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Another holiday season is upon us. Whether that elicits visions of sugar-plums dancing in your head or just sheer panic, it is time to start making your lists and checking them twice; it's time to talk about a holiday budget. You may have just rolled your eyes, but a holiday budget could save you not only from stress, but it can also save you lots of time and money, which might be the greatest gift you could give yourself this year. While some consumers feel that budgeting takes the fun out of the holiday season, financial experts are fairly adamant that making and sticking to a holiday budget is important. This year, holiday sales are expected to rise significantly from last year — by 8.5 to 10.5 percent. Whether or not you’re planning on spending more this holiday season, making a holiday budget could keep you from having a blue Christmas. 2021 Holiday Budget Template Use the holiday budget template above to map out your expenses and save money this holiday season! Download Now To help you get started on making your holiday budget, we’ve compiled some helpful tips and strategies that will have you rockin’ around the Christmas tree this year. Creating a holiday budget can be daunting, but it doesn’t need to be. While these tips and strategies for building your budget may not be comprehensive, they can provide you with a good place to start your holiday planning. Be Realistic Consider All Costs Set Hard Limits Do Your Research Pick Your Payment Method Be realistic This is a key concept when it comes to holiday budgeting. Kevin Panitch, founder of Just Start Investing speaks to this point by emphasizing not stretching your budget beyond what is needful: "One important aspect of holiday budgeting is to be realistic, both in terms of how much you can save and how much you could be spending. I'm sure many of us would love to spend more on loved ones than we already do, but that doesn't mean we should stretch our budgets so much that we can no longer achieve them sustainably." Although it can be stressful trying to balance how much you would like to spend on some loved ones versus how much you can actually afford to spend, the stress of falling into debt is far greater. Matt Edstrom, CMO of GoodLife Home Loans, drives this point home: “Whatever irrational guilt you might feel from not spending enough on gifts will dissipate much faster than the guilt you’ll feel from putting yourself in any sort of debt. If you struggle with impulse spending around the holidays, constantly remind yourself of the stress that stems from debt.” Consider all costs A very important aspect of your budget will be outlining all possible costs that you may accumulate throughout the holiday season: Food — Are you planning on some holiday baking? Maybe you’re in charge of a fancy holiday feast, turkey and all the trimmings? Just keep in mind that there are costs attached to whatever you’re planning to cook, bake, or snack on, and turkeys can cost a pretty penny. Gifts — The holidays are generally a season of giving, and it can be fun to surprise your loved ones with something they’ve been eyeing for months, but that doesn’t mean that you need to break the bank. Postage — If you're planning to send packages and/or letters to friends and family, it's important to factor in the cost of postage, particularly if you'll be sending items internationally. Post offices also become very busy during the holidays, so you may want to schedule out time, or get to the post office before the "holiday rush". Set hard limits While some people set a dollar limit that they can afford, others just go spend and add up the receipts later. Have you ever considered how much of your annual income you spend in the holiday season? This perspective can be helpful when setting financial limits. Leslie Copeland, chief strategy officer at Ascend Federal Credit Union cautions, "Shoppers should spend no more than 1.5 percent of their annual income on holiday expenses. Once that number is set, they can plan out gifts, food, entertaining and travel costs." What does 1.5 percent of an annual income look like? If you make $10,000 per year, your max holiday budget should be $150. If you make $20,000 per year, your max holiday budget should be $300. If you make $40,000 per year, your max holiday budget should be $600. If you make $80,000 per year, your max holiday budget should be $1,200. Do your research With all costs considered and your spending limits set, it can be tempting to just go and spend your whole budget without any real thought. However, before you start spending, it can be beneficial to take the time to do some research: compare and contrast prices on items and see where you can get the best deals. Nishank Khanna, CFO of Clarify Capital, stresses that “reviewing sales is essential for the holiday season. If you don’t take the time to look up holiday promotions and discounts, you’re leaving money on the table. Why pay more for something than you need to? Doing your research before making purchases helps markets stay competitive and more importantly, means more money in your pocket.” A quick way to easily compare product prices is by simply searching for it in Google. The search results should populate various retailers that carry the product, also listing prices and any promotional options available. Another helpful option is to download a Google Chrome extension, like Honey, that will search the internet for the best prices and discounts that are available with the online merchant you are visiting at the time. Pick your payment method When it comes to purchasing your holiday items, you can choose from a variety of payment methods, which is both a blessing and a curse. You could choose to shop with just cash, but debit or credit will likely be your go-to options, with the majority of consumers likely choosing to use their credit cards. Shopping with a credit card can be somewhat dangerous, as consumers often spend more with a credit card than they would otherwise. However, credit card rewards can be a great way to finance some of your holiday shopping. Michael Micheletti, director of corporate communications for Freedom Debt Relief, outlines how to use your credit card rewards to your advantage during the holiday season: If you have a credit card account that offers rewards points, check your statements (or online accounts) to see how many points you have. Then visit the rewards website to convert the rewards into gifts, gift cards, or cash. Some rewards providers may even double the value of rewards at specific retailers. In some cases, you may be able to use the converted points as actual gifts for someone on your list. Otherwise, convert to rewards you can use yourself for everyday expenses (e.g., at a grocery, discount or big-box store), and then allocate that amount you’ve saved to your holiday budget. In addition, two major retailers (Amazon and Walmart) give you the opportunity to view and use your points across many different card providers within their online or application experience. This option really does provide transparency into using credit card points at the point of sale versus the often cumbersome experience of having to use individual lender websites. Another option that you can use for payment, that is not only unique but offers a surefire way to control your spending, is by using gift cards. Think of where you normally do holiday shopping in the past, or stores that you visit frequently throughout the year. Instead of trying to set aside some money close to the holidays, which will likely just cause you more stress, set aside certain amounts of money throughout the year by purchasing gift cards for yourself to use during the holiday season. Then, when the holidays roll around, discipline yourself into using those gift cards for any holiday purchases. If buying gift cards at specific stores appears to be too limiting, consider looking into a Visa or Mastercard gift card that can be used at nearly any retail location, including online. One last payment method that you could consider, but shouldn’t necessarily be quick to use, is a personal loan. While applying for a personal loan could be a quick way to get some extra cash for the holidays, it would not be generally advisable to go into debt to finance your holiday festivities. However, if a personal loan could help you take care of holiday expenses, and you are confident that you’ll be able to pay your debt back in the new year, there are many lenders that you can choose from. Top Personal Loan Companies Learn more about the top personal loan companies and read verified customer reviews. Compare Lenders Making a budget is one thing, but sticking to it is an entirely different task. If you’re like me, you may make a budget and feel ready to take on the world and then just never look at it ever again. However, I would not encourage this practice, especially during the holiday season. So, what can you do to stick to your holiday budget? Here are a couple of ideas: Make lists (and stick to them) Making a list and checking it twice is never a bad idea when you’re trying to stick to a budget. Carefully consider what items belong on your lists, which will likely be informed by the product research you’ve done previously. Then, bring your list (physical copy or digital) with you when you go shopping, and stick to it! A helpful way you can manage your lists and shopping is by setting reminders on your phone, a suggestion made by Gareth Seagull, founder of Finance Friday: “Set reminders on your phone for when you go shopping. Depending on your phone, you may be able to attach the image of your budget on [the reminder], so every time you go shopping, you have the budget right there, and you’ll never forget.” Map out stores to visit Whether you’re shopping in person or online, map out which stores you want to visit. This can most definitely save you time and money, as you won’t get distracted by other retail options around you. Start shopping now Sometimes the holidays creep up on you and catch you completely off guard. In those moments, you may find yourself tearing through the mall on Christmas Eve, or hoping and praying that Amazon’s two-day shipping could magically occur in just one day. To avoid this stress, it is ideal to start your holiday shopping early, a practice which could also help you stick to your budget. Cristina Yasakci, a senior credit manager at Credit Achievers Today, speaks to this point: “We tend to spend more when we are rushed or in a hurry. If you take a little time organizing your strategies, it will make the whole experience fun!” Save yourself the stress and the money, and even have some fun while you’re at it, by getting started on your holiday shopping early. Stay focused Holiday shopping can be a time fraught with temptation, because chances are that as you’re shopping for others or picking up your holiday treats, you’ll come across some things you’d like to purchase for yourself. But, you must remain focused on the task at hand. Even what may seem like multiple small purchases can throw off your budget, which could lead to cutting corners in other areas that you weren’t initially planning on. More and more consumers are relying upon online shopping to make their holiday purchases. Online shopping is convenient, but it is important to keep yourself safe online, not only from spending too much but also from scam and/or fraud. Here are some strategies to help: Protect against e-commerce fraud E-commerce fraud is any type of fraud occurring on an e-commerce platform, and usually involves the use of a stolen or fake credit card or a fake identity. Thus, it is important to protect your credit card and personal information. Internet security company, Norton, suggests the following to protect yourself online while shopping: Shop only on secure websites. Do your research on the company and website before placing an order. Take a look at the website’s privacy and security policies. NEVER give out your social security number. If an online retailer asks for this information that is a big red flag. Taking the time to make sure that the websites you are shopping on are safe can save you a lot of trouble, and even a lot of money, overall! Don’t get caught up in convenience Online shopping is convenient and very easy, which is a blessing and a curse — a blessing because you don’t even need to leave your bed, but a curse because it’s a lot easier to spend more than you would if you were in a store. Although Yasacki urges consumers to start shopping early, she also advises taking extra care while online shopping: “Yes, shopping online can be easier, but, also a lot more dangerous. It is that much easier to get caught up in the moment. These conveniences can be very dangerous, particularly because you will be right back to using your credit cards. Be careful not to fall for the hook of “free shipping,” and make sure to compare all the prices for the same item. Is the shipping price built-in the price of the item? Or, is it free shipping if you spend above a certain amount?” Although “free shipping” is always a tempting option, make sure you check your prices to see if it’s actually worth it. Additionally, taking care with your credit card usage could save you a lot of stress and money later on. The final word Heading into the holidays can be a stressful time. But, with a little but of planning and research, you could save yourself from the stress of overspending this year. Although there are surely many other tips and tricks for creating a holiday budget and saving money, this guide can be a good place to start. 2021 Holiday Budget Template Use our holiday budget template to track your expenses and save money this year! Download Now
Myth or fact? Credit cards and personal loans are practically the same. "Personal loans and opening a new credit card are, at the core, the same concept," begins Brett Holzhauer, credit card writer at FinanceBuzz.com, "you are borrowing money with the promise of paying it back. However, the purpose and application of both of these products are vastly different." In this article, we are going to explore the similarities and differences between these two financial products, as well as answer the big question: Should I get a credit card or a personal loan? But first, let's break down what credit cards and personal loans are and when it's best to use one or the other. What is a credit card? On the most basic level, a credit card is a plastic card issued by a bank or other financial institution that allows you to borrow money to make purchases - generally smaller, every day purchases. Obtaining a credit card is quick and easy, and in many cases it is easier for consumers to receive approval for a credit account rather than a personal loan. "Credit cards are meant for those with the financial means of paying their monthly statements," says Holzhauer, "while personal loans offer access to cash that you will pay off over a predetermined time in the form of debt." Similar to a loan, you will be given a set amount of money, called a credit limit, when you open a credit account. This money can be used for making purchases or paying bills, and it is expected that you will pay back any money spent from your credit limit each month. However, credit cards have revolving credit, meaning that you can borrow more money as you pay off your debt, which can be both a good and a bad thing for borrowers. Expanding on this point, Abigail Welles, content specialist at Credit Card Insider adds that “a credit card is considered 'revolving' debt, meaning you can continue to borrow money as long as you have not hit this limit. If you do not pay off your balance, you’ll get hit with interest, which can effectively keep [consumers] in debt." Credit card pros and cons Credit cards can be a great option for some borrowers, but perhaps not all. Before deciding on using a credit card for your spending needs, consider both the pros and cons. Opening a new credit card can help improve your credit score, and there are various credit factors that can contribute to this. Making on-time payments is one of the more important and efficient ways to build credit with a credit card. As you use your card and make payments, this activity is generally reported by the card lender to the national credit bureaus - Experian, TransUnion, and Equifax. Based on this information, the credit bureaus are then able to create your credit score. If you miss payments, however, this will not only impact your credit score, but you could get hit with high interest rates that can accrue on an outstanding balance over time, resulting in potential credit card debt. Thus, if you have existing debt, a credit card may not be the best option for you. Various types of credit cards offer rewards or points for travel, or even cash back on purchases. These benefits can be a great incentive to use the card, but may not be profitable if you don't make on-time payments. Some credit cards even have introductory offers, such as no interest rate periods that provide flexibility if payments are missed. Most personal loan providers do not offer introductory services. It is important to note that credit cards may also have fees, such as an annual fee, late fee, cash advance fee, and a balance transfer fee. Key Takeaway: Credit cards are best for smaller, everyday purchases. They are also a good option in the following circumstances: You need extra cash You are a responsible borrower looking for rewards You can pay the balance off before any interest accrues You want to make online purchases It's for emergencies or occasional spending Top credit card companies The top three credit card companies on BestCompany.com include: Capital One American Express Discover Based on customer reviews, each company is comparable, receiving high ratings. Customers generally highlight good customer service as well as competitive rates and rewards. Each company offers multiple credit card options, providing more flexibility for consumers of all credit levels. Top Credit Card Companies Compare top-rated credit card companies and customer reviews to see what would be best for you. Compare What is a personal loan? A personal loans is a type of installment loan that provide borrowers with a fixed amount of money which they are responsible for paying back throughout the life of the loan, or loan term, which could be as short as one year or up to five years and beyond. If you need a large loan amount, a personal loan would be the best option for you. Some personal loan lenders offer up to $100,000, which provides greater flexibility for whatever you are looking to finance. For large expenses such as home renovation, unexpected medical costs, or even debt consolidation, credit cards may not be the best choice, as you will not likely be able to get a substantial amount of money. Personal loans pros and cons Because personal loan lenders offer larger amounts of money, it can be more difficult to be approved than for a credit card. To this point, Dane Janas, an IRS-licensed Enrolled Agent, host of the Financially Boundless podcast and YouTube channel, and CEO of Boundless Tax adds, "Generally, the underwriting is more advanced as well, so you stand a lesser chance of actually being approved if you have less-than-stellar credit." Personal loans will generally require borrowers to have an excellent credit score to qualify, but they usually have a lower interest rate than credit cards. The higher your credit score, the lower rates you will be able to receive. It is important to note that credit cards generally only have variable interest rates, while personal loans offer fixed interest rates in addition to variable rates. The fixed interest rate option with personal loans is nice because you will know from the start what your fixed monthly payment will be, which will never change throughout the life of the loan. Personal loans do not have revolving credit, meaning that you will not have access to more funds as you pay off your loan. Instead, each monthly payment goes toward the entire loan amount. Take note that personal loans also have their own set of fees. Many lenders have a late fee and a loan origination fee, which is generally withdrawn from your total loan amount before funds are disbursed to you. In addition, you may be charged a prepayment penalty fee, which is applied if the borrower pays off their loan before the term is complete. Key Takeaway: Personal loans are best for large purchases. They are also a good option in the following circumstances: You have good credit and are confident in your ability to make payments You are looking to consolidate debt You have unexpected expenses You have a good credit score that can get you low interest rates Top personal loan companies The top three personal loan companies on BestCompany.com include: Best Egg FreedomPlus SoFi Although Best Egg is the highest rated personal loan company on BestCompany.com, customers have also been pleased with their experiences with FreedomPlus and SoFi. When deciding between each company, it is important to look at APR rates, maximum loan amounts, and the average credit score requirement for each company. Top Personal Loan Companies Compare top-rated personal loan companies and customer reviews to see what would be best for you. Compare Which is best? Depending on your financial needs, a credit card could be a better option than a personal loan and vice versa. More than anything, consider the reason for which you are borrowing money, as well as interest rates, fees, and your own credit history. In either case, be sure to make on-time payments, which can save you from future financial stress or difficulty. In addition, you can consider the following when deciding which is best for you: Purchase intent — Ask yourself what you will use the funds for. A big, one-time purchase? Or smaller, more frequent purchases? A credit card is better for everyday purchases, while a personal loan may be the best option for a one-off major purchase. Credit score — It is important to consider your current credit score when looking to borrow money either through a credit card or personal loan. If you have a low credit score you could have a more difficult time being approved for a personal loan, which may not be the case with a credit card. Personal loan interest rates are also contingent upon your credit score. The higher your credit score, the lower the rates you will receive. Interest rates — Credit cards generally have higher interest rates than personal loans. Consider filling out a pre-qualification form in either case to see what rates you will be offered, but it would likely only be wise to do so if a soft credit pull is performed. Spending behaviors — If you are prone to over spending, a credit card may not be the best option for you. Whether you choose a credit card or personal loan for your financial needs, be wise and consider making a payment plan to keep yourself on track. Spending too much money, missing payments, or not being able to make payments could have negative repercussions. The bottom line The decision between a credit card and a personal loan is entirely dependent on your financial needs and circumstances, and it is important to carefully consider those details before jumping in with either option. No matter which you choose, be sure that you will be able to manage and make payments, so you have an opportunity to grow your credit and make those important purchases in your life without creating any future financial stress.
The average teenager spends $2,600 per year. Where is that money coming from? Probably the bank of mom and dad. . . right? According to the 2019 JA Teens Personal Finance Survey, 64 percent of teens depend on gifts for spending money, 32 percent get an allowance in exchange for chores, and 22 percent earn spending money by working at a job. When it comes to the subject of teens and money, one thing that is easier said than done is setting boundaries, hence the 64 percent of teens who rely on "gifts" for spending money. We asked personal finance experts for advice on setting these boundaries. Here is what they said: 1. Reinforce wants vs. needs "With my own kids wanting money (or things that cost money), I remind them that birthdays and Christmas are when they can ask for their 'wants' and that my goal the rest of the year is to fulfill their 'needs.' My oldest has now learned to ask if something is in the budget when we go shopping and she sees something that she wants." — Nicole Durham, Owner of Struggle Today Strength Tomorrow, a personal finance blog about budgeting and saving money 2. Teach about budgeting "Teenage children asking for money is an opportunity to teach them about financial responsibility. Maybe they'll ask for $30 to go out and watch a movie, then grab a burger. Give them $120 and tell them that's it for the next month. If they come back asking for more in two weeks, decline and suggest they budget more responsibly next month. Schools really don't teach much about personal finance so that burden falls on the parents." — Morgan Taylor, CMO and Financial Advisor for LetMeBank 3. Reward good behavior "Incentivize good behavior and be more generous when family or friends truly need help, especially when they don't have a history of asking for handouts. Rewarding hard work with a bit of extra financial help can incentivize teens or adult children to continue making good choices. Help friends and family help themselves." — Patrick Ford, CPWA®, Director of Wealth Management, Brown Wealth Management 4. Call a spade a spade As a mother of two teenagers, below are the tips I use to handle these types of situations: Dear daughter, you need to work for the money you want by taking out the dustbins for a whole month. When you work for the things that you want, you will value them more. I simply do not have the money right now to give to you because there are other essential needs that must be provided for. I have to call a spade a spade! What do you need the money for? Can you please add that to your bucket list and wait until I have the money to give to you? — Deborah Sawyerr, Financial Literacy Educator, Sawyerrs' House, Sawyerrs' House Money Literacy for Kids, Young Adults and Adults Podcast 5. Set up a chore-based economy "For teenagers, I recommend having an allowance or commission system set up. Some tasks shouldn't be paid since it's part of living in a family. These would be chores such as cleaning up their room, doing their laundry, or helping make dinner. Other chores, including mowing the lawn, mopping or vacuuming the common areas, or babysitting siblings could have set dollar amounts attached for each time they do them. This gives your teenager the ability to earn money from their parents instead of asking all the time for a handout. The parents should set up the boundaries that fun activities or shopping for items outside of necessities will be paid solely by them through their saved up allowance. Parents can even encourage their teenager to start offering services to neighbors to earn additional income. This will teach them the value of hard work and money even more." — Steffa Mantilla, Debt Payoff and Wealth Building Strategist for Plantsonify, a personal finance blog that educates people about getting out of debt and building wealth 6. Suggest a part-time job "Teenagers should be working to earn their own money by the time they're able to. The first port of call when it comes to spending on things they want, rather than what they need, should be their own money. Working for their own money will help them better understand the value of money and what it takes to earn things so that they're more likely to think before spending money in the future." — Kate Crowhurst, Director of personal finance platform, Money Bites 7. Over-share about finances "The best advice that I can offer with regard to setting financial boundaries with children is to share more than you're comfortable with. Especially when children reach their teenage years, it's important for them to see how household finances work in a real-world setting, and there's no better way for them to learn lessons than by watching how their parents think about and treat their finances. Parents should share as much as they're comfortable with and then some. Whatever parents don't spend time talking about with their kids is going to end up being a source of discomfort when their kids have to make uninformed decisions later on, so it's critical to make the list of things you don't talk about as short as possible. That said, it's important for kids to know that household finances are being shared with them as a learning opportunity — not for any kind of decision-making. Kids shouldn't feel entitled to guide their parents' finances any more than they would want their parents influencing their finances later in life." — Dock David Treece, Senior Financial Analyst, FitSmallBusiness.com 8. Consider requests wisely "When your teen asks you to borrow money, remember that you don't have to (nor should you) say yes right away. Ask yourself a few questions: Is your teen responsible? Is this a one-time request? If the answers are no, or if you simply don't have the money to shell out, you'll want to have a tactful way to tell them no. Explain to your child that you want them to enjoy life but that if they need money, they have to work for it. Whether it be chores around the house or getting a job, remind them that you work hard for your money and that they're old enough to work hard for theirs." — Adina Mahalli (MSW), a certified mental health consultant and family care specialist writing on behalf of Maple Holistics 9. Emphasize cause and effect, work = money "It builds back into all the values you teach them every day. It may be hackneyed, but 'money doesn't grow on trees.' It's an opportunity to emphasize the importance of a strong work ethic by finding tasks or projects that you need doing around your work situation or the home. Spoilt brats won't take easily to this approach, but in the long run, it's a vital lesson to be learned — the sooner, the better. Give money to your kids but link it to them helping you out in some way. Alternatively, lend them the money and suggest outside jobs to help them pay the loan back. When doing so, direct them toward projects you think will double up as a life-learning experience. If paying jobs are scarce, suggest that community service is acceptable to you as repayment in kind. Take your parental responsibility the extra mile by helping them secure work in any way you can. Your sons and daughters will thank you in the long run and gain a sense of purpose or confidence from being independent." — Gordon Polovin, finance expert, advisory board member at Wealthy Living Today. 10. Record budget and commitments together "Setting financial boundaries with teenage children is critically important for them to learn how to start managing their financial affairs. If parents can afford it, an allowance is a good starting place for the teenager to know what their fixed income will be. Additionally, I strongly recommend that teenagers partake in a part-time job. There is no better way to learn the value of a dollar than to actually earn one. From there you can help them to put together a budget. This can include a car note, insurance, auto expenses, entertainment, and savings/investments. As a parent, I would be insistent on the teenager living within this budget. I would recommend putting everything in writing with your teenager so there are no misunderstandings, as to the scope of the parents' financial commitment." — Michael Gerstman, ChFC, CLU is the CEO of the Dallas-based retirement planning firm, Gerstman Financial Group, LLC The final word Before you go, let's just get a little reality check. According to Charles Schwab, "Young adults are accruing significantly more debt, but their savings don't meaningfully increase: on average, young millennials (ages 21 to 25) have saved just 15 percent more than Gen Z (ages 16 to 20) — yet they have 169 percent more debt. Another one-third (33 percent) of respondents say they skipped a meal because they didn't have enough money." Hopefully, these tips can help parents and guardians educate their children about the value of money — today and in the future.
34.3 million. That's the number of U.S. consumers with a personal loan at the end of 2018, according to Experian. According to the same Experian study, there are 36.8 million outstanding personal loan accounts in the United States. "Personal loans are one of the easiest and most efficient ways to get cash in your pockets quickly and responsibly," says Mariel Arraiza, Managing Director, Eloan.com. Many people get this type of loan to help consolidate other higher-interest debts although personal finance experts differ when deciding if this strategy is the best way to start on the road to being debt-free. While personal loans are a safer, more responsible option than payday loans or playing the lotto to solve your debt problems, it seems like we need to work on being responsible with them after getting approved and getting the money. With a goal to make your current personal loan your last, we asked personal finance experts for strategies to help achieve that end. Here's what they said. 1. Budget, budget, budget When it comes to financial advice. Joe Toms, president of FreedomPlus has one word for us: "Budget." "Many people cringe at the word," says Toms, "but it is the number one way to avoid getting in [a cycle of debt, and to get out of debt for good." Budget before applying To utilize your loan wisely, Arraiza suggests, "First and foremost, you need to know what you can afford to pay on a month-by-month basis. If you don't already have a monthly budget, create one before you begin applying for loans. This will let you know how much cash you have leftover each month to comfortably repay a personal loan." Budget around your goals "It's important to start by setting goals – and if you're in a relationship and/or have a family, to do so with your spouse and family members," advises Toms. "One goal might be to get out of debt, but other goals might be things like having time to train for a 10K, saving for retirement or taking a vacation. Write down the goals and build the budget around the goals." 2. Consider multiple loan offers "When determining whether a personal loan makes sense for your financial situation," Lauren Anastasio, CFP and Financial Planner at SoFi, has some advice: "you should consider the upfront costs associated (if any) and whether the fixed monthly payment is something you can afford." Research your options "Once you know how much you can afford to pay on a personal loan each month, the next best piece of advice is to take your time," counsels Arraiza. "Unless you're in a rush to get a loan, there's no reason to rush a financial decision. Do plenty of research and planning, and compare multiple providers against one another." Shop around "Remember that you can shop around for the most convenient terms without affecting your credit score, says Arraiza. "Checking your rates is a soft pull and unless you formally submit an application the prequalification normally will not show on your credit profile…" Work on your credit score "If you have a low credit score," she adds, "you can also use this time to work on raising your score, so that you can get the best rates possible. While it may be tempting, don't jump on the first loan that you are approved for. Hold out for the one that will benefit you and your financial situation the most.” 3. Evaluate spending behaviors "The only way to make this personal loan the last one you have to get to climb out of debt is to make changes in how you spend your money," warns Deacon Hayes, founder of Well Kept Wallet. "Some of those changes may be hard to make, but it could be the only way to get real results and stay out of debt for good." Commit to change Changing behaviors is hard. However, in this case, it is a key component to avoiding debt. Just listen to this story from Anastasio: "I frequently speak to SoFi members who are struggling with debt and are looking to take out a second or third personal loan because they failed to change their behavior when they consolidated their debt onto their first personal loan. It's hard to resist the feeling that comes with watching your card balances go down to zero. Time and time again, I hear from borrowers about their feelings of euphoria when they use the loan to pay off their credit cards and then they start acting like they're completely debt-free." Becoming debt-free isn't just a one-step process. Even if you have consolidated your debts into one personal loan, it isn't gone. The debt still exists. AND, you still have to pay it. Here are a few ideas how to help adjust your perspective and shift your paradigm so that you can keep your debts in perspective and manage them accordingly Track all spending "Once you have a budget, with the personal loan payments included," Toms recommends that you "start tracking all spending every day. It can be surprising to see how much you spend, and on what. Writing it down – just as writing down everything you eat when you are watching your weight – opens your eyes to your real spending patterns, and helps you avoid getting back into debt." Act like you are still paying off credit card debt "Anyone using a personal loan to pay off debt should implement the same behaviors recommended when paying off high-interest credit cards (e.g. stop using cards, rely on cash and debit card, reduce spending until debt is gone)," advises Anastasio. Denise Nostrom, Owner of Diversified Financial Solutions agrees with this mindset. She says, "Taking a personal loan can be a positive experience to eliminate your debt, but you must have a plan to increase your odds of success. You should consider writing down all the payments you make to your current debt and try to pay this amount to the new personal loan. The actual payments to the personal loan may be less due to a lower interest rate, but paying extra to this loan will get you out of debt much quicker." Keep your debt in perspective and follow this strategy from Anastasio: "It's very important to remember that just because you might not have a number of different debts scattered across multiple banks with a bunch of different monthly payments doesn't mean that you're any less in debt than you were previously. You need to work towards paying your debt off with the same amount of discipline as if you were still being charged a 27 percent APR on a credit card." Use credit cards wisely "While a personal loan is easier to manage and the balance cannot go up," says Anastasio, "those who found themselves in credit card debt due to bad spending habits should be careful not to find themselves racking credit card debt back up." As Nostrom puts it, "The key to keeping out of debt is not using your credit cards." However, she points out that "This is unfortunately not so realistic, so you can use your credit cards, but make sure the purchases you make can be paid off each month. You can become debt-free if you are committed to doing it and have a plan to tackle it." 4. Dominate your payments "Personal loans come with a set payment schedule," states Toms. "Most have terms of 36 to 60 months (some, like FreedomPlus, offer 24-month terms, too). The strict schedule keeps people on track to eliminate the debt in a timely way; there is no option to just make minimum payments and be paying back the debt for years and years (as is the case with credit cards)." So, if your budget has been set up to your advantage, this pre-set, defined schedule should do some of the heavy lifting for you. Make all payments on-time "Once you select the best term and your loan provider, please remember to make your payments on time until the last one," urges Arraiza. "Your payment pattern is a great contributor to build your credit score." With an improved credit score, you will likely be eligible for better loan rates down the road, instead of massive credit card APRs that got you here in the first place. Plan payments realistically "Often a borrower becomes too aggressive with their repayment when transitioning their debt to a personal loan," shares Anastasio. Due to this, consumers "can find themselves without enough money to get them through the month and are inevitably forced to charge expenses to their credit card. This will keep the debt cycle going indefinitely. Be realistic about what you can afford for a monthly payment and stick to the term that fits your cash flow." Consider alternative payment strategies Jeff Rose, CFP®, and CEO of Good Financial Cents® shares the following "trick" to help avoid a cycle of debt: "Pay a partial payment on your loan once a week or once every two weeks, rather than once a month. This helps keep your debt in the forefront of your mind and, typically, you'll save a little more in interest to boot. This frequent reminder that you're working toward being debt-free will help squelch the impulse to buy more things on credit. As a bonus, you may find it easier to send extra money by choosing one thing to go without per payment (such as an extra $10 by skipping the drive-thru one extra day this week). Important note: Make sure that you confirm how to properly send and have partial payments credited so you've paid the whole amount (or above it) before the monthly due date. Ask your loan grantor for help if the information you're given is at all unclear on how to accomplish this." Don't jump the gun with autopay "Stop automatic payments only when the loan is entirely paid off," advises Jacob Dayan, CEO, and Co-founder of Finance Pal and Community Tax. "In many cases, people who are attempting to make their last payments on a loan, see the end in sight of being debt-free, and stop their automatic payment too soon. Meaning, they will neglect to pay the loan in full and begin to receive late notices from a creditor. This can ultimately send many borrowers right back into the cycle of debt when having to then pay off late fees. Allowing these late fees to pile up can also negatively impact credit." Keep payment records "Keeping a good record of making the final payment on the personal loan can be very rewarding," says Dayan. "Holding a record of paying off a personal loan should be celebrated and these records can be a reminder that you can start living a debt-free life. Also, many lenders will send an automatic notice, but some might not. It is crucial to ask the lender to send the notice when the loan is paid in full to provide proof in case someone attempts to collect payments in the future." Make this personal loan your last Debt-consolidation loans are not a one-size-fits-all solution for all outstanding debts. If you are currently, or plan to use a personal loan for this purpose, you need to have a game plan. It isn't going to just work itself out. This expert advice will help you keep the loan and your debt-free goals in perspective. Make this the last personal loan you ever need.
Personal loans are increasingly popular as a debt consolidation tool. When you have lots of credit card debt, one way to improve your credit and your financial well-being is by taking out a consolidation loan with a lower interest rate than you are currently being charged on your credit cards. This is just one of the five most common uses of a personal loan, but is a good example of a personal loan’s usefulness. However, when you apply for a personal loan, not everyone gets accepted. Even when they do, the rates and terms for their loan may be much different from the "as low as" rates that are advertised (and only available to people with the best possible credit). So, what are the reasons that you might get rejected, and what can you do about it? Usually, if you are applying online, you will get an immediate rejection, but you will be sent a letter explaining which of the eligibility criteria caused your rejection in the mail within the next few business days. Rejection always stings, and rejection related to the very vulnerable topic of your finances can feel incredibly personal and painful. You're probably desperate to know what went wrong. For this article, we asked personal finance experts to explain why an applicant might be rejected for a personal loan application and what their next steps should be. Reason #1: Insufficient monthly income "Lenders want to ensure that you are able to repay the money you are seeking to borrow," explains Nathalie Noisette, Founder of Credit Conversion, a credit concierge company providing tailored credit educational resources. She says, "Repayment potential is determined by inquiring into your annual income. If it is determined you don't make enough money, you may be rejected." Helen Chen, Director of My Cash Online notes, " A lender wants to know that you will be able to comfortably make loan repayments every month, both for their own security and to comply with lending regulations. You need to show that your income will cover your daily living expenses plus the additional cost of monthly loan repayments." What can you do about it? "In addition to making more or asking for less, you could start off with a small loan request at first, establish trust, then ask for more later when you've established good faith with the lender," suggests Noisette. Another idea comes from Chen: "If your income falls short, consider extending the loan term which will reduce monthly repayments, or applying for a lower amount." Reason #2: Spotty employment history In conjunction with your income, Chane Steiner, CEO of Crediful adds, "Employment history can also be grounds for rejection. If someone changes jobs often the stability of their income is questionable." What can you do about it? If this is the case, Steiner emphasizes the importance of thoroughly listing all of your employment details: "Be sure to include ALL of your income on the application. Maybe you work a weekend or night job part-time. Include that. The additional income could be the difference in securing approval." Reason #3: Thin credit file or bad credit "Probably the most common reason personal loan applications are rejected has to do with the applicant’s lack of personal credit history or poor credit history," asserts Todd Christensen, Education Manager, Money Fit by DRS, a non-profit debt relief agency. "Many lenders use your credit score to determine how high of a default risk you are," explains Noisette. "The higher your score, the lower the risk. The lower your score, the higher the risk. If you are a high-risk borrower, lenders will likely decline your application." Along the same lines, "If you have missed repayments on other debts or utilities or have no prior credit history, it will be more difficult to get a loan," advises Chen. "Most lenders have options for borrowers with a low credit score, so speak to them about whether there are any other products that may be more suitable for you." If you don’t have a good credit score, can’t get approved for legitimate subprime credit options, as Chen suggested, or the cost to borrow is too high, you may be looking for more financial options. What can you do about it? Trying to get a personal loan with bad credit or no credit "can seem like a Catch-22," Christensen expounds. "How are you supposed to qualify for credit if you can’t get approved?" It’s time to "clean up your credit," according to Noisette. "Start to reestablish your credit-worthiness and ask for the loan when you have a better credit rating." But what is the game plan? As Christensen explains, "The standard methods of building credit (starting local and small, then moving step-by-step from tire store credit to retail and gas through bank or credit union card) typically take a year to build an acceptable credit history. Unfortunately, if someone is needing a personal loan, they probably need the money sooner than later, certainly within a year." If you have less than a year before you need to try to get approved for personal loan funding, Christensen suggests short-term credit-building strategies: check your credit, look into Experian Boost, see if you can become an authorized credit card user, or check out a credit builder loan, available from various financial institutions. "Pull your own credit report from AnnualCreditReport.com, check for errors that might be hurting your score (late payments, accounts reporting as collections, incorrect balances, etc.) and then dispute those errors directly through the credit bureaus homepages (Equifax.com, Experian.com, and TransUnion.com). Look at using Experian’s new, free Boost product to get you 'credit' for your monthly bill paying activities (ex. rent, utilities, cell phone). Experian is the only one of the three consumer reporting agencies (bureaus) to offer such a product, but it is boosting participants’ credit scores by an average of 15 points. Ask a family member with good credit to add you to their credit card account as an authorized user. Regardless of your own credit rating, being an authorized user has no impact on their rating. You don’t have to use or even see them to receive some of the benefits from your family member’s good credit. Some credit unions have $1,000 credit builder loans that can give you $500 upfront, place the remaining $500 in a secured savings account, and have you make monthly payments for a year (often requiring direct deposit from your employer) until the $1,000 is paid, plus interest. At that point, you also gain access to the remaining $500." Reason #4: High debt-to-income ratio (DTI ratio) Javier Martinez, from Zirtue, a relationship-based lending application that simplifies loans between friends and family explains, "consumers with excessive debt have a higher rate of denial due to their debt-to-income ratio, causing banks to feel concerned about extending additional credit to them." What can you do about it? "If you make a lot but owe a lot, a high debt to income ratio may scare a lender off," declares Noisette. In this case, the solution is to "Lower your current debt before reapplying for new debt." Another type of borrower with a high debt-to-income ratio could be in a different situation: too many existing debts. "A large number of small loans or credit cards spread across different providers can be a warning sign to new lenders," explains Chen. If that sounds more like you, "Consider consolidating your debts into just one or two personal loans and you will be much more likely to receive loan approval," the next time you apply. Reason #5: Too many declined loans in the last year "It's considered a ‘hard inquiry’ when you apply for a car loan, credit card, mortgage, or student loan," says Chris Michaels, Founder of Frugal Reality. " Whether you apply and get accepted or not, it is still considered a hard inquiry. Too many applications/inquiries make lenders very nervous you are trying to expand your credit too quickly. If your available credit expands too quickly, then they start to worry whether you can afford to pay each lender back if you maximize all available credit at once. All inquiries will remain on your credit report for 24 months, but hard inquiries only affect your score for the first 12 months of each inquiry." What can you do about it? "Before applying," stresses Michaels, "it's advised to ask each lender the likely outcome given your current income, total and monthly debt, and credit score. This will limit the negative impact to your credit score, help you shop better lending institutions, and provide better outcomes." This type of inquiry is generally considered a pre-qualification and will include a soft inquiry into your credit rather than a hard inquiry. This is better for your credit in the long run. Bonus credit recovery steps As a bonus for our readers, personal finance expert Carey Zielke from Realities & Dreams, a website dedicated to helping people chase financial freedom and their dreams, has some advice to share. "If your loan application was denied, the lender is required to send you a notice of adverse action which will detail the reason(s) for rejection," explains Zielke. Once you get that notice, whether by snail mail or email, you will know which factors are holding you back. If you are denied, Zielke suggests that your initial plan of action should be to "Fix errors on your credit report if there are any." Next, the intermediate action steps include using collateral, saving up for a down payment, and using a co-signer, although Zielke warns, "I do NOT recommend this, but if necessary use a family member if possible, rather than a friend as this can lead to issues!" Finally, Zielke's long term steps to help determine that you will be approved the next time you fill out a loan application, are difficult sounding, but pretty fundamental: build your credit, enhance the amount of income you bring in, and "pay down or pay off some of your outstanding debt." The bottom line Getting rejected for a loan stinks. There’s no way around it. However, there are steps that you can take to avoid this rejection in the future. Simply increasing your knowledge of credit scoring, loan eligibility, and where you stand credit-wise can go a long way to helping improve your eligibility. If you can follow the expert advice in this article, work on establishing or rebuilding your credit, you will increase your chances of approval and a happy ending the next time you fill out a loan application.
"Personal loans have served the general public as useful financial tools for years on end, and that's not likely to end anytime soon," says Sean Messier, Credit Industry Analyst from Credit Card Insider. "But with that said, they certainly have their limitations, and you should know what they are before heading to your local credit union to borrow a few grand." We asked personal finance experts to help us understand the different risks that borrowers should be aware of. Here's what they said: Risk #1: Borrowing more than you need "While more money up-front may seem like a good thing, taking out a larger personal loan than you actually need can lead to troubles in the future," advises Logan Allec, a CPA and owner of personal finance site Money Done Right. "For example," says Allec, "if you're taking on a loan to start your own business and you're approved for more than you need, just remember, you're going to have to pay the loan back in its entirety! A loan is just that — a LOAN. If your bank says you're qualified for more than you requested, simply say you don't need the extra amount. Stay strong and stick with the original loan you planned on! If you're successful, your business will generate money for you anyway!" Risk #2: Unnecessary debt for wants "One risk of taking out a personal loan is that you could be falling into debt when that's not necessary," says David Bakke, a personal finance expert at Money Crashers. "If you need a personal loan for 'needs' (such as transportation, housing, or medical care) that's one thing. But taking out a personal loan to take a vacation just doesn't make sense." Taking on debt that you actually don't need is a risky behavior. Jared Weitz, CEO and founder of United Capital Source Inc, puts it this way: "In the moment, you might scramble and think you need a loan or take one out for an unnecessary vacation or home improvement project. You are now faced with paying off the loan and adding the interest to the loan when in reality, you could have avoided this all together." "Instead," Weitz suggests, "look at your budget closely and see where you can cut corners if you do need extra money. And if you are looking for a 'want' purchase, consider how much it will actually cost once paid off and whether it's actually worth what you are paying." Bakke adds, "Simply wait until you can save up the money to buy whatever you want to buy without borrowing." Risk #3: Paying high interest rates because you didn't compare rates "Lenders usually attract borrowers by advertising low interest rates for personal loans," explains Mike Cornu, Senior Consultant at NewSilver.com. "But these lower rates are typically reserved for those who have excellent credit. If this isn't your case, you will be offered a higher interest rate. So, if you decide to apply for a personal loan, it is best to research and compare multiple offers from different lenders. Statistically, consumers can save as much as 35 percent if they compare interest rates before accepting a loan offer. In case you find a promising lender, carefully review the loan documents and get a clear understanding of how much the loan will actually cost you: upfront fees, interest rate etc. Take the time to read their offers carefully; ask questions." Risk #4: Falling prey to variable rates "You might get caught with an inflated interest rate when you sign up for a loan with a variable rate," warns Weitz. "There is a risk associated with variable rates on loans considering the interest rate can shift depending on the market rate. This can spike up if the market has a large shift and put your interest rate at an unmanageable level. Be careful to consider your timeline to pay off the loan and the budget you have available for any forecasted changes." Risk #5: Incorrectly comparing loan options "One of the basic risks of a personal loan is incorrectly comparing different options," advises Lou Haverty, CFA and creator of Financial Analyst Insider. "The most often this comes up is when comparing loans with different fee structures. For example, a $2,000 loan with a 10 percent rate vs. an 8 percent rate with a 5 percent origination fee. At first glance, it looks like the 8 percent rate is the better option. But when you compare the options with an APR rate, you find out that option two has a 13 percent APR vs. a 10 percent APR for option. Loan fees can increase your annual percentage rate much more than it might look on paper. Always compare personal loan rates using an APR rate. It's the only way to compare different options on an equal basis." "Before you commit to one lender," advises Allec, "be sure to shop around and see what the best deal is. Some banks may not charge any origination fees, while others may take a smaller amount than others." Risk #6: Not being able to make payments "Personal loans require you to pay at least a fixed amount monthly," says Messier. "If you're not absolutely confident that you'll be able to make those payments without a hassle, then you may land yourself in an ever-growing pile of debt, which could ultimately destroy your credit scores and leave you struggling financially." Zina Kumok from DollarSprout.com agrees. She says, "The biggest risk with a personal loan is that you won't be able to afford your payments if something happens, like a job loss or a medical emergency." With personal loans, lowering monthly payments and refinancing aren't always available, she explains, because "there's no collateral behind it, unlike a mortgage or auto loan." How do you guard yourself against this risk? "The best way to avoid [being unable to make your payments]," suggests Kumok, "is to not take out more than you can comfortably pay off. If possible, pay extra when you can and try to pay off the loan as quickly as possible." Risk #7: Loan fees can add up "One risk in taking out a personal loan is having to pay additional fees such as origination fees and prepayment fees," advises Xavier Epps, founder and CEO of XNE Financial Advising. Origination fees "Even if you always pay back your loan on time and don't generate any late fees, you may still be responsible for fees up-front," explains Allec. "These are known as "origination fees" and can take away from the amount of the loan you actually receive." Prepayment penalties "A Prepayment fee is a charge on paying a loan off early," explains Epps. Paying back the loan entirely before the agreed-upon timeframe can "cost you big time if you don't read the fine print," advises Bakke. This fee can be a very unwelcome surprise, as Becky Beach, a finance blogger at MomBeach.com shares: "A year ago, I took out a personal loan of $5,000 to pay off some credit cards with high APR. The APR of the unsecured personal loan was significantly less at 10 percent APR than the 24.9 percent (on average) of the credit cards. I thought I could pay off my bills and save more money in the process. When my business brought in unexpected extra income, I was able to pay off the personal loan early. However, I incurred a prepayment fee for paying it early that I wasn't aware of. A risk to take when taking out a personal loan is that you might have to pay a fee if you pay it off too early. Some lenders won't charge a fee, but the bank I borrowed from, Frost Bank, did. Those taking out personal loans should always read the fine print and be aware of any additional fees they will incur before making a decision." Epps adds, "The best way to avoid these additional fees is to compare loans from several lenders and understand the various loan terms. Then see which loan offer aligns with your needs and ability to pay off the loan." Risk #8: Effects to your credit score "When you apply for a personal loan, lenders will perform a credit check on you to evaluate the risk you pose to them in terms of paying back the loan," explains Allec. "However, these inquiries often deduct points from your overall [credit] score, which can make it even harder to obtain loans — or whatever else you may need — in the future. Be wary of this before applying through a bunch of different lenders." While having a few points deducted when you apply for a personal loan can hurt your score, there is a bigger risk to your score than just the hard credit inquiry. "One of the biggest risks of taking out a personal loan is the impact on your credit rating should you not be able to meet a repayment deadline for any reason," explains Helen Chen, Director of My Cash Online. "Missing just one repayment can lead to a mark on your credit report, impacting your chance of being approved for credit for two years into the future." What should you do? Chen advises, "As soon as you realize that you may not be able to make a repayment as contracted, the best course of action is to contact your lender. They are often willing to help restructure your debt or put a hold on payments to avoid a listing on your credit report." "Whatever you do," says Chen, "do not borrow more money to cover the missed repayment as this will just make the problem worse the next month" Risk #9: Defaulting on your loan "The most important risk is defaulting on the loan," cautions Robert Linker from Family Debt Planning. "If you already have other debts then you should probably be worried about making payments on a new loan," he says. "How people get into trouble with debt is rolling up small debts that turn into big problems. That is why credit cards are so dangerous." How do we avoid defaulting? "Make sure you budget enough money each month to make your payments," says Linker. "In fact, don't take out the loan until you have incorporated the monthly payments into your budget." What should we do instead? Linker gives this advice: "The simple answer for this is to spend less. Make sure what you want to take out a loan for is very important, either an emergency or something that you can't live without. If you do need the loan, see if you can consolidate your debts. Other loans that you may be able to refinance for extra cash are car loans and mortgages." Risk #10: Getting sucked into a cycle of debt "When you take out a personal loan, you have to be diligent to not allow it to make you feel more financially free," cautions Ryan Inman, founder of Financial Residency. "You may have paid off credit card companies and even a private student loan company [with your personal loan], but you've really only changed who you owe. You've not gotten out of debt." To avoid falling further into debt, he urges borrowers to "eliminate excess spending, focus on paying off your personal loan, and not continue to spend more than you make." Risk #11: Bringing a co-signer into your credit mess "Taking out a personal loan may also carry the additional risk of needing a co-signer," explains Inman. "When you originally accumulated the debt [that] you're likely using a personal loan to pay off, you may have had minimal debt or not had your credit-worthiness and income as closely examined." "With a personal loan," he says, "you'll be evaluated more closely and the loan grantor may require a co-signer. The danger in that is if something happens and you default, now that other person is on the hook for your debt. You can endanger someone's retirement, for example." Risk #12: Not looking into lower-cost loan types "Personal loans involve borrowing a lump sum of money," explains Messier, "and then repaying that money plus interest. While the interest rates on the typical personal loan may look low, they can add up, costing you hundreds or even thousands of dollars over time, especially if you're dealing with a longer repayment period." While it costs much less to borrow a personal loan than a payday loan, you may have better options. "Typically, personal loans will have higher rates and shorter periods to pay back the lender," says Michael Drake, President of PMG Home Loans. "A better option, if you qualify, is a home equity line of credit — lower rates and ten years or more to pay it off."
Guest Post by Natalie Issa A new investment opportunity beckons, but you don't have the cash flow to dip into it. Could a personal loan be the right way to fund the endeavor? "You have to spend money to make money" is a common mantra of successful entrepreneurs and investors, and it's not wrong. And sometimes, you have to spend someone else's money and pay that back before you can make money. Plenty of small businesses were born on the backs of credit cards or personal loans. But whether taking out a personal loan to invest makes sense depends on factors such as loan and investment terms and a little bit of luck. Understanding the math Whether or not you should make an investment of any type typically comes down to a single question: Will it be profitable? If you're borrowing money to make the investment, you have to consider the cost of the loan in the equation. For example, the Best Egg personal loan comes with an APR of 5.99 percent to 29.99 percent for qualified applicants. Your credit score and other factors determine whether you're approved for this type of personal loan and what the interest rate and terms might be. Let's consider the best — and worst — case interest rates for this particular loan and how that stacks up when investing in various options. Returns on 5-year CD are under 3 percent. Since the interest you earn is less than the interest you pay out at either 5.99 percent or 29.99 percent, this is obviously not a scheme that pays. And since personal loans tend to come with fixed interest rates, that's not a truth likely to change. Money market mutual funds have average returns ranging from 1.76 percent to 4.54 percent. Again, if you're paying the interest on a personal loan, you'll pay more out than you earn. Some high-yield bond funds can yield rates as high as 8.93 percent. If you can get the best personal loan rates and luck out with high-yield bonds, you could turn a 3 percent profit. With a bit of knowledge and some luck, you might be able to turn a personal loan into a winning investment in the stock market. For example, if someone took out a personal loan for $5,000 in 1997 and used it to purchase 277 shares in Amazon at $18 a pop, they would now have more than $500,000 worth of shares. That's much more than any interest rate paid on the $5,000 personal loan. However, the stock market does work the other way. If someone purchased Ford stock in 1997 instead of Amazon, they would currently be holding a $5 per share loss — with no profit at all, much less enough profit to cover fees and interest rates on a personal loan. When you consider taking out a personal loan to invest, make sure you're running all the numbers. In addition to comparing interest rates between the loan and your investment, consider any other costs of the loan and whether you can make timely payments on it even before you investment pans out. When it makes more sense to do something else Investing the cash from a personal loan may not be the best way to maximize the value you can get from it. In some cases, using the funds from a personal loan to consolidate higher-interest credit card or other debt actually nets you more money via savings. For example, consider a credit card balance of $3,000 with an APR of 15 percent . If you can shop around for a personal loan that works for you and get approved for one with 6 percent APR, you can save a lot of money while paying off your debt. If you make payments of $100 a month on a credit card with a $3,000 balance and 15 percent interest, you'll pay in total $3,783.57. If you make payments of $100 a month on a personal loan of $3,000 with an APR of 6 percent, you'll pay in total $3,258.56. That's a savings of more than $500. Aside from the ability to save money, one of the benefits of using a personal loan to consolidate debt is that you're more likely to get the financial value you expect. All you have to do is hold up your end of the "bargain" by making the appropriate payments on your personal loan. As long as the terms and math line up in your favor, you will benefit from the savings. You don't get the same guarantee when you're investing. You can do everything correctly and still not come out ahead when you're playing the stock market. So, it's a good idea to avoid taking out personal loans to invest unless you're very sure about the opportunity. The Bottom Line If you have very good credit and are approved for personal loans at very low interest rates, you could profit by investing in opportunities that have higher interest rates than your loan does. For most people and investment situations, this can be risky. The biggest opportunity for profit comes from the stock market, but you won't know whether you've succeeded for potentially years. However, you can succeed immediately and save money by using personal loans to consolidate higher interest credit. Whether you're willing to gamble, paying to play for profit with investments, or you want to get a handle on debt and pay it off faster, personal loans can be a valuable tool. Check out all the options and apply for a personal loan today. Natalie Issa is a content specialist for Credit.com. Her experience spans working with a variety of content, including blog posts and journalistic articles, as well as film and podcasts. She’s applied her writing and editing expertise in the retail and digital industries at companies such as Overstock.com and Deseret Digital Media, while applying her creativity to passion projects in her personal time.
Pleasant Grove, UT - January 7, 2019 - Best Egg has been named the 2019 Consumer's Choice Award recipient in the personal loans industry by BestCompany.com, an independent consumer review site. Best Egg was selected to receive this recognition from among 70 other personal loan companies based on a comprehensive market index score and the feedback of verified customers through reviews. "We wish to recognize Best Egg with the Consumer’s Choice Award for 2019. They've earned it,” said BestCompany.com CEO Landon Taylor. “Our hope is that this recognition will highlight a company that is doing business the right way by taking care of its customers and always looking for ways in which it can improve." Best Egg distinguished itself from its competitors by offering a simple application process, a quick decision process, relatively low APRs, and no prepayment penalties. That, combined with an extremely high customer review score of 4.9 out of 5 based on more than 4,400 real customer reviews, propelled Best Egg to an impressive overall score of 9.0 out of 10, the highest in the industry. “We are proud to receive the BestCompany.com Consumers Choice Award,” said Jeffrey Meiler, CEO at Best Egg. “This award further validates our commitment to delivering outstanding experiences for our customers in line with our overall mission to make money accessible quickly and without hassle so our customers can enjoy life.” To read consumer reviews for the top-rated personal loan provider, view Best Egg’s profile on bestcompany.com. For additional information and comparisons, access the full list of personal loan companies considered for this award, as well as their respective scores and customer reviews. About Best Egg Best Egg makes money accessible through quick, simple personal loans. Whether individuals need funds for debt consolidation, home improvement, vacation, a major purchase, or an unexpected expense, Best Egg can help get them the money they need to keep their finances on track. For those who want to make a change in their lives, Best Egg can be a simple solution to achieving your financial goals, as well as make the process of applying for, getting approved, and servicing a personal loan seamless and hassle-free. To date, Best Egg has served hundreds of thousands of customers and provided more than $6 billion in funding. Visit the company’s website to learn more about Best Egg. About BestCompany.com BestCompany.com ranks and reviews companies across hundreds of different industries. Unlike many other review sites, companies listed on BestCompany.com cannot buy their position, nor is a company’s ranking manipulated or inflated by BestCompany.com for financial gain. Instead, a company’s ranking is based on BestCompany.com’s proprietary Best Rank algorithm, which is powered by verified customer reviews and an objective set of ranking criteria. For more information on how BestCompany.com scores and ranks companies, please visit our How We Rank page.
Have you ever seen a crumbling house and been excited about its potential? If yes, then the thought of flipping the house must have crossed your mind. Buying a sad-looking house, giving it a makeover, and selling for a profit is a popular venture. The return on investment (ROI) for house flipping has increased significantly in the past few years, which makes fixing and flipping houses an incredible opportunity. However, while making a handsome profit sounds like a great idea, many find it difficult to fund the project in the first place. In this article, you can find answers to common questions for house flippers: "How can I afford this?" and "Where do I start?". Here are four funding options to consider: Personal loans One of the best ways to flip a house is by taking a personal loan. Investors can use a collateral-free personal loan for home renovation and increase the value of the purchased property with the right repairs and upgrades. Once the work is completed, they can sell the home at a much higher price and maximize their ROI. There are numerous online lenders who are willing to offer a personal loan or a line of credit to fix and flip the house you are interested in. Check which online lenders are giving a personal line of credit with good interest rates. They allow you to withdraw any amount from the line of credit at any point without many restrictions, and a few online lenders just charge interest on the amount withdrawn rather than on the entire amount allocated to you. The repayment can be done in flexible EMIs by choosing a payment period that works for you — which could be anywhere between 2 months to 36 months. Such credit cards let you enjoy 100 percent cash withdrawal in addition to special rewards. Hard money loans Hard money lenders are private lenders who have their own money resources or pool of other people’s cash. They lend this money to people like real estate entrepreneurs and earn money on the interest. These lenders make loans for flippers and real estate developers on slightly different terms than banks. The loans are designed for individuals who don’t have great credit but need money to renovate or flip houses. These are short-term loans that typically need to be paid within a year. There will be high-interest rates with strict penalties. That said, getting approval for this kind of loan is much easier than obtaining a more traditional loan. They normally require some form of down payment. It is possible to negotiate a little so that you don’t feel the pressure to sell your flipped house quickly to avoid a big balloon payment due to the shorter payoff period. Traditional bank loan This is generally the first option that everyone would consider — getting a loan from your local bank. You can apply for a fix and flip loan from a bank, which is similar to getting any kind of mortgage loan. You can decide how long you want the loan term to be and put up the appropriate down payment, following which the bank will give you the cash. The procedure sounds simple but the process can take a long time — from application to approval. You will need a good credit to even qualify for the loan. Moreover, if you don’t have a good track record of flipping houses successfully, the bank may be hesitant to loan you money. Real estate crowdfunding sites This option has been gaining traction in the past few years. People are increasingly using real estate crowdfunding sites to finance various real estate projects, most of which include house flipping. Several people invest varying amounts of money in a real estate project they are interested in. The small amounts contributed by everybody amounts to the funding of the project. Most crowdfunding investing for flipping houses are built as debts or equity, based on the site being used for the project. In debt crowdfunding, the investors buy into a loan or a portion of that loan. The term duration and interest rates can vary but generally fall between 1 and 36 months and 8 to 14 percent respectively. Remember that an origination fee is charged by the crowdfunding site, and the investors earn money monthly through interest charged on the loan. If there is a balloon payment, it needs to be paid at the end of the term which covers the principal and interest left over. Whether you take a personal loan, choose an online lender offering a personal line of credit, or other options to fund your project, you can take see impressive profits from fixing and flipping a house. Shiv Nanda is a financial analyst who currently lives in Bangalore (refusing to acknowledge the name change) and works with MoneyTap, India's first app-based credit-line. Shiv is a true finance geek, and his friends love that. They always rely on him for advice on their investment choices, budgeting skills, personal financial matters and when they want to get a loan. He has made it his life's mission to help and educate people on various financial topics, so email him your questions at [email protected]
Guest Post by Rohit Mittal, Co-founder and CEO of Stilt.comThe world runs on credit. From getting a car to financing a new business, a lot of life activities require you to borrow money. Many nonresidents are creditworthy but still struggle to get approved for loans. If this is you, read on — we’ll outline what the problem is as well as what to do about it. Why many lenders won’t work with immigrants Before giving you money, all lenders decide how risky they think you are. To make this determination, they will look at your credit history. Have you paid back your past loans in full and on time? Or have there been problems? A common issue for many immigrants is that they don’t have a U.S. credit history. Without a credit history, no matter how good your income is or how solid your finances are, most lenders will consider you high risk. The tools lenders use to evaluate potential borrowers just don’t work for your situation. Additionally, many visa holders won’t be in the country for that long. This makes traditional lenders even more adverse to lending to immigrants. Thankfully, more and more emerging lenders are specializing in immigrant loans. These lenders consider more than your credit history to determine loan approval. They will look at your employment prospects, educational background, income, and other factors to make a determination. But even if you work with a less specialized lender, there are still ways to prove your creditworthiness. Types of personal loans for immigrants Here are the three most common types of loans you can qualify for as a non-U.S. citizen: Short-term loan Short-term loans are small loans which require you to repay quickly. Generally, the loans are capped at around $1,000, though some lenders may go higher. Repayment terms will be between a few months and a year. An auto title loan is a short-term loan which uses the title of your car as collateral. These loans often have lower interest rates and let you borrow up to half the value of your vehicle. The downside, of course, is that you run the risk of losing your car if you struggle to make the payments. Installment loan Technically, any loan you get in a lump sum and pay back every month is an installment loan. But in the marketplace, an “installment loan” typically refers to a small loan that has a larger amount and a longer repayment period than a short-term loan. Installment loans generally go as high as $5,000 and can be an excellent tool to build or improve your credit history. Unsecured loan An unsecured loan is any loan which isn’t secured by a piece of property like a home, business, or car. With secured loans, a lender can recoup some of their costs by repossessing the collateral you put up for the loan. If a lender offers you an unsecured loan, it means they trust you can repay the loan easily. Unsecured loans can be offered for as much as $100,000 and can be used for almost anything. How to qualify for a personal loan as an immigrant It’s harder for a nonresident to get a personal loan than a citizen, but don’t let that stop you from pursuing one. You just need to compile a little more documentation and shop around for a lender who will work with you. Here is what you will need to qualify for a loan as an immigrant: Credit score and credit history Many lenders require a six-year credit history, which is impossible for many visa holders. Some lenders, however, will give you a personal loan if you have just two years of credit history and good credit. Unfortunately, even this requirement can be tough to meet for an immigrant. If don’t meet the above requirements, you can help your case by compiling additional documentation that shows you are a good candidate. Nontraditional credit references Any history of payments you have made steadily and on time can potentially be used as a credit reference. Do you rent an apartment, pay utilities, have a cell phone contract, or make payments on a life insurance policy? Gathering proof of consistent, on-time payments for any of these will go a long way in qualifying you for a loan. You can also try getting a credit reference from credit reporting agencies in your home country or from an independent foreign credit reporting agency. If a particular company abroad has served as your creditor, you can also try to get written verification of your credit history from them. Try to get three non-traditional credit references with at least a year of activity each. Your credit history will also need to be free of black marks such as debt collections, bankruptcies, or foreclosures. Documentation Lenders will want to know that you aren’t going to emigrate away from the United States with their money. Expect to document both your visa status in the country as well as proof that you are planning to stay for the term of the loan. If you are working, your employer will need to be e-verified. E-verify is a free federal system for companies. It is used to determine if employees are eligible to work in the United States. Talk to you employer if they are not part of the system. When you apply for the loan, you will also need to bring your visa and employment authorization form I-765, I-766 or I-797A.A personal loan is useful for any number of things: consolidating debt, home repairs, or starting your own business. Many visa holders are excellent candidates for loans, but still have trouble borrowing because of their immigration status and lack of credit history. If you are in that situation, researching specialized lenders and compiling a set of nonstandard credit references can help a great deal. The resources above will help you get started.Rohit Mittal is the co-founder and CEO of Stilt.com. Stilt is a fintech company focused on improving access to credit for immigrants and the underserved. The core mission of Stilt is to improve financial inclusion and help people live financially healthy lives who are shut out by the current financial system.