford Your Child's College Education)

Live within your means

This may seem like such a basic piece of advice it's not worth mentioning, but it's crucial when you are trying to save for your own future as well as the college costs of a child. In an ideal world, you can save aggressively for both a child's college tuition and your own retirement, but that requires a hefty sum of cash. To achieve both goals, you must be laser-focused on keeping your spending levels low, avoiding debt, and managing budgets smartly. It may require sacrifices.

For many people, those sacrifices are worthwhile, but just be sure you know what they entail as you embark on this journey. Being prepared mentally and emotionally will help you stay on course.

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This article is from Tim Lemke of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

How to Respond to House-Shaming

Tim Lemke — Fri, 25 May 2018 09:00:16 +0000

You've heard it at the dinner table when visiting Mom and Dad. You've heard it from your cousin Phil. You've heard it from friends out at Happy Hour. "Why are you renting a home when you should be buying? Don't you know you're just throwing your money away?"

There's a lot of pressure to buy a home instead of paying rent. And, yes, there are some very valid financial arguments for homeownership. But buying a home isn't the best choice for everyone, and there are many reasons why it may not make sense for you. Unfortunately, shaming people into feeling bad about renting has become a real thing.

How can you respond to these people? Here are some retorts for those house-shamers in your life. (See also: 5 Money Moves to Make Even If You Don't Plan to Buy a House)

1. Renting is cheaper

This is not always the case, but is often true, especially when you factor in things like property taxes, association fees, and maintenance. NerdWallet last year reported that the median monthly cost of homeownership was 54 percent higher than renting nationwide — and higher than 90 percent in some states.

Many families choose to stretch their budgets when they buy a home, and that's not always the wisest choice. If you are able to live within your means while renting, but aren't sure if you could make ends meet if you bought a home, don't feel pressured into buying.

2. There are multiple ways to build net worth

Owning a home can be a great way to build your overall net worth, but it's not a requirement. As long as you are saving more than you are spending, you're increasing your net worth. And you can give that a boost through a variety of other means, including investing in stocks, bonds, or collecting rare baseball cards. You have the right to choose your own methods for building your net worth. There is no magic formula. (See also: 10 Ways to Increase Your Net Worth)

3. A mortgage is still debt

Unless you are swimming in cash, you're likely going to have to borrow money to purchase a home. In fact, most homeowners are dealing with mortgage loans of tens or even hundreds of thousands of dollars that will take decades to pay off.

Taking on a mortgage loan is nothing to take lightly, especially if you already have debt from student loans, credit cards, or automobiles. You have a right to decide what debt load you are comfortable with. Some people choose to live 100 percent debt-free, and that's perfectly fine. You should resist any pressure to go beyond the debt load you're comfortable with.

4. You need to get your financial house in order first

It doesn't make sense to try and buy a house if your financial situation is a mess. Perhaps you have a low credit score or big loans to pay off. Maybe you've been dealing with inconsistent income due to a job loss or struggles with your business. Or maybe you are just learning to get your own personal spending under control in order to save money.

If your finances aren't in good shape, it may be hard to buy a home in the first place and any home you do buy may just place additional stress on your money situation. If you feel the need to respond to a would-be house shamer, a simple reply of, "We need to get our financial act together first" is a reasonable response.

5. You simply may not want a house

The bottom line is that you may not want to own a home in the same way you have no interest in owning a dog, a fur coat, or a herd of alpacas. People can make all kinds of financial arguments in favor of homeownership, but they are meaningless if you don't actually want a house. A house comes with work and responsibilities that you may not have interest in. You may not be drawn to the idea of settling into a single place. Homeownership just may not be your thing, and that's fine! If you don't want a house, don't buy one. (See also: 4 Worst Reasons to Buy a House)

6. You have other priorities

You may one day like to own a house, but choose to use your time, energy, and money on other pursuits at this point in time. Perhaps you'd like to finish graduate school or pay off student loans first. Maybe you want to focus on building your business or your career. Perhaps you want to focus on your health after recovering from a long illness. Maybe you'd like to spend a few years with your new spouse before taking on the responsibilities of homeownership. There are a million things you can do to better your life at any given time, and buying a home is just one option.

7. It takes time to save for a down payment

One of the easiest ways to get into financial trouble is to purchase a home with little or no down payment. The less money you put down, the more money you have to borrow, and the larger your monthly mortgage payments will be. Putting less than 20 percent down on a home might mean you'll be required to buy private mortgage insurance, and that adds cost to your loan. The sensible way to buy a home is to save as much as you can and put down a healthy down payment, thus keeping your monthly payments low and putting you on the fastest path to building equity and wealth. (See also: 4 Easy Ways to Start Saving for a Down Payment on a Home)

8. You're not settled on where you want to live

It takes time to get a strong sense of whether you want to settle down in a specific community. Maybe you aren't quite settled in your career. Maybe you or your spouse are in the military and know you may have to relocate within a year or two. If you buy a home and decide to move within a few years, you could be faced with the pressure and work of selling the home. If you have not had time to build equity in the home, you may not make much profit on the sale and may even lose money. This also comes down to comfort level. If you simply don't feel right buying a home in a community you don't plan to settle into, renting is perfectly fine.

9. It's nobody's business

Look, you're going to get all kinds of advice on how to best manage your money. A lot of that advice is great. Some of it is not. But ultimately, the decisions you make with your money are yours and yours alone. The choices you make with your money should be based on your own personal situation and values. The next time someone questions why you haven't purchased a home, it may simply be best to say, "None of your business."

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This article is from Tim Lemke of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

9 Things to Consider Before Retiring to a Tiny Home or RV

Carrie Kirby — Mon, 21 May 2018 08:00:26 +0000

Magazines and design blogs are full of stories of retirees downsizing to tiny homes to cut their expenses and responsibilities. With costs around $30,000 and monthly utilities as low as $15, some enthusiasts even say that trading a traditional home for a tiny house or RV allowed them to retire early. While the tiny house trend is pretty new, retiring to a life on the road in a recreational vehicle is an established tradition among retirees.

Should an RV or tiny house show be your first stop once your final day on the job is over? Not so fast. Committing to a major purchase immediately after retirement is rarely a good idea, and there are plenty of important things to consider first.

1. Will your tiny home be legal?

Federal codes as of 2018 state that a house must be at least 88 square feet, but many states have additional regulations. In areas of North Carolina, for example, you need at least 150 square feet, plus 100 square feet more for each additional resident.

2. What will you do with your stuff?

The average retiree has a lifetime's accumulation of possessions in their home: Gifts from children and grandchildren, collections, holiday decorations, kids' left-behind sports trophies. A tiny house or RV won't have room for any of that. You'll have to dramatically downsize, whether that means putting things in storage, giving them away, or having an estate sale.

3. What will the furnishings cost?

While you may be saving money on mortgage, utility, and property taxes with a tiny house or RV, don't forget that you probably won't be able to reuse any of the furniture from your previous home. You'll have to pay for built-in or custom-built furniture and appliances. (See also: 5 Unexpected Costs of Living in a Tiny House)

4. Will you be able to age in the home?

RVs and tiny houses are often perched on wheels or raised above ground. You may need to climb a ladder to reach your bed every night. What will happen if you end up using a cane or wheelchair? Will you be able to retrofit your tiny home or RV to make it accessible? I came across one retiree who had a rock-climbing harness modified to lift her into her loft every night; I can't help wondering how much she likes that setup if she has to use the bathroom at 2 a.m.

5. How will this affect family traditions?

If you hold a big Thanksgiving dinner every year in your regular home, don't imagine you'll continue the tradition in your tiny home or RV — at least not in the same way. These pocket-size residences have no entertaining space, and their kitchens don't facilitate cooking for a crowd. What will happen to the events you used to host? Will you invite loved ones to camp near you and eat turkey at a picnic table? Or will an adult child take over hosting?

6. Where will you park?

My husband and I sometimes daydream about spending our retirement parking an RV in the driveways of our grown children, visiting one after the other throughout the year. If this is your plan, what do your children think of it? Do they have an off-street place for you to park? What about water and sewage hookups? If you want a more permanent place for your tiny home, you'll need to find out if your state has tiny house co-ops, or what the rent would be in a trailer park. You can find out more about zoning through the American Tiny House Association.

7. Will your relationship withstand the change?

If you and your spouse have both been working for decades, retirement itself will be a big change involving a lot more togetherness than before. Are you really ready to give up private spaces in your home to spend your days within a few feet of one another? If your spouse leaves his shoes on the floor, will it irritate you to no end that you can't even walk around them? Tiny homes and RVs typically have just one bathroom; are you ready to share?

8. Can you get a loan?

Some retirees are able to buy an RV or tiny home outright after selling their traditional home. But if you need a loan, you won't be able to take out a standard mortgage on a recreational vehicle. You'll need an RV loan, and since RVs are considered a luxury item, you'll need excellent credit to qualify. With a tiny house, you'll need either an RV loan or a personal loan. (See also: 3 Ways to Finance a Tiny House)

9. Which should you get, a tiny house or an RV?

Some people wonder why tiny houses cost more than RVs. Is it just because they're cute and trendy? Actually, there is a substantial reason: A good tiny house should be durable enough for everyday use, while RVs are built for vacation use, and tend to fall apart faster.

A word of advice: Try before you buy

Whether you think a tiny house or an RV is your ideal future home, you should rent at least one before you jump in and buy. Weekending in various styles of tiny homes and/or RVs is a good start, but remember that vacation life is always easier and more fun than everyday life. If you are serious about making the lifestyle leap, consider packing up and moving to a rented tiny home or RV for a substantial amount of time, like six months or a year, before you start shopping in earnest.

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This article is from Carrie Kirby of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

This Is the Difference Between a Loan and a Line of Credit

Dan Rafter — Mon, 14 May 2018 08:31:14 +0000

Maybe you need some money to fund the renovation of your home's 1970s-era kitchen. Or maybe you need a quick chunk of cash to pay down high-interest credit card debt or help pay for your kid's college tuition. Should you get that cash from a loan or a line of credit?

You may wonder what difference it makes, but there actually is a difference. And both forms of borrowing come with positives and negatives.

Before you take out either a line of credit or a loan, it's important to understand the key differences between the two.

Loans give you a single lump-sum payment

The main difference between a loan and a line of credit is in how the money is dispersed with each option. In a loan, you'll receive a single lump-sum payment. You pay back the money you've borrowed, with interest, each month over a period of years.

Taking out a mortgage to finance the purchase of a home is a good example. Your lender provides you with a single payment that you use to buy your home. You then send a check to your lender each month, paying back the principal balance of that loan along with interest.

Other common types of loans include auto loans, student loans, and personal loans. In all of these products, you're given a big chunk of cash that you steadily pay back with regular payments.

Lines of credit act more like credit cards

With a line of credit, a lender approves you for a maximum amount of dollars that you can borrow. But you don't have to borrow up to the maximum. You can instead borrow whatever you need to pay for home improvements, paying off other forms of debt, helping your children with their college tuition, or whatever other expense you need the money for. With a line of credit, you only pay back what you borrow.

A home equity line of credit, better known as a HELOC, is a good example. Your lender will approve you for a maximum amount that you can borrow based on the equity you've built up in your home. Say you have $100,000 of equity in your home. Your lender might approve you for a line of credit up to $80,000.

If you want to borrow $20,000 to remodel your bathrooms, you borrow that amount, leaving $60,000 still available for future projects. Once you borrow that $20,000, you have to begin paying it back in monthly installments, with interest. (See also: 5 Questions to Ask Before Applying for a HELOC)

With loans, your payments are (mostly) fixed

With a typical loan, you usually know what your payment will be each month. If you borrow $20,000 to buy a new car, you'll make the same payment each month — a payment in which your dollars will go toward paying down your principal balance and paying off interest — until you've repaid the loan.

With a line of credit, your monthly payment will vary depending on what you've actually borrowed. If you've only borrowed $10,000, your monthly payment will be smaller than if you've borrowed $50,000.

The exception with loans, though, can come with a mortgage. Even if you take out a fixed-rate mortgage in which your interest rate remains the same over its life span, your monthly payment could fluctuate. That's because lenders usually require borrowers to also include payments for homeowners' insurance and property taxes with their mortgage checks. If your taxes or insurance costs rise or fall, your monthly payment might fluctuate.

Your mortgage payment could also change if you take out an adjustable-rate mortgage. With these loans, also known as ARMs, your interest rate will change during the repayment period, causing your monthly payment to rise or fall accordingly.

Interest rates are higher on lines of credit

Loans tend to come with lower interest rates than lines of credit. As an example, Freddie Mac, in its primary mortgage market survey, said that the average interest rate on a 30-year, fixed-rate mortgage as of the week ending April 26 stood at 4.58 percent. For a 15-year fixed rate mortgage, the average rate was 4.02 percent.

At the same time, home equity lines of credit are currently averaging interest rates of over 5 percent.

Closing costs are higher with loans

You'll usually spend more upfront to take out a loan than you will to originate a line of credit.

Loans typically come with higher closing costs — fees that lenders and third-party providers charge to create your loan. A good example is with mortgage loans: You can expect to pay about 3 percent of your total loan amount in closing costs and fees. (See also: Here's What's Included in a Home's Closing Costs)

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This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

7 Liabilities That Will Ruin Your Net Worth

Tim Lemke — Thu, 15 Mar 2018 09:30:17 +0000

If you're passionate about personal finance, you know about the importance of building net worth. This means accumulating things that will grow in value, while reducing your liabilities. A person with no debt, a home that they own free and clear, and a sizable retirement account likely has a high net worth. A person with thousands of dollars in credit card debt, a burdensome mortgage, and no cash savings has a low or even negative net worth.

Building net worth is about accumulating money and assets, but it's also about reducing liabilities. In short, it's about making sure debt isn't hurting your ability to achieve your financial goals. Here are some big liabilities that can hurt your chances to build a high net worth. (See also: 6 Money Moves to Make If Your Net Worth Is Negative)

1. Credit card debt

Credit cards can be poison to those looking to generate wealth. Interest rates on credit cards are so high that it rarely makes sense to carry a heavy balance on them. The average household with credit card debt owes more than $15,000 on their cards. It's no wonder Americans are, in general, fairly lousy at building net worth.

Having a lot of credit card debt can hurt your credit score, thus making it more expensive to borrow for mortgages and auto loans. This leads to a nasty spiral that virtually guarantees your liabilities will be larger than your assets. If you have credit card debt, start paying it off as soon as possible. Aggressively reduce your expenses, learn to invest rather than spend, and get out from under the pressure of those crippling cards. (See also: The Fastest Way to Pay Off $10,000 in Credit Card Debt)

2. Car loans

Many people live with car payments as a permanent part of their lives. Financing the purchase of a vehicle is a common practice, but is also an easy way to add to your liabilities while adding very little to your net worth (cars almost always decline in value).

Vehicles aren't cheap, but if you can avoid making car payments over the course of several years, you'll be better off financially. Work to save toward the purchase of a vehicle so payments are minimal or nonexistent. Resist the urge to purchase a new car until the one you have is no longer viable. Avoiding several hundred dollars a month in car payments will free up cash to invest and accumulate assets rather than see your net worth stagnate. (See also: Cutting Your Car Payment Is Easier Than You Think)

3. Unpaid taxes

Yeah, taxes are a pain. No one really feels like paying them. But if you don't pay them, they turn into liabilities that can grow as a result of penalties and fines. Failure-to-file penalties only add to your tax bill, and keep increasing the longer you avoid paying.

If you are employed, most of your taxes are taken from your paycheck, but you still may find that you owe some money on your tax return. Self-employed people must be extra diligent to ensure they are paying taxes on any income they receive. It's also important to make sure you are paying proper real estate taxes on your home, as well as taxes for income gained from your investments. (See also: 8 Tax Return Mistakes Even Smart People Make)

4. Medical bills

There will come a time when you or a family member gets hurt or injured. The expense of hospital stays, surgeries, or ongoing care can be devastating. It's driven many families into bankruptcy and can crush any attempts to boost your net worth.

It may not be possible to avoid medical emergencies, but you can protect yourself by being properly insured. If your employer subsidizes the cost of health insurance, take advantage. If you are self-employed, seek to find a reasonably priced plan through a state or federal health exchange. Insurance isn't always cheap, but it will prevent you from taking on costly medical bills that destroy your financial well-being. (See also: How to Handle a Massive Medical Bill)

5. Student loan debt

We often view student loans as investments in our financial future because an education can help us earn more in our career. But until they are paid off, student loans are only liabilities. If you are still in school, you have some time before you have to start making payments; but once you graduate, those loans can become awfully burdensome. Heavy student loans can force you to take on additional debt just to make ends meet, in turn sinking your net worth even further.

To avoid this, it's important for you and your family to save as much money for college as possible in advance. Take cost and value into consideration when making your college choice, and think about getting a job while in school to help pay for tuition. This may require some tough choices, but avoiding student loan debt will help you get on track for building your net worth much sooner. (See also: 6 Questions to Ask Before Taking Out Student Loans)

6. Your mortgage

Owning a home can be a great way to build your net worth, but that may not be the case if you have a bad mortgage. If your payments are so high that you are unable to save money and invest, it's preventing you from boosting your net worth in other ways.

Borrowing money to buy a home is perfectly normal and has helped countless people get on the path to financial freedom. But it's important to have a mortgage that helps you more than hurts you. Put as much money down as you can so the loan itself is not too large. Get a loan with a low, fixed interest rate with a relatively short term (30-year mortgages are OK, 15-year mortgages are even better).

When you begin paying off your mortgage, you may not be paying off much of the principal of the loan at first. But soon, you'll be making a good dent and building real equity. And that's the path to building net worth. (See also: 8 Signs You're Paying Too Much for Your Mortgage)

7. Home equity loans

It's not uncommon for people to borrow money from the equity of their home to pay for major expenses. There are a variety of reasons why this may make sense. But it's important to be careful when doing this. When you are borrowing from your home equity, you are essentially turning an asset — the equity of your home — into a liability. In essence, you are taking away something that adds to your net worth.

In the long run, borrowing from home equity can help build wealth if you make the right financial choices. For example, you could use money from the equity of your home to make repairs or expand the home, thus boosting its value. And when interest rates are low and market returns are high, it may make sense to borrow for major purchases and use your available cash to invest instead. Just be sure to weigh the risks and rewards before borrowing heavily against the equity in your home. (See also: 4 Smartest Ways to Use a Home-Equity Loan)

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This article is from Tim Lemke of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

7 Warning Signs You're In Debt Denial

Paul Michael — Fri, 16 Feb 2018 10:00:06 +0000

Many people are in denial about the debt that they owe. When faced with the ugly truth, it's sometimes easier to or minimize the importance of it or flat-out reject the extent that we're in debt. The longer you stay in denial, the bigger the debt grows. Learn to know the warning signs before denial kicks your finances where it hurts.

1. Taking on debt to pay down other debts

This kind of strategy will dig you into a deep debt hole in the blink of an eye. If you get a credit card to pay off another credit card, your money woes can quickly multiply. Interest will keep on accruing. And eventually, the balance still needs to be paid.

There can be certain exceptions to this. A low-interest loan to pay off high-interest debt can be a smart way to minimize interest payments, so long as it is paid back quickly. A classic example is using a balance transfer credit card with a promotional 0% APR, or consolidating debt through a home-equity loan or a refinance.

However, even with these strategies, you must be very careful. Balance transfer credit cards should be paid off in full before the promotional 0% APR window closes and normal interest rates kick in. And your home is not a bottomless piggy bank, as many people found out in the 2008 housing crash. (See also: When to Do a Balance Transfer to Pay Off Credit Card Debt)

2. Not having any kind of monthly budget

One of the best ways to address your debts is to get a complete picture of your finances. You should know your monthly incomings and outgoings, and create a budget based on that information. If you ignore budgeting and just try and wing it month to month, you could be in serious debt denial. This is a shaky foundation for your financial future.

It's important that you keep a record of every penny you spend, every penny you earn and save, and every cent you have in debt. That way, you can create a monthly budget to ensure that the bills all get paid on time, you spend only what you need to on food, entertainment, and clothing, and you have enough left over to start paying down your debts. (See also: Stop Using These 5 Excuses Not to Budget)

3. There are stacks of unopened bills laying around

A big red flag that signals debt denial is refusing to even acknowledge what you owe, and how soon you owe it. By letting your bills pile up on the kitchen counter unopened, you are merely putting off the inevitable. Sooner or later, the bills have to get paid. If they don't, you can be cut off (which requires additional fees to reinstate service), you could have your car repossessed, and you could even lose the roof over your head.

Attack that pile of unopened bills as soon as you can. If they are too big to handle, call your service or loan providers and see if they'll work out a payment plan with you. You never know until you ask. Oh, and if you are scared of looking at your bank or credit cards statements, that's another warning sign of debt denial. Bite the bullet and face the truth. (See also: Pay These 6 Bills First When Money Is Tight)

4. Making the minimum payments on everything

Financial institutions love people who only make minimum payments. There are two broad terms used for credit card customers — "transactors" and "revolvers" — and the latter are adored because they never pay off their balances.

Transactors pay off their credit card bill in full at the end of each month, taking advantage of points and rewards without having to pay interest. Revolvers, on the other hand, regularly run balances. For those who only make minimum payments, interest makes it almost impossible to get a foothold on the original balance. (See also: All the Ways Minimum Payments Are Evil)

If you find yourself making only minimum payments on everything, consider a debt snowball approach. Find the debt with the lowest balance, send as much money as you can to it, and continue making minimum payments on your other accounts. When that small debt is paid off, apply the extra amount you were paying to the next largest debt, and so on, until it all snowballs and your debts are paid in full.

Paying off small debts first may cause you to pay more interest in the long run, but the psychological satisfaction of checking off a debt can be powerful motivation to keep going. (See also: 6 Secrets to Mastering the Debt Snowball)

5. Maxing out every card and loan you have

When you get a new credit card, it comes with a spending limit. When you combine the credit limits of all your cards, and compare that number to the amount you have borrowed, you'll get a figure called a credit utilization ratio.

Let's say you have $10,000 of available credit, and you currently owe $2,000 spread out across your combined credit cards. You have a 20 percent credit utilization ratio, and lenders like to see that. It means you're being careful with your money and not running up balances. Most experts recommend you try to keep this ratio below 30 percent. Even better if you can keep it below 10 percent. (See also: This One Ratio Is the Key to a Good Credit Score)

If you're maxing out all of your credit cards, and you're hitting 80 to 90 percent of the credit you can borrow against, your credit utilization ratio is too high (especially if it's a six-figure credit limit). This tells any potential lender that you're a risk, and you likely won't be approved for any new lines of credit. If you are, it will come with sky-high interest rates.

6. Buying things you don't need while debts go unpaid

You should really be paying down the credit cards, or that electricity bill that's a few months overdue. But the jacket you've been eyeing is on sale right now, and you won't get another shot at a bargain like this. You put the bills off a little longer, and go for the jacket.

This kind of mentality traps us all at some point, especially if we're feeling down and would rather spend the money on ourselves than give it to the bank or the utility company. Once again, the brutal truth has to be addressed. Spending money on stuff you don't need and cannot afford, while letting interest pile up on your debts, is a one-way ticket to bankruptcy.

7. Counting on a stroke of good fortune to solve your problems

We all do it. There's no harm in dreaming about winning the lottery, or finding a valuable piece of jewelry or artwork in the attic. But there's a big difference between dreaming of a windfall, and depending on one to get you out of debt.

It can be dangerous to think this way when you have money woes. That last $20 in your pocket goes to Powerball tickets or scratch cards, rather than buying food or paying a bill. The odds are not in your favor, and you may as well throw the $20 in the trash. And yet, the fantasy of winning thousands, or even millions, is hard to ignore. For a while, you feel like you might get lucky — but when the dust settles, you now have $20 less to your name.

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This article is from Paul Michael of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

3 Reasons Taking a Loan For Your Wedding Is a Bad Idea

Denise Hill — Wed, 14 Feb 2018 09:01:05 +0000

Imagine standing at the altar on your wedding day. Staring deep into your beloved's eyes, suddenly, you are struck by the thought that this one "priceless" moment is costing you over $30,000. And that doesn't include the five-day, four-night honeymoon in Cancun. What have you done?

According to The Knot, the national average for the cost of a wedding in 2016 was a whopping $35,329. And since most couples don't have that kind of cash upfront, many turn to loans to finance all or some portion of it.

Technically speaking, there's no such thing as a "wedding loan." A wedding loan is just an unsecured personal loan where the interest rate is based on the creditworthiness of one or both potential spouses. But kicking your marriage off with debt is a recipe for unnecessary stress and hardship. It can set you back financially before you even gain any momentum in what should be a new, exciting chapter of life.

If you are contemplating using a wedding loan to help you pay for your big day, here are three key things you should consider.

1. You squander your money's opportunity cost

Every dollar comes with an opportunity cost — meaning there are infinite ways that one dollar can be spent. Once you spend the dollar, you lose all of the other potential things you could have purchased with it.

Taking out a loan for a wedding is financial double jeopardy. Not only do you lose the opportunity cost for each dollar you've spent, but you also limit what you could have strategically used your credit for — such as purchasing a home or starting a business.

There are so many ways to spend money, and shelling out copious amounts of cash to pay for a one-day event is a bad investment. Starting your life together with a huge amount of unnecessary debt adds more stress to a naturally stressful endeavor. Marriage is tough. In lieu of investing in a single day that won't appreciate in value, take that money and invest in your life with your partner.

2. You drastically increase the cost of your wedding

We've already established that having an expensive wedding is a bad investment, but taking out a loan to pay for a wedding is asinine. Let's say you take out a $20,000 personal loan for your wedding at an annual percentage rate (APR) of 10 percent. And because you and your fiancé both have student loans, car payments, several thousand dollars in credit card debt, and are looking to purchase your first home, you opt for a 10-year repayment period.

Your minimum monthly payment is going to be $264.30 per month for 10 years. During that time, you will pay over $11,000 in interest. Your $20,000 wedding just skyrocketed to $32,000. Think about that for a second. Ten years of your life and $32,000 spent paying for a five-hour event. That money could have been a down payment for a home.

What's more, according to the U.S. Census Bureau, first marriages that end in divorce do so within an average of eight years. That means if happily-ever-after comes to an end before your loan is paid off, you'll be paying for your wedding and your divorce simultaneously. (See also: How to Save Big on Everything for Your Wedding)

3. Spending big leads to more big spending

Spending big on an extravagant wedding establishes spending expectations. This big spending attitude can quickly seep into all financial decisions and an attitude of entitlement can emerge — because you deserve "the best," which is usually defined by people with extravagant tastes. Now the honeymoon has to be lavish with no expense spared. Your home has to be opulent and in the fanciest neighborhood. Your kids have to wear the trendiest clothes, attend the most prestigious private schools, and belong to all of the "it" clubs. The cycle can consume your marriage.

If you and your spouse-to-be can find a way to be creative and have a wedding that is meaningful, intimate, and budget-friendly, you will establish a better foundation. You will be setting a tone of living within your means and valuing quality over size and quantity.

The essence of marriage is appreciating the little things and making the daily grind adventurous. When you pressure yourself and your spouse to continuously "go big," you add a mountain of undue stress — both emotionally and financially — on your marriage. (See also: People Are Still Spending Too Much on Their Weddings)

A $40 wedding story

I recently celebrated my 22nd wedding anniversary. As I look back and recall my wedding, a smile slowly creeps across my face. We spent $40 on the ceremony and had our reception at Applebee's. Our best friends were there and we had the time of our lives.

Over these past 22 years, I've never looked back and wished we had done things differently. In fact, we have renewed our vows twice since then (we do it every 10 years) and each time it's been a quiet ceremony in our pastor's office. The only people who attend are the pastor and my husband and me. It's intimate, private, and special.

I am not saying you should forgo a large wedding. You have found and are marrying the love of your life. That level of commitment should be honored. But before you pull out all the stops and plan the wedding of the century, pause and assess how you are spending that money. Do you really need to spend $2,000 on flowers? If something isn't important to you and your fiance, don't borrow money to pay for it.

Marriage is a marathon, not a 100-yard dash. Try shifting your focus from having the perfect wedding day to building your life together. Chose to invest in you.

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This article is from Denise Hill of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

6 Ways Good Credit Is Better Than a Boyfriend

Sarah Winfrey — Thu, 18 Jan 2018 09:00:07 +0000

Having good credit may not sound like much when compared to romance. After all, there aren’t many candlelit dinners, vases overflowing with roses, or long walks on the beach with good credit.

However, while having a significant other is a wonderful thing, a strong credit history can enhance your life in ways romance can't quite match. Here are some things that your love life can’t always promise you — but good credit can.

1. Good credit is always there for you

No matter when you need it — whether it’s the middle of the night, or the middle of the workday — good credit is always there for you. Even if you just want to check it again, one more time to feel more secure, good credit doesn’t think you're being clingy.

Good credit doesn’t require anything special to keep it happy: Simply keep up with smart money habits, and it will show up wherever and whenever you need it, whether it’s for a car loan, a home loan, or that new apartment you’ve been wanting. (See also: 6 Ways Life Is Better With Good Credit)

2. Good credit comes through in an emergency

Do you need to move across town quickly? Good credit will help you land an awesome new apartment. It will also help get your utilities set up without any deposits or letters of guarantee, making the whole process quick and painless.

Maybe your car got totaled and you need a loan for a new one, fast. Good credit will come through for you there, too, giving you a better chance of getting the best terms on the loan for your new ride. (See also: 5 Ways to Improve Your Credit Score Fast)

3. Good credit rewards you every day

When you have a solid credit score, you stand a much better chance of qualifying for the best rewards credit cards that fit your needs and lifestyle, and at a much lower rate. This means that every time you swipe, you’ll earn bonuses, miles, or cash back that will make your life a little sweeter. And it’s all thanks to good credit, who helped you land the cards in the first place.

A romantic partner might reward you on occasion, but there will undoubtedly be some rocky times. That high credit score, however, is committed to making your life a little better every single day. (See also: The Best Credit Cards for People With Excellent Credit)

4. Good credit saves you money

Birthdays, holidays, anniversaries: Significant others can be expensive! Good credit, on the other hand, helps keep your money in your pockets. You’ll pay less in deposits for things like utilities and mobile phone contracts. You’ll pay less in interest on loans and credit cards. Your auto insurance rates will be lower, too. Every day, you’ll have more money to spend on the things that make you happy, all courtesy of good credit.

5. Good credit helps you get a home

Buying a home with your significant other can be pretty scary. Buying a home with good credit, though, is easy. You'll get preapproved in a snap, and your mortgage payment will be lower thanks to a better rate. This will leave you with more room in the budget for things like decorating, dining out, and — most importantly — savings. (See also: What Is a Good Credit Score and Why Is It Important?)

6. Good credit helps you get your way

There’s no partner on earth who will let you have your way all the time — but good credit will. Maybe you need a small loan to cover an unexpected home repair. If you harness the negotiation power of a sky-high credit score, you can ask for a lower interest rate or a more attractive repayment plan. You can also shop around for the best quotes from different lenders, and leverage them to get an even better deal.

Romantic relationships make life worthwhile and so does having strong credit. Sometimes, romance is better — but other times, a good credit score is more comforting, reliable, supportive, and helpful than a boyfriend.

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This article is from Sarah Winfrey of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

7 Money Conversations Parents Should Have With Their Adult Kids

Sarah Winfrey — Wed, 22 Nov 2017 10:00:07 +0000

It's hard for many of us to talk about money. Money conversations can be stressful and awkward, and you may be tempted to just stay mum on the subject. However, it's vital that you pass financial wisdom on to your kids, even when they're adults. It's important to teach them about money growing up, but there are some things better discussed when they are older. Here are the money conversations you should be having with your adult children.

1. Financial boundaries

If you are supporting your adult children and you'd like to stop, or if you want to avoid it altogether, it's important to set up some financial boundaries. If you don't want to support them financially at all, tell them that up front and stick to it. That way, you won't end up paying for things and resenting it.

If your adult kids are relying on you for part or all of their financial support, sit down together and form a plan. Cutting them off entirely probably won't work for either of you, but you can start slow; back off on payments over the course of six months to a year, and set up concrete steps along the way. For instance, you may decide to stop giving them "fun" money right away, but be willing to cover their cellphone plan for six more months.

Make sure you go about having this conversation compassionately. Tell your child that you love them and that you want this for them as well as for you. Offer to help them along the way, to be available to answer questions or aid in budgeting, and let them know that you will always be there for them in other ways. (See also: Are You Ruining Your Retirement by Spoiling Your Kids?)

2. Financial values

Have a conversation with your adult child about what they want in life and how much those things will realistically cost. This is the time to talk about the financials behind car ownership, homeownership, traveling the world, and more. Make sure they have an understanding of how much money they'll need to have in order to afford the lifestyle they want, and how much they need to make in a week, a month, and a year to achieve that.

Talk to them, also, about what is really important in life. Tell them that fancy cars, big houses, and lavish vacations aren't the keys to happiness. Ask them to think about what they would pursue if they were dying or what they would miss most if they suffered a serious injury. This can help them figure out what is important to them and what they may not be willing to trade their time and money for.

3. What it means to live within your means

Your adult kids need to understand the importance of spending less than they earn. Show them how to calculate this so they can determine for themselves when to spend their money and when it would be better to save or invest it. Your kids need to figure out how to sacrifice spending on superfluous things in order to live a financially secure life.

4. How to make a budget

Along the same lines, your adult children need to know how to make a budget. You can actually begin teaching this in childhood by giving your kid a weekly allowance and helping them break down how they want to spend their money. Even if you wait until they're older, though, you need to sit down with them and make sure your kids understand what they need to spend money on, what they want to spend money on, and how to allocate those dollars accordingly. (See also: Build a First Budget in 5 Easy Steps)

5. The benefits and dangers of loans and credit cards

In a culture where credit is readily available, your kids need to know how to evaluate different credit opportunities based on benefits and drawbacks, as well as how to wisely use credit. As soon as they are old enough to obtain financing of their own, you need to talk with your kids about credit cards, educational loans, personal loans, and home loans.

It will help to tell stories from your own life. Whether you've made financial mistakes or have been wise with your money, walking your kids through how you made your financial decisions and how they ultimately affected you will make the principles real, rather than keep them so abstract. (See also: Financial Basics Every New Grad Should Know)

6. Saving for retirement

It can be hard for people in their late teens and 20s to think about saving for retirement, because it all feels so far away. But it's critical you talk with your adult children about how much they may need for retirement, and walk through some compound interest calculations with them so they see the benefit of saving early. Make sure they understand the basics of an IRA and 401(k), as well as what it means to be fully vested and take advantage of an employer match. (See also: Basic Intro to Retirement Funds)

7. Your financial plan

As your kids get older, they also need to know about your financial plan, before they find themselves trying to figure it out without you. This can be an especially difficult conversation to have, because on top of talking about money, you're also talking about serious injury, illness, or death.

Still, it's important for your kids to know what types of insurance you have, because knowing whether you have long-term care coverage, for instance, may help them make better decisions later on. Talk to them, too, about how you plan to divide up your estate. This can keep conflicts to a minimum after you are gone, so they can grieve instead of fight. (See also: The Fair Way to Split Up Your Family's Estate)

If one of your adult children is the executor of your will, make sure they understand that responsibility and that they have all the relevant information. They should have access to the location of your accounts, the account numbers, and any identification information, as well as contact information for your lawyer. You can write all of this out for them so they can simply file it away until they need it.

Talking about money can be hard, but it's also important. Speaking with your adult children about these topics will ensure they have a better chance at a financially healthy life.

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5 Benefits of Carrying a Mortgage Into Retirement

Dan Rafter — Wed, 25 Oct 2017 08:30:06 +0000

The goal is a simple one: You want to enter your retirement years without monthly mortgage payments. Unfortunately, not everyone meets this goal. According to Voya Financial, 26 percent of current retirees still have an outstanding mortgage balance.

If you're one of these retirees, don't despair. It's not ideal, but leaving the working world with monthly mortgage payments doesn't have to be a financial disaster. There are some benefits of carrying a mortgage into your retirement years. (See also: Why Retiring With Debt Isn't the End of the World)

1. It's better than credit card debt

Mortgage debt comes with low interest rates. That makes it much less painful than credit card debt, for example. While your mortgage loan might come with an interest rate of 4 percent or even lower, you'd be lucky if the interest rate on your credit card was only 15 percent.

So if you are nearing retirement and you have both mortgage and credit card debt, it makes more sense to devote any extra dollars to paying off your credit cards first. You can start worrying about your mortgage after you've eliminated your debt with the highest interest.

Of course, it's best to enter retirement with neither mortgage nor credit card debt. If this isn't possible for you, do the smart thing and tackle those cards first. (See also: What to Do If You're Retiring With Debt)

2. Sometimes it's better to invest

You might be able to pay off that mortgage loan before retirement if you sink enough of your extra dollars into it. But it might make more sense to place those same dollars into the stock market or other investment vehicle.

The average annual return for the S&P 500 since it was first launched in 1928 has been about 10 percent. And that's factoring in both great years and terrible years. So instead of pouring more money into your mortgage, you might do better financially by investing your extra dollars and enjoying the higher returns. (See also: 7 Reasons to Invest in Stocks Past Age 50)

This only holds true, of course, if you can actually afford your mortgage payment once you move into retirement. If you're worried that you won't have enough monthly cash flow to make these payments on time, do everything you can to pay off that mortgage first. (See also: 6 Ways You Can Cut Costs Right Before You Retire)

3. Paying rent can be risky

Your retirement plan might involve selling your home, paying off your mortgage, and downsizing to an apartment. But be careful: Renting comes with plenty of risk.

If you have a fixed-rate mortgage, your payment will remain mostly constant until you pay it off. If you're renting, though, your landlord can raise your monthly payment every time your current lease agreement comes to an end.

When living on a fixed income, certainty is good. The life of a renter doesn't have as much certainty. Again, if you can afford your monthly mortgage payment, you might want to keep it and avoid the uncertainty of rent that could fluctuate from year to year.

4. You won't lose the tax deduction

Homeowners with mortgage payments do receive a tax deduction every year. Each year, they can deduct the amount of interest they pay on their home loans. If you pay off your mortgage loan, you'll lose this deduction. (See also: Is it Safe to Re-Finance Your Home Close to Retirement?)

It's important to note, though, that this deduction might not be particularly large by the time you're nearing retirement. That's because you pay far more interest each year during the earliest days of your mortgage. By retirement age, you'll probably be paying far less in interest with each monthly payment.

Again, though, if having a mortgage payment fits comfortably in your budget, you might want to keep that deduction. (See also: 10 Surprising Ways Real Estate Cuts Your Taxes)

5. You keep your dream home

Most retirees who need to pay off a mortgage do so by selling their homes. But what if you love your home? What if it's located in the ideal location near family members and friends? You might not want to sell.

And what if selling your home won't generate enough income to allow you to move into an assisted-living facility, downtown condo, or smaller suburban home? There's no guarantee that you'll fetch the dollars you need in a home sale.

Keeping the mortgage — if you can afford the payments — could allow you to stay in a home that already fits your needs.

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5 Ways to Get the Most From Your Employer’s Automated Retirement Plan

Matt Bell — Wed, 18 Oct 2017 08:30:06 +0000

An increasing number of companies are automating their 401(k) plans — automatically enrolling new hires and even automatically choosing investments for employees. If that's true of your employer, don't be lulled into a false sense of confidence. Just because many decisions are being made for you doesn't necessarily mean they're the right decisions. Here's what you need to know.

1. Stay in

The starting point of automated retirement plans is automated enrollment. To not participate, you have to opt out. Don't do that. For the vast majority of employees, participation is a good thing.

2. Invest enough

Most automated plans set employee contributions at very low rates, such as 3 percent of salary, at least initially. Many employees, perhaps assuming that's how much they should be investing, never change their contribution rate.

However, 3 percent of salary is almost certainly not enough — not enough to get the full company match if that's available, and not enough to save adequately for retirement. So, use a free online retirement planning calculator to find out how much you should be saving and set your contribution rate accordingly.

If you can't afford to contribute enough right away, see if your company's plan offers auto-escalation, which will automatically increase your contribution rate over time. If it does, signing up would help you follow through on your good intentions.

3. Choose the right investment(s)

Your plan may automatically invest your contributions in a target-date fund. Such funds have many benefits, but also a few features you should watch out for. The primary benefits are that they come with preset asset allocations based on the year of your intended retirement, and they automatically become more conservatively invested as you near your target retirement date. (See also: What You Need to Know About the Easiest Way to Save for Retirement)

The primary thing to watch out for is that not all target-date funds are created equal. Funds from different fund companies all designed with the same target retirement date in mind can have very different stock/bond allocations.

It would be best to determine your optimal asset allocation using a tool such as Vanguard's free Investor Questionnaire. Then choose the target-date fund that most closely matches that allocation. It might be one with an earlier or later target retirement date than your actual planned retirement date, depending on your optimal asset allocation.

4. Don't pay too much in fees

If a target-date fund is the default investment in your 401(k) plan, and if you like the idea of using a target-date fund, you should still check the fund's expense ratio. The lower, the better. For example, with a fund charging an expense ratio of 0.75 percent, you'll pay $7.50 in fees each year for every $1,000 you have invested. If the expense ratio is 0.25 percent, you'll pay $2.50 per year for every $1,000 invested.

If the default fund's expense ratio is on the high side (to give you a point of reference, Vanguard charges just 0.16 percent for its 2040 target-date fund), see if your plan gives you access to a brokerage window. If so, you should be able to choose a target-date fund from among many fund companies, which should enable you to choose a lower-cost fund. (See also: Watch Out for These 5 Sneaky 401K Fees)

Another option is to see if your plan offers index funds, which typically have very low expense ratios. If so, consider using such funds to build a portfolio that matches your optimal asset allocation. You may be able to do so using as few as three funds.

5. Keep your hands off the money

Some companies with automatic retirement plans are finding that many participants are surprised by how quickly money has built up in their accounts. Surprise is quickly followed by a desire for that money, which is then followed by a loan.

It would be far better to remember what the money is for (retirement!) and keep your hands off. One of the key ingredients for successful investing is time. Pulling money from your account, even temporarily, gives it less time to compound. Plus, if you borrow against your account and then leave your employer — whether by your choice or your employer's — you'll have to repay the entire loan, usually within 60 days.

Automation has been very effective at driving up participation rates in 401(k) plans, which has been beneficial for thousands of people. However, to get the most out of your employer's automated plan, make sure the automated choices are truly the best choices for you. If they're not, don't be afraid to make some manual changes.

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This article is from Matt Bell of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

What to Expect After These 5 Personal Financial Disasters

Annie Mueller — Mon, 11 Sep 2017 08:00:05 +0000

Financial hardships can happen despite the most careful planning and saving. If you're facing a crisis, read on to learn what you can expect to happen and how you can handle these challenges. There are always options, and you can recover from even the most feared financial situations.

1. You've lost your primary source of income

There are many reasons why you might be facing a sudden, devastating loss of income. Sometimes family, personal, or medical situations make it impossible for you to continue working; in other cases, the job itself ends, and you have to start over again. Losing your primary income source, of course, hits you hard financially. Other income — a partner's salary, perhaps, or side job — can help alleviate the financial impact. But that help is usually limited, either in amount or in duration. Here are a few things you can expect to happen.

Loss of savings

Losing your income means you quickly start relying on your emergency fund and any other savings you've accumulated. If you're able to quickly reduce your expenses, you can make your savings last longer.

Increased debt

If your savings aren't adequate, or if you face unexpected financial needs, you may find yourself debt-dependent in order to handle incoming bills. The worst case scenario is when you have to rely on high-interest debt (such as credit cards) to keep up.

Financial stress

Dealing with income loss, financial insecurity, and all the changes you have to make as a result quickly leads to stress. Stress, unfortunately, is no friend to you and decreases your ability to make smart, long-term decisions.

Change in lifestyle

You'll need to cut your expenses as much as possible to handle income loss; though these changes aren't necessarily bad, they can cause emotional pain, personal discomfort, and induce more stress. Change is difficult even in positive circumstances, and change induced by financial crisis exacerbates stress and insecurity.

What you can do

There are many ways you can positively handle a loss of income:

Do your best to reduce your immediate expenses, even if only temporarily.
Call and negotiate for delayed payment plans with creditors or other major billers. (See also: Pay These 6 Bills First When Money Is Tight)
Get some money coming in; even a small amount of what you used to make will help you deal with bills and expenses. (See also: How to Come Up With $1,000 in the Next 30 Days)
Reach out to your personal and professional network for work opportunities.

2. You've defaulted on a loan

Defaulting on a loan feels like one of the worst possible financial situations. However, getting in over your head financially can happen to anyone. It doesn't have to end your financial future, but it will have some impact on your financial present. Here's what can happen after defaulting on a loan.

Lowered credit score

Late payments, missed payments, and account closures on debts can all bring your credit score down. A low credit score isn't the end of the world, but it will limit your ability to establish credit, get loans, or even rent a house or buy a car.

Calls from collection agencies

Different lenders have different rules, but after some period of nonpayment, your loan will most likely be passed on to a collection agency. While some agencies maintain a professional tone and approach, some do not and might become intrusive or aggressive. Even with courteous collectors, it's stressful and unpleasant to get letters and calls demanding debt repayment you know you can't afford. (See also: Account in Collections? Here's How to Fix It)

Repossession of collateral

If the loan you've defaulted on has collateral — such as a mortgage or car loan — you may find yourself facing repossession. Home foreclosure is usually a last resort, as it's messy and costly for mortgage companies to handle.

What you can do

The best way to handle defaulting on a loan is with proactive negotiation. Try these steps:

Negotiate a payment plan for delayed and/or split payments in order to avoid collection agencies.
Negotiate a debt settlement with the bank or credit holder. You'll usually need to make a cash payment, but only for a percentage of the total amount owed in order to clear the debt entirely.
Contact your mortgage company if the loan defaulted on is your house mortgage; explain your situation and ask them to help you work out an affordable, alternate payment plan. They don't want your house; they want your cash, and they may be willing to negotiate terms and minimum payments.
Examine options to consolidate all your debt into a single, smaller payment you can afford.

3. You've lost money in an investment

So you took some of your hard-won savings and decided to invest. Maybe it was in a friend's startup, a real estate project, or a stock that seemed like a sure thing. It didn't work out, and now you've got to handle the fallout. Assess the impact and start taking positive steps forward. Here are a few things you might initially face:

Loss of money

The most obvious consequence, of course, is the loss of your money; that hurts. Remember, however, that just as you lost money, you can also invest and save money. One painful investment loss does not poison the rest of your savings or investments.

Loss of confidence

The psychological impact of a bad money move can make you doubt your own financial prowess and decisions. It's okay to question yourself, but you want to learn, not stay stuck. (See also: Your Loss Aversion Is Costing You More Than Your FOMO)

Smaller retirement savings

If you were counting on the return from this investment as a key part of your retirement savings, you're now facing a major blow to your retirement plan.

Less ability to invest

A loss of money means, of course, lowered liquidity. You may not be financially able to build up savings quickly, which reduces your ability to invest and start rebuilding your portfolio.

What you can do

You don't have to run away from investing (nor should you!) because you made one choice that didn't work out. Start proactively using these options to recover:

Meet with a financial planner to assess your options and go over any lingering financial questions or doubts.
Rebuild emergency savings, if you've used them up as part of your investment.
Lower expenses or increase income to replace what you've lost, by cutting back on expenses and adding in some side work for a while.
Keep your savings steady; build up to a minimum investment amount and examine the safest high-yield options for your next investment.

4. You've racked up high-interest debt

It's never the plan to get stuck with high-interest debt. But with the right (or wrong) combination of life events and decisions, you can find yourself there. High-interest debt is a particularly bad kind of debt: If you can't make more than the minimum payments, your debt will continue to grow at a very fast rate. It's likely you'll be facing some unpleasant consequences such as:

Poor credit score

If you've made a late payment or missed one altogether, your credit score can be affected negatively. And if you've accumulated more debt than you can manage, and you're frequently missing payments while you try to keep up, your credit score can take a big hit.

Loss of opportunities

When you're struggling to keep up with debt payments, you're limited. Whether it's an investment opportunity or the chance to enjoy some time off with friends, the burden of high-interest debt can keep you from affording the opportunities that come your way.

Financial embarrassment

Many people still struggle with feeling ashamed or embarrassed about having debt, even though having debt — a lot of it — is quite common. In fact, according to a 2017 poll conducted by Northwestern Mutual, 40 percent of Americans spend about half their monthly income on debt payments.

What you can do

Being burdened with high-interest debt may feel like a problem you can't solve, but there are steps you can take to reduce its impact on your life. Start with these actions:

Communicate with the debt holder if you've fallen behind on payments. You can often negotiate a split or delayed payment, as long as you can guarantee a payment of some kind.
Learn about debt repayment strategies and which one might work best for you.
Whatever you do, don't add any more to your debt! Put away any active credit cards and reduce normal expenses so you can live on your income without adding more debt to your life.

5. You're recovering from a divorce

Divorce not only has a huge impact on your emotional and psychological state, but also on your financial well-being. First, divorce itself is expensive; the average cost is between $15,000 and $20,000. In addition to footing your part of that bill, you might also face some of these huge costs:

Disproportional expenses

You might find that your expenses, carried over from your pre-divorce life, exceed your current, post-divorce income. You can reduce or eliminate expenses, but sometimes you're locked into agreements (such as a lease or a cellphone service contract) that keep you at a higher expense level than you can reasonably afford.

Lowered investment returns

If you and your former spouse were contributing to a joint account, you'll have to divide that up somehow in the divorce proceedings. If it's an even split, your half in an account by itself will produce reduced returns.

Big tax bills

If part of your divorce was to liquidate and divide all assets, you might be in for an unpleasant surprise when tax time rolls around. You may have to pay a hefty capital gains tax on certain investments or other assets that have been liquidated.

What you can do

By taking some smart steps forward, you can reduce the negative financial impact that a divorce has on you. Make these moves to take control of your financial life, post-divorce:

Meet with a financial consultant as soon as possible to develop a plan for maximizing your investments and keeping your retirement savings on track. (See also: 5 Money Moves to Make the Moment You Decide to Get Divorced)
Call and negotiate with contract holders to eliminate any lingering, too-high expenses. There may be a buyout option you can take.
If possible, delay liquidation of shared assets or investments until you fully understand the taxes or fees that you'll face when they are liquidated. (See also: How to Protect Yourself Financially During a Divorce or Separation

It's not easy to recover from a financial disaster, but recovery is always an option. The most important things you can do are, first, face the situation squarely in order to figure out what your best options truly are. You may have more than you think.

Secondly, don't be afraid to ask for help, which doesn't necessarily mean asking for money. Rather, you may be able to get help from your creditors (lowered payments), from your network (job opportunities), from your local community (selling your car, building a side hustle), and more.

Moving forward and rebuilding takes time, but it's within your power.

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This article is from Annie Mueller of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Debunking 8 Common Credit Score Myths

Paul Michael — Fri, 08 Sep 2017 09:00:06 +0000

Credit: Like it or loathe it, most of us need it to survive. And the kind of credit we have access to is dependent on our credit scores. A mortgage, a car payment, credit cards, and even health care financing all impact and depend on our credit score.

The problem is, there's a lot of misinformation out there, and if you believe it, you could be doing yourself a disservice. Here are the top myths about credit scores that we have debunked for you.

1. Closing a lot of credit accounts will improve your score

It seems logical, but it's completely incorrect. Credit scores are calculated in part by something called a debt-to-credit, or credit utilization, ratio. The agencies calculating your score are looking at how much debt you have, and how much available credit you can tap into.

So, if you have 10 credit cards with a combined credit availability of $100,000, and you've only used $15,000 of that available credit, your credit utilization ratio is 15 percent. This is considered good: You have 85 percent of your credit unused.

Now, let's say you close seven accounts, because you just aren't using them. You still have $15,000 in debt, but now your overall available credit drops to $30,000. Your credit utilization ratio just skyrocketed to 50 percent, and that means your credit score takes a dive.

Do not close credit card accounts like this. Simply put the cards you aren't using somewhere safe. And if you get the chance to increase your credit limit, do it. As long as you don't plan to max it out, it will help your credit score. (See also: Stop! Don't Cut Up Your Credit Cards)

2. The amount of money you make has an impact on your score

Your credit score lists credit accounts, not income from employers. So, whether you're a CEO making $3 million a year, or an entry-level worker earning $30,000 a year, income is not a factor in determining your credit score. In fact, a rich CEO might actually have a terrible credit score, despite the money, because of a bankruptcy or series of late payments in the past.

The only way income can have an impact on your credit score is if you live a Champagne lifestyle on a beer budget. If you are maxing out your cards, making minimum payments, and missing payments altogether, you will see your score take a big hit.

3. Credit scores change just a few times a year

Credit scores are changing all the time. The information used to calculate your score comes from the financial institutions you do business with. If you miss a payment, that will be reflected pretty quickly. If you close several accounts, that information will impact your score a lot sooner than in three to six months.

In fact, if you look at your credit score right now, you will see when the last updates were made. Sometimes, it will be a matter of hours, rather than days or weeks. For this reason alone, you should be checking your credit score on a regular basis. When something negative happens, you can jump on that issue quickly and get it resolved.

4. A bad credit score makes it impossible to get credit or loans

This is a myth that comes from years of advertising messaging about needing a good credit score to get financing. Actually, most people can get financing, whether their score is up in the 800s or down in the 400s.

A credit score represents a level of risk to financial institutions, and this will dictate the terms of any loan or credit your receive. For example, someone with a credit score of 800 is considered very low risk to the financial institution. They know this person pays on time, has a lot of available credit, and has longevity with his or her accounts. This will result in a low interest rate, and more available credit.

Someone with a 450 credit score, on the other hand, is considered a very high risk client. Loans and credit offers will be available, but they will have oppressive interest rates for very little credit.

5. Checking your credit report damages your score

This is rooted in truth. A "hard inquiry" on your credit will have an impact on your score, albeit a small and temporary one. This happens when you apply for a loan, credit card, or other form of financial assistance. The hard inquiry dings your credit a little because if you do it a lot, say applying for 10–12 new accounts every month, you could be setting yourself up for some financial ruin down the line.

However, if you, yourself, are examining your credit report, that is considered a "soft inquiry." It will not have any impact on your score, and you can do it daily, or even hourly, without any consequences. (See also: How Credit Inquiries Affect Your Credit Score)

6. If you don't have credit, you'll have a great credit report

Not in the U.S. In some countries, a lack of credit is considered a good thing. If you've never had a credit card or a car loan, you must be financially responsible. But in the U.S., you don't get a good credit score unless you have a good history with credit.

The fact is, credit scores are built. Financial institutions want to know that you will borrow money and pay it back on time, with interest. If they can see you have done that well, and often, you are not a risk. If you have never had any kind of loan or credit card, you represent an unknown quantity. And unknown quantities do not sit well with people putting a stamp of approval on a credit line. (See also: How to Use Credit Cards to Improve Your Credit Score)

7. Carrying a balance on your credit card helps your score

No, it doesn't. To be fair, it doesn't hurt it either. But if you are under the impression that keeping money on your card is helping your score, you are not doing yourself any favors. Ideally, you want to pay off the balances on your cards in full every month, to avoid paying interest on purchases. If you are only paying the minimum, you are basically throwing money into the trash. Most of that minimum payment is going to the credit card company; very little pays down the balance.

Whenever possible, don't carry a balance. And if your balance is more than 30 percent of the card, consider transferring half to another card. When you are using more than a third of the credit on one card, you can actually hurt your score. Ideally, your balance will be below 30 percent of the available credit — the lower, the better. This is a good time to request a credit line increase. If you get your line increased a few thousand dollars, so that your balance drops below 30 percent, that can increase your score. (See also: 4 Questions to Ask Before Getting a Credit Increase)

8. A bad credit score will stay with you for life

If you are currently looking at a poor score, it's not the end of the world. You won't be paying exorbitant interest rates forever. However, it does take time to rebuild it.

The score will change, for the better, if you open new lines of credit and pay your credit card bills on time. Never miss a payment. Keep your balances low. Maintain a very low credit utilization ratio. Try not to apply for too many cards or accounts in one year. If you continue to be a model credit citizen, even after financial difficulty, your score will rise.

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This article is from Paul Michael of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: