interest rates https://www.wisebread.com/taxonomy/term/1797/all en-US 9 Essential Personal Finance Skills to Teach Your Kid Before They Move Out https://www.wisebread.com/9-essential-personal-finance-skills-to-teach-your-kid-before-they-move-out <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/9-essential-personal-finance-skills-to-teach-your-kid-before-they-move-out" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="https://wisebread-killeracesmedia.netdna-ssl.com/files/fruganomics/imagecache/250w/blog-images/mother_and_daughter_embracing_while_sitting_on_a_bench.jpg" alt="Mother and daughter embracing while sitting on a bench" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Your child is on the verge of moving out and living on their own. Are they prepared?</p> <p>Arming them with the right personal finance knowledge will give them a strong foundation to go and achieve many of their life goals. If their understanding of personal finance is lacking, they could begin their independent life on the wrong foot (and they may even come back home).</p> <p>Consider these ways that you can help your child build a base of financial knowledge before they move out.</p> <h2>1. Show them how to budget</h2> <p>Perhaps the most important personal finance skill is consistently spending <em>less </em>than you earn. There are a million different ways to budget, and whatever works for you may not work for your child. But encourage them to develop a system to track and categorize spending and then compare those expenses to their income. Of course they'll need to account for housing, food, and utilities but also let them know it's OK to <a href="http://www.wisebread.com/yes-you-need-fun-money-in-your-budget?ref=internal" target="_blank">include &quot;fun money&quot; in their budget</a>. It will help them stay motivated to stick to their budget. (See also: <a href="http://www.wisebread.com/how-to-help-your-kid-build-their-first-budget?ref=seealso" target="_blank">How to Help Your Kid Build Their First Budget</a>)</p> <h2>2. Teach them how retirement plans work</h2> <p>If your child is moving out, they likely have some earned income. That means they can start contributing to a Roth individual retirement account. They may scoff at the notion of saving for retirement so early, but if you help them open a Roth IRA and demonstrate how much money they can accrue over time, they'll get on board. Urge them to save as much as they can each month, invest in simple things like index funds, and simply watch their account balance grow over time through compounding.</p> <p>If they have a 401(k) plan through an employer, take time to review the plan document with them and encourage them to contribute as much as they can. Be sure to explain the advantages of getting a company match on contributions, if one is offered. (See also: <a href="http://www.wisebread.com/11-basic-questions-about-retirement-saving-everyone-should-ask?ref=seealso" target="_blank">11 Basic Questions About Retirement Saving Everyone Should Ask</a>)</p> <h2>3. Explain bank interest rates</h2> <p>Chances are, your child already has a savings account. But it's still helpful to explain that they don't necessarily need to put their money in the first bank they see. Show them how interest rates can vary, and that it's OK to shop around for the best rates so they can earn a little extra money. Explain terms like APR and APY, and the factors that impact whether rates go up or down.</p> <p>Also outline the pros and cons of placing money in certificates of deposit. These days, it's also helpful to explain that while interest rates are rising, they're still quite low, and that it might make sense to invest some funds in ways that generate a higher return than savings account interest. (See also: <a href="http://www.wisebread.com/12-places-to-keep-your-money-safe-and-growing?ref=seealso" target="_blank">12 Places to Keep Your Money Safe &mdash; And Growing</a>)</p> <h2>4. Tell them about bank fees</h2> <p>Once your child understands how bank interest rates work, they'll need to know about the tendency banks have to charge fees to account holders. These fees could be for anything from low balances to the use of paper checks. Tell your child how they can avoid these fees by researching the best bank accounts and reading the fine print. Let your kids know that if a bank is charging too many fees, it's OK to <a href="http://www.wisebread.com/5-signs-its-time-to-find-a-new-bank?ref=internal" target="_blank">switch to another bank</a> that doesn't. (See also: <a href="http://www.wisebread.com/are-you-paying-these-6-unfair-banking-fees?ref=seealso" target="_blank">Are You Paying These 6 Unfair Banking Fees?</a>)</p> <h2>5. Teach them the pros and cons of credit cards</h2> <p>Credit cards can help a person establish credit, and that's important when you are starting out. And some credit cards offer nice benefits, such as cash back on purchases or travel rewards miles.</p> <p>You can help your kid apply for a card, but it should come with a series of warnings. Young people must know that credit card balances should be paid off in full each month whenever possible. Show your child that credit card interest rates can be exorbitant, and that high balances can lead to a debt spiral from which they may never escape. (See also: <a href="http://www.wisebread.com/how-to-get-your-first-credit-card-and-build-credit?ref=seealso" target="_blank">How to Get Your First Credit Card and Build Credit</a>)</p> <h2>6. Outline the pain of debt</h2> <p>Arguably the most important lesson you can teach your children before they leave the nest is that debt is not a good thing. Take time to explain the basics of borrowing so they understand how expenses can continue to increase if debt is not paid off. Show them calculations with interest rates for credit cards, auto loans, student loans, personal loans, and mortgages. Give them an understanding of debt-to-income ratios, and what that means in the context of their financial well-being. (See also: <a href="http://www.wisebread.com/8-common-causes-of-debt-and-how-to-avoid-them?ref=seealso" target="_blank">8 Common Causes of Debt &mdash; And How to Avoid Them</a>)</p> <h2>7. Explain the concept of net worth</h2> <p>When your child leaves home, they may be focused on finding a job that pays a high income. That's fine, but it's important for them to understand that income alone is not what generates financial security. It's more crucial to acquire assets that increase in value, while eschewing things that will decrease in value or be a drain on your finances.</p> <p>This means saving money and investing it. It means avoiding debt. It means purchasing a home instead of renting, if possible. Your net worth &mdash; that is, the total value of your assets minus your debts &mdash; is the true indicator of your financial well-being. (See also: <a href="http://www.wisebread.com/6-money-moves-to-make-if-your-net-worth-is-negative?ref=seealso" target="_blank">6 Money Moves to Make If Your Net Worth Is Negative</a>)</p> <h2>8. Urge them to shop for value</h2> <p>Saving money isn't always about spending as little as possible. It's also about spending your money wisely and getting the most bang for your buck. For example, if your child needs to purchase a refrigerator for their apartment, convey to them that they should seek out the best quality model at a price that fits their budget.</p> <p>Shopping for value involves understanding quality and longevity of products, and knowing what features matter and which don't. It also involves doing extensive research of products and prices before you buy. Shopping for value is a skill that can be learned, and one that could save your child a considerable amount of money over time. (See also: <a href="http://www.wisebread.com/how-to-shop-with-purpose-and-save-more-money?ref=seealso" target="_blank">How to Shop With Purpose &mdash; And Save More Money</a>)</p> <h2>9. Teach them basic car maintenance</h2> <p>You don't need to teach your child how to replace a catalytic converter, but it helps if they have a decent foundation of car knowledge. Teach them how to put air in a tire and change the tire. Demonstrate how to swap out a headlight bulb and replace a hubcap. Urge them to read the car's manual and learn what all of those warning lights mean. Get them in the habit of changing the oil every few thousand miles.</p> <p>Finally, teach them how to research the cost of car repairs, so they don't get ripped off at the mechanic. Your child won't be able to avoid car repair expenses, but they'll know enough to avoid getting stranded on the side of the road. Moreover, these basic maintenance efforts could help prevent the need for a major repair later. (See also: <a href="http://www.wisebread.com/bookmark-this-save-money-with-an-easy-to-follow-car-maintenance-checklist?ref=seealso" target="_blank">Bookmark This: Save Money With an Easy to Follow Car Maintenance Checklist</a>)</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" href="https://www.pinterest.com/pin/create/button/?url=https%3A%2F%2Fwww.wisebread.com%2F9-essential-personal-finance-skills-to-teach-your-kid-before-they-move-out&amp;media=https%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2F9%2520Essential%2520Personal%2520Finance%2520Skills%2520to%2520Teach%2520Your%2520Kid%2520Before%2520They%2520Move%2520Out.jpg&amp;description=9%20Essential%20Personal%20Finance%20Skills%20to%20Teach%20Your%20Kid%20Before%20They%20Move%20Out"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="https://wisebread-killeracesmedia.netdna-ssl.com/files/fruganomics/u5180/9%20Essential%20Personal%20Finance%20Skills%20to%20Teach%20Your%20Kid%20Before%20They%20Move%20Out.jpg" alt="9 Essential Personal Finance Skills to Teach Your Kid Before They Move Out" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="https://www.wisebread.com/tim-lemke">Tim Lemke</a> of <a href="https://www.wisebread.com/9-essential-personal-finance-skills-to-teach-your-kid-before-they-move-out">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-3"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/are-you-putting-off-these-9-adult-money-moves">Are You Putting Off These 9 Adult Money Moves?</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/7-money-conversations-parents-should-have-with-their-adult-kids">7 Money Conversations Parents Should Have With Their Adult Kids</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/10-ways-to-increase-your-net-worth-this-year">10 Ways to Increase Your Net Worth This Year</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/9-family-money-matters-your-kids-dont-need-to-know">9 Family Money Matters Your Kids Don&#039;t Need to Know</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/6-smart-financial-gifts-to-give-your-kids-this-year">6 Smart Financial Gifts to Give Your Kids This Year</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance Family budgeting debt financial literacy interest rates investing kids moving out net worth personal finance skills retirement saving Fri, 06 Jul 2018 09:00:10 +0000 Tim Lemke 2150089 at https://www.wisebread.com How Bond Prices and Yields Work https://www.wisebread.com/how-bond-prices-and-yields-work <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-bond-prices-and-yields-work" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="https://wisebread-killeracesmedia.netdna-ssl.com/files/fruganomics/imagecache/250w/blog-images/paper_pie_chart_on_a_plate_1.jpg" alt="Paper pie chart on a plate" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>When we talk about investing, we frequently talk about stocks. Stocks are likely to make up a the bulk of your investment portfolio during the majority of your investing years.</p> <p>Bonds, which tend to be less risky but also less rewarding, are more important as you get closer to retirement. However, bonds can be a helpful part of your investment mix at any age, and it's important to understand how they work &mdash; even if you don't own many of them right now.</p> <p>Let's examine bonds and why we should pay close attention to them these days. (See also: <a href="http://www.wisebread.com/5-crucial-things-you-should-know-about-bonds?ref=seealso" target="_blank">5 Crucial Things You Should Know About Bonds</a>)</p> <h2>How government bonds work</h2> <p>A bond is simply a vehicle that governments and companies use to borrow money. People buy bonds, and in exchange, receive interest payments. Our country would barely be able to function without bonds.</p> <p>For the sake of this discussion, let's focus on government bonds. The U.S. government floats many different securities, but the most common are the 30-year and 10-year Treasury bonds. These bonds pay interest every six months, and the principal of the bond &mdash; often referred to as &quot;par value&quot; &mdash; is paid in full after 30 or 10 years.</p> <p>There are also popular securities called Treasury Inflation-Protected Securities (TIPS). The principal of a TIPS can go up or down depending on the movement of the Consumer Price Index.</p> <p>U.S. Treasuries are very popular worldwide because they are backed by the full faith and credit of the U.S. government, which has historically always repaid its debts.</p> <h2>Yield and price</h2> <p>If you plan to hold onto a bond until it matures, you'll likely want to take a look at its yield, which is simply a calculation of how much money you'll make on the investment. So for example, let's say you have a $10,000 30-year bond with an annual interest rate of 5 percent. This would mean you'd get $500 per year. This is the bond's annual yield. It's also referred to as the &quot;nominal&quot; yield.</p> <p>There's another factor that determines how much money you make from a bond, and that is price.</p> <p>Let's say that the owner of the $10,000 bond above chooses to sell the bond before it matures, for $9,000 &mdash; maybe because the issuing company is struggling to stay afloat, or because interest rates are about to see a substantial rise. The buyer of the bond will still continue to get interest payments based on the face value of the bond ($10,000). These interest payments are fixed.</p> <p>Thus, the buyer is receiving the same payments, but because the buyer paid less for the bond, the yield is 5.55 percent. ($500/$9,000=0.0555, or 5.55 percent).</p> <p>When a bond is selling for more than its issue value, we often hear people say it is trading &quot;at a premium.&quot; If it is selling at less than its issue value, it is selling &quot;at a discount.&quot;</p> <p>Generally speaking, people seek to find bonds selling at a discount, because they result in a higher yield.</p> <h2>Why prices rise and fall</h2> <p>The price of bonds is very closely impacted by interest rates. The prevailing interest rate &mdash; that is, the interest rate on bonds being issued at that particular time &mdash; can make any other bond seem more or less attractive to investors.</p> <p>To illustrate this, let's say you hold a 30-year bond with a 5 percent interest rate, but rates have been rising and now average 6 percent. Because your bond now has an interest rate that is lower than the prevailing average, it's less attractive to investors. Thus, if you want to sell the bond, you may have to lower the price to ensure investors can get the same yield.</p> <p>The opposite is also true. When interest rates are falling, any bond with a higher interest rate becomes more attractive and can demand a higher price.</p> <p>Inflation is known to indirectly impact bond prices because it is accompanied by higher interest rates.</p> <p>Bond prices are also indirectly impacted by the performance of the stock market. When the stock market is doing well, people tend to flock to stocks and their potential for higher returns, which in turn depresses demand and prices for bonds. But during times of economic distress, investors will often flock to the relative safety of bonds and this can cause prices to rise.</p> <h2>Why it matters now</h2> <p>Treasury yields have been on the rise in 2018, with the interest rate on a 30-year Treasury growing from about 2.8 percent at the start of the year to 3.1 percent as of the end of May. The yield on the 10-year Treasury is more than 2.9 percent, compared to 2.4 percent at the start of 2018.</p> <p>There are many reasons why yields have increased, but generally they have to do with confidence in the economy and in the stock market. Treasury yields rise inversely to prices. Thus, a high yield suggests that demand for bonds is weak and that's depressing prices.</p> <p>The trend is only expected to strengthen. The government is predicted to issue a lot of new bonds in 2018 as it looks to cover the cost of new tax cuts. Having more bonds in the market will lower demand for any individual bond, so prices will fall and yields will rise.</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" href="https://www.pinterest.com/pin/create/button/?url=https%3A%2F%2Fwww.wisebread.com%2Fhow-bond-prices-and-yields-work&amp;media=https%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2FHow%2520Bond%2520Prices%2520and%2520Yields%2520Work.jpg&amp;description=How%20Bond%20Prices%20and%20Yields%20Work"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="https://wisebread-killeracesmedia.netdna-ssl.com/files/fruganomics/u5180/How%20Bond%20Prices%20and%20Yields%20Work.jpg" alt="How Bond Prices and Yields Work" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="https://www.wisebread.com/tim-lemke">Tim Lemke</a> of <a href="https://www.wisebread.com/how-bond-prices-and-yields-work">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/7-reasons-youre-never-too-old-to-buy-stocks">7 Reasons You&#039;re Never Too Old to Buy Stocks</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/7-cool-things-bonds-tell-you-about-the-economy">7 Cool Things Bonds Tell You About the Economy</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/a-simple-guide-to-series-i-savings-bonds-i-bonds">A Simple Guide to Series I Savings Bonds (I-Bonds)</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/how-the-risk-averse-can-get-into-the-stock-market">How the Risk Averse Can Get Into the Stock Market</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/how-to-make-sure-you-dont-run-out-of-money-in-retirement">How to Make Sure You Don&#039;t Run Out of Money in Retirement</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment bonds inflation interest rates price securities stock market tips treasury value yield Wed, 04 Jul 2018 08:30:14 +0000 Tim Lemke 2149349 at https://www.wisebread.com Are Starter Homes Still a Thing? https://www.wisebread.com/are-starter-homes-still-a-thing <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/are-starter-homes-still-a-thing" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="https://wisebread-killeracesmedia.netdna-ssl.com/files/fruganomics/imagecache/250w/blog-images/new_build_couple.jpg" alt="New build couple" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>The old formula worked like this: When you were tired of renting an apartment, you'd buy a starter home. This starter home would be affordable and small. When your family started to grow, you'd sell that starter home and buy a larger residence.</p> <p>Does this strategy still make sense? Should you invest in a starter home before purchasing what you might consider the home of your dreams?</p> <p>Not surprisingly, the answer is complicated. But in most cases, a starter home is not necessarily the best financial move. That's largely because mortgage dollars are so affordable today thanks to historically low interest rates.</p> <p>This doesn't mean that buying a starter home is a bad move, just that you shouldn't consider it an essential step. Here are some reasons why a starter home isn't always necessary anymore.</p> <h2>It's more affordable to buy a bigger house</h2> <p>Mortgage rates have been rising, but these rates are still at historic lows. As of mid-June, it was still likely that if you had solid credit, you could qualify for a 30-year, fixed-rate mortgage loan at an interest rate near 4.5 percent.</p> <p>When interest rates are low, it's cheaper to borrow money. It also gives you more homebuying power. You can take out a larger mortgage loan and still be left with an affordable monthly payment, which means you can purchase a home with a bigger price tag.</p> <p>Just be careful: You don't want to stretch your budget too far. Only buy a home that leaves you with a mortgage payment you can afford each month, whether it's a starter home or a more expensive residence. (See also: <a href="http://www.wisebread.com/9-warning-signs-you-cant-afford-that-new-house?ref=seealso" target="_blank">9 Warning Signs You Can't Afford That New House</a>)</p> <h2>Down payments aren't as much of a burden</h2> <p>Down payments have traditionally been a challenge to homebuyers. After all, 20 percent down on a home that costs $200,000 is $40,000 &mdash; a big chunk of money. The challenge of coming up with down payments has led many first-time buyers to less expensive starter homes. The down payments for these homes are smaller.</p> <p>Today, however, there are a number of programs that require buyers to come up with smaller down payments. Fannie Mae offers a program that requires just 3 percent down, while many borrowers can qualify for a down payment of 3.5 percent for FHA loans. (See also: <a href="http://www.wisebread.com/5-ways-to-qualify-for-a-mortgage-with-a-small-downpayment?ref=seealso" target="_blank">5 Ways to Qualify for a Mortgage With a Small Downpayment</a>)</p> <h2>Buying a starter home means moving twice</h2> <p>If you can afford a larger home right off the bat, you'll save yourself time and aggravation by reducing the number of times you have to move.</p> <p>Moving is a hassle. And it's expensive. You want to do it as few times as possible. Skipping the starter home and moving right into a larger home can help you skip at least one move in your lifetime. And if you've ever been through a big move, you know how much of a benefit skipping one can be. (See also: <a href="http://www.wisebread.com/dont-forget-to-budget-for-these-unexpected-moving-expenses?ref=seealso" target="_blank">Don't Forget to Budget for These Unexpected Moving Expenses</a>)</p> <h2>A bigger home provides you with more flexibility</h2> <p>If you buy a home that's a bit too large &mdash; as long as your mortgage payments fit comfortably within your budget &mdash; you'll have more space and flexibility if circumstances change down the road.</p> <p>Maybe your family starts to grow, or you take a remote job and need a home office. Maybe you have frequent out-of-town guests who need to stay the night. If you buy a starter home that's barely big enough to fit just you, as soon as you need more room, you'll have to start your hunt for a new residence. With a bigger home, you'll already have the added space for a significant other, kids, guest room, or home office.</p> <p>When you're touring a home, don't just consider your space needs today. If the home is offered at the right price, and your interest rate is low, think of how your family might grow and how your needs might change. Those rooms that seem like extras today might turn out be invaluable in the future.</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2Fare-starter-homes-still-a-thing&amp;media=https%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2FAre%2520Starter%2520Homes%2520Still%2520a%2520Thing_.jpg&amp;description=Are%20Starter%20Homes%20Still%20a%20Thing%3F"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="https://wisebread-killeracesmedia.netdna-ssl.com/files/fruganomics/u5180/Are%20Starter%20Homes%20Still%20a%20Thing_.jpg" alt="Are Starter Homes Still a Thing?" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="https://www.wisebread.com/dan-rafter">Dan Rafter</a> of <a href="https://www.wisebread.com/are-starter-homes-still-a-thing">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/how-much-money-do-you-need-in-savings-when-applying-for-a-mortgage">How Much Money Do You Need in Savings When Applying for a Mortgage?</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/10-dumb-ways-to-scare-off-potential-homebuyers">10 Dumb Ways to Scare Off Potential Homebuyers</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/things-i-wish-i-knew-before-i-bought-my-second-house">Things I Wish I Knew Before I Bought My Second House</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/6-tourist-towns-that-are-actually-great-to-live-in">6 &quot;Tourist Towns&quot; That Are Actually Great to Live In</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/weak-credit-you-can-still-get-a-mortgage-despite-tough-lending-standards">Weak Credit? You Can Still Get a Mortgage Despite Tough Lending Standards</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Real Estate and Housing down payments extra space housing market interest rates mortgage moving starter home Mon, 25 Jun 2018 08:30:25 +0000 Dan Rafter 2150663 at https://www.wisebread.com Is It Smart to Pay College Tuition With a Credit Card? https://www.wisebread.com/is-it-smart-to-pay-college-tuition-with-a-credit-card <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/is-it-smart-to-pay-college-tuition-with-a-credit-card" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="https://wisebread-killeracesmedia.netdna-ssl.com/files/fruganomics/imagecache/250w/blog-images/college_for_me_is_the_time_to_save.jpg" alt="College for me is the time to save" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>At first, the answer seems obvious: Using a credit card to pay your college tuition is a terrible idea. With the high rates that come with plastic, you could rack up thousands of dollars in interest by charging your tuition.</p> <p>But, there's another way to look at it: If you can pay off your credit card bill in full each month, using a card to pay your tuition could generate significant cash back rewards, airline miles, or free hotel stays.</p> <p>It all comes down to your discipline, the type of credit card, and what you can afford to charge. Here are a few things to consider before charging your tuition. (See also: <a href="http://www.wisebread.com/the-5-best-credit-cards-for-college-students?ref=seealso" target="_blank">The 5 Best Credit Cards for College Students</a>)</p> <h2>College isn't cheap</h2> <p>The cost of college isn't shrinking any time soon. CollegeBoard reports that the average yearly tuition for a public, four-year in-state college stood at $9,970 for 2017&ndash;2018, up 3.1 percent from the previous year. Private colleges averaged $25,620 for the same school year, an increase of 3.2 percent. Neither of those figures include the average $10,800 cost for room and board.</p> <p>If you're going to be charging tuition or room and board to a credit card, you should have the cash on hand to pay it off in a timely fashion &mdash; ideally, the first billing cycle. And that won't be a small amount. Otherwise, you put yourself at risk of falling deeply into credit card debt.</p> <h2>Very few people go this route</h2> <p>According to the 2017 edition of Sallie Mae's <em>How America Pays for College </em>report, just 3 percent of families used credit cards to help cover college tuition for their kids, while 4 percent of students used plastic to pay for some or all of their tuition. Parents charged an average $4,450 for tuition in 2017, while students charged an average $1,626.</p> <p>It's evident that paying for college with plastic is not the popular route. Why do so few students or parents turn to their credit cards? Most probably don't have the cash they'd need to pay off these cards in full each month in order to avoid interest charges. Others might not have a high enough credit limit on their cards to charge any more than a few thousand dollars at a time. Students may not have enough of a credit history yet to even be approved for a credit card. (See also: <a href="http://www.wisebread.com/4-important-ways-college-students-should-use-credit-cards?ref=seealso" target="_blank">4 Important Ways College Students Should Use Credit Cards</a>)</p> <h2>Don't chase rewards without a repayment plan</h2> <p>If you can afford to charge tuition and pay off your credit card bill each month, it might make sense to do so, especially if you have a credit card that provides cash back bonuses, rewards, or miles. Charging $10,000 in tuition, for example, could be a great way to earn fast cash or travel credit.</p> <p>Other cards might provide bonuses if you spend a certain amount of money during a set number of months. For instance, if you spend $5,000 during a three-month period, you might get a $200 cash back bonus. Charging your tuition can easily get you to that spending threshold. (See also: <a href="http://www.wisebread.com/5-smart-ways-to-meet-a-rewards-card-minimum-spending-requirement?ref=seealso" target="_blank">5 Smart Ways to Meet a Rewards Card Minimum Spending Requirement</a>)</p> <p>The key, again, is that you pay off your card's balance in full when the bill comes due. It's not unusual for credit cards to come with interest rates of 18 percent or higher. If you carry a balance, that interest rate will cause your debt to grow quickly, and no amount of cash back, bonuses, or miles is worth that financial pain.</p> <h2>Watch out for fees</h2> <p>There is another potential pitfall with credit cards depending on the school you attend. If your college or university allows you to charge tuition (some don't), many will charge an additional fee for credit card processing. You'll have to determine if the rewards, miles, or cash back bonuses you're after are enough to make up for the fee your university or college charges.</p> <p>According to a 2016 survey from CreditCards.com, 85 percent of the country's largest colleges allow credit cards for tuition payments. The survey found that 57 percent of schools charge fees for credit card payments, with the average fee being 2.62 percent.</p> <p>Say you charge $4,500 in tuition for your upcoming semester. If your school charged a fee of 2.62 percent, you'd pay about $118 extra for the privilege of using your card. If that $118 is higher than the cash back bonus or rewards points you'd generate from charging it, you're better off paying for your tuition in another way.</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2Fis-it-smart-to-pay-college-tuition-with-a-credit-card&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2FIs%2520It%2520Smart%2520to%2520Pay%2520College%2520Tuition%2520With%2520a%2520Credit%2520Card_.jpg&amp;description=Is%20It%20Smart%20to%20Pay%20College%20Tuition%20With%20a%20Credit%20Card%3F"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="https://wisebread-killeracesmedia.netdna-ssl.com/files/fruganomics/u5180/Is%20It%20Smart%20to%20Pay%20College%20Tuition%20With%20a%20Credit%20Card_.jpg" alt="Is It Smart to Pay College Tuition With a Credit Card?" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="https://www.wisebread.com/dan-rafter">Dan Rafter</a> of <a href="https://www.wisebread.com/is-it-smart-to-pay-college-tuition-with-a-credit-card">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/my-kid-got-accepted-to-an-expensive-private-college-now-what">My Kid Got Accepted to an Expensive Private College — Now What?</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/the-encouraging-truth-about-how-americans-are-covering-the-cost-of-college">The Encouraging Truth About How Americans Are Covering the Cost of College</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/the-millennials-guide-to-avoiding-credit-card-debt">The Millennials Guide to Avoiding Credit Card Debt</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/this-is-how-student-loan-interest-works">This Is How Student Loan Interest Works</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/how-to-keep-student-loans-from-wrecking-your-retirement">How to Keep Student Loans From Wrecking Your Retirement</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance Education & Training cash back charging college costs interest rates pros and cons rewards students tuition Tue, 29 May 2018 08:30:46 +0000 Dan Rafter 2143780 at https://www.wisebread.com This Is the Difference Between a Loan and a Line of Credit https://www.wisebread.com/this-is-the-difference-between-a-loan-and-a-line-of-credit <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/this-is-the-difference-between-a-loan-and-a-line-of-credit" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="https://wisebread-killeracesmedia.netdna-ssl.com/files/fruganomics/imagecache/250w/blog-images/woman_looking_at_paper_and_tablet.jpg" alt="Woman looking at paper and tablet" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>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?</p> <p>You may wonder what difference it makes, but there actually <em>is</em> a difference. And both forms of borrowing come with positives and negatives.</p> <p>Before you take out either a line of credit or a loan, it's important to understand the key differences between the two.</p> <h2>Loans give you a single lump-sum payment</h2> <p>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.</p> <p>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.</p> <p>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.</p> <h2>Lines of credit act more like credit cards</h2> <p>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.</p> <p>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.</p> <p>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: <a href="http://www.wisebread.com/5-questions-to-ask-before-applying-for-a-heloc?ref=seealso" target="_blank">5 Questions to Ask Before Applying for a HELOC</a>)</p> <h2>With loans, your payments are (mostly) fixed</h2> <p>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 &mdash; a payment in which your dollars will go toward paying down your principal balance and paying off interest &mdash; until you've repaid the loan.</p> <p>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.</p> <p>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.</p> <p>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.</p> <h2>Interest rates are higher on lines of credit</h2> <p>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.</p> <p>At the same time, home equity lines of credit are currently averaging interest rates of over 5 percent.</p> <h2>Closing costs are higher with loans</h2> <p>You'll usually spend more upfront to take out a loan than you will to originate a line of credit.</p> <p>Loans typically come with higher closing costs &mdash; 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: <a href="http://www.wisebread.com/heres-whats-included-in-a-homes-closing-costs?ref=seealso" target="_blank">Here's What's Included in a Home's Closing Costs</a>)</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2Fthis-is-the-difference-between-a-loan-and-a-line-of-credit&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2FThis%2520Is%2520the%2520Difference%2520Between%2520a%2520Loan%2520and%2520a%2520Line%2520of%2520Credit.jpg&amp;description=This%20Is%20the%20Difference%20Between%20a%20Loan%20and%20a%20Line%20of%20Credit"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="https://wisebread-killeracesmedia.netdna-ssl.com/files/fruganomics/u5180/This%20Is%20the%20Difference%20Between%20a%20Loan%20and%20a%20Line%20of%20Credit.jpg" alt="This Is the Difference Between a Loan and a Line of Credit" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="https://www.wisebread.com/dan-rafter">Dan Rafter</a> of <a href="https://www.wisebread.com/this-is-the-difference-between-a-loan-and-a-line-of-credit">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/5-surprising-ways-revolving-debt-helps-you">5 Surprising Ways Revolving Debt Helps You</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/3-sources-of-fast-cash-besides-your-401k">3 Sources of Fast Cash Besides Your 401K</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/15-personal-finance-calculators-everyone-should-use">15 Personal Finance Calculators Everyone Should Use</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/5-ways-to-pay-off-high-interest-credit-card-debt">5 Ways to Pay Off High Interest Credit Card Debt</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/8-valuable-rights-you-might-lose-when-you-refinance-student-loans">8 Valuable Rights You Might Lose When You Refinance Student Loans</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance borrowing money differences HELOC home equity line of credit interest rates lending lines of credit loans mortgages student loans Mon, 14 May 2018 08:31:14 +0000 Dan Rafter 2138248 at https://www.wisebread.com This Is How Student Loan Interest Works https://www.wisebread.com/this-is-how-student-loan-interest-works <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/this-is-how-student-loan-interest-works" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="https://wisebread-killeracesmedia.netdna-ssl.com/files/fruganomics/imagecache/250w/blog-images/student_loan_debt.jpg" alt="Student Loan debt" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Student loans are a heavy financial burden for most borrowers, but the loan balance isn't the only major financial blow; the interest that accumulates is also difficult to stay on top of.</p> <p>Interest on a student loan is a major contributor to how big your monthly payment will be and how much your loan will <em>really </em>cost by the time you pay it off. Let's look at how student loan interest works and what you can do to get your loans paid off faster and for less money.</p> <h2>Factors that determine interest on your student loan</h2> <p>There are a few factors that determine how much you will pay in interest on your student loan: the interest rate, the amount you borrow, the loan term, and your payment plan.</p> <h3>Interest rate</h3> <p>When you take out a student loan, you'll need to pay back the amount you borrow, plus interest on the loan. Interest is charged as a percentage of the amount you owe. For example, a $10,000 loan at a 10 percent annual interest rate (compounded daily) will cost you $1,049 after a year. So after one year, you would need to pay back the $10,000 that you borrowed, plus $1,049 for interest.</p> <h3>Amount borrowed</h3> <p>We have seen that a $10,000 loan at a 10 percent annual interest rate costs $1,049 in interest after a year. Of course, most student loans are much bigger than $10,000 &mdash; what if you borrow more? If you borrow $20,000, the interest cost to carry this loan for a year would be $2,097. If you borrow $50,000, the interest after a year would be $5,243. The more you borrow, the more interest the loan carries.</p> <h3>Loan term</h3> <p>The loan term is how long it will take you to pay back the loan. For example, you could borrow $50,000 and pay it back over 10 years. In this case, the term of the loan is 10 years. You can reduce your monthly payments by choosing a longer loan term, but you will end up paying more in interest.</p> <p>If you borrow $50,000 at a 10 percent annual interest rate, you would pay $660.75 per month and your total cost for interest over the life of the loan would be $29,290.44. Now, let's say you want lower monthly payments, so you go with a 20-year term instead of 10 years. Your monthly payment would be $482.51, but over the life of the loan you would pay a whopping $65,802.60 in interest &mdash; about $35,000 more!</p> <h3>Payment plan</h3> <p>Student loans have more flexibility in their payment schedules than other installment loans. The simplest plan is to make the same monthly payments over the entire term of the loan. However, since new college grads typically have a lower income just after graduation and earn a higher salary over time, you can select repayment plans that start off with smaller monthly payments that increase as your income increases.</p> <p>Variable repayment plans do make it easier to make payments on student loans, but the price to be paid for this flexibility is interest. Any payment plan that has smaller payments in the early years will cost more in interest over all. (See also: <a href="http://www.wisebread.com/6-questions-to-ask-before-taking-out-student-loans?ref=seealso" target="_blank">6 Questions to Ask Before Taking Out Student Loans</a>)</p> <h2>How much of your student loan payment goes to interest?</h2> <p>When you make your monthly student loan payment, at first, most of your payment will go toward paying interest. Only a small amount will go toward paying down the principal. Over time, eventually more of your payment will chip away at the principal until your loan is paid off in full.</p> <p>Here's an example of how a payment of $660.75 per month on a $50,000 student loan at 10 percent interest would be applied to interest and principal during a 10-year term.</p> <p><img src="https://wisebread-killeracesmedia.netdna-ssl.com/files/fruganomics/u5170/amortization.jpg" alt="" /></p> <p>At first, you can see how the majority of the payment goes toward interest. But over time, as you continue to make payments, the balance of the loan decreases, thereby reducing the interest that accumulates and allowing more of your monthly payment to go to paying down the principal of the loan.</p> <p>Most student loans give you the option to apply extra payments toward the principal. If you can pay a little extra each month, you'll bring your balance down faster and save money on interest payments over the life of your loan. For example, if you could pay $40 more per month, your loan would be paid off in nine years instead of 10, and your total interest cost would be about $3,000 less. (See also: <a href="http://www.wisebread.com/what-really-happens-when-you-dont-pay-your-student-loans?ref=seealso" target="_blank">What Really Happens When You Don't Pay Your Student Loans</a>)</p> <h2>How to reduce your student loan interest</h2> <p>Once you understand how student loan interest works, you can put that knowledge to work. There are a few ways you can reduce the overall cost of your student loans.</p> <ul> <li> <p>Paying your loan off faster will reduce the cost of interest. Choose the shortest term you can afford, and make extra payments if possible.</p> </li> <li> <p>Borrowing more will increase your interest cost. Try to minimize living expenses while in school to keep your student loan balance as low as possible.</p> </li> </ul> <p>Select the student loan option with the lowest interest rate available. If your rate is still higher than you'd like, consider refinancing your student loan later to a lower interest rate. (See also: <a href="http://www.wisebread.com/15-ways-to-pay-back-student-loans-faster?ref=seealso" target="_blank">15 Ways to Pay Back Student Loans Faster</a>)</p> <p style="text-align: center;">&nbsp;</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2Fthis-is-how-student-loan-interest-works&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2FThis%2520Is%2520How%2520Student%2520Loan%2520Interest%2520Works.jpg&amp;description=This%20Is%20How%20Student%20Loan%20Interest%20Works"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="https://wisebread-killeracesmedia.netdna-ssl.com/files/fruganomics/u5180/This%20Is%20How%20Student%20Loan%20Interest%20Works.jpg" alt="This Is How Student Loan Interest Works" width="250" height="374" /></p> <p>&nbsp;</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="https://www.wisebread.com/dr-penny-pincher">Dr Penny Pincher</a> of <a href="https://www.wisebread.com/this-is-how-student-loan-interest-works">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/8-valuable-rights-you-might-lose-when-you-refinance-student-loans">8 Valuable Rights You Might Lose When You Refinance Student Loans</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/dont-ignore-these-4-things-before-refinancing-your-student-loans">Don&#039;t Ignore These 4 Things Before Refinancing Your Student Loans</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/4-ways-to-make-the-most-of-your-student-loan-grace-period">4 Ways to Make the Most of Your Student Loan Grace Period</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/12-easy-ways-to-avoid-student-loan-debt">12 Easy Ways to Avoid Student Loan Debt</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/8-ways-to-get-student-loan-debt-forgiveness">8 Ways to Get Student Loan Debt Forgiveness</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Banking Debt Management Education & Training amortization college extra payments interest rates loan terms principal refinancing repayment plans student loans tuition Wed, 09 May 2018 08:30:19 +0000 Dr Penny Pincher 2138310 at https://www.wisebread.com Why You Should Call Your Mortgage Lender Every Year https://www.wisebread.com/why-you-should-call-your-mortgage-lender-every-year <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/why-you-should-call-your-mortgage-lender-every-year" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="https://wisebread-killeracesmedia.netdna-ssl.com/files/fruganomics/imagecache/250w/blog-images/she_is_devoted_to_her_career.jpg" alt="She is devoted to her career" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Most of us don't think too much about our mortgage lender once we've moved into our new home. We might complain about how much interest we're paying on our mortgage each month, but that's about as deep as it gets. This attitude, though, could be costing you money.</p> <p>Your mortgage payment probably ranks as your biggest monthly expense. So why wouldn't you reach out to your lender, at least occasionally, to see if you can somehow reduce it?</p> <p>It makes sense to contact your mortgage lender at least once a year to ask about lowering your interest rate, adjusting the term of your loan, or maybe even refinancing into a different loan type. Doing so could save you a significant amount of money each year.</p> <p>Here are five questions you should call and ask your mortgage lender each year.</p> <h2>1. Is there a way to lower your monthly payment?</h2> <p>Mortgage interest rates have been rising since the middle of 2017. But this doesn't mean that the rate you have with your mortgage loan now is as low as it can ever be.</p> <p>If you applied for your mortgage five or more years ago, was it at a time when you were saddled with thousands of dollars of credit card debt? Did you have late or missed payments on your credit reports? If your financial situation has improved since then, you might now qualify for a lower interest rate. And that lower rate will save you money on your monthly payment.</p> <p>Consider this math: Say you are paying off a $200,000 30-year, fixed-rate mortgage with an interest rate of 5.25 percent. Your monthly payment, not including taxes and homeowners' insurance, will be about $1,104. If you now owe $180,000 on that same loan, moving to an interest rate of 4.25 percent would knock your monthly payment &mdash; again, not including taxes and insurance &mdash; down to about $885 a month. That's a savings of about $219 a month.</p> <p>To get to that savings, you will have to refinance, replacing your existing loan with a new one with a lower interest rate. That will cost you some money upfront &mdash; often as much as $3,000 or more. But it's worth it to call your mortgage lender. First, ask if you might now qualify for a lower interest rate. Then ask yourself if the monthly savings from the new rate will be high enough to justify the cost of paying for a refinance. (See also: <a href="http://www.wisebread.com/how-long-does-it-take-break-even-with-a-home-refi?ref=seealso" target="_blank">How Long Does it Take Break Even With a Home ReFi?</a>)</p> <h2>2. Can you refinance to a shorter loan?</h2> <p>Refinancing isn't just a way to lower your monthly mortgage payment. You can also reduce the amount of interest you will pay over the life of your loan.</p> <p>It's no secret that a good chunk of your monthly mortgage payment goes toward interest. If you are paying off a $200,000 30-year, fixed-rate mortgage with an interest rate of 4.25 percent, you'll pay more than $154,000 in interest if you take the full three decades to pay off that loan.</p> <p>But if you refinance to a shorter-term loan, you can dramatically reduce the interest you pay over the life of your loan. Say you owe $185,000 on that same loan. If you refinance to a 15-year, fixed-rate loan with an interest rate of 3.8 percent, you'll now pay just more than $57,000 if you take the full 15 years to pay off the loan. Just be aware that because your loan term is shorter, your monthly payment will be higher.</p> <p>Again, it's worth a call to your lender to determine how much you could save in interest by refinancing to a shorter-term loan. If your budget can handle the higher monthly payment, this move can save you plenty of money in the long run. (See also: <a href="http://www.wisebread.com/is-a-15-year-mortgage-a-good-idea?ref=seealso" target="_blank">Is a 15-Year Mortgage a Good Idea?</a>)</p> <h2>3. Can you pay more toward the principal?</h2> <p>Refinancing does come with financial rewards. But it's also costly and time-consuming. If you can't drop your interest rate by enough, you won't reap enough monthly savings anyway.</p> <p>But there is a way to reduce the amount of interest you'll pay over the life of your loan and shorten the number of years it will take you to pay it off: You can pay a bit extra with each mortgage payment.</p> <p>Say you have 25 years remaining on a 30-year, fixed-rate mortgage loan of $200,000 with an interest rate of 4.5 percent. If you pay an extra $100 toward your loan's principal balance each month, you can reduce the time it takes you to pay off that loan by three years and nine months. You can also save nearly $21,000 in interest payments over the life of the mortgage.</p> <p>If your budget can handle the extra $100 a month, this could be a smart financial move. Ask your lender how paying a bit extra each month can shorten the term of your loan and lower the amount of interest you pay. You might be surprised at the difference these small payments can make. (See also: <a href="http://www.wisebread.com/should-you-pay-your-mortgage-off-early?ref=seealso" target="_blank">Should You Pay Your Mortgage Off Early?</a>)</p> <h2>4. Is it time to move to a steadier mortgage type?</h2> <p>You might be paying off an adjustable-rate mortgage. As the name suggests, the interest rate with such mortgages doesn't remain fixed, but instead adjusts according to whatever economic index your loan is tied to on a regular schedule.</p> <p>Most adjustable-rate mortgages, better known as ARMs, start with a fixed period of five to seven years during which your rate won't change. After that fixed period ends, your rate will adjust on a regular schedule, usually once every year or once every two or five years, depending on the type of ARM you are paying off.</p> <p>The attraction of ARMs is that you often start with an interest rate that is lower than what you'd get with a more traditional fixed-rate mortgage. The risk is that when that rate adjusts, it could rise far higher, bumping your monthly mortgage payments up with it.</p> <p>A way to avoid the adjustment is to refinance to a fixed-rate mortgage with a rate that stays in place throughout the life of your new loan. If you are nearing the end of your ARM's fixed period, give your lender a call. You might qualify for a refinance to a fixed-rate loan that comes with an interest rate that while higher than your current rate, will be lower than the new rate you'd soon face with your current ARM. (See also: <a href="http://www.wisebread.com/fixed-or-adjustable-choosing-the-right-mortgage-loan?ref=seealso" target="_blank">Fixed or Adjustable? Choosing the Right Mortgage Loan</a>)</p> <h2>5. Can you make your monthly loan payments less of a burden?</h2> <p>Are you struggling to make your monthly mortgage payments on time? Are you worried that you won't be able to make your payment next month? Then it's definitely time to call your lender.</p> <p>Your lender, for instance, might be willing to reduce your interest rate temporarily or lengthen the term of your loan so that your monthly payment is lower. Be prepared to prove to your lender that you can no longer afford your monthly mortgage payments. If you've lost your job, show the paperwork proving it. If you've taken a pay cut, send your new paystubs.</p> <p>There's no guarantee that your lender will help you. But you'll never know if you don't call. And ignoring the problem won't help. (See also: <a href="http://www.wisebread.com/8-signs-youre-paying-too-much-for-your-mortgage?ref=seealso" target="_blank">8 Signs You're Paying Too Much for Your Mortgage</a>)</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2Fwhy-you-should-call-your-mortgage-lender-every-year&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2FWhy%2520You%2520Should%2520Call%2520Your%2520Mortgage%2520Lender%2520Every%2520Year.jpg&amp;description=Why%20You%20Should%20Call%20Your%20Mortgage%20Lender%20Every%20Year"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="https://wisebread-killeracesmedia.netdna-ssl.com/files/fruganomics/u5180/Why%20You%20Should%20Call%20Your%20Mortgage%20Lender%20Every%20Year.jpg" alt="Why You Should Call Your Mortgage Lender Every Year" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="https://www.wisebread.com/dan-rafter">Dan Rafter</a> of <a href="https://www.wisebread.com/why-you-should-call-your-mortgage-lender-every-year">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/8-valuable-rights-you-might-lose-when-you-refinance-student-loans">8 Valuable Rights You Might Lose When You Refinance Student Loans</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/is-it-safe-to-re-finance-your-home-close-to-retirement">Is it Safe to Re-Finance Your Home Close to Retirement?</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/quicken-loans-review-competitive-rates-and-good-customer-service">Quicken Loans Review: Competitive Rates and Good Customer Service</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/is-a-15-year-mortgage-a-good-idea">Is a 15-Year Mortgage a Good Idea?</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/should-you-pay-your-mortgage-off-early">Should You Pay Your Mortgage Off Early?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Real Estate and Housing adjustable rate mortgage interest rates lower monthly payments mortgage lenders mortgages refinancing Mon, 30 Apr 2018 08:30:17 +0000 Dan Rafter 2131786 at https://www.wisebread.com 7 Ways to Vet Your Mortgage Lender https://www.wisebread.com/7-ways-to-vet-your-mortgage-lender <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/7-ways-to-vet-your-mortgage-lender" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="https://wisebread-killeracesmedia.netdna-ssl.com/files/fruganomics/imagecache/250w/blog-images/applying_for_morgage.jpg" alt="Applying for mortgage" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Buying a home is one of the biggest purchases most consumers ever make. And yet many of us put little to no thought into getting a mortgage loan or the lender we'll work with during the process.</p> <p>This attitude can cost you. In 2015, the Consumer Financial Protection Bureau found that 47 percent of mortgage borrowers didn't shop around for lenders. The CFPB also found that those applying for a 30-year, fixed-rate mortgage could qualify for interest rates that varied by more than half a percent. This may not sound like much, but the CFPB noted that the difference between 4 percent and 4.5 percent could result in savings of $60 per month, or $720 per year.</p> <p>So how do you make sure that the mortgage lender you choose will offer you the best deal and the best service? You need to vet these financing professionals.</p> <h2>1. Ask your real estate agent, but also shop around</h2> <p>Real estate agents work with plenty of lenders and should be able to recommend a mortgage loan officer. Because they want their clients to refer them to other buyers and sellers, they tend to recommend loan officers and lenders who provide good service and prices.</p> <p>But don't automatically take your real estate agent's recommendation. Talk to friends and family members who recently took out mortgage loans. Did their lender do a good job for them? Do they wish they'd worked with a different one?</p> <p>Search mortgage comparison sites such as LendingTree, too. LendingTree lets you put in your basic financial information and receive preliminary offers from lenders seeking your business. Just be aware that there is no guarantee that these preliminary offers will match the final offers lenders make should you formally apply.</p> <p>Once you have a list of lenders and loan officers, contact them. It's now that you can ask them questions to help determine if they are worth working with.</p> <h2>2. Do some rate and fee comparisons</h2> <p>When interviewing lenders, ask them how much their borrowers typically pay in closing costs. These are the fees that lenders and other third-party providers, such as real estate attorneys and title insurance companies, charge to originate your mortgage loan. These fees can quickly add up, often totaling 3 percent or more of your loan amount. Ask the lenders you are interviewing, too, what interest rate someone with your finances can expect to be charged.</p> <p>Be careful, though: Some lenders might quote you a lower interest rate, but charge you a higher closing fee at the same time. Make sure to consider both the rate and fees. (See also: <a href="http://www.wisebread.com/heres-whats-included-in-a-homes-closing-costs?ref=seealso" target="_blank">Here's What's Included in a Home's Closing Costs</a>)</p> <h2>3. Ask about closing times</h2> <p>Originating a mortgage loan takes time. You can expect to wait 30 days or more between the moment you apply for a loan and the day you sign the papers. But some lenders are faster than others. Ask your lender how long it takes borrowers on average to get to the closing table. If most lenders say 30 days, but one says 60? You might want to skip working with the outlier. (See also: <a href="http://www.wisebread.com/how-long-does-it-really-take-to-close-on-a-house?ref=seealso" target="_blank">How Long Does It Really Take to Close on a House?</a>)</p> <h2>4. Ask your lender to explain the entire lending process</h2> <p>Most of us aren't familiar with how the mortgage-lending system works, so it's important to work with lenders who can explain this often-complicated process clearly. If the lenders you are interviewing can't or won't do this, find a new one to vet. (See also: <a href="http://www.wisebread.com/5-homebuying-questions-youre-embarrassed-to-ask?ref=seealso" target="_blank">5 Homebuying Questions You're Embarrassed to Ask</a>)</p> <h2>5. Ask to speak to past clients</h2> <p>Ask your lender to provide you the names and contact information of at least three past clients. When you get a hold of these referrals, pick their brains. Ask if the lender responded quickly to phone calls, if the closing costs they charged were higher than expected, and if they fixed any problems that popped up during the lending process. If lenders balk at providing referrals, don't work with them.</p> <h2>6. Do your online research</h2> <p>Once you've found a lender you like, do some online research. Check out sites such as Yelp or Zillow to find online reviews of the lenders you are considering. If a lender has an overwhelming number of negative reviews, you might want to steer clear.</p> <h2>7. Get preapproved</h2> <p>During the preapproval process, a lender will run your credit and verify your income. You help the process along by sending copies of financial documents such as your recent paycheck stubs, bank account statements, and income tax returns. Your lender will use this information to determine how much loan money they are comfortable giving you, and will send you a letter stating the results.</p> <p>The best thing about preapprovals is that they are free. If you find three lenders you like, get preapproved with all three. You aren't obligated to work with any lender that preapproves you. But you might discover that one lender approves you for $200,000 while two others approve you for loans as high as $250,000. This could influence which lender you finally choose.</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2F7-ways-to-vet-your-mortgage-lender&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2F7%2520Ways%2520to%2520Vet%2520Your%2520Mortgage%2520Lender.jpg&amp;description=7%20Ways%20to%20Vet%20Your%20Mortgage%20Lender"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="https://wisebread-killeracesmedia.netdna-ssl.com/files/fruganomics/u5180/7%20Ways%20to%20Vet%20Your%20Mortgage%20Lender.jpg" alt="7 Ways to Vet Your Mortgage Lender" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="https://www.wisebread.com/dan-rafter">Dan Rafter</a> of <a href="https://www.wisebread.com/7-ways-to-vet-your-mortgage-lender">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/5-mortgage-details-you-should-know-before-you-sign">5 Mortgage Details You Should Know Before You Sign</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/heres-whats-included-in-a-homes-closing-costs">Here&#039;s What&#039;s Included in a Home&#039;s Closing Costs</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/4-surprising-things-lenders-check-besides-your-credit-score">4 Surprising Things Lenders Check Besides Your Credit Score</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/stop-believing-these-5-home-refinance-myths">Stop Believing These 5 Home Refinance Myths</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/how-much-money-do-you-need-in-savings-when-applying-for-a-mortgage">How Much Money Do You Need in Savings When Applying for a Mortgage?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Real Estate and Housing closing costs fees home buying interest rates lenders mortgages realtors reviews screening vetting Fri, 20 Apr 2018 08:30:09 +0000 Dan Rafter 2131426 at https://www.wisebread.com How to Fight Back Against Mortgage Discrimination https://www.wisebread.com/how-to-fight-back-against-mortgage-discrimination <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-to-fight-back-against-mortgage-discrimination" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="https://wisebread-killeracesmedia.netdna-ssl.com/files/fruganomics/imagecache/250w/blog-images/young_couple_signing_renting_contract.jpg" alt="Young couple signing renting contract" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>In late February, the city of Sacramento filed a lawsuit in federal court against Wells Fargo, claiming that the lending giant has been discriminating against black and Latino mortgage borrowers since 2004. The suit says that Wells Fargo steered these clients into loans that had higher interest rates and were more expensive than the mortgages the company made available to white borrowers.</p> <p>Wells Fargo isn't the only big lender to face charges of mortgage discrimination. Last year, JPMorgan Chase &amp; Co. agreed to pay $55 million to the U.S. Department of Justice after being accused of pushing more expensive mortgage loans on minority borrowers. JPMorgan, in a statement released after reaching the settlement, denied that it had done anything wrong.</p> <p>And in February of this year, Reveal from the Center for Investigative Reporting released a report saying that African-American and Latino homebuyers are denied conventional mortgage loans at rates far higher than white borrowers. According to the study, black borrowers were denied mortgages at higher rates than white borrowers in 48 cities, while Latinos were denied at higher rates in 25.</p> <p>It's clear that mortgage discrimination exists and is a problem. If you're ready to apply for a mortgage loan, you might be worried that you, too, will face this discrimination, especially if you're black or Latino.</p> <p>How can you recognize mortgage discrimination? And, just as importantly, how can you fight against it?</p> <h2>Recognizing discrimination</h2> <p>The first step toward fighting back against mortgage discrimination is to recognize when it happens to you. Unfortunately, recognizing discrimination isn't always easy.</p> <p>You're not necessarily a victim of mortgage discrimination simply because you're denied a mortgage loan. But you are a victim if the reason you are denied is based on your race, religion, gender, age, or sexual orientation. The Equal Credit Opportunity Act forbids lenders from denying borrowers based on those factors. Lenders must have a financial reason for denying a loan application.</p> <p>For instance, if a lender denies your application for a mortgage because your credit score is just 500, that's not discrimination. A low FICO score means that you have a history of struggling to pay your bills and manage your credit. That's a legitimate reason to be denied a loan. But what if your score is 700? If you're denied a loan then, or if your lender recommends a loan with higher-than-market interest rates, you might be the victim of mortgage discrimination.</p> <p>There are, of course, other financial factors besides your credit score than can affect your loan application. Maybe your credit scores are solid, but you have tens of thousands of dollars of credit card debt. Or maybe your monthly income is low. Both of these are also valid reasons for being denied a loan. (See also: <a href="http://www.wisebread.com/denied-a-mortgage-heres-how-to-fix-it-fast?ref=seealso" target="_blank">Denied a Mortgage? Here's How to Fix It Fast</a>)</p> <p>The Consumer Financial Protection Bureau says that there are certain signs that might indicate you are being discriminated against. If a lender quickly discourages you from applying for a loan, or if a lender who was friendly over the phone suddenly treats you with less respect when seeing you in person, that's a red flag. The bureau also warns that if lenders pressure you to sign a loan application even if you aren't happy with the fees or interest rates, you might be facing discrimination.</p> <p>If a lender eventually declines your loan request, it must give you reasons for the rejection, according to the Federal Trade Commission.</p> <h2>Fighting back</h2> <p>Fighting back against mortgage discrimination starts before you even apply for a home loan. Before you speak with lenders, check your credit reports and your credit score. You are entitled to one free copy of each of your three credit reports &ndash; from Experian, Equifax, and TransUnion &ndash; every year. You can request them at <a href="https://www.annualcreditreport.com/" target="_blank">AnnualCreditReport.com</a>.</p> <p>Once you receive your reports, study them carefully. They will list any loans or credit card accounts you have, and how much you owe on them. They'll also list any late or missed payments that are seven years old or younger. If you see any mistakes, report them to the offending credit bureau by email or phone.</p> <p>Also, order your credit score. This isn't free, but you can order at least one version of your FICO score from either of the credit bureaus or from <a href="https://www.myfico.com/" target="_blank">myFICO.com</a>. Expect to pay about $19 per score.</p> <p>Lenders consider FICO scores of 740 or higher to be very strong. Those under 620 are generally considered weak enough to result in a higher chance of rejection when applying for a loan. Lower scores will also leave you with higher interest rates on loans you do get. (See also: <a href="http://www.wisebread.com/5-ways-to-improve-your-credit-score-fast?ref=seealso" target="_blank">5 Ways to Improve Your Credit Score Fast</a>)</p> <p>Once you have this background information, you'll have a better idea whether or not you are an attractive borrower. If your credit score is good and you don't have negative financial marks on your credit reports, you should be able to qualify for mortgages at lower interest rates. If your credit score is low and your credit reports are filled with past financial mistakes, those loan rejections and higher interest rates might be justified.</p> <p>If you do feel you have been discriminated against by a lender, the Federal Trade Commission recommends that you file a complaint against your lender. That might persuade your lender to look into your application again. If that doesn't work, you can file a complaint with the <a href="https://www.consumerfinance.gov/complaint/" target="_blank">Consumer Financial Protection Bureau</a> and the <a href="https://www.hud.gov/" target="_blank">U.S. Department of Housing and Urban Development</a>. You can even file a lawsuit against your lender in federal court.</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2Fhow-to-fight-back-against-mortgage-discrimination&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2FHow%2520to%2520Fight%2520Back%2520Against%2520Mortgage%2520Discrimination.jpg&amp;description=How%20to%20Fight%20Back%20Against%20Mortgage%20Discrimination"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="https://wisebread-killeracesmedia.netdna-ssl.com/files/fruganomics/u5180/How%20to%20Fight%20Back%20Against%20Mortgage%20Discrimination.jpg" alt="How to Fight Back Against Mortgage Discrimination" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="https://www.wisebread.com/dan-rafter">Dan Rafter</a> of <a href="https://www.wisebread.com/how-to-fight-back-against-mortgage-discrimination">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/weak-credit-you-can-still-get-a-mortgage-despite-tough-lending-standards">Weak Credit? You Can Still Get a Mortgage Despite Tough Lending Standards</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/4-surprising-things-lenders-check-besides-your-credit-score">4 Surprising Things Lenders Check Besides Your Credit Score</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/7-easy-first-steps-to-paying-off-debt">7 Easy First Steps to Paying Off Debt</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/10-things-you-need-to-know-before-taking-out-a-personal-loan">10 Things You Need to Know Before Taking Out a Personal Loan</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/7-ways-to-rent-an-apartment-with-bad-credit">7 Ways to Rent An Apartment With Bad Credit</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Real Estate and Housing credit score equal credit opportunity act fair housing federal trade commission interest rates mortgage discrimination racism Thu, 19 Apr 2018 08:00:07 +0000 Dan Rafter 2128557 at https://www.wisebread.com Interest Rates Are Rising: Here's Where to Keep Your Cash https://www.wisebread.com/interest-rates-are-rising-heres-where-to-keep-your-cash <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/interest-rates-are-rising-heres-where-to-keep-your-cash" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="https://wisebread-killeracesmedia.netdna-ssl.com/files/fruganomics/imagecache/250w/blog-images/beautiful_black_woman_portrait_0.jpg" alt="Beautiful black woman portrait" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>These past 10 years, interest rates have been so low it just about didn't matter what you did with your cash. There was a certain convenience to that &mdash; you didn't have to move money back and forth between checking and higher-rate accounts, because they paid almost the same. As a bonus, you didn't have to track money market returns to be sure the rate your account paid was still competitive, because they all paid just a fraction over 0 percent.</p> <p>That has changed. The Fed has already started raising interest rates, and will probably raise rates another three-quarters of a percentage point this year. Already, rates are high enough that it makes a difference where you hold your cash, and that difference is starting to get significant. (See also: <a href="http://www.wisebread.com/how-to-benefit-from-rising-interest-rates?ref=seealso" target="_blank">How to Benefit From Rising Interest Rates</a>)</p> <p>Let's take a look at where you should be holding your money, as well as a few reasons why you need cash on hand.</p> <h2>What cash to hold</h2> <p>There are four main reasons to hold cash: liquidity balances, planned expenses, temporary holdings, and an emergency fund. The size of your temporary holdings may vary quite a bit from time to time, but the others have pretty specific parameters that it's worth being clear about.</p> <h3>Liquidity balances</h3> <p>Your income arrives in chunks that don't precisely match the due dates of your bills. Liquidity balances are the cash you keep on hand to smooth that out, so that you can pay each bill when it's due. Sizing the cash demands of your liquidity balances is easy: It's the total of all the bills that might come due between income payments. Once you know this amount, you can set it aside for when you need it.</p> <h3>Planned expenses</h3> <p>Everybody has some expenses that are not regular monthly bills, but are nevertheless known in advance. Some of these <em>are</em> regular, they're just not monthly: tax payments, insurance premiums, tuition payments, etc. Others are irregular, such as discretionary payments on things like home improvements, airfare for your vacation, buying a boat, etc. Regular or irregular, if there's a near-term payment to make, it's good money management to hold some cash to pay it.</p> <h3>Temporary investments</h3> <p>Sometimes you have cash that you've decided to invest, but that you aren't ready to invest <em>yet</em>. Maybe you don't know exactly where the money should go until the next time you rebalance your portfolio. Maybe you expect market conditions to improve. Maybe you're accumulating money to meet the minimum balance of some fund. Whatever the reason, until you're ready to invest, you're holding the money as cash. (See also: <a href="http://www.wisebread.com/how-the-risk-averse-can-get-into-the-stock-market?ref=seealso" target="_blank">How the Risk Averse Can Get Into the Stock Market</a>)</p> <h3>Emergencies</h3> <p>Your emergency fund is cash set aside to handle a financial crisis &mdash; a job loss, a medical bill, a home repair, etc. Having the money on hand means that you won't have to turn to credit cards or other forms of debt to get through your emergency. Experts often recommend an emergency cushion of three to six months' worth of daily living expenses. Your unique situation &mdash; such as an expensive medical condition or a high-paying job that would be difficult to replace &mdash; may call for a larger fund. (See also: <a href="http://www.wisebread.com/5-minute-finance-start-an-emergency-fund?ref=seealso" target="_blank">5-Minute Finance: Start an Emergency Fund</a>)</p> <h2>Where to hold your cash</h2> <p>In the U.S., we have a complex history of rules related to ceilings on the rates banks can pay, special exceptions to those rules, and free-market efforts to get around those rules. There are a lot of different kinds of institutions that hold cash and a lot of different kinds of accounts available at one or another of those institutions.</p> <p>Whatever sort of institution you choose, you still need to figure out what sorts of accounts to use for your cash. Here are the usual suspects.</p> <h3>Checking accounts</h3> <p>For most people, a checking account is their main gateway into the banking system. Their paycheck is direct deposited into their checking account, and most of their bills are paid out of their checking account.</p> <p>Back in the 1980s and 1990s, banks had to pay reasonably competitive interest rates to pull in money to support their (highly profitable) lending. That became less and less true in the early 21st century, until the financial crisis put an end to it. At the moment, checking accounts pay so little interest that you might as well just ignore it.</p> <p>That doesn't mean you shouldn't have a checking account &mdash; it's just no longer where you should hold your liquidity balances or your cash to cover planned expenses, until just a day or two before you need to make a payment. (See also: <a href="http://www.wisebread.com/9-common-mistakes-youre-making-with-your-checking-account?ref=seealso" target="_blank">9 Common Mistakes You're Making With Your Checking Account</a>)</p> <h3>Reloadable debit cards</h3> <p>These are a relatively new invention, created for people who don't need (or can't manage) an ordinary checking account. As the name suggests, it functions as a debit card. There is usually some limited ATM access and some sort of bill-paying feature.</p> <p>Once little more than fee-generating boondoggle for the banks, rule changes made them pretty fair for consumers a few years ago. Since these new rules went into effect, a reloadable debit card had been a reasonable place to hold your cash balances when rates were low, but now that interest rates are going up they're only reasonable for people whose circumstances make a bank account impractical.</p> <h3>Savings accounts</h3> <p>It used to be that you opened a savings account even before you opened a checking account. Now an ordinary savings account is almost pointless. At least at my bank, a savings account pays the same minuscule rate as a checking account, so I might just as well leave my excess cash in my checking account.</p> <p>When you think about savings accounts nowadays, though, you're usually not thinking about a savings account at your local bank. You're thinking about an internet savings account. (See also: <a href="http://www.wisebread.com/6-important-things-to-look-for-in-a-savings-account?ref=seealso" target="_blank">6 Important Things to Look for in a Savings Account</a>)</p> <h3>Internet savings accounts</h3> <p>These are just ordinary savings accounts, except they're at a bank that's willing to pay up to get your money, and that offers a convenient web interface for moving money to and from your checking account. The money moves by ACH transfer, typically in two or three days. This is quick enough to make these accounts very useful as a place to hold your cash.</p> <p>Unlike a lot of other kinds of financial accounts (where the terms and conditions vary in complex ways), the terms and conditions of internet savings accounts tend to be relatively standard, making it easy for savers to compare one account to another and pick the one that offers the best deal. (See also: <a href="http://www.wisebread.com/5-best-online-savings-accounts?ref=seealso" target="_blank">5 Best Online Savings Accounts</a>)</p> <h3>Money market funds</h3> <p>Money funds are a legacy of 1970s interest rate regulations. They pool money from shareholders, invest it in short-term securities, and share the return. Because they just share whatever return they get, returns go up quickly when interest rates rise. (Unlike savings and money market accounts, where banks that already have your money won't raise rates until they have to.)</p> <p>Although very safe, investments in a money market fund are not guaranteed. In fact, one money market fund lost enough money during the financial crisis that it was unable to make investors whole. That prompted major players in the money market to simultaneously all try to get out of assets with even the slightest risk. Basically, that was the financial crisis.</p> <h3>Money market accounts</h3> <p>Created in the early 1980s as a carefully carved-out exception to interest rate regulations, money market accounts were created in a way that didn't cannibalize on checking or savings accounts (basically, they only allowed six withdrawals per month and only three of those could be by check). They had advantages over a money market fund: They paid an announced rate (instead of just whatever the fund could earn in the market), they were guaranteed to pay off at 100 cents on the dollar, and they had FDIC insurance. That's all still true. (See also: <a href="http://www.wisebread.com/money-market-accounts-ideal-for-emergency-funds?ref=seealso" target="_blank">Money Market Accounts: Ideal for Emergency Funds</a>)</p> <h3>Other possibilities</h3> <p>There are a lot of other places you might hold cash for the short term: Demand note accounts (basically an IOU from a major financial corporation packaged up like an internet savings account), cash management accounts (a money fund or money market account wrapped up inside a brokerage account), CDs, and Treasury bills.</p> <h2>Bottom line</h2> <p>It no longer makes good sense to just keep your money in your checking account &mdash; the simplest version of cash management. Now that you can earn a return that's more than a fraction above zero, the time has come to manage your cash more actively.</p> <h3>Simple, but not too simple</h3> <p>The easiest version of active management is just to shift most of your liquidity balances, near-term planned expenses, and temporary investments into some sort of higher-yield account.</p> <p>Just do this: When your paycheck (or any other money) arrives in your checking account, transfer most of it to your higher-yield account. Two or three days before your bills need to be paid, transfer the necessary amount of money back to your checking account.</p> <h3>Not so simple</h3> <p>If you're into this sort of thing, you can get as fancy as you want.</p> <p>If your finances are sufficiently under control, you can skip the step of having your income enter via your checking account only to be transferred to your higher-yield account. Instead, you can arrange to have your direct deposit go straight into your high-yield account. That gets you earning your higher yield a couple of days earlier, and potentially cuts the number of transfers you need to make in half.</p> <p>Especially for expenses with due dates that are well-known but further off than this month, it may make sense to do something with CDs or Treasury bills.</p> <p>It may be more convenient to keep your temporary investments closer to where the investments are going to be held &mdash; perhaps in a money market fund in the same family as the other mutual funds you hold, or one with your brokerage firm.</p> <p>The possibilities are endless. But the time for just leaving your money idle in your checking account has ended.</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2Finterest-rates-are-rising-heres-where-to-keep-your-cash&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2FInterest%2520Rates%2520Are%2520Rising_%2520Here%2527s%2520Where%2520to%2520Keep%2520Your%2520Cash.jpg&amp;description=Interest%20Rates%20Are%20Rising%3A%20Here's%20Where%20to%20Keep%20Your%20Cash"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="https://wisebread-killeracesmedia.netdna-ssl.com/files/fruganomics/u5180/Interest%20Rates%20Are%20Rising_%20Here%27s%20Where%20to%20Keep%20Your%20Cash.jpg" alt="Interest Rates Are Rising: Here's Where to Keep Your Cash" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="https://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="https://www.wisebread.com/interest-rates-are-rising-heres-where-to-keep-your-cash">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/6-important-things-to-look-for-in-a-savings-account">6 Important Things to Look for in a Savings Account</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/switch-to-a-better-bank-in-5-easy-steps">Switch to a Better Bank in 5 Easy Steps</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/8-things-to-consider-before-switching-to-an-online-only-bank">8 Things to Consider Before Switching to an Online-Only Bank</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/6-reasons-to-love-your-bank">6 Reasons to Love Your Bank</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/how-to-earn-money-with-your-emergency-fund">How to Earn Money With Your Emergency Fund</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Banking balances cash checking accounts debit cards emergency funds interest rates internet savings accounts money market accounts savings accounts Wed, 11 Apr 2018 08:30:05 +0000 Philip Brewer 2129647 at https://www.wisebread.com How to Benefit From Rising Interest Rates https://www.wisebread.com/how-to-benefit-from-rising-interest-rates <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-to-benefit-from-rising-interest-rates" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="https://wisebread-killeracesmedia.netdna-ssl.com/files/fruganomics/imagecache/250w/blog-images/money_growth_graph_on_a_chalk_board.jpg" alt="Money Growth Graph on a chalk board" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>Interest rates went up three times in 2017, and they are under consideration to be increased yet again within the next couple of months. As interest rates continue to rise, what does that mean for you as a borrower?</p> <p>While rising interest rates means it costs more for you to borrow, it also can work in your favor. Here are a few examples of how The Federal Reserve hikes can benefit you financially.</p> <h2>1. Throw more into savings</h2> <p>Savings accounts and certificates of deposit have been at historically low interest rates in the past few years. While a hike in federal interest rates won't make you rich, it can give you a slight boost in your savings power, for no extra work. (See also: <a href="http://www.wisebread.com/5-best-online-savings-accounts?ref=seealso" target="_blank">Best Online Savings Accounts</a>)</p> <p>As interest rates increase, now is a great time to start socking extra money away into savings accounts and CDs. While putting extra money into savings might not result in as much interest earned from other saving avenues, such as retirement accounts or other investments, you can use the higher interest rates as an incentive to boost your savings or emergency fund contributions.</p> <h2>2. Take advantage of still low interest rates</h2> <p>During the financial crisis of 2007, the credit bubble burst, causing lending to come to a near halt. The Federal Reserve drove interest rates to the floor, and eventually pulled lenders back from the brink.</p> <p>Higher interest rates today may make it more expensive for borrowers than over the past several years, but rates are still near historic lows. While it's important to use caution when borrowing money, now might be the time to strike if you've been on the fence about making a big purchase, such as buying a home.</p> <h2>3. Get more bang for your buck abroad</h2> <p>Traveling abroad can be expensive enough in its own right. But as federal interest rates rise, it could very likely strengthen the U.S. dollar.</p> <p>A stronger dollar means Americans can travel abroad and get a better exchange rate than usual. Thanks to exchange rates working in your favor, you can splurge a little bit more (or save more) than you had maybe originally budgeted for.</p> <h2>4. Pay off consumer debt</h2> <p>The interest rates on your debt will rise if the Fed continues to increase rates. This means you will be required to pay even more interest on your debt, owing more money overall.</p> <p>You can lessen the blow by prioritizing your debt repayment now. The sooner you pay off debt at a lower interest rate, the more money you will save. Use the threat of increasing rates to get your debt paid off as soon as possible.</p> <p>Credit card debt is especially susceptible to climbing interest rates. Credit card debt has its own high interest rate, so any additional increase from the Federal Reserve will only cost you more. Avoid paying extra interest by prioritizing debt repayment today. (See also: <a href="http://www.wisebread.com/the-fastest-method-to-eliminate-credit-card-debt?ref=seealso" target="_blank">The Fastest Method to Eliminate Credit Card Debt</a>)</p> <h2>5. Consider refinancing</h2> <p>If you've been considering refinancing your home or auto loan, you may want to do it before the Fed considers another increase. In addition, if you bought your home at a higher interest rate and have not yet considered refinancing, you may not be getting the best deal available.</p> <p>Even if federal interest rates don't change again, you may still find it advantageous to refinance your mortgage or auto loan to a better rate. (See also: <a href="http://www.wisebread.com/4-smart-ways-to-lower-your-monthly-mortgage-payment?ref=seealso" target="_blank">4 Smart Ways to Lower Your Monthly Mortgage Payment</a>)</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2Fhow-to-benefit-from-rising-interest-rates&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2FHow%2520to%2520Benefit%2520From%2520Rising%2520Interest%2520Rates.jpg&amp;description=How%20to%20Benefit%20From%20Rising%20Interest%20Rates"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="https://wisebread-killeracesmedia.netdna-ssl.com/files/fruganomics/u5180/How%20to%20Benefit%20From%20Rising%20Interest%20Rates.jpg" alt="How to Benefit From Rising Interest Rates" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="https://www.wisebread.com/rachel-slifka">Rachel Slifka</a> of <a href="https://www.wisebread.com/how-to-benefit-from-rising-interest-rates">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/the-three-interest-rates">The Three Interest Rates</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/interest-rates-are-rising-heres-where-to-keep-your-cash">Interest Rates Are Rising: Here&#039;s Where to Keep Your Cash</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/10-countries-where-banks-pay-crazy-interest-rates">10 Countries Where Banks Pay Crazy Interest Rates</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/10-things-you-need-to-know-before-taking-out-a-personal-loan">10 Things You Need to Know Before Taking Out a Personal Loan</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/6-important-things-to-look-for-in-a-savings-account">6 Important Things to Look for in a Savings Account</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance Banking borrowing certificates of deposit debt repayment federal reserve interest rates lending refinancing savings accounts Wed, 21 Mar 2018 09:30:19 +0000 Rachel Slifka 2115362 at https://www.wisebread.com What to Do If Your Balance Transfer Limit Is Too Low https://www.wisebread.com/what-to-do-if-your-balance-transfer-limit-is-too-low <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/what-to-do-if-your-balance-transfer-limit-is-too-low" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="https://wisebread-killeracesmedia.netdna-ssl.com/files/fruganomics/imagecache/250w/blog-images/young_woman_online_shopping.jpg" alt="Young woman online shopping" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>You're trying to fix an expensive financial mistake: You ran up too much debt on your credit cards, and now you're carrying a balance of thousands of dollars from month to month. The interest that this balance generates makes it even harder to pay down the debt.</p> <p>Consumers often turn to a balance transfer &mdash; moving high-interest credit card debt to a new <a href="http://www.wisebread.com/the-best-0-balance-transfer-credit-cards?ref=internal" target="_blank">card offering a promotional 0% APR</a> &mdash; to help tackle their debt repayment. Once you move your debt to your new card, you'll have a window (usually between six and 18 months) to pay off the balance before that promotional APR window closes and the card's actual interest rate kicks in.</p> <p>But what if the balance transfer limit on your new card is too low to accommodate your existing credit card debt? What steps can you take to reduce the burden that high interest is adding to your credit card problem?</p> <h2>Call the financial institution behind your balance transfer credit card</h2> <p>Your first step should be to call the bank or financial institution that issued your new credit card (you'll find the number on the back of the card). Simply ask a representative if you can have a higher balance transfer limit. Explain that you want to transfer the entire balance from another card, and that the limit on your new card isn't high enough to accommodate this.</p> <p>Now, there's no guarantee that this will work. The issuers of credit cards rely on a formula to determine your credit limit. That formula includes your credit score, debt-to-income ratio, and the income you earn. If your financial numbers aren't strong enough to justify the higher limit, your issuer probably won't budge. You won't know, though, until you ask. (See also: <a href="http://www.wisebread.com/7-important-things-you-should-know-about-balance-transfer-cards?ref=seealso" target="_blank">7 Important Things You Should Know About Balance Transfer Cards</a>)</p> <h2>Transfer as much of your balance as you can</h2> <p>Say you owe $10,000 in credit card debt, but your new balance transfer card comes with a limit of just $7,000. You can always transfer $7,000 of your $10,000 debt to your 0% interest credit card, and leave the remaining $3,000 on your current card. That's not ideal, but at least you are eliminating high interest on a good portion of your debt.</p> <p>Just make sure to pay down both of your balances. And make sure to pay off the amount on your 0% interest card before that card's actual interest rate kicks in. Otherwise, you are defeating the purpose of a balance transfer. (See also: <a href="http://www.wisebread.com/step-by-step-guide-to-doing-a-balance-transfer-on-credit-cards?ref=seealso" target="_blank">Step-by-Step Guide to Doing a Balance Transfer on Credit Cards</a>)</p> <h2>Apply for a personal loan</h2> <p>You might also apply for a personal loan from a bank, credit union, or other financing source, and use the money from this loan to pay off your credit card debt.</p> <p>Once you take out a loan, you'll have to pay it back in monthly installments. There are some advantages to this approach. First, you'll have a set payment each month, so you can budget for it more easily. Secondly, making payments on a personal loan, as long as you make them on time each month, will help your all-important credit score. Moving debt from a credit card into a personal loan will also help something known as your credit utilization ratio.</p> <p>Your credit utilization ratio measures how much of your available credit you are using. The higher this ratio, the worse it is for your credit score. If you have a combined credit limit of $20,000 on your credit cards, and you have $10,000 of credit card debt, you are using 50 percent of your available credit. If you pay off $5,000 of that debt with a personal loan, you are now using just $5,000 of your $20,000 of available credit, instantly improving your credit utilization ratio. Yes, you still have the same amount of debt &mdash; some of it has simply been moved to a personal loan &mdash; but your credit score will improve. (See also: <a href="http://www.wisebread.com/this-one-ratio-is-the-key-to-a-good-credit-score?ref=seealso" target="_blank">This One Ratio Is the Key to a Good Credit Score</a>)</p> <p>The key with a personal loan is to find one that comes with a significantly lower interest rate than the ones attached to your credit card debt. Otherwise, there is no point.</p> <h2>A final tip</h2> <p>Once you initiate a balance transfer on your credit card debt, get serious about paying it off. Your goal is to eliminate this debt before the 0% APR offer disappears and your new card's interest rate kicks in. You'll also need to get your spending under control. Don't continue to run up massive amounts of debt on any of your credit cards. If you do, even that 0% interest rate won't be much help. (See also: <a href="http://www.wisebread.com/when-to-do-a-balance-transfer-to-pay-off-credit-card-debt?ref=seealso" target="_blank">When to Do a Balance Transfer to Pay Off Credit Card Debt</a>)</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2Fwhat-to-do-if-your-balance-transfer-limit-is-too-low&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2FWhat%2520to%2520Do%2520If%2520Your%2520Balance%2520Transfer%2520Limit%2520Is%2520Too%2520Low.jpg&amp;description=What%20to%20Do%20If%20Your%20Balance%20Transfer%20Limit%20Is%20Too%20Low"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="https://wisebread-killeracesmedia.netdna-ssl.com/files/fruganomics/u5180/What%20to%20Do%20If%20Your%20Balance%20Transfer%20Limit%20Is%20Too%20Low.jpg" alt="What to Do If Your Balance Transfer Limit Is Too Low" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="https://www.wisebread.com/dan-rafter">Dan Rafter</a> of <a href="https://www.wisebread.com/what-to-do-if-your-balance-transfer-limit-is-too-low">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/is-a-balance-transfer-offer-a-good-deal">Is a Balance Transfer Offer a Good Deal?</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/the-best-0-balance-transfer-credit-cards">The Best 0% Balance Transfer Credit Cards</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/the-dirty-secrets-of-credit-cards">The Dirty Secrets of Credit Cards</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/all-the-ways-minimum-payments-are-evil">All the Ways Minimum Payments Are Evil</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/10-things-you-need-to-know-before-taking-out-a-personal-loan">10 Things You Need to Know Before Taking Out a Personal Loan</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Debt Management APR balance transfers credit card debt credit limits interest rates personal loans Wed, 21 Feb 2018 09:31:05 +0000 Dan Rafter 2104966 at https://www.wisebread.com 7 Warning Signs You're In Debt Denial https://www.wisebread.com/7-warning-signs-youre-in-debt-denial <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/7-warning-signs-youre-in-debt-denial" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="https://wisebread-killeracesmedia.netdna-ssl.com/files/fruganomics/imagecache/250w/blog-images/young_couple_in_bad_financial_situation_0.jpg" alt="Young couple in bad financial situation" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>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.</p> <h2>1. Taking on debt to pay down other debts</h2> <p>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.</p> <p>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 <a href="http://www.wisebread.com/the-best-0-balance-transfer-credit-cards" target="_blank">balance transfer credit card with a promotional 0% APR</a>, or consolidating debt through a home-equity loan or a refinance.</p> <p>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: <a href="http://www.wisebread.com/when-to-do-a-balance-transfer-to-pay-off-credit-card-debt?ref=seealso" target="_blank">When to Do a Balance Transfer to Pay Off Credit Card Debt</a>)</p> <h2>2. Not having any kind of monthly budget</h2> <p>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.</p> <p>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: <a href="http://www.wisebread.com/stop-using-these-5-excuses-not-to-budget?ref=seealso" target="_blank">Stop Using These 5 Excuses Not to Budget</a>)</p> <h2>3. There are stacks of unopened bills laying around</h2> <p>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.</p> <p>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: <a href="http://www.wisebread.com/pay-these-6-bills-first-when-money-is-tight?ref=seealso" target="_blank">Pay These 6 Bills First When Money Is Tight</a>)</p> <h2>4. Making the minimum payments on everything</h2> <p>Financial institutions love people who only make minimum payments. There are two broad terms used for credit card customers &mdash; &quot;transactors&quot; and &quot;revolvers&quot; &mdash; and the latter are adored because they never pay off their balances.</p> <p>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: <a href="http://www.wisebread.com/all-the-ways-minimum-payments-are-evil?ref=seealso" target="_blank">All the Ways Minimum Payments Are Evil</a>)</p> <p>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.</p> <p>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: <a href="http://www.wisebread.com/6-secrets-to-mastering-the-debt-snowball?ref=seealso" target="_blank">6 Secrets to Mastering the Debt Snowball</a>)</p> <h2>5. Maxing out every card and loan you have</h2> <p>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.</p> <p>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: <a href="http://www.wisebread.com/this-one-ratio-is-the-key-to-a-good-credit-score?ref=seealso" target="_blank">This One Ratio Is the Key to a Good Credit Score</a>)</p> <p>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.</p> <h2>6. Buying things you don't need while debts go unpaid</h2> <p>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.</p> <p>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.</p> <h2>7. Counting on a stroke of good fortune to solve your problems</h2> <p>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.</p> <p>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 &mdash; but when the dust settles, you now have $20 less to your name.</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2F7-warning-signs-youre-in-debt-denial&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2F7%2520Warning%2520Signs%2520You%2527re%2520In%2520Debt%2520Denial.jpg&amp;description=7%20Warning%20Signs%20You're%20In%20Debt%20Denial"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="https://wisebread-killeracesmedia.netdna-ssl.com/files/fruganomics/u5180/7%20Warning%20Signs%20You%27re%20In%20Debt%20Denial.jpg" alt="7 Warning Signs You're In Debt Denial" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="https://www.wisebread.com/paul-michael">Paul Michael</a> of <a href="https://www.wisebread.com/7-warning-signs-youre-in-debt-denial">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/how-to-get-back-on-track-when-youre-behind-on-your-bills">How to Get Back on Track When You&#039;re Behind on Your Bills</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/why-retiring-with-debt-isnt-the-end-of-the-world">Why Retiring With Debt Isn&#039;t the End of the World</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/best-of-personal-finance-credit-where-credit-is-due-edition">Best of Personal Finance: Credit Where Credit Is Due Edition</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/debunking-8-common-credit-score-myths">Debunking 8 Common Credit Score Myths</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/9-essential-personal-finance-skills-to-teach-your-kid-before-they-move-out">9 Essential Personal Finance Skills to Teach Your Kid Before They Move Out</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Debt Management bills budgeting credit utilization ratio debt denial ignoring interest rates loans minimum balances owing money Fri, 16 Feb 2018 10:00:06 +0000 Paul Michael 2104315 at https://www.wisebread.com 3 Reasons Taking a Loan For Your Wedding Is a Bad Idea https://www.wisebread.com/3-reasons-taking-a-loan-for-your-wedding-is-a-bad-idea <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/3-reasons-taking-a-loan-for-your-wedding-is-a-bad-idea" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="https://wisebread-killeracesmedia.netdna-ssl.com/files/fruganomics/imagecache/250w/blog-images/marriage_and_finances.jpg" alt="Marriage and finances" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>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 &quot;priceless&quot; moment is costing you over $30,000. And that doesn't include the five-day, four-night honeymoon in Cancun. <em>What have you done?</em></p> <p>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.</p> <p>Technically speaking, there's no such thing as a &quot;wedding loan.&quot; 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.</p> <p>If you are contemplating using a wedding loan to help you pay for your big day, here are three key things you should consider.</p> <h2>1. You squander your money's opportunity cost</h2> <p>Every dollar comes with an opportunity cost &mdash; 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.</p> <p>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 &mdash; such as purchasing a home or starting a business.</p> <p>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.</p> <h2>2. You drastically increase the cost of your wedding</h2> <p>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.</p> <p>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.</p> <p>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 <em>simultaneously</em>. (See also: <a href="http://www.wisebread.com/how-to-save-big-on-everything-for-your-wedding?ref=seealso" target="_blank">How to Save Big on Everything for Your Wedding</a>)</p> <h2>3. Spending big leads to more big spending</h2> <p>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 &mdash; because you deserve &quot;the best,&quot; 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 &quot;it&quot; clubs. The cycle can consume your marriage.</p> <p>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.</p> <p>The essence of marriage is appreciating the little things and making the daily grind adventurous. When you pressure yourself and your spouse to continuously &quot;go big,&quot; you add a mountain of undue stress &mdash; both emotionally and financially &mdash; on your marriage. (See also: <a href="http://www.wisebread.com/people-are-still-spending-too-much-on-their-weddings?ref=seealso" target="_blank">People Are Still Spending Too Much on Their Weddings</a>)</p> <h2>A $40 wedding story</h2> <p>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.</p> <p>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.</p> <p>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.</p> <p>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 <em>you</em>.</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2F3-reasons-taking-a-loan-for-your-wedding-is-a-bad-idea&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2F3%2520Reasons%2520Taking%2520a%2520Loan%2520For%2520Your%2520Wedding%2520Is%2520a%2520Bad%2520Idea.jpg&amp;description=3%20Reasons%20Taking%20a%20Loan%20For%20Your%20Wedding%20Is%20a%20Bad%20Idea"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="https://wisebread-killeracesmedia.netdna-ssl.com/files/fruganomics/u5180/3%20Reasons%20Taking%20a%20Loan%20For%20Your%20Wedding%20Is%20a%20Bad%20Idea.jpg" alt="3 Reasons Taking a Loan For Your Wedding Is a Bad Idea" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="https://www.wisebread.com/denise-hill">Denise Hill</a> of <a href="https://www.wisebread.com/3-reasons-taking-a-loan-for-your-wedding-is-a-bad-idea">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/how-to-manage-your-money-during-a-spousal-separation">How to Manage Your Money During a Spousal Separation</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/how-a-new-marriage-can-survive-student-loan-debt">How a New Marriage Can Survive Student Loan Debt</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/8-things-i-learned-about-money-after-getting-married">8 Things I Learned About Money After Getting Married</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/3-simple-ways-to-split-bills-with-your-spouse">3 Simple Ways to Split Bills With Your Spouse</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/what-you-need-to-know-about-divorce-and-credit">What You Need to Know About Divorce and Credit</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Personal Finance Lifestyle couples debt divorce interest rates loans marriage Opportunity Cost spouses weddings Wed, 14 Feb 2018 09:01:05 +0000 Denise Hill 2098585 at https://www.wisebread.com Are You Paying Off Credit Card Debt the Wrong Way? https://www.wisebread.com/are-you-paying-off-credit-card-debt-the-wrong-way <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/are-you-paying-off-credit-card-debt-the-wrong-way" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="https://wisebread-killeracesmedia.netdna-ssl.com/files/fruganomics/imagecache/250w/blog-images/woman_with_credit_card_using_laptop_in_apartment.jpg" alt="Woman with credit card using laptop in apartment" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>When you have more than one credit card to pay off, there are many ways to go about tackling your debt. You could pay off cards with highest interest rates first, or you could pay off cards with the smallest balances first. Or, you could make bigger payments toward cards with larger balances, and smaller payments toward cards with smaller balances.</p> <p>It matters which order you pay off credit cards if you want to get out of debt quickly. Unfortunately, most people are going about it the wrong way.</p> <h2>Going above the minimum</h2> <p>When you get your credit card bill, it will state the minimum monthly payment you are required to make, typically 2 to 5 percent of your account balance. This minimum payment amount will avoid you having to pay late fees and will keep your credit score stable, but that's about all it will help with. Depending on the interest rate, it could take you over 30 years to pay off a credit card making only minimum payments. If you want to pay off your credit cards in a reasonable amount of time, you will need to make more than the minimum payment every month. (See also: <a href="http://www.wisebread.com/all-the-ways-minimum-payments-are-evil?ref=seealso" target="_blank">All the Ways Minimum Payments Are Evil</a>)</p> <p>How should you distribute additional payment funds that are above the minimum payment amount? Which card (or cards) you pay down first can make a big difference in terms of how long it takes to get out of debt and how much it costs to pay off the debt. It turns out that most people are using a repayment strategy that takes longer and costs more than necessary.</p> <h2>The trouble with balance-matching</h2> <p>According to a recent study conducted in England, a majority of people who are making payments on multiple credit cards are using a repayment strategy that can be described as &quot;balance-matching.&quot; Credit card payments are allocated in proportion to the balance on each account &mdash; in other words, bigger payments go toward cards with bigger balances, and smaller payments go toward cards with smaller balances.</p> <p>The problem with the balance-matching repayment strategy is that it completely ignores the interest rate on credit accounts, which is a major driver of how long it takes to pay off debt. If credit card payments are allocated only based on the account balances, higher interest accounts can rack up interest and you can end up stuck in credit card debt longer and paying more before you finally get the debt paid off.</p> <p>Why do people use a repayment strategy that ends up costing more? The likely reason is that people are more familiar with their credit card balances than the interest rates on various cards. The balance is easy to find on the credit card bill in contrast with the interest rate, which can be buried in the small print. So when people decide how much to pay toward their credit cards, the balance tends to be the biggest factor &mdash; or the only factor &mdash; in deciding how to allocate payments. (See also: <a href="http://www.wisebread.com/5-ways-to-pay-off-high-interest-credit-card-debt?ref=seealso" target="_blank">5 Ways to Pay Off High Interest Credit Card Debt</a>)</p> <h2>The right way to pay off credit cards</h2> <p>If you want to pay off credit card debt in the shortest time for the lowest cost, the optimal payment strategy is to direct additional payments to the highest-interest rate card <em>first</em>, and continue making minimum payments on your other cards. When your highest-interest card is paid off, you'll direct extra payments to the next highest-interest card, and so on, until your debt is eliminated. This strategy is sometimes described as the <em>debt avalanche</em> method. The debt avalanche method ignores the balance of credit cards and uses only the interest rate to determine how to allocate payments. The result of following the debt avalanche strategy is that balances at the highest interest rate are paid off as quickly as possible, minimizing the cost of interest. (See also: <a href="http://www.wisebread.com/snowballs-or-avalanches-which-debt-reduction-strategy-is-best-for-you?ref=seealso" target="_blank">Snowballs or Avalanches: Which Debt Reduction Strategy Is Best for You?</a>)</p> <p>Another effective payment strategy for a lot of people is the <em>debt snowball</em> method. In this approach, you direct additional funds to the card with the smallest balance while making minimum payments on the others. Once you pay off your card with the smallest balance, you move on to direct extra payments toward the card with the next smallest balance, and so on. The debt snowball method provides psychological reinforcement as credit accounts are paid off. Even though this strategy ignores interest rates, seeing quick results of paying off credit accounts with lower balances can motivate people to stay focused on paying off debt. (See also: <a href="http://www.wisebread.com/6-secrets-to-mastering-the-debt-snowball?ref=seealso" target="_blank">6 Secrets to Mastering the Debt Snowball</a>)</p> <h2>Consider a balance transfer</h2> <p>If you are really committed to a debt payoff goal, a <a href="http://www.wisebread.com/your-comprehensive-checklist-for-a-successful-balance-transfer?ref=internal" target="_blank">balance transfer</a> can save you thousands in interest and help you meet your goal earlier. By transferring your balance to a credit card with a <a href="http://www.wisebread.com/the-best-0-balance-transfer-credit-cards?ref=internal" target="_blank">0% balance transfer offer</a>, you can buy time, interest-free, while paying off your debt. Now, this is assuming you would qualify for a new card with a high enough credit limit to make it worthwhile. But if your credit is solid (you just have a lot of debt), this could be the best option to getting your debt paid once and for all. (See also: <a href="http://www.wisebread.com/fastest-way-to-pay-off-10000-in-credit-card-debt?ref=seealso" target="_blank">The Fastest Way to Pay Off $10,000 in Credit Card Debt</a>)</p> <h2 style="text-align: center;">Like this article? Pin it!</h2> <div align="center"><a data-pin-do="buttonPin" data-pin-count="above" data-pin-tall="true" href="https://www.pinterest.com/pin/create/button/?url=http%3A%2F%2Fwww.wisebread.com%2Fare-you-paying-off-credit-card-debt-the-wrong-way&amp;media=http%3A%2F%2Fwww.wisebread.com%2Ffiles%2Ffruganomics%2Fu5180%2FAre%2520You%2520Paying%2520Off%2520Credit%2520Card%2520Debt%2520the%2520Wrong%2520Way_.jpg&amp;description=Are%20You%20Paying%20Off%20Credit%20Card%20Debt%20the%20Wrong%20Way%3F"></a></p> <script async defer src="//assets.pinterest.com/js/pinit.js"></script></div> <p style="text-align: center;"><img src="https://wisebread-killeracesmedia.netdna-ssl.com/files/fruganomics/u5180/Are%20You%20Paying%20Off%20Credit%20Card%20Debt%20the%20Wrong%20Way_.jpg" alt="Are You Paying Off Credit Card Debt the Wrong Way?" width="250" height="374" /></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="https://www.wisebread.com/dr-penny-pincher">Dr Penny Pincher</a> of <a href="https://www.wisebread.com/are-you-paying-off-credit-card-debt-the-wrong-way">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/7-easy-first-steps-to-paying-off-debt">7 Easy First Steps to Paying Off Debt</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/5-ways-to-prevent-a-debt-spiral">5 Ways to Prevent a Debt Spiral</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/whats-better-less-debt-or-more-savings">What&#039;s Better: Less Debt or More Savings?</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/the-best-0-balance-transfer-credit-cards">The Best 0% Balance Transfer Credit Cards</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="https://www.wisebread.com/6-scary-facts-about-credit-card-debt">6 Scary Facts About Credit Card Debt</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Debt Management avalanche method balance matching credit card debt interest rates minimum payments snowball method Tue, 13 Feb 2018 10:00:06 +0000 Dr Penny Pincher 2097699 at https://www.wisebread.com