car loans

10 Money Rules Every Working Adult Should Know

Kentin Waits — Wed, 18 Apr 2018 08:00:07 +0000

The media, money gurus, investment firms — they all have a way of making the world of personal finance seem hopelessly complex. We've all seen otherwise competent, capable adults go crossed-eyed when the topic of money management comes up. But don't be intimidated by the talking heads and conflicting advice. The most valuable rules are usually the simplest to understand. Here are the money rules every working adult should know.

1. Understand your income and expenditures

Knowing exactly how much money you have coming in every month — and where it all goes — is the foundation of good personal finance. It's the first step in creating a realistic budget, identifying money habits that are dragging you down, and avoiding dangerous credit missteps.

2. Create a budget (and stick to it)

Budgets are financial fences we create for ourselves. Without them, it's far too easy to wander off (overspend), panic (abuse credit), and get lost (end up deep in debt).

Build a budget that addresses your needs today and helps you prepare for tomorrow by following the 50/30/20 rule: Devote 50 percent of your income to necessities like housing and utilities; 30 percent for wants such as travel, entertainment, or dining out; and 20 percent to financial goals like paying off debt and saving;. (See also: Stop Using These 5 Excuses Not to Budget)

3. Establish goals

Goals give shape to the sacrifices we make and the effort we put into managing our money wisely. Set realistic and measurable financial goals for yourself. Do you want to pay off your credit cards within six months? Save enough for a down-payment on a home within five years? Retire by 60? Track your progress and reward yourself for incremental successes.

4. Live below your means

Spending less than you make is a total power move. Why? Because it leaves you with a surplus — seed money for every financial goal you have. However modest it may be, that surplus ensures that you're moving forward and not just treading water financially. (See also: 5 Dreams You Won't Achieve Unless You Live Below Your Means)

5. Save aggressively

Once you understand the power of living below your means, you can get strategic about saving. Turn saving money into a challenge. Can you get closer to (or move beyond) the standard budgetary rule of saving 20 percent of your income? Challenge yourself to reduce your overhead, earn extra cash, and save more.

6. Pay attention to the small stuff

Many budgets die from a thousand tiny cuts. Though the costs seem negligible at the time, all those morning lattes, lunches out, and ATM fees can really add up. Respect both the dollars and the dimes of your budget. In other words, sweat the small stuff.

7. Maximize your 401(k) match

If you're fortunate enough to work for an employer who matches a percentage of your 401(k) contributions, make the most of it. Contribute to the match limit (and beyond, if you can). Though it may take a few years to fully vest in those funds, every matching dollar is free money. (See also: 7 Things You Should Know About Your 401(k) Match)

8. Prepare for the "what-if" moments

Life is seldom a smooth road. Economic bubbles burst. Layoffs happen. People get sick. Weather these financial storms by building an emergency fund. Not sure how much to save? Start with this rule of thumb: Squirrel away enough cash to cover your minimum household expenses for at least six months.

9. Never buy a new car

Financially-speaking, buying a new car is a losing proposition. New vehicles can depreciate up to 20 percent or more each year for the first five years. And buyers who finance their purchase face an even bleaker equation: Based on 2018 figures from Edmunds, the APR of a new car loan currently averages 5.2 percent — for an item that's rapidly losing value. It just doesn't make sense. (See also: 3 Reasons Why You Should Never Buy a New Car)

10. Protect your loved ones

Estate planning is a fundamental part of smart personal finance. Protect those who are dependent on your income by purchasing a life insurance policy. Though the guidelines vary based on other income sources, family size, and financial obligations, the general rule of thumb is this: The life insurance death benefit should equal seven to 10 times your annual salary. (See also: Term vs Whole Life Insurance: Here's How to Choose)

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

Cutting Your Car Payment Is Easier Than You Think

Kat Tretina — Fri, 03 Nov 2017 08:30:10 +0000

Buying a car can be one of the most expensive purchases you'll ever make. Because most people don't have enough cash saved to buy a new vehicle, they often turn to auto loans to finance the purchase. But, the interest rates and monthly payments on a car loan can eat up a lot of your budget. In fact, Experian reported the national average payment for a new-car loan is $509.

If you have not-so-great credit, that payment can be even higher. And, you'll pay hundreds or even thousands more in interest.

However, you don't have to remain stuck with a bad loan. There's a way to reduce payments and save money on a car loan: refinancing. Best of all, it only takes about 10 minutes. (See also: 6 Smart Auto Finance Options)

What is car loan refinancing?

When you purchased your car, you took out a loan through the dealership or bank for the amount you paid. At that time, you agreed on the loan amount, interest rate, repayment term, and monthly payment.

By refinancing, you change all of those terms. When you refinance a car loan, you apply for a new loan with a bank or credit union. Depending on your credit, you could get a new loan with a lower interest rate or smaller monthly payments.

Refinancing makes sense when you are struggling to keep up with your payments. By taking out a new loan with a longer repayment term, you can dramatically reduce your monthly bill. You'll pay more in interest over time, but extending the loan's payment period can give you necessary breathing room in your budget.

Or, if your goal is to become as debt-free as possible, refinancing can also help you save money and pay off debt sooner. With a lower rate, more of your payments go toward the principal rather than interest.

How much you can save

The average interest rate for a used car loan is 8.88 percent, according to Experian. However, if you have bad credit, rates have been reported as high as 29.99 percent.

When you need a car right now, such as when you need transportation for a new job, you might not give much thought to the interest rate. But that high rate can cost you.

Let's say you have poor credit and you buy a used car with a $10,000, 72-month loan at 15 percent interest. Your monthly payment would be $211. However, that high interest rate would cause you to pay back $15,224 in total — more than $5,000 over what you originally borrowed.

If you improved your credit and were approved for a refinance at just 8 percent interest, the savings would be significant. If you kept a 72-month term, your monthly payments would be reduced to $175 a month. But, even better, you'd pay back just $12,624 over the length of your repayment. Refinancing your loan would save you $2,600.

How to refinance your auto loan

If you're interested in refinancing, it's a simple process. Many banks and credit unions offer refinancing options for car loans. And, many allow you to get an estimate and apply for a loan online in just a few minutes. Some banks also allow you to get a rate quote with just a soft credit pull, so your credit score is not affected. (See also: How Credit Inquiries Affect Your Credit Score)

Each bank has its own eligibility requirements, but in general, lenders require your car to be relatively new. Many will only work with you if your car is less than 10 years old. There's usually a minimum amount you can refinance, so if you only owe a few thousand dollars on your car loan, it might not be the right option for you.

Most lenders also require you to be current on your payments. If you're behind, you'll have to get back on track before you are able to refinance.

Compare offers, too

If you got stuck with a high-interest loan due to poor credit earlier on, refinancing your car loan can be a smart way to save money, cut your payments, or pay off your debt faster. Make sure to compare offers from multiple banks or credit unions to get the best possible loan terms.

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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:

Refinance These 4 Common Debts Before Year Ends

Ashley Eneriz — Mon, 26 Sep 2016 10:30:07 +0000

The year is almost over, which gets many people thinking about New Year's resolutions. Perhaps you are recalling the resolutions you made at the beginning of this year and getting down on yourself for not saving more money and paying off more debt. "Next year," you promise yourself.

But if you refinance these four loans, you can get a head start on your financial goals and even sail into the New Year with a little less financial burden on your shoulders. Here are the top loans you should refinance, as well as a few tips to decrease your debt burden altogether.

Credit Cards

Does your credit card debt seem like it never goes down, even when you throw extra money at it each month? It's the interest rate. There are two ways that you can refinance your credit card balance and save money each month. The first is to refinance your debt with a low interest personal loan, like one through SoFi or Prosper.

This works well for individuals that have high interest credit card debt. A low-interest personal loan will allow you to pay off your credit card debt faster, but be aware that your monthly payments will be higher. This is because credit cards only require a minimum payment each month, which can be very low, depending on the debt. Keep in mind, however, that those low monthly minimum payments are what keep you in debt for so long. Therefore, when you switch the debt to a three- or five-year personal loan, you will be required to pay more each month.

Another popular way to refinance credit card debt is to transfer it to a promotional 0% balance transfer card. This will allow you to transfer your debt to a card that does not charge interest for the promotional period. To use this transfer to your advantage, divide the amount of debt you have by the number of promotional interest free months offered. For example, if you are transferring $10,000 of debt on a card that offers 15 months of 0% interest, then be prepared to pay about $667 each month to avoid interest charges at the end of the promotion. Do not use this card to accumulate new debt.

Mortgages

Mortgage rates remain historically low, but recent news shows that rates are slowly rising. If you are still battling with a mortgage rate higher than 5% or are paying PMI, now is the time to refinance.

Refinancing your mortgage can extend the life of your home loan, but it can also save you dramatically each year, especially if you are paying pesky PMI fees. Research the cost to benefit ratio, knowing how much money you will save each month. Also research to know if a 15-year mortgage makes financial sense. In many cases, switching to a 15-year loan is riskier for your budget, but other times it can be a small monthly increase that will pay off big time in reduced interest payments.

Car Loans

Americans owe a lot on their car loans. USA Today reports, "The total balance of all outstanding auto loans reached $1.027 trillion between April 1 and June 30." If you secured your auto loan through a dealer, there is a good chance you are overpaying for your car loan. Contact your local credit union for rates, and don't forget to research online for the best rates.

I have used two credit unions in the past to successfully secure an auto loan for less than 2.50%, and those credit unions did not have an actual building within 100 miles of me.

Student Loans

The burden of student loan debt is crippling millions of Americans. You don't need to live with your student loan forever. As long as you have good credit and are not in default with your loans, you have options. If you have federal student loans, then I strongly recommend looking into the forgiveness programs available. It might mean taking a less than desirable job for a few years, but if that job forgives a large portion of your student debt, then it could be worth more to you than a higher paying job. Other options include income-sensitive repayment programs, such as PAYE and IBR, which peg your monthly payments to your income level. Thus, if you're struggling to make a standard monthly payment, these programs set your monthly outlays at a more affordable level.

If you are not eligible (or a fan) of the forgiveness programs, refinancing your student loans is your next best option. Note that if you refinance your loans, you will be switching them over to a private lender. This means that if you have federal student loans, you will no longer be protected for federal loan repayment programs if you suddenly lose your job or face financial hardships.

SoFi is one company that offers student loan refinancing. Other notable companies to consider include:

Refinancing these common debts can help you pay less each month, as well as less overall. Use these refinancing strategies to get out of debt faster and take control of your finances.

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

5 Ways Having a Paid Off Car Is Surprisingly Great

Emily Guy Birken — Fri, 13 May 2016 09:30:23 +0000

In 2005, I awoke one fine spring morning to the sound of metal crunching. Looking out the window, I saw a box truck mowing down my 1994 Honda Civic, which was parked on the street in front of my house. The driver was a 13-year-old boy who had come across the idling truck and had decided to steal it and go for a joy ride — which ended with the destruction of my car.

It was not a great day.

However, as overwhelming as it was for me to watch my car get hit by an uninsured driver, the entire situation was much better than it could have been because of one important fact: My Civic was paid off.

As a matter of fact, I have been fortunate enough to never have a car payment in my 21 years of car ownership. While I'm delighted to not have a payment due every month, that's not the only way that having a paid-off car makes my life better. Here are five ways that having a paid-off car will benefit your life:

1. Insurance and Accidents Cost You Less

At the time of its sad demise, my Honda Civic was an 11-year-old car with 120,000 miles on it. I carried liability, uninsured motorist, and collision coverage. The first two were required by the state I lived in, and my collision coverage costs were fairly inexpensive because of the relatively low value of my car. The amount of money I was paying for insurance was a great deal lower than that of a classmate whose car was also totaled by another driver around the same time.

The difference was that my classmate was driving a new car with a hefty car payment, so she had to have an expensive comprehensive insurance policy to match.

What's more, I felt like I was made whole by my cheaper insurance, while my classmate was not. After my car was totaled, I got a check from my insurance company for the value of the car minus my $500 deductible, which I used to buy another used car. My friend was forced to take on another loan with a monthly payment that was $30 higher than the one she had before the accident.

2. Having a Paid-Off Car Means Potentially Never Paying Interest Again

One of the smartest things my husband and I have ever done was starting a "car fund" savings account. Each month, we set aside $350 into the account so that we have money available to either fix our cars if they need maintenance or repair, or to pay cash for a new one if our vehicles ends up going to the big garage in the sky. We pay ourselves the equivalent of a car payment each month so we never have to pay interest on our cars — and we earn some interest on the money we've saved, too.

3. Financial Ups and Downs Are Less Stressful

Making a monthly car payment is no biggie when your job feels secure. But if you are still making monthly payments on your car when you lose your job, receive an unexpected bill, or otherwise see your personal finances go south, then that monthly payment can feel more like an albatross around your neck.

This is especially true if you have any reason to fear repossession of your car during your financial turmoil. Owning your car free and clear means that you have one less worry while you are trying to get your financial house back in order. You know that you can still rely on your car to transport you to and from work and your other responsibilities.

4. You Don't Have to Worry About Weird Hits to Your Credit

One of the bizarre aspects of how credit scores are calculated is the fact that paying off a major loan — such as a car loan — can have the effect of lowering your credit score. That's because paying off an installment loan raises your utilization ratio. For example, if you have a $12,000 car loan with a $3,000 balance that you pay off all at once, your available credit will drop by $12,000 once the account is closed, even though your debt load will also drop by $3,000.

I don't know about you, but that kind of convoluted credit logic makes my head spin. It's a lot simpler to just have a car that's paid off — and have your credit score based on things like your mortgage or rental history, and your utilities payments.

5. It's Better for the Environment

Wanting to avoid ever having a car payment means that I strive to take great care of my cars. My current vehicle is a 14-year-old Honda Accord that could probably last another 14 years if I am diligent about maintenance.

While it's possible that car manufacturers will figure out a way for all new cars to get 50 miles per gallon before the year 2030, keeping my current car on the road for as long as possible will be better for the environment than trading it in for a more efficient one. That's because the environmental impact of manufacturing a new car and disposing of a used one offsets a great deal of the fuel efficiency I might gain by buying a new car.

The Bottom Line

Having a paid off car offers a great deal of freedom and peace of mind, whether your car provides you with years of faithful service, or it's totaled in an unfortunate joy-riding incident.

Is your car paid off? What's great about it?

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

6 Reasons You Should Still Go to the Bank

Dan Rafter — Fri, 06 May 2016 10:00:06 +0000

Did your bank close your local branch? It wouldn't be surprising. According to a report from SNL Financial, banks closed 1,614 U.S. branches in 2015. JPMorgan Chase & Co. led the way, closing 195 branches, while PNC closed 94 and Bank of America Corp. 88 last year.

The reasons are obvious: Most customers rarely need to enter a bank branch. Employees' paychecks are often direct-deposited to their banks. Customers today make deposits through their smartphones. And they pay their bills online.

But that doesn't mean there aren't times when actually visiting a bank in person makes sense. When should you tuck away your smartphone and step into your local branch?

1. You're Applying for a Mortgage

Sure, you can apply for a mortgage online with many financial institutions. And you don't have to even take out a mortgage with your local branch. But if you like your bank, you might want to at least talk to a loan officer at your local branch about a mortgage.

A mortgage is a big financial commitment. Sometimes you want to talk to a financial professional in person for advice and recommendations. Again, you don't have to turn to your local bank for this advice; you can work with any mortgage lender licensed to do business in your state. But your bank might offer competitive rates and lower closing costs. You won't know until you contact them.

2. You're Ready to Buy a Car

It's good financial sense to have financing in place before you shop for a new car. You might still take the financing offered by your auto dealer, but coming into the dealership pre-approved for an auto loan provides you with a back-up if you don't like your dealer's terms. It might also save you money; dealers might lower your interest rate to persuade you to take out a loan with them instead of with a different financial institution.

Your bank certainly offers auto loans. If the rate it is offering is a good one, it might make sense to visit your local branch to talk through your auto-financing options.

3. You Need a Money Order

It's true that you can get a money order from several outlets, including credit unions, the U.S. Post Office, and many retailers. But you can also get them from your local bank branch. And if your branch is conveniently located, charges reasonable fees and is likely to be less crowded, why not get a money order from there?

4. You Need a Notary

Finding a notary is hardly a challenging task these days: Your local public library might even have one on staff. The odds are high, too, that your local bank branch offers a notary service. Most won't even charge to have a notary sign your documents. Again, if your bank is located a short drive from your home and is likely to offer quick service, visiting your branch for the services of a notary public could save you time.

5. You Need a Specific Type of Change

Maybe you're holding a yard sale and you need tons of singles. A good place to get change in specific denominations? Your local bank. Banks are happy to turn your large bills into smaller ones. And your teller won't flinch no matter how specific you get with how many $1s, $5s and $10s you need.

6. You're Ready to Empty That Coffee Can of Pennies

Got a jug stuffed with pennies, dimes, and nickels at home? Your bank will be happy to convert that change to dollars. Yes, you can go to your nearest Coinstar machine to do the same thing. But Coinstar charges a fee. Your local bank branch, if you are a customer, might not.

Do you still pay regular visits to your bank?

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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:

Drive the Old Car or Buy a New Car?

Tara Struyk — Wed, 09 Nov 2011 10:24:33 +0000

When I was growing up, my mom drove a gray Oldsmobile Omega. By the time I was old enough to notice such things, it was an old car — much older, and clearly less luxurious, than those most of my friends rode to school in. When the plastic knob broke off the end of the shifter, it was replaced with a huge wooden one. When we hit a bump in the road, the radio hissed with loud static. Near the bitter end, duct tape held up the driver-side window.

When my mom finally got a new car during my second year of university, I was relieved. But when “Old Gray” recently came to mind, I found myself feeling less embarrassed than grateful. Here’s why. (See also: 7 Ways My Clunker Is Smarter Than a Hybrid)

Do You Want a Nice Car, or a Nice Pile of Cash?

My parents were fiercely (and at the time, inexplicably) loyal to their reliable old car. In fact, when I admired newer cars on the road, my mom would sniff, and say, “Yeah, but this one is paid for.”

At the time, I had no idea what that meant. I knew that both my parents had good jobs, so why couldn’t we have a new car like everyone else? The answer — the cost was just too steep, and in more ways than one. According to the Federal Trade Commission, the average cost of buying a new car is approaching $30,000. At an average interest rate of 6.5%, that $30,000 car would mean monthly loan payments of $586.98 per month for five years. Put that money into an investment that returns 5%, and you’ll end up with more than $40,000 in the bank in that same five-year period. Shelling out a lot of money to keep yourself in a nice ride is fine, if you can afford it. But with a national savings rate of just 4.5% of disposable income (not total income!), and many people arriving at retirement without a penny in the bank, chances are that a nice ride is further out of reach than most people realize.

Just about everyone is guilty of a little “keeping up with the Joneses,” but there’s a big difference between being able to afford something and being able to afford the payments. Next time you catch yourself envying what someone else is driving, think about what you might really be aspiring to. While I may have been rattling around in a beater as a kid, what this meant was not that my parents were poor, but that they were saving their money. And, as it turns out, that’s not as lame as I had assumed.

Living in the Fast Lane Can Lead to Financial Crash and Burn

As my mom prepares to retire, I’ve found yet another reason to be grateful for Old Gray — because we didn’t ride around in a car my parents could barely afford, I don’t have to spend my adult life trying to figure out who’s going to finance my mother’s retirement. This is no small thing. A recent report released by Massachusetts Mutual Life Insurance Company stated that only 3 out of 10 American parents believed they were adequately preparing for retirement. Plus, those parents were planning to have to care for their own parents as well.

My parents stuck it out with Old Gray for more than 20 years, which was pretty unusual then — and very rare by today’s standards. But, because of this and other similar choices, their retirement will not be something that will fall to me, which means that I have a shot at retiring comfortably too.

The (Somewhat Sensible) Way I Roll

Now you’d probably expect that I’d end this by telling you that I drive an old, reliable car. I don’t. I bought it used, and I went for reliable — but I paid the price for a turbo engine and heated leather seats. What that says about my desire to keep up with the Joneses may be another story altogether, but what I do know is that while I’ve taken some pains to drive a nicer car than my parents would ever buy, there is a limit to how much I would sacrifice for that experience — saving and investing will always come first. And if that means I’m still driving the same car 20 years from now, so be it.

Oh, and one more thing — Old Gray is still on the road. Perhaps my parents could have held on to it a little bit longer.

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

Can’t Afford Your Car Much Longer? Negotiate to Keep It

Tisha Tolar — Mon, 31 May 2010 13:00:08 +0000

As so many are still struggling to manage paying their regular bills while living paycheck to paycheck, every day another car gets repossessed because families can no longer afford to finance their vehicles. Last year alone, more that 1.9 million vehicles were taken from those who defaulted on their loans. Just like the mortgage industry, people are seeking ways to keep their cars and still be able to afford the essentials.

Consumers may still have options even when their pay has been cut or their job has been lost. Auto lenders and banks prefer to keep people in their vehicles rather than go through the repossession process. More lenders are willing to negotiate an auto loan modification these days and it may be in your best interest to ask for help.

Modification Options

Essentially there are two ways you can go about getting help. The key to getting that assistance is to be upfront with your lender about your financial situation and be proactive in your request. Don’t wait until you are three months behind on your loan and the repo man is in your driveway before taking action. As soon as you sense a struggle with meeting your loan obligation, get on the phone.

The two options for assistance are:

Extension of the loan term – if you ask about extending the term of your auto loan, the lender will allow you to tack payments to the back end of your loan. For instance, the lender agrees to forbear three months worth of payments for May, June, and July. Those three months will be added to the end of your loan term and you are not obligated to pay on your note during the agreed upon three months. Likely your lender will charge a fee for this extension so be sure to ask about it when agreeing to the extension. Some lenders will only allow for one extension during the life of the loan but again, it doesn’t hurt to ask your lender directly.

Lowered interest rate – you might consider speaking to your lender about lowering the interest rate of your loan which will help to lower the monthly payment, making it more reasonable for you to meet your obligation.

Refinancing Your Loan

The process of refinancing the existing balance of your car loan can be a complicated process. More lending institutions are now advertising loan modification programs for vehicle loans but in a somewhat misleading way. Consumers are often led to believe the refinancing process is simple and instant. It may be in your best interest to skip the refinance with another company and stick with your original lender to negotiate help.

Remember that you will likely need to have a reasonable excuse as to why you can not paid. Job loss or illness may be acceptable reasons for why you might default on a loan. Bad money management is not a valid reason. Most lenders are willing to work with customers since the recession has financially damaged so many around the nation but they are still a business operation looking to get paid what they are owed. Make contact with your lender as soon as you think trouble is on the horizon and figure out what options make sense for your financial situation.

The worst thing you can do is ignore the situation until it gets so far out of hand that the law gets involved or your credit gets ruined. Debt does not go away and only gets worse over time. You have options to keep your vehicle so exercise those options and save your car and credit for the future even if you are still scraping by each paycheck.

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