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January 28th, 2021
Did you know that six out of ten households face some kind of unexpected financial emergency each year? Clearly, you can never be too prepared for an emergency; especially when it comes to your finances. This video goes over four ways you can start preparing for a financial emergency: Establish an emergency fund Safeguard critical documents Consult with a financial counselor or coach Review your insurance coverage Although these steps can help you get started with financial emergency preparation, you should also take your personal financial and life situation into account and do what is best for you. Overall, getting your financial situation in order can take time, but it will prove to be worthwhile when you or a family member is faced with a financially taxing emergency. For more financial tips, check out these article for answers to common personal finance questions: "Should I Get a Credit Card or a Personal Loan?" "What if I Miss a Payment on my Personal Loan?" "9 Myths about Credit Card Debt"
Experts help engaged couples navigate their financial relationships Should you pay your fiance's debts? Are you obligated to? Is it even a good idea? I have recently come across several advice columns that dealt with the issue of helping a fiance pay off their debt. Having never been affianced, this totally blew my mind thinking that I could just get married and share my debt with another person. I always understood the idea of marrying rich, but never actually expected that someone I marry would be obligated to help me financially with student loans that I had accumulated before they even knew I existed. To help understand the different perspectives, obligations, and customs surrounding debt and finances during an engagement, we asked experts in several fields for their advice. Here's what they said: Consider both perspectives Matt Edstrom is the CMO of GoodLife Home Loans, a mortgage company based in Laguna Hills, California. Matt is an expert in finance and professional and personal development. "While there isn’t a standard form of etiquette that I’m familiar with when it comes to paying off your fiance’s debts, I do know that it's a general rule of thumb to keep some degree of separation between yours and your fiance’s finances. That isn’t to say that you should be hiding aspects of your finances with your future husband or wife. It’s a valid question to ask, and the answers will vary quite significantly, I’d imagine. It can be especially tough to ignore the elephant in the room which is the increasing rate of divorce. If an engaged friend came up to me asking me this question, I’d instinctively not want to bring up the possibility of a divorce, because that pessimism can drive wedges between people. Having said that, I’d also feel obligated to say something along the lines of 'I know you two plan on having a healthy marriage, but don’t you think the possibility of divorce should be taken into consideration in this particular scenario.' There is another side to this coin. Let’s say you were in a financially stable place in life that allowed you to help your fiance out with his/her debt. You wouldn’t do this unless you would still be in good financial standing after said debt has been paid off. So worst-case scenario is you help him/her pay off the debt, there is a divorce down the road, and you helped somebody pay off some debt. It doesn’t damage your credit or any other aspects of your future finances. Yes, there will be a sense of bitterness about the money you used to help with the debt, but in terms of financial health, the consequences are far less severe. Any relationship (even familial ones) can be severed and/or neglected by either party, so if you bring money into any of those relationships, there is always going to be a little more risk to it. It’s something that should not be decided on in a moment’s notice and needs lengthy discussions with both an advisor and your significant other." Don't keep secrets Tiiu Lutter has a master’s degree in psychology with a concentration in counseling and secondary guidance certification, and has completed the three-year ESFT Family-based Clinical Training, and writes for SR22InsuranceQuotes.org. Tiiu has worked in mental health for the last 15 years and co-owns a family and couples’ counseling center. "So you’re in love and in debt, well, half of you are in debt. It’s still a great idea to get married, but you definitely should talk about the debt before the wedding so it doesn’t get in the way. Disagreement about money is the top reason for divorce, so you need a plan ahead of time. If you are thinking of keeping your debt a secret, you should re-examine your relationship completely. If you don’t trust your partner enough to talk about money, there are significant issues there. As for paying it off, there isn’t really etiquette now that spouses are equal legal partners. However, the most successful money style (in terms of marital longevity) is the 'mostly ours, some yours, and some mine' method where most money is pooled, but you each retain a bit of your own to do with whatever you like. This doesn’t necessarily address the debt. For that, you need to set your financial goals and look at the total amount you owe as a couple. Look at interest rates and see what payment strategy gives you the best progress toward your goals. It could be that the debt holder contributes less to the common pot, or that you both chip away at the debt. Having a lot of debt doesn’t necessarily damage your credit rating, but if you have different credit ratings and you want to buy a house, it might be a good idea to keep everything separate so that you can get better interest on your mortgage. This assumes the better credit score also has enough income to get a loan. One last word of caution, if you are keeping your credit separate, don’t lovingly get an extra copy of your credit cards for your spouse to have 'just in case.' The instant you give them a card, that entire debt profile will now be attached to both of you! Just be patient with one another and know that you fell in love with the other person both because of, and in spite of, their saving and spending styles. Just as you developed your own money habits as a child, you will also develop your own money habits as a couple." Have open and honest discussions Dennis Shirshikov is a New York City-based financial analyst for FitSmallBusiness.com. He has a master's degree with a focus in Financial Risk Modeling and teaches Economics at Queens College. "There’s no one-size-fits-all approach when it comes to discussing finances with a significant other because so much depends on the people involved. Nonetheless, it’s crucial to establish concrete, transparent rules that achieve tangible goals and not damage the relationship. When discussing finances with a loved one, it’s essential to establish boundaries. For example, if a fiance suffers from poor spending habits, it’s disadvantageous for his or her future spouse to pay off that person’s debt as that will not solve the root problem. Avoiding resentment is equally crucial when discussing finances. Too often, a person will volunteer to pay on behalf of their significant other and wrongfully expect a form of repayment in the future. To avoid ‘financial resentment,’ it’s critical that both parties are transparent and forthcoming about their financial obligations early in the relationship. Although it may seem obvious, the essential step to a healthy, productive discussion about finances is to give it the time it’s due. Proposals and marriage constitute a significant commitment; therefore open and honest discussions are all the more crucial. How else would a couple be able to move in a unified direction? While discussing financial matters can be complicated, many people are surprised by how simple they can be when they sit down and simply talk about them." Follow the rules of L.O.V.E Angelique Hamilton, MBA, is a marriage and life coach with a background in human resources. She is the CEO and Founder of HR Chique Group. "Finance is the number one root cause of failed relationships and marriages. It's important for couples to effectively manage their funds. I have four tips to understand your partner's finances called LOVE: L- Learn/List as much as possible about your partner's financial obligations including monthly payments, spending, and debts. You need to understand the depth of liabilities that are owed. Document your monthly and annual bills, and any items that is reduced from your income. Make a decision about how will you conduct your banking either from a joint account or separate account. Budget management will soon become your responsibility as a married couple. O- Be Obedient in your planning and preparation of the household's planned budget. It's essential for couples to plan the household budget to allocate available funds appropriately. Think of it as the 'Bank of the House.' One of you will act as the CEO overseeing the budget and the other as the Operating Officer in care of all day to day financial transactions. You both should agree and approve your finances. V- Be Vigilant in your approach to managing your funds. You must become watchful financial stewards over your finance. Your finances will become a puzzle to you both, if you're not knowledgeable about what's being spent or what funds are coming into the household. It's always best to seek mutual approval prior to make purchases or spending the dedicated funds on anything outside of the budget. There will come a time where challenges like an illness, job loss, etc. will affect your relationship. Your vows of 'in sickness and in health' and 'for richer and for poorer' are created in love and honesty. Your finances should embody those principles too. Make sure to set a plan to save for an emergency. The emergency fund can start off as three months of your salary and then increase to six months of your salary. Define a plan for your future life events including wedding, auto purchase, home purchase, child(ren), retirement. Consider investing to diversify your income. E-Make the Effort to encourage each other that you're in this together. All financial decisions should be a mutual decision and not one controlling all. Keep all lines of communication open and regularly schedule time to discuss your budget. You are one team! LOVE is all about you and your relationship. Keep the Love in it to maintain a happy, loving, and enjoyable marriage." Set financial goals together Dwain Phelps is the owner of Phelps Financial Group in Kennesaw, Georgia. He has more than two decades of experience in financial services, wealth management, and retirement planning. "According to Insider, 36 percent of divorcees cite money as the cause. The key to any successful relationship in life is communication, especially about money. Effective communication solves most problems and prevents unclear motives. Communication also allows couples who are engaged to have healthy and productive conversations about their finances. The first order of business for couples who are engaged is to have an open and honest discussion on the level of education regarding financial matters such as saving, money management, budgeting, taxes, investing, and retirement planning. This open and honest discussion will allow each person to potentially to see areas of strengths and weaknesses as it relates to their knowledge on financial literacy. One person may have a stronger financial background than the other individual. Hopefully, this open line of communication will allow the couple to agree on who should take the lead as it relates to their finances and provide a platform for effective goal setting. One of my favorite lines to quote to clients is that you are only as strong as your weakest link. Debt can become a weak link in any marriage. The best method in approaching this is to have open communication that will allow engaged couples to discuss and develop a plan to deal with debt issues. I can’t stress how important and critical having this discussion is as it relates to debt before marriage. Let’s assume that one person has accumulated very high credit card debt and other debts, such as student and car loans. There should be an agreed-upon plan to eliminate that debt. This agreed plan should include discussing salaries and which debts will be eliminated first. In my opinion, the person with less or no debt should help their partner reduce their debt. Marriage isn’t always a 50/50 deal, it’s each person giving 100 percent. Having both individuals working towards the same goal will reduce the couple’s overall debt-to-income ratio and improve their ability to develop a savings strategy for their future. One other important point of emphasis for engaged couples is not to go into debt before the marriage even starts. Couples need to communicate effectively on minimizing the cost of the wedding itself. Most couples start off the marriage in debt due to paying for expensive weddings. My recommendation to engaged couples is to seek a financial advisor who specializes in budgeting and debt management. This will set the tone for the success of any relationship. My firm has perfected a debt management program to help couples not get into massive wedding debt, and one of the things we recommend is to set a dollar amount that both individuals can pay for with their savings. Resist the urge to acquire loans and to use credit cards to pay for weddings." Keep your debts seperate Adeodata Czink is the founder of Business of Manners, an etiquette consultancy based in Toronto, Canada. She teaches seminars and workshops on international business etiquette and social graces. "No, it is not your job to pay your fiance’s debt that occurred before you met. Make sure when you divide who pays for what, that the fiance has enough money to pay off their debt, but don’t make yourself responsible for it. It is not your debt." Don't let resentment enter the picture Adam H. Kol, J.D. is a Couples Financial Counselor. He helps couples who love each other make sure that the money conversation doesn't get in the way, leaving them with greater peace and partnership. "There's no one best way to organize or handle finances within a couple. What's most important is that each partner feels good and that it fosters a healthy dynamic. What's healthy is determined by each partner and what moves the couple towards the future they want. Even if there is a predominant custom etiquette-wise, I would be wary of it. Financial stress remains a top cause of fighting and divorce; our norms and ways of handling it need an overhaul. No matter what direction you go, it's essential to watch out for resentment, which is the intimacy killer. This must be done actively over time, as well. For example, imagine the partner who paid off the other's debt later being unable to make a certain financial decision. They may resent that they put money toward their spouse's debt and see that as part of why they are now hamstrung. I start my clients off by exploring their money story, i.e. their experiences and viewpoints around money growing up, as well as in prior and their current relationships. Each partner should then share what they discovered. This is a safer conversation, as it's more descriptive, leaving little to argue about. It also builds mutual understanding and helps get the money talk flowing. Here are a few key strategies, action steps, and tips: Seek first to understand, then to be understood Ask open-ended questions that encourage your partner to give more than a 'yes' or 'no' response Build partnership around the emotional parts of money and your shared vision first; once that's in place, the tactical piece will be much easier and more likely to stick." Learn about eachothers financial history Deborah Sawyerr is a financial literacy educator and founder of Sawyerrs' House. She teaches kid, young adults, and adults about being smart with money. "Engaged couples should not only create an atmosphere of open discussions about their wedding plans or where they will live after they get married, but also about their individual and joint finances. The etiquette could be to have a date where they specifically discuss their finances — after all, this is about their future as a couple. During such discussion, both parties should provide clear evidence of their financial circumstances in the form of their credit file. Doing it this way means that there are no secrets or surprises later on down the road. In addition, during these discussions, evidence should be provided of any repayment plan in place by way of a show of bank statements. These discussions should also happen over a period of time and on a regular basis. The discussion should focus on being non-judgemental because it is about finding a solution as a couple. The environment and atmosphere where such a discussion takes place should be relaxed — perhaps after a nice meal or over a glass of wine at home. The ambience plays a vital role in such discussions. If one party is financially stable and able to pay off debts, I absolutely suggest that they do so. This is because such a debt will eventually have an impact on them as a couple. For example, if the party with the debt is stressed out about the debt, it will have a knock-on effect on their relationship. It can cause a strain in their relationship. By the same token, if the party with the debt is paying off the debt, it will also have a knock-on effect on their financial contribution to household bills. It may be that they are only able to contribute a small amount towards bills whilst they clear such debts. Additionally, it makes perfect sense for the financially stable individual to pay off the debt because it will drastically reduce the amount of interest which is likely to accumulate over time. Why pay more towards interest when they can save that money for other things? Again, the process for paying off the debt by the financially stable party should be asking the other party to put pen to paper by writing down ALL outstanding debt and any repayment plans. There should be evidence of this versus simply word of mouth! It is a known fact that some people with debt will underplay what they truly owe. Yes, accounts and credit profiles should be still be kept separate. Why? There is always the risk that the party with the debt can quite easily fall back into debt. There is, therefore, no point in dragging an innocent party down the slippery slope. To summarise, I would say that it is a very risky task paying off a fiance's debt. This is simply because the financially stable party may not know if they are being taken for a ride. How can they be sure that they are not dealing with a gold digger? Furthermore, couples should really be having discussions about finances way before they even get engaged." Whatever you do as couple, make sure you both agree Lisa Mirza Grotts is the Golden Rules Gal, a warm and no-nonsense expert on the thorny subject of manners. She helps her readers and clients deal with tricky business, social, and political situations by always putting their best foot forward. "There’s a reason why an engagement is a formal agreement to be married, as in pre-marital or pre-nuptial. Common sense would dictate not taking on someone else’s debt, as it's extra baggage! It can be a challenge combining money. There’s enough to deal with as a married couple; to start your life with this hanging over your head makes little sense. On the flip side, once you have the discussion, your spouse to be may be okay with taking on your debt. If you’re not able to have the discussion about finances on your own, it might be time to think about a marriage counselor. It takes a village to be married, so if you can iron out this important detail you’ll be all the wiser in the long run. Money Talks: Mergers and Acquisitions Agree to disagree about how you handle your monies. Separate or joint accounts etc. If one or both of you has means, then by all means, hire an attorney and get a prenuptial agreement! The keyword here is Pre, as in before you say 'I Do.' Marriage is a contract. Think we vs. me. You’re headed in that direction, so avoid the blame game and figure out how you will work through your finances. Communication is the key. Sometimes the un-discussion can do more damage. Assuming anything is asking for trouble and adding day to day expenses, investments, debts, retirement talks, saving and spending equals trouble when it comes to finances." Establish financial roles and responsibilities Emily E. Rubenstein is a Beverly Hills divorce and family law attorney. Her firm handles family financial agreements and she has written about financial infidelity. "Many of my premarital and postnuptial agreements involve these issues — one fiance paying off the debts of another, income/asset disparity, and how to best discuss and combine finances. Interestingly, studies show that clarity about financial roles, responsibilities, and expectations may actually deter marital conflict and divorce. It's critical to have these conversations prior to marriage. That said, there are many, many combinations and options for couples when it comes to combining finances. Couples need to have open and honest conversations about their values and finances, consider the laws in their state, and engage professionals (whether attorneys, financial advisers, accountants, etc.) to make sure they know all of their options to make fully informed, empowered decisions." You're in it together Robert J. Forrest is a financial advisor at Jacobitz Wealth Management Group. He helps clients and their families find financial security, based on current financial needs and long-term goals. "Ultimately this decision is up to every couple. Personally, my wife had three times the amount of debt as I did when we got married. But we firmly believe that what is mine is hers and what is hers is mine — that refers to good things and bad things. When discussing the matter of finances with a fiancé or spouse it’s important to understand the underlying conversation: How do each of you view your relationship now and in the future? Are you one unit? Are you cohabitating? Do you depend on each other? What is your fundamental belief about marriage and what that means for a relationship? Having that conversation will lay a great foundation for handling many other issues that will inevitably come up down the road. Regarding money specifically, be sure to come prepared with what you own, what you owe, and how much you make. Understand where each of you are in your financial journey, because your journey will become one. Understand that when you’re having this conversation, you’re both being vulnerable and that isn’t easy to do. Affirm your care and support for each other. Make sure they know that you don’t value them based on their financial picture — you care for them, not their money. If you decide to pay off one another’s debts (either simultaneously or because one party is financially very well off) I would approach each debt as if it were your own. For example, it makes sense to pay off high interest debt as fast as possible. So if your fiancé or spouse has credit card debt, crush it right away. When it comes to lower interest debt, or debt with tax-deductible interest, it may not make sense to pay that off fast. Bring that debt into the relationship and budget it in with all of the other expenses — you’re now jointly responsible. Some debts you cannot legally combine (i.e. student debt). Some debt you cannot combine due to credit — maybe one of you has a very low credit score. Practically, putting both of your names on the debt won’t provide any benefits unless you’re refinancing. In the long run, the most helpful thing is to repeatedly reaffirm your commitment to one another and to never hang anything over the head of your spouse." Talk about debts as soon as possible Randolph (Tré) Morgan III is a family law specialist in North Carolina. He has a B.A. in Psychology and a J.D. from UNC-Chapel Hill. He regularly handles prenuptial agreements and divorces that take into account marital finances. "In my experience, the large majority of couples treat all of their pre-marital debt (called 'separate debt' in my jurisdiction) as their joint obligation and pay these debts from funds they earn during the marriage. However, some couples feel a need to clearly delineate their obligations before they are married and enter into pre-nuptial agreements to clarify expectations as well as legal obligations. Typically, the larger the debt, the more interested one prospective spouse or the other (or one of their parents) is in addressing expectations and obligations before they are married. In my experience, three and four-figure debts don't trigger a couple's need to talk about the debt before marriage as much as five and six-figure debts. There can be important and surprising legal implications based on how and when these debts are paid. These issues come into play in divorce and can even come into play when debts are paid and then engagements are called off. So it makes sense to address these things on the front end. My experience working with couples both before and after a marriage has taught me that it is always better to address expectations on the front end rather than to discover that your expectations differed down the road. Many people don't want to ruin the fairy tale feeling of being in love with practical, legal, or financial conversations. But, if you cannot have good, calm, productive conversations about these things before you are married, how will you have them when the really big issues come up during the marriage?" Do not judge your partner Darren Straniero is a certified financial planner with OnPlane Financial Advisors. Darren has more than ten years of experience in financial services and helps professionals and families plan for their financial futures. "Couples who are engaged should certainly have a very frank, open, and honest discussion about finances. It should be a judgment-free zone and that's really all we can ask for here. Money is extremely emotional for a lot of people. If that requires meeting with a financial advisor, a therapist, etc. then make it happen. The first step is to lay out what each person has financially. Income, savings, investments, debts, and spending habits/requirements. From here, real conversations can take place in terms of how to accomplish financial goals as a team, as a partnership. In my experience, couples who merge finances tend to experience better financial results. Not always, but more often than not. Having everything owned together makes it harder to hide things like credit card debts, spending habits, etc. And it can also diffuse the potential for resentment. When it comes to paying off a fiance's debts, I think absolutely. You're about to come together as a team in all facets of life. Why not financially? Imagine your future spouse lost a job. Would you not support him/her financially? Or your future spouse unexpectedly lost a parent or a child. Would you abandon him/her during a time of severe emotional need? I don't think so. And so the financial journey should also be a joint or team effort. I don't think there's a right way to go about it. But I do think a wrong way to go about it is thinking of it in terms of 'Well, I'm going to do this for you so you owe me,' aka tit-for-tat. That can lead to resentment and harbor other ill-founded feelings. Unless we're dealing with things like income-based resentment on student loans and other factors, I think accounts should, for the most part, be owned jointly (save for a few exceptions) and credit profiles should also be shared freely."
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.
"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.
"There are plenty of fish in the sea." While this might not be true of your dating life, it's certainly true of personal loans. Personal lenders, which nowadays are often offered via peer-to-peer lending sites, occupy a space somewhere between credit cards and traditional mortgage loans, between banks and payday loans. And, yes, there are lots of them. To get an idea of just how many personal lenders there are out there, one need only look to Lending Club, "the world's largest online marketplace connecting borrowers and investors." On this site, the lenders aren't banks but individual investors who take a look at your application and decide if it's a good fit for them. So the number of total investors (or lenders) on Lending Club can number in the thousands. And that's just part of the tens of thousands of personal lenders that are now available to consumers. And then there are all the things you can use personal loans for. Unlike home loans or auto loans, which are pretty straightforward, personal loans can be used for almost anything. On Lending Club, for example, most loans go to debt consolidation or credit card refinancing. People have also been known to take out personal loans to finance a wedding, buy their uncle's car, or just take that dream vacation that has always seemed out of reach. So just to review: thousands of lenders, multiple uses. What could possibly go wrong? Yes, there is a downside. As sites like Lending Club, LendingTree, and Prosper make it easier for dozens of lenders to offer you personal loans, it becomes easy-too easy-to say 'yes' without really considering your options. As with your love life, signing on the dotted line without doing your due diligence can literally ruin your life. So before you fall in love with a personal loan, you need to recognize the warning signs that a particular loan might not be a good match. If you see any of these five signs, you might want to think twice about the personal loan in front of you: 1. The loan is the first and only one you've looked at Nothing against marrying your high school sweetheart, but experience can give you a big advantage when searching for both a soulmate and a personal loan. Let's say you submit your information on a site like Prosper or Lending Club. Before you have even hit 'submit' the phone rings and a lender is assuring you he has a "not-to-be-passed-up" offer for you. You need a loan. He's ready to give you one. You're off to the races, right? Wrong. As mentioned above, the number of peer-to-peer and other personal lenders out there is enormous and their rates and fees vary greatly. For this reason, there's a very strong likelihood that, as good as this first loan offer is, you will find others with even better rates and conditions. "As with any financial product, when it comes to taking out a personal loan it pays to shop around and compare APRs," says Emma Lunn of The Independent. "Your bank may say it offers preferential rates to its current account customers but you might still find there are cheaper loans available elsewhere." Our advice: it's in your best interest (pun intended) to take your time and entertain multiple offers before settling on one. 2. Your credit score is below 640 If you had the impression that personal lenders are easy, let us dispel that right now. Personal lenders are business people looking to invest their money in someone in hopes of making a return on that investment. To put it bluntly, personal lenders are not payday lenders. They won't lend to just anybody. The upside of this is that their interest rates and terms will be more reasonable because they don't need to protect themselves from investments gone bad. The challenge is that their requirements for borrowing from them are more stringent. As with other types of loans, personal lenders will use your credit score, among other factors, to determine if they should loan you money and how much they should charge in interest. According to Harry Langenberg at LoanNow.com, any credit score below 640 will pretty much keep any investors and lenders away from you. Our advice: if your credit score is languishing in the sub-700 realm, you owe it to yourself to get that score up before applying for any loans. 3. You own a home Owning your own home, especially a home with some equity built up in it, could mean that you've overlooked a loan option, possibly with a better rate. Consider, for a moment, that peer-to-peer loans and other personal loans are what is referred to as unsecured debt. This means no one is paying any insurance or guaranteeing repayment, and there is no asset (like a car or a house) to act as collateral if you become unable to pay off the loan. Because this scenario freaks out investors and all lenders, they cover their backs by charging higher interest rates and sometimes requiring that you pay for insurance along with your loan payments. What many homeowners don't know, however, is that the property right under their feet might be their ticket to a better loan with a much lower interest rate than your typical personal loan. "A home equity loan or home equity line of credit can often be cheaper than an unsecured personal loan," explains Claire Tsosie at NerdWallet. "Keep in mind that using your home as collateral means that if you default, you could lose your home." Our advice: check with your bank or local credit union to see if you qualify for a home equity loan or home equity line of credit, which are bound to have lower interest rates than your typical personal loan and with no extra insurance payment. 4. The lender is not state-licensed, has pending lawsuits, and/or has a poor BBB rating You knew this was coming. Some fraudulent lenders have adopted what can only be described as the "one-night stand" of personal loans, promising approval for loans with "too-good-to-be-true" interest. All you have to do is fork out a small fee. As soon as the payment is sent over, the fictional lender goes silent. They don't answer calls. They don't reply to emails. In many cases, weeks later, they do respond but just to tell you that your "pre-approved" loan just didn't shake out. Oh, and that small fee? It's non-refundable. Naturally. Unfortunately, advance fee loan scams and other loan fraud are just a part of the explosion in the number of personal lenders. As personal lending options multiply, this also increases the odds of a few bad apples sneaking in. Our advice: First, run from any lender who requires an advanced fee to determine if you're approved for a loan. Second, make sure any lender you communicate with is licensed in your state, has no past or pending lawsuits, and has a strong rating with the Better Business Bureau (BBB). If they don't pass these checks, move on to the next one. 5. You've seen credit cards with better interest rates To be sure, personal loans (namely those generated by the peer-to-peer lending model) are intended to deliver lower interest rates. After all, the whole peer-to-peer lending process is specifically designed to get the lowest possible rate for borrowers, given their credit history and financial situation. But that doesn't mean they're not sometimes outdone by credit cards. Those zero-percent introductory offers on credit cards, in particular, are your friend. For example, let's say you need to pay for travel to attend your sister's wedding in Botswana. The best offer you can get on Lending Club has a decent interest rate of 15% (which starts to accrue on the day you take out the loan). Sounds pretty good, right? But now let's say you just got a credit card ad in the mail offering 0% APR for 12 months. If you can pay off the loan within the 12 months, the credit card is certainly the smarter option. If not, then do the math and determine which option (the personal loan or the credit card) will be the cheapest when everything is paid off. Our advice: Don't limit your options just to loans, and don't avoid credit cards just because of all the negative press about them. Be objective and strategic about how you use all forms of debt, and you just might end up getting a killer deal. When You Know, You Know Ultimately, finding the perfect personal loan is the end result of lots of research and patience. It's about recognizing all of your options ( which is more than just personal loans) and knowing the right questions to ask about each one. It's setting yourself up for the best possible outcome by making sure you've got your credit score in order. The good news, peer-to-peer lending, and other services are only leveling the playing field and giving you the best shot at really great loans. To see how the various personal lenders measure up, visit our Personal Loans Reviews page today!
Personal loans are generally a bit different than other types of loans. You might need a personal loan to meet your everyday expenses, plan a vacation, or even pay for a wedding. When you are in the process of applying for a personal loan, it's important to know what to expect so you can increase your chances of approval. The following tips will help you learn how to qualify for a personal loan that meets your needs in the best way possible. 1. Decide on a Loan Type Make sure that you understand what kind of loan you are applying for. There are a number of different types of personal loans. For example, you have the option to apply for a secure or unsecured personal loan. Unsecured personal loans don't require collateral such as your home, car, or other personal property. Interest rates are typically higher for unsecured loans due to the additional risk to lenders. If you default on an unsecured loan, the lender cannot foreclose your home loan or repossess your vehicle. Secured personal loans, on the other hand, require collateral that secures your loan and can be seized in the event of default. Other personal loan options include fixed-rate and variable rate personal loans, installment loans, lines of credit, and short term loans. 2. Improve Your Credit Score Your credit score will make a significant difference in the interest rate you will be offered on your personal loan. For example, with a subpar credit score, you will likely be paying more than 20 percent in interest. With an excellent credit score, your interest rate could be lower than 5 percent. Credit scores are usually categorized as follows: 760+ Excellent Credit 700 Good Credit 640 Fair Credit Remember, your credit score can always be improved. If your credit score isn't what you'd like it to be, you can raise it by settling your bills on time and never missing a payment. Believe it or not, there is actually a way you can be approved for a loan without any credit history at all. 3. Find the Right Lender Take the time to consider your options and shop for the right personal loan for you and your needs. Available financing sources include banks, credit unions, and online lenders. Loan variety and interest rates vary by institution, so it's a good idea to do your own research first before consulting with company representatives. Furthermore, avoid applying for as many personal loans as possible. This might seem like a good idea at first, but it has the potential to hurt your credit score in the future. 4. Only Take Out What You Can Afford Assess your current financial situation to figure out how much you can afford to borrow with a personal loan. Don’t take on more than you can handle. Some lenders might try to push you into taking out more money than you need, which could leave you in a lot of debt. Make up your mind about the amount you need before meeting with a lender. 5. Read the Fine Print When you do meet with a lender, be sure to ask for a full disclosure of all the loan terms and read the fine print of the contract so you understand all terms, monthly payments, fees, late payments penalties, and repayments options attached to the loan. If you know exactly what you're signing up for, it will make the process much easier and less stressful. You might find it difficult to choose a financial institution that will meet all of the personal loans qualifications you are searching for. BestCompany.com makes this process easier by ranking and reviewing multiple personal loan institutions. Based on the input of industry experts, we’ve developed a ranking criteria that takes interest rates, contract length, time in business, and other important factors to consider when choosing the best personal loan company for you. Most importantly, we’ve aggregated reviews about the financial institutions from real consumers so you can read what they think about the companies you are researching. Click here to see our top ranked personal loan companies.
Did you know that in 2020 20.9 million Americans had personal loans? And it is likely that the number will only keep climbing, just as it did in the past decade. Personal loans can be a good place to turn if you are low on funds, want to consolidate high-interest debt, or make a large purchase. Many people take out loans for home remodeling, new cars, or for student debt. However, there are a few important things that you should know about personal loans before you sign on the dotted line, including the following: Or skip ahead and read about our top personal loan lenders 1. The difference between an unsecured and secured personal loan Before you take out a personal loan it is first important to understand the types of loans available to you, mainly the difference between unsecured and secured personal loans. An unsecured loan is the more common type of personal loan, and is not backed by collateral or protected by a guarantor. This can pose a risk to lenders, as there is no protection for them if you are unable to repay your loan. For this reason, interest rates may be higher for unsecured loans and lenders may heavily rely on creditworthiness to determine your eligibility for a loan. A secured loan is backed by collateral — assets such as a home or a car — which incentivizes borrowers to repay their debt because the lender could seize the collateral if payments aren’t made. In this case, since borrowers are taking a greater risk in putting up collateral, lenders are more likely to accept borrowers with weaker credit scores. The majority of personal loan companies only offer unsecured personal loans, although some lenders may offer both unsecured and secured loans. Therefore, it is important to ensure that your credit score is in good standing and that you’ll be able to afford a higher interest rate. 2. How interest rates work Interest rates on personal loans will either be fixed or variable, which will generally only affect your monthly payment amount. A fixed interest rate means that your rate will stay the same throughout the life of your loan, which means that your monthly payment will never change and you will always know what you owe month to month. A variable interest rate, on the other hand, will fluctuate throughout the life of your loan, because your rate will be based on the market which consistently rises and falls. This means that your monthly payment may vary throughout your loan term, but your initial interest rate may be lower to account for the fact that it will likely rise some as you’re paying off your loan. Many personal loan lenders offer both a fixed and variable interest rate option, allowing you to choose what will best fit your needs. 3. Your credit score When taking on any type of debt, your credit score is a crucial player in determining whether or not you qualify to borrow money, but also decides the rates and terms that you will receive. Although other factors, such as annual income and debt-to-income ratio, may be considered, having a stellar credit score is the key to securing a low interest rate. Minimum credit score requirements will vary by lender, but a FICO score from 670 to 739 or higher would provide you with greater flexibility in choosing a lender, but could also get you better interest rates. However, top lenders, such as Best Egg or SoFi, may accept borrowers with credit scores as low as 600. If you do not have an established credit history, or you just have bad credit, some lenders have an option to apply with a cosigner. Applying for a personal loan with a creditworthy cosigner adds an additional, and higher, credit score to your application which can increase your chances of approval and get you a lower interest rate. If this would be helpful for you, be sure to confirm whether or not your potential lender offers this option. 4. What you’ll be using the loan for Different from a student loan or home loan, a personal loan can be used for a variety of purposes. Thus, when you’re looking into getting a personal loan, it is important to nail down exactly what you are going to use the loan for. The majority of lenders allow borrowers to use a personal loan for whatever purpose they’d like, which can provide some flexibility, but knowing exactly what you need a loan for will help you determine the exact loan amount you will need. Unlike home, car, and student loans, personal loans can be used for a variety of purposes, including debt consolidation, home improvement, major purchases, vacations, car financing, wedding costs, medical bills, and business expenses. Some personal loan companies have stricter loan use stipulations than others, so borrowers who are unsure if they will be allowed to use funds for their desired purpose should talk to the potential lender before applying. One of the more popular uses for a personal loan is debt consolidation, which allows a borrower to combine multiple debts, usually credit card debt, into one in a new loan with better rates and terms. Michael Micheletti freedom debt relief; Industry Expert Consolidating debt with a personal loan: Debt consolidation through a personal loan is popular because it can be so effective. For someone with credit card accounts bearing high interest rates, a personal loan could allow them to take out one loan with a lower interest rate, use the proceeds to pay off all the high-interest accounts, and then have just one payment a month for the personal loan (with a lower interest rate). 5. Possible fees A number of fees may be associated with a personal loan. For example, you could incur application fees, origination fees, check processing fees, late fees, or prepayment fees. It's wise to confirm fees with your potential lender before applying so that you are aware of exactly what additional costs you may have. 6. How to increase your chances of approval If you are rejected for a personal loan or just want to boost your chances of approval upon applying, there are a few steps you can take: Clean up and manage your credit Check your credit report for errors that could be hurting your overall score, and get on top of payments if you haven’t already. Making consistent on-time payments is one surefire way to increase your credit score and bolster your credit history. Boost your income Some personal loan lenders will also take a look at your income when considering you for loan approval. This can be helpful if you have less-than-perfect credit but a steady income; but, if you have a low income, this could make it difficult to qualify for a personal loan. Thus, you could seek to boost your income by taking on a side hustle or another job. Take care of other debt When you are looking to take out a loan, which is essentially more debt, it can be helpful to pay down and manage other debts you may have. Paying down debt combined with increasing your income can increase your debt-to-income (DTI) ratio, which could improve your chances of approval. Apply with a cosigner Another option is to apply for a loan with a cosigner, adding another and stronger credit score to your application. A cosigner provides a lender with greater assurance that payments will be made since the cosigner would be responsible for paying off the debt if the borrower can’t. Applying with a cosigner could improve your chances of approval, but also help you get a lower interest rate. It is important to note that not all lenders accept cosigners. Make sure you check with your lender to see if this is an available option. Find the right lender Not all personal loan lenders are the same. Therefore, it is important to do some research and comparison so that you can find the best lender to fit your needs. Consider your credit score, what loan amount you would need, whether you’ll need to apply with a cosigner, etc. These factors can vary between lenders, and you might have a greater chance of getting approved with one than another. While these aren’t necessarily your only loan approval boosting options, they can be a good place to start. The Importance of Comparing Lenders An important factor in getting a personal loan is taking the time to compare lenders, allowing you to find the best interest possible. Most personal loan lenders have a prequalification process with a soft credit pull which shouldn’t impact your credit score. This can allow you to prequalify with multiple lenders and to compare the rates and terms you receive. The Top Personal Loan Lenders Best Egg search Best Egg Rates & Terms: Loan amounts: $2,000-$5,000 Time to funding: As quick as 1 business day after approval and verification Origination fee: 0.99-5.99% Minimum income: $35,000 Minimum credit score: 600 Loan repayment terms: 36-60 months Rates (fixed): 5.99-29.99% APR On BestCompany.com, Best Egg is a consumer favorite, with 98 percent of reviews awarding the company 4 or 5 stars overall. "This was my second experience with Best Egg, and it was even easier this time around. They were fast, effective, and delivered the results and help I needed. Thank you!" - Eric, July 9, 2020 Best Egg’s personal loan services and options are competitive in the industry, accepting a lower minimum credit score than the majority of other lenders and offering low rates. Customers speak to these features in their reviews but also highlight the speed and simplicity of Best Egg’s application and approval process, in addition to superior customer service. Many customers say that they would recommend Best Egg to their friends and family. Read more Best Egg reviews FreedomPlus search FreedomPlus Rates & Terms: Loan amounts: $7,500-$40,000 Time to funding: Within 48 hours of approval Origination fee: 0-4.99% Minimum income: undisclosed Minimum credit score: 620 Loan repayment terms: 24-60 months Rates: 7.99-29.99% APR With 90 percent of customer reviews awarding FreedomPlus 4 or 5 stars, the company could be a good choice for your personal loan needs. Many reviews highlight great experiences with customer service in which they received the help they needed in a timely and professional manner. On the flip side, some reviews also detail bad experience with customer service in which they were told conflicting information and did not receive the help they wanted and/or expected. Beyond customer service, customers do highlight speed and simplicity in the FreedomPlus application and approval process. "It was easier than I thought it was going to be to get the loan. What a relief to get the help to pay off my credit card debt. Customer service rep, Terrance, was very helpful and informative. FreedomPlus so far so good." - Jessica, October 31, 2019 Read more FreedomPlus reviews SoFi search SoFi Rates & Terms: Loan amounts: $5,000-$100,000 Time to funding: undisclosed Origination fee: none Minimum income: none Minimum credit score: 680 Loan repayment terms: 24-84 months Rates: 5.99-20.69% APR (with AutoPay) SoFi is another top personal loan contender, pulling in 4 and 5 star reviews from 96 percent of customers who have left reviews on BestCompany.com. It is important to note that the majority of reviews are somewhat outdated, but many of these reviews highlight a quick and easy loan process and low rates, in addition to responsive and helpful customer service. "Quick, easy loan process and competitive rate. The customer service throughout the process has been fantastic! Immediately answered my calls and provided solid info. Much easier to navigate than any other loan." - Matt, December 14, 2018 Read more SoFi reviews Compare Personal Loan Lenders Now that you know what to do and look for before taking out a personal loan, read complete reviews and what customers have to say about top personal loan companies. Compare
You may have heard the saying: "Money is the root of all evil." Arguments could be made in favor or in opposition of that assertion. But one undeniable thing is that people need money to survive, and we'd all like to have more of it. These needs and desires can often lead people to resort to questionable tactics to acquire it. Some people engage in criminal, even violent, activities in order to accumulate more wealth. In the business world, it's unfortunately not uncommon to hear about financially unethical behavior such as scams, embezzlement or fraud. And when it comes to managing your money and putting in in the right places, you want to be unmistakably sure that you are partnering with an ethical, honest business. Choosing the right lender is a process everyone should take seriously. It's essential to work with someone you trust implicitly and one you know has your best interests at heart. Your lender should be up-front and truthful and should never be misleading. In addition, there are potentially lenders who may not have unethical or dishonest intentions but simply might not have the reputation, skill, experience or service you need to take care of you and your money. After all, with a lender, you are entrusting a significant amount of time, money and energy to your future and security. You have to make a wise choice. So with all the options available for choosing lenders and financial institutions, how can you be certain you find the one that best suits you? There are a few simple steps to follow. Do these-instead of randomly picking-and will enjoy a positive experience applying for, securing and benefitting from your loan. 1- Use Expert and User Reviews from BestCompany.com. Utilize the countless reviews found in our personal loan section to determine for yourself whether or not a company is legitimate. Our reviews for each company are broken down into aspects of their business that are both good and bad. At the end of the expert review, we provide a recommendation if it is deemed worthy. This is an excellent resource to determine whether or not a company is worth doing business with. To read about the best personal loan companies, view our top recommended suggestions. 2- Conduct a BBB search. The Better Business Bureau is a nonprofit organization that informs the public of companies' trustworthiness and reputability. The organization rates businesses and accredits many. Ratings are given in grade form-F being the lowest, or failure, and A+ being the highest. A business does not have to be accredited to be rated, and accredited businesses don't necessarily garner high marks.The BBB provides free reviews of more than 4 million businesses. The reviews detail what the business does, where it is headquartered, who makes up key leadership, and issues and complaints against the company. As you research different lenders, go the BBB website, type in the lender and read what the BBB has to say. If the assigned grade is low and there have been customer complaints against the business, you might want to think twice about choosing it. The BBB is a tremendous resource for assessing reputability, professionalism, and public perception. 3- Google it. It sounds simple, but typing in the name of the lender or business in a Google search should yield a slew of different review sites. Depending on how large or established the institution is, you could instantly have at your disposal numerous customer and industry reviews of the lender. You'll read what experiences others have had, how fairly they were treated and how knowledgeable the lender was. 4- Ask around. Talk to your family members, neighbors, friends, co-workers and others about the lender or lenders you are considering. See what they link about thee prospective partners. Of course, different people will have had different experiences and opinions, but you can usually get a nice idea about what you'll get yourself into by talking to people. It doesn't take long to conduct some research and do some digging to determine whether the lender is right for you. Many lenders are similar in terms of experience, skill and services offered, so often, the choice can simply be a matter of convenience or personality. But to avoid the pitfalls of financial disaster, take some time and educate yourself.