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What’s Better for Debt Management a Personal Loan or a Credit Card Transfer?

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young couple holding a credit card and looking at a laptopIf you have high interest credit card debt then debt management can be a real problem – especially if you owe several thousands of dollars. And you’re not alone. The biggest majority of Americans are in debt according to a report from the Pew Charitable Trust. In fact, 80% of Americans are carrying debt and 39% of us report that they have unpaid credit card balances. Plus, there is a cost to carrying high interest credit card debt beyond just the interest cost. This can also have a negative effect on your credit score, which means it will cost you even more to borrow money going forward.

If you’re carrying high interest credit card debt you do have several options for better debt management. The first is to get a personal loan and the second is to do a credit card balance transfer. There are six things you need to weigh before deciding which of these would be best for debt management. They are:

The balance transfer fee

When evaluating a credit card balance transfer it’s important to learn if there will be transfer fee. Many of the balance transfer credit cards have a one-time fee of 3% to 5% of the total you’re transferring.

As an example of this, suppose you would like to transfer $5000 to a balance transfer card that offers 12 months’ interest free. The new card could hit you with a fee of $150-$250. While this might seem high it could still be cheaper than the interest you would pay on a 12-month personal loan at 11%. That personal loan would actually cost you around $300 in interest.

Of course, your goal should be to pay as little interest as possible and an online debt consolidation calculator would help you determine which option would cost the least.

The interest rates

Speaking of interest rates, they are the first and most important thing you should look at when comparing personal loans and a credit card transfer. While a balance transfer card would give you an interest free period you need to know what will happen when its introductory period ends before you make a decision.

In general, the interest on a personal loan will be lower than the interest on a credit card and this is especially true if you have good credit. According to Bankrate’s national survey of banks and thrifts the average interest rate on a personal loan is 10.94%. In comparison, the interest rate on a credit card averages a variable 16.05%.

In addition, if you fail to pay off your balance before your introductory period ends you may be required to pay interest retroactive to the day you opened the account. And if this happens it’s almost certain that you’ll have higher payments than if you had chosen a personal loan.

The origination fee

If you choose to do debt management with a personal loan online there will likely be a loan origination fee. This is a one-time fee that is subtracted from the total amount of the loan you receive. These fees can be as high as 6% of the loan. For example, if you took out of $5000 loan to consolidate credit card debt you might get just $4700 because of a $300 origination fee that had been deducted from your loan. The fee is usually included as part of the annual percentage rate which. would at least allow you to make a fair comparison between online loans.

In comparison, banks and credit unions generally do not charge an origination fee for personal loans.

The length of the introductory period

Another key consideration in debt management is how long the 0% introductory period will last. Suppose you owe $5000 you want to pay off and you choose a card with a six-month, no interest introductory period. You need to ask yourself if six months would be enough time to pay off the $5000. If not, you might want to consider a personal loan.

Given the example of $5000 with an interest-free introductory period of six months you would need to pay $833 a month to clear the debt at 0% interest

Questions you need to ask

There are three key questions you need to ask yourself this point.

1. What’s the total amount of your credit card debt?
2. What’s your interest rate?
3. How much of a payment can you afford to make?

A payment schedule and a fixed rate

One of the biggest advantages of a personal loan is that it has a fixed rate and a fixed payoff date. This makes it very predictable way to achieve debt management. A credit card might have a great rate initially but if you don’t do a good job of managing it you could find yourself paying more for a longer period of time than if you had chosen a personal loan. On the downside a personal loan doesn’t offer the same degree of flexibility as a balance transfer. If you were to run into a financial emergency so you couldn’t make that $500 payment on a personal loan, you could be in even bigger trouble. But with the flexibility offered by a balance transfer card you could pay less than the $500 until you got back on your feet. You could also negotiate with the card issuer to get your interest rate reduced.

great credit gaugeYour credit score

If you weren’t aware of this when you take on revolving debt – that balance transfer card – it could harm your credit score. But when you take out a personal loan that could actually improve your score. This is due to a thing called credit utilization which is the amount of credit you’ve used (utilized) vs. the total amount you have available. If you were to get a balance transfer card and transfer all of your credit card balances to it, your credit utilization ratio would go to nearly 100%, which would damage your score. However, if you take out a personal loan to consolidate your debt this could actually lower your utilization ratio to zero, which would improve your score.

In summary

Personal loans and balance transfers have several things in common. First, either would simplify your life because instead of having to make multiple payments a month at different due dates, you’d have only one payment to make and one due date a month. Second, you would save money because a personal loan will have a lower interest rate than the average of the interest rates you’re currently paying and, of course, a 0% interest balance transfer card would have no interest charges at all. However, as you have read each has its own pros and cons. You will need to weigh them carefully and then choose the one you feel would be best for you.

Other options

There are other ways to manage debt beyond a personal loan or balance transfer. Watch the following video  to learn what they are and how they could help.

Frequently asked questions about personal loans

Q. What is the best bank for a personal loan?

A. The best bank for a personal loan isn’t a bank. It’s an online lender. This is because online lenders like Lending Club, Peerform and Prosper can offer much lower interest rates than banks or thrifts because they eliminate the middleman – the money comes directly from lenders to you.

Q. Are there personal loans with no credit check?

A. Yes, it’s possible to get a personal loan where there is no credit check. There are several online lenders such as Applynow.creditloan.com and LoansOffSuccess.com that will not check your credit and that offer competitive interest rates but will have a fee. Also, most payday lenders don’t require a credit check.

Q. Can I get a personal loan without collateral?

A. The answer to this is also yes. In fact, personal loans are always unsecured loans meaning that you wouldn’t have to use any asset as collateral. Mortgage loans and auto loans are examples of loans that do require collateQ. ral.

Q. Could I get a personal loan with a low credit score?

A. There are personal loans available online for people with low credit scores. BadCreditLoans.com makes loans to people with really bad credit and Peerform is rated by one source as offering the best peer-to-peer bad credit loans. This same source ranks Avant as best for unsecured bad credit loans.

Q. Could I use a personal loan to pay off student loan debts?

A. Using a personal loan to pay off student loan debts is a very common practice. This can be an especially good option if you have high-interest, personal student loan debts or even high-interest federal student loan debts. Interest rates for personal loans are currently at almost all-time lows so now would be a really good time to consider a refi.

Q. How does a personal loan compare with a line of credit?

A. Personal loans are for a fixed term at a fixed amount. For example, you might get a personal loan for $3000 for three years with a fixed monthly payment of $275. Personal lines of credit also have a fixed amount but you access the money when you wish by using special checks or by requesting a transfer of funds to your checking account. These loans are also unsecured.

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5 Behaviors That Will Destroy Your Financial Life

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We sincerely doubt that you want to sabotage your financial life. Unfortunately, there are behaviors that might not seem very important to you – or maybe even beneficial – that could be sabotaging your finances without you even being aware of them.

Thomas Corley the author of “Rich Habits: The Daily Success Habits of Wealthy Individuals,” has pointed out that you can’t change these behaviors until you’re aware of them. So here are five of these money behaviors you need to be aware of so you can stop doing them now.

Aimless spending

If you don’t track your spending it’s virtually impossible to know where your money is going. One of the biggest differences between wealthy people and low-income people is that the wealthy ones formed the habit early on of tracking their spending so that they always knew where their money was going and could keep control of it. This is especially important if you don’t have a lot of money. Smart phone apps like Mint, Cashback, Shape and Expense Manager make tracking your expenses just brain dead simple. Or you could just use a spreadsheet. But if you’re just spending aimlessly the odds are you’ll never get ahead of the game.

Another way to limit your spending is to ask yourself before you make a purchase is whether it will detour you from your goals. Sometimes this simple question can eliminate the need to budget by making you think about your financial goals and whether that purchase would help you accomplish them.

Watching TV too much

In writing his book, Thomas Corley discovered that 77% of low-income adults said they watched TV for more than an hour a day and 74% reported that they spent more than an hour every day on the Internet. In comparison, 61% of wealthy adults that he interviewed reported that they watched TV less than an hour a day and 63% said they spent less than an hour each day on the Internet.

The harsh truth is that when you’re spending time on the Internet or watching TV that’s less time you could be doing productive things like building relationships with success-minded people via networking, doing voluntary work or building a side business. For that matter, ditching cable TV will not only give you more time to be productive but will also reduce your monthly bills.

Paying your bills late

The National Foundation for Credit Counseling recently revealed a report that 25% of the adults surveyed said they did not pay their bills on time. It’s okay to be a bit late occasionally as this won’t wreck your credit. But if it becomes routine you’ll be damaging your finances several different ways.

For one thing, when you pay a bill late you’re likely to be hit with a costly late fee. In turn this means you will have less money to cover your bills. Also, if you routinely pay your bills late your lenders may hike your interest rates or lower your credit limits. If you’re more than 180 days late on a payment it gets worse. Your debt will likely be assigned to a collection agency or debt collector. When you have a debt that goes to collection this will lower your credit score and stay on your credit reports for seven years. In a worst-case scenario your wages could be garnished to pay that debt.

The simple answer to this is to set up automatic payments through your bank or through those companies that are billing you. This will eliminate the possibility you’ll make any late payments.

Paying only your minimum balances

If you are making just the minimum monthly payments on your credit cards it might be because you want to free up money for other expenses. But this is not a good financial move.

When you make just those minimum payments it’s like you’re running on a treadmill where there is no end. This will dramatically slow down how long it will take you to pay off that credit card and will mean you’ll be paying a lot more in interest. As an example of this, if you have a $5000 balance on a credit card at 16% interest and you make just a minimum monthly payment of $100, it will take you almost 7 years to pay off that debt. And it will cost you more than $3000 in interest.

When you pay just the minimum on a credit card that has a high balance you’ll also be damaging your credit score. This is because a high balance increases your debt-to-credit ratio. This ratio accounts for 30% of your credit score. If you could lower your ratio by paying down that high balance you should see a nice boost to your credit score.

What can you do if you have balances on several credit cards? First pay as much as you can on the card with the highest interest rate, which will save you money over time. Alternately, you could do a balance transfer to a card with a lower rate or a 0% interest balance transfer card. This would consolidate all your credit card debts onto one card and you could then do everything possible to pay it down quickly.

Saving for your retirement before building an emergency fund

You’ve probably been told over and over that you must save for your retirement. But most financial experts say you should first build an emergency fund. Most say you should save the equivalent of six months of your living expenses. This could be tough, especially if you’re young and trying to live on a small salary. So instead of six months try to save at least the equivalent of three months of your living expenses.

Why is this important? It’s because something unexpected will happen to you – whether it’s losing your job, getting sick, being in an automobile accident or having a pipe burst in your house. When something like this happens and you have no emergency fund, you might have to borrow money – which means creating new debt – or withdrawing money from your retirement account. When you do this your retirement account will not only take a hit but you’ll have to pay income taxes on whatever amount you withdraw and probably a 10% early withdrawal penalty. You can avoid running up debt or raiding your retirement account to cover an emergency by lowering your retirement contributions and then funneling that money into a savings or money market account. That way when the unexpected occurs, which it will, you’ll be covered.

Beyond this, here’s a video featuring Dave Ramsey with important information about saving for retirement.

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What You Need to Know About Credit Counseling and Debt Consolidation

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man balancing a checkbookDo you feel overwhelmed by your debts? if so, there is a way to get back on track.

It’ would be to use a consumer credit counseling agency to consolidate your debts.

However, if debt consolidation is done poorly or if you choose the wrong credit counseling agency, you could end up in an even worse situation.

Here are eight things you need to know about using a credit counseling agency to make sure you avoid creating more problems.

1. All credit counseling agencies are not the same

Just like there can be big differences between different laptop computers, there can the big differences between credit counseling agencies. You need to be very careful in choosing which one to work with. Your best choice would be a non–profit agency that belongs to either the Financial Counseling Association of America (FCAA) or the National Foundation for Credit Counseling (NFCC).

The reason why it’s best to choose an agency that belongs to one of these organizations is because they require their members to adhere to strict standards as set forth by the Council on Accreditation or some other approved third-party. This also means that their counselors must have passed a very comprehensive certification program.

Even if the agency you’re thinking of working with is a member of one of these two organizations it still pays to be careful. The one you choose should be organized, send statements and payments on time and offer helpful consumer education materials in addition to debt consolidation.

Here’s a video that could help you make sure you choose a reputable credit counseling agency.

2. How credit counseling will consolidate your debts

Using a credit counseling agency is basically using a third-party payment system. These agencies do not make loans nor do they provide debt settlement. However, they will negotiate with your lenders to get your interest rates reduced and any fees waived. And you may be offered what’s called a debt management plan (DMP).

If you accept a DMP this will effectively consolidate your debts because you will no longer be required to pay your lenders. Instead, you will send the credit counseling agency one payment a month until all of your debts have been paid off.

3. You may not need a DMP

The debt counselor at your consumer credit counseling agency should first review your finances to see if there might be a better alternative than a DMP. For example, if you have money left over after you’ve subtracted your expenses from your income then your counselor might help you develop a budget that would allow you to become debt free without a DMP, which could take as many as five years to complete. In fact, if your counselor does not discuss alternatives or if he or she does not seem to be compassionate and knowledgeable then you might want to request a different counselor.

4. This form of debt consolidation is both efficient and simple

If you do have a DMP your payment remains constant. You won’t need to worry what the sum of your payments will be each month. It will be the same amount until all of the lenders in your plan have been repaid. When one lender has been repaid the remaining ones will receive a bigger portion of your payment and this will help speed up the repayment process. In addition, your lenders won’t be calling you to demand payments as this typically stops once they understand that you have a debt management plan.

5. You will lose your credit cardsman holding multiple credit cards

One of the most important things to understand is that all of the lenders in your plan will close your accounts. This means you may need to learn to live without credit cards until you complete your DMP. In addition, you will not be allowed to open any new accounts. When you stop to think about it this just makes sense. If you’re continuing to charge while you’re in the process of repaying your debts, you would basically be spinning your wheels. You may be allowed to keep one card to emergencies but it probably will have a very low balance.

6. You’ll still have some work to do

You will still be receiving account statements from the lenders that are in your plan. It’s important that you send them to your agency. The reports you get from your credit counseling agency won’t reflect the interest that you’re still being charged. This means if you don’t submit your statements, the reports your agency gets will be seriously different from what you see in your bank statements. Some people – who didn’t carefully monitor their account statements – had a rude awakening when they thought they had completely paid off their debts only to find they still owed thousands of dollars.

7. Credit counseling isn’t right for everyone

The sad fact is that consumer credit counseling might not be for you.

For one thing, the majority of your debts must be unsecured debts such as personal loans, credit cards, department store cards, payday loans and personal lines of credit. If the bulk of your debt are either secured debts (think auto loan and home mortgage) or debts such as unpaid child support, spousal support, alimony, back taxes or student loan debt then a DMP can’t help you. In addition, it’s important that you feel confident that you can make your payments not for just a few mears.

8. A DMP is better than filing for bankruptcy

When you choose debt consolidation through a DMP it tells lenders that you’re paying 100% of your debts, which is a good deal different from discharging them in a bankruptcy. However, your credit reports may take a hit if your monthly payments are less than what you would have normally paid. Finally, this form of debt consolidation is not factored into your credit score but some lenders may add notations that you’re paying a third party. Unfortunately, this can be a bit of a red flag to prospective lenders or anyone else who is reviewing your reports. For that matter, some lenders won’t make new loans until you complete your plan.

Commonly Asked Questions About Credit Counseling

Q. What does credit counseling cost?

A. It costs very little to have your debts consolidated through a consumer credit counseling agency. For example, most of the non-profits charge a one-time, set-up fee of maybe $35 and then a monthly maintenance fee of $10. When you stop to think how much the credit counseling agency is doing for you, these charges are practically insignificant. In comparison, if you were to use a debt settlement company to consolidate your debts you could be charged anywhere from 15% to 25% – depending on the total of the debts being settled.

Q. What are credit counseling services?

A. One popular alternative to a credit counseling agency is to use a credit card for debt consolidation. Of course, this can be helpful only if the majority of your debt is credit card debt. But when this is the case you might be able to transfer your high-interest credit card debts to a new card with a lower interest rate. What is even better is to transfer all of your credit card debts to a 0% interest balance transfer card.

Q. Is debt consolidation though credit counseling a loan?

A. As noted in this article, debt consolidation through a consumer credit counseling agency is not a loan. It’s using a third-party to pay off your debts. However, a third way to achieve debt consolidation is to get a debt consolidation loan. Depending on your situation you might be able to get either an unsecured personal loan or a secured loan such as a home equity loan or a home equity line of credit (HELOC). Interest rates are currently at almost all-time lows. For example, it’s possible to get a personal loan within APR as low as 5.99%.

Q. Is debt consolidation through credit counseling a good idea?

A. If you’re struggling under a big load of debt then debt consolidation should be a good idea. However, it’s important to choose the right type of debt consolidation. Using a credit card balance transfer or getting a debt consolidation loan may end up costing you more even though you have a lower interest rate. The reason for this is that it will likely take you longer to repay the debt. On the other hand, using a consumer credit counseling agency will cost you practically nothing but it could take you as many as five years to complete your plan,

Q. Can you do credit counseling with a poor credit score?

A. Again, this depends on the type of debt consolidation you choose. As an example of this you could have a credit score down in the 400s and could still consolidate your debts through consumer credit counseling. But that low credit score could keep you from getting a personal loan with a decent interest rate or any loan at all. You might be able to get a HELOC or home equity loan even with a poor credit score as you would be using your home to secure it. A balance transfer will probably be out of the question.

Q. Could I do debt consolidation with my student loans?

A. If you’re having a hard time repaying your student loans, then debt consolidation could be a very good option. If your loans are federal student loans, the government offers Direct Consolidation Loans. These loans have fixed interest rates which is based on the weighted averages of the interest rates on the loans that you are consolidating, rounded up to the nearest 1/8 of a percent. In most cases the interest you would pay on a Direct Consolidation Loan will be much less then the interest rates you’re currently paying. Also, these loans offer different repayment options including several where your payments would be based on your income.

Q. What are the dangers of debt consolidation?

A. There are several dangers of debt consolidation. The biggest is what happens if you were to stop paying on your DMP, your credit card or your debt consolidation loan. If you have a DMP and miss a payment, nothing may happen. Some lenders will simply let you resume your payments the following month. However, some may drop you from the program immediately. Missing a credit card payment has very serious consequences as it could drop your credit score by as many as 100 points. But the worst alternative is to miss payments on a HELOC or home equity loan as the lender might actually foreclose on you – though most will sue you instead.

 

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7 Myths About Consumer Credit Counseling

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If you are struggling under a load of debt you could do as have many Americans and that’s go to a consumer credit counseling agency for help. The best of these agencies are nonprofits and offer many of their services free. While credit counseling can be an excellent option there are a number of myths that have sprung up about it and you need to know the truth.family, family discussion, family meeting

Debt management programs and credit counseling – it’s all the same

Regardless of what some people might tell you there is a big difference between consumer credit counseling and debt management plans. For one thing, credit counseling usually involves helping a customer create a budget and stick to it. Many credit counseling agencies offer seminars in money management and have whole racks of free brochures with information about debt and money management. In short, consumer credit counseling is about education and it’s best for people who earn a decent wage but at the end of the week don’t have enough money to cover their expenses and don’t understand why.

In comparison, a debt management program (DMP) is where the agency acts sort of like a policeman that takes your money in the form of a monthly payment and then distributes it to your creditors until all your accounts are at zero. Most credit counseling agencies will also negotiate with your lenders to get your interest rates reduced and any late fees waived so that you will have a more affordable monthly payment. One big downside of a DMP is that all of the lenders that accept your plan will close your accounts meaning that you will need to learn to live without credit cards for anywhere from 4 to 5 years.

A good credit counselor can get your monthly payments cut in half

This is just not true. As noted above, a good credit counselor can get your interest rates reduced and any fees waived but there’s no way this will cut your monthly payment in half except in the very narrowest of circumstances. For example, if you were to miss $200 payments on a $10,000 balance then you would owe $600 the next month. A skilled credit counselor might be able to get that bill re-aged reducing your payment back to $200. But you haven’t really saved anything. The missing $400 was just tacked back onto the total amount you owe.

There are agencies that can negotiate lower DMP payments

Here’s another myth. Credit counseling agencies could negotiate lower payments only if there was some negotiation involved. However, there isn’t. If you’re talking to a counselor who promises that he or she can negotiate lower DMP payments, you’re actually talking with a debt settlement company. This is where you transfer a set amount of money each month into an escrow-type account. When enough money has accumulated in your account to settle one of your debts, the settlement firm will contact you and ask that you release enough money to cover it. This continues until all of your unsecured debts have been repaid.

If you want to get out of debt you need a formal program

Many lenders will enroll you in a special reduced-interest program if you approach them as an individual. The downside of this is all of the phone calls you’ll have to make and that you’ll have to show you’re having some kind of financial emergency. But you certainly don’t need a formal program for this. You could handle the entire thing yourself. The same holds true if your objective is to consolidate your debts through a debt consolidation loan. If you have available equity in your home, you could get either a homeowner equity line of credit or a home equity loan yourself – without the help of any third party.

A DMP will help your credit rating

If the reason why you’ve chosen consumer credit counseling is because you’re behind on your bills a DMP will do nothing to help your credit rating. These missed payments will  is already be on your reports and there’s nothing that can be done about them. However, by itself a DMP is score-neutral — it won’t effect your credit for good or bad. However, when creditors see they are being paid through  a DMP they will likely take this as a good sign, that you’re doing your best to repay your debts.

Here’s a short video that explains what makes up your credit score and why it is not effected by a DMP

Debt settlement is always cheaper then debt consolidation

There is no question that debt settlement will save you money. The reason for this is simple. A good debt settlement counselor should be able to get your debt settled for about 40% or 50% of what you owe. In comparison, consumer credit counseling basically means just moving your debts from one set of lenders to a new one — the credit counseling agency. In either event, you’ll end up owing exactly what you owed before. Unfortunately, there is a hidden cost to debt settlement, which is the effect it will have on your credit score. Debts that have been settled are never reported to the credit bureaus as “paid in full”. Instead, they are reported as “settlement”, “settled” or “settled for less than full amount”. Whichever the case, this will definitely ding your credit score. Of course, if you’re so far in debt that you’ve turned to debt settlement, your credit has probably already been trashed. ever thought of getting a second opinion?

A second hidden cost of debt settlement is that the money your lender agrees to write off due to settlement will be reported by your lenders to the IRS as ordinary income. This could affect your income taxes the following year although some lenders never report the money they’re written off and even if they do, it might not have that much of an impact.

Never, but never, choose bankruptcyGavel, pen and document titled Petition To File For Bankruptcy

A good and honest credit counselor will tell you if your situation is so bad that you need to file for bankruptcy. While a bankruptcy will have a dramatically negative affect on your credit history and your credit score, it is one way to get out from under a load of unsecured debts in an extreme situation. For example, let’s say that you earn $20,000 annually but have a cumulative credit card debt of $50,000 or more. In this case, bankruptcy might actually be your best option.

 

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Why a Peer-to-Peer Loan is a Great Option for Debt Consolidation

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woman drowning in debtAre you struggling to pay your debts? Has it gotten to the point where your stomach dies a flip-flop whenever the phone rings because you’re afraid it’s an irate lender calling? Are you letting your bills pile up — unopened — because you don’t want to know how bad things really are?

There are at least four ways to consolidate debts that have gotten out of control. For example, you could go to a consumer credit counseling agency for help. If the biggest majority of your debts are credit card debts you might be able to do a balance transfer. If things have become truly hopeless could file for bankruptcy. The fourth option is to use a peer-to-peer loan to pay off all of your debts.

The two most common types

There are many different types of loans but the two most popular types by a country mile are unsecured and secured, Secured loans are those where you’re required to provide some form of collateral to secure them. The two most common forms of these loans are auto loans and mortgages. Unsecured loans are just that – loans where you’re not required to provide any form of collateral. These are sometimes called signature loans because if you’re approved for one all you basically do is sign a contract pledging to repay the money.

A new kind of personal loan

If you have equity in your home your best option might be a homeowner equity line of credit (HELOC) or a home equity loan. Both of these generally have lower interest rates than do personal loans as they are secured loans or second mortgages. If you don’t own your home or don’t have a sufficient amount of equity then your only real option would be a personal loan. However, if your credit is in tatters you might find getting a personal loan from a bank or credit union to be a sort of mission impossible. Fortunately, there is a new type of personal loan that could be your lifesaver. It’s called a peer-to-peer loan and it’s become incredibly popular in the past few years.

So what’s a peer-to-peer loan?

This type of loan is called a peer-to-peer loan because initially the funding for them came from another person or group of persons – your peers. However, financial institutions such as hedge funds now fund most of these loans. While the way these loans are funded may have changed they continue to be cheaper then conventional personal loans because they eliminate the middleman – the bank or credit union. The conventional lenders pay 1% or less on their savings accounts and then loan out same the money at anywhere from 12% to 14%. They do this to cover their overhead and to earn a profit. In comparison, peer-to-peer lenders have no overhead as the entire loan process is done online. Their interest rates are basically their profits so they have more flexibility in what they charge

How the peer-to-peer loan process works

The process of applying for a peer-to-peer loan is considerably different from that of a conventional loan. When you apply for a loan from a bank or credit union there is usually a mountain of paperwork and lots of hurdles to jump through.

If you go to a peer-to-peer lender such as Lending Club, Prosper or Upstart Lending you first fill out an application online. If your application is accepted it will be assigned a letter grade that could be anywhere from A to H depending on your credit score, your debt to income ratio, your education and the overall strength of your application. Your letter grade will determine how much you can borrow, your interest rate and the term of your loan.

Were it gets different

All the peer-to-peer lenders use letter grade scoring but once your application is approved things get different. Some of the lenders use an auction approach, where potential lenders actually bid to fund your loan. In other sites, your application will be put on the site’s platform for lenders to evaluate and you’ll either get your money or not. If the site you choose uses auctions it could be as many as 14 days before you find if your loan has been funded. On one of the peer-to-peer lending sites you can get your money even if your request is only 80% funded. On another it’s all or nothing.

How you repay the loan

The term of a peer-to-peer loan is either three or five years. Another thing that makes a peer-to-peer loan different from a conventional loan is that you must allow The peer-to-peer site to automatically withdraw your monthly payments from your checking account. And if there’s a month where there’s not enough in your account to cover your payment you will be hit with a fairly stiff penalty.

Application for Credit stamped DENIEDIf you have less than stellar credit

If this is the case you would have a much better chance of getting a peer-to-peer loan than a conventional loan. One of the reasons for this is that if you write a good “pitch” or reason why you need the money, a peer-to-peer lender might decide to take a chance on you. Second, remember that letter grade thing and how it would determine your interest rate? What this means is that if you have less than sterling credit you could still get a peer to peer loan but it could come with an interest rate as high as 29% or even higher. If your loan request is approved but you see you would have a sky-high interest rate you would then have a choice to make. If you need the money desperately you could decide to pay a really high interest rate and accept the loan you’re being offered. If not, you could just walk away and try to find the money you need from another source.

A good or bad idea?

Whether a peer-to-peer loan would be a good or bad idea for you will depend on several different factors. However, in most cases it will be a good idea. You could get the money you need without a lot of burdensome paperwork and at an interest rate better than what you would get from a conventional lender – and certainly much better than that of those payday loans.

Do you qualify for debt consolidation?

“Go Get Some Money. They’re Practically Giving It Away”

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young family smiling`This quote came from a friend of mine. She had overheard one of my city’s billionaires saying this to his son. He was, of course talking about the cost of borrowing money.

This gentleman was undoubtedly talking about thousands or even hundreds of thousands of dollars.

While you probably wouldn’t borrow this much money unless you were taking out a new mortgage there is a way for you to some of that money they’re practically giving away.

The answer is to refinance.

Would you qualify?

To refinance your home, you would need to have equity and you will need to have enough to make doing a refi a winning strategy by getting a lower interest rate and cashing out your equity.

Let’s say you’ve been in your house for 14 years and your mortgage interest rate is 7%. You’ve made all your payments on time without paying much attention to how much equity you’ve accumulated. If you don’t see this on your monthly statement you’ll need to call your mortgage holder. But the odds are that you have enough equity to do a refi, cut your payments by anywhere from $200-$500 a month and walk away with a sizeable amount of cash.

Thanks to President Obama

If you’re interested in refinancing your home and Fannie Mae or Freddie Mac guaranteed your loan you can thank Pres. Obama for his HARP (Home Affordable Refinance Program). This program is designed specifically to get you a more affordable mortgage. To qualify you must have a current loan-to-value ratio greater than 80%, you must be current on your mortgage and you must have had a good payment history in the last year. Plus, with HARP you can roll up your closing costs as your mortgage balance can be increased to cover them … in addition to any other money due at closing such as accrued daily interest, escrow reserves and a small amount of cash. However, your loan size cannot exceed the total conforming loan limits, which is $417,000 unless you have a very expensive home.

How to calculate your loan-to-value ratio

All that’s required to do this is some simple math. Just divide your mortgage’s balance into its value. For example, if your home was valued at $250,000 and your remaining balance is $185,000 your loan-to-value ratio would be 74% or too low to qualify for HARP. However, if you owed $200,000 on your mortgage then your loan-to-value ratio would be that magic 80%. As you can see this program is designed for people that don’t have a lot of equity in their houses so might not be able to refinance with a conventional loan.

high interest ratesWhat will the interest rate be on your new loan?

It’s impossible for us to say exactly what your interest will be on that new loan because there are too many variables involved. However right now it’s possible to refi with a 30-year fixed mortgage at 3.63% and an APR of 3.75%. Compare that with the interest rate you’re currently paying and you’ll see how much you might save

Don’t forget those annoying closing costs

If you look only at today’s’ interest rates versus your current interest rate you will be missing something – those annoying closing costs. Again, we can’t tell you precisely what those costs will be but homebuyers typically pay between about 2% and 5% of the cost of refinancing their loans. As an example of this, if you are refinancing $150,000, your closing costs will probably be somewhere between $3000 and $7500. However, according to one recent survey, buyers generally pay roughly $3700 in closing costs. This is significant money and you need to factor it in before you decide to do that refi. Let’s say your closing costs will be $4000 and you expect to save $200 a month. At that rate, it will take you 20 months before you break even and start having that extra money in your pocket.

If you can’t qualify for HARP

If your mortgage wasn’t guaranteed by Fannie Mae or Freddie Mac or the VA, don’t despair. Quicken Loans is currently offering refi loans as a 5/1 ARM at 2.97% APR. If you could put 20% down on a 30-year fixed refi, have a credit score of 740+ and are looking to borrow $230,000 you might qualify for a loan at 3.577% or 3.669%.

This won’t last forever

Interest rates this low won’t last forever. In fact, the Federal Reserve Bank is making noises that it will increase the interest rate at the end of this year or the first quarter of next. The Fed’s goal is to keep inflation under control. The way it does this is by manipulating the Target Federal Funds Rate to control our money supply. When inflation is low as it has been for the past several years the Fed keeps that rate low so there is more money available for banks to lend. However, as soon as the Fed sees a serious uptick in inflation it will raise the Target Federal Funds Rate, our money supply will shrink and there will be less money to lend. When this happens the interest rates for refi will go up accordingly.

Whether you have a mortgage that was guaranteed by Freddie Mac or Fannie Mae or it’s a conventional mortgage, don’t delay. Contact your mortgage holder or mortgage servicer today to see what a refi could do for you. You might find you could save enough to afford that dream vacation you’ve always wanted to take, to buy a new car or to help your kids pay for their educations. Even just $200 a month is $2400 a year, which could go a long way to paying for that dream vacation.

In other words, as our local billionaire advised his son, you should go get some money while they’re still practically giving it away.

Do you qualify for debt consolidation?

Best And Worst Case Scenario When Using Debt Consolidation Loans

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consolidate debtUsing debt consolidation loans to get out of a difficult financial situation is a common practice. In fact, this seems to be the most logical way to get out of debt for someone who has no idea about the other debt relief options available. A consumer who has not heard of debt settlement, debt management, credit counseling and other debt solutions will most likely think of using a loan to get out of their other credit obligations.

Some people think that using a loan to solve your existing debts is just like digging a hole to fill another hole. While that analogy may be true, this type of debt solution is actually quite effective – at least, if you know how to use it properly.

Debt consolidation loans are typically used to combine credit accounts with a high interest rate (e.g. credit card debt) and those with a low interest rate (e.g. home loans).

This type of solution is actually ideal for those with multiple high interest rate debts because it can help lower the current interest rate. The perfect example is credit card debt. According to an infographic published on PressPage.com, the average credit card debt of American consumers is currently at $5,142. This is based on the data gathered by TransUnion for the first quarter of 2015. If the average interest rate of this type of debt is 11% to 15%, it would mean paying as much as $64 per month on interest. That is a total of $768 each year. You are paying your creditor that much amount – the longer you stay in debt.

With debt consolidation loans, you have the chance to lower your interest rate. What you will do is to look for a new loan that you can get with a lower interest rate. In some cases, people use their home as collateral so they can get a secure loan. Since the risk is lesser because of your collateral, the creditor or lender will give you a low interest rate on this new loan. You can use the funds from this new account to pay for your existing debts.

In most cases, debt consolidation loans have a longer payment term. It stretches your current balance so you have a lower monthly payment.

All of this will result to a lower interest rate, a possibly lower monthly contribution and a longer payment term. This will help make debt payments more manageable because you have more room in your budget – now that your monthly payment is lower.

What are the two possible outcomes when using a loan to consolidate debt

Although this debt solution sounds promising, you need to be very careful when you choose to use it for your debt relief option. According to an article published on Time.com, it is very important that you understand how this debt solution works. There are fees, rates and other financial implications that you may not be comfortable with. If you are using your home as collateral, you might not be prepared for the risk that you will be putting it through. Like all debt solutions, there are two ways that your debt relief efforts can go. If you are not strategic about your use of debt consolidation loans, you might do more damage on your personal finances.

Let us discuss the best and worst case scenarios that can happen to you when you choose to use debt consolidation loans.

Best case scenario: You get out of debt.

Obviously, the best case scenario is your debt freedom. If you do things the right way, you should be able to get yourself out of debt.

This scenario involves being approved for a low interest rate loan. That way, you can save money on the interest amount that you have to pay for the convenience that the loan will bring. To arrive at the best case scenario, you also have to search for a loan that will not involve a lot of fees. The loan should also allow you to make lump sum payments whenever you are able. It should not charge you with prepayment penalties. That way, you can get out of debt a lot faster without incurring additional charges.

Another way to get to this scenario is by having a good credit report. The only way you can get the best possible terms on this new loan is when you have a high credit score. Having collateral will allow you to get a low interest rate on their loan, it is true. But it is a good credit score that will really help you get the best terms for your debt consolidation loan.

Worst case scenario: You add more into your debt.

Now to the worst case scenario – it is obviously ending up with more debt than when you started. This will happen if you get a loan that has a high interest rate and you fail to pay it on time.

The high interest loan is only possible if you have a good credit score. But even that can be saved if you only learn how to pay off your loan on time. You see, when you put all your debts and combine them into one loan – there is great danger in that. Some people get a false sense of complacency. They feel like they have already gotten out of debt.

Well, debt consolidation loans will not pay off what you owe – at least, not yet. You just transferred your multiple loans into one basket. You still have to pay them off. Some people make the mistake of thinking they already got out of debt. It made them more inclined to get more debt.

That is how you can land in this worst case scenario – and end up with more debt to your name.

How to assure that consolidating debts will work in your favor

But since you know the best and worst case scenario, you know what you need to target. You need to know how you will land in the best case scenario – not the other way.

According to Investopedia.com, if you do debt consolidation loan correctly, it can really boost your financial situation. It can improve your credit score – at least, if you pay off the principal a lot faster.

To help you accomplish that, here are some things that you can do.

  • Keep yourself from feeling complacent. As mentioned, you still have to pay off your loan. You need to remember that you just transferred your balance. You still have to pay for every penny. There is no debt reduction in this type of debt solution.
  • Refrain from borrowing more money. We are not saying that you stay away from debt entirely. You need to take on credit in order to keep your credit score up. However, you need to learn how to borrow money wisely. That way, even if you take on more credit, you will not endanger your finances in any way.
  • Stick to your new payment plan. Lastly, you want to make sure that you will stick to your new payment plan. Forget about the old payment schedules of your multiple debts. Concentrate on this new one and try to pay it off diligently. That is the how you can be sure to get yourself out of debt.

Debt consolidation loans will effectively eliminate debt as long as you avoid the traps that can lead you to the worst case scenario. All it really takes is some self control, discipline and better financial habits.

Do you qualify for debt consolidation?

3 Signs That Consolidating Debt Will Just Waste Your Time

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man with credit cardsConsolidating debt is one of the solutions that can effectively solve credit problems. However, you need to understand that it is not necessarily true for everyone. Some people may find out that debt consolidation loans is the best way for them to achieve debt freedom. However, some consumers will not have the same experience.

When selecting a debt solution for your credit situation, you need to be sure that you are using the right program. If not, you may find yourself wasting your time, effort and money on a solution that does not fit your financial situation in the first place.

The truth is, consolidating your debt is logical. Why will you complicate things when you have the option to deal with just one debt instead of multiple ones?

The NewYorkFed.org revealed early this year that the household debt in the country increased by $117 billion towards the end of 2014. That means the total household debt is now at $11.83 trillion. The data revealed that the increase happened in almost all kinds of debt – mortgages ($39 billion), student loans ($31 billion), auto loan ($21 billion) and credit cards ($20 billion).

In most cases, households have all of these credit problems. Mortgages, credit cards and student loans are among the prominent debts in every American family. When you are managing your credit, you need to keep track of all these accounts, due dates, minimum payment requirement, interest rates and other charges. It can all be very confusing at times and if you are not careful with your monitoring, you can end up forgetting payments. That can lead to a late penalty charge and a possible negative effect of your credit score.

If you can relate to this problem, then consolidating debt may have already crossed your mind. But before you finalize your decision to use this debt solution, make sure that it will not waste your time first. Fortunately, there are three signs that will help you realize if this is a solution you can pursue or not.

3 signs that debt consolidation is not the right debt solution

If you need to make sure that consolidating debt is the answer to your credit difficulties, you need to make sure you do not exhibit these three signs.

You need a debt reduction.

Let us make one thing clear: debt consolidation loans do not pay off your debt. It is true that you will use the loan to pay off and close the multiple debts that you owe. But after all of that, you need to remember that you still owe the same amount of money. You simply restructured your debt so it is under one lender. If this is not enough for you, then you need to reconsider a mere consolidation of your debts.

According to an infographic created by TransUnion and published on PressPage.com, the average credit card debt during the first quarter of 2015 is $5,142. That is a huge amount to pay off. If you add to it mortgages, auto loans and student loans, you could very well be drowning in debt at this point. You need to be very honest with yourself about your ability to pay off your debt. Can you afford to pay off your loan or do you need a debt reduction?

You do not have a stable income.

One of the requirements of debt consolidation loans is a stable income. You should not only have a steady income each month – you need to be sure that you will be having it for a couple of years in the future. A benefit of consolidating debt is you can lower your monthly payment requirement. Ideally, the debt consolidation loan that you will get should have a longer payment period so you can stretch your current balance over that time. The result will be a lower payment contribution each month. This longer payment period means you should have the resources to support your contributions. A stable income is the answer to that. If you are earning an irregular income or you only have a temporary job, you need to reconsider if debt consolidation loans is the answer to your problems.

You want to get out of debt fast.

The third and last sign that you need to look out for is your intention to get out of debt fast. If you want a fast relief from your debt, you may want to look elsewhere for your debt solution. Debt consolidation sometimes take a long time to finish. This is especially true if you combined certain debts like your credit cards with your mortgage. A home loan takes more than a decade to complete. If you are retiring soon, you probably want to finish paying off your debts as soon as possible. That way, you will have enough time to save up for your upcoming retirement. According to an article published on Fool.com, four out of ten baby boomers do not have anything saved for retirement. If you are in this situation, you need to get out of debt fast so you can maximize your extra money and add it to your retirement fund.

Apart from these signs, you also have to consider other factors like the type of debts that you owe. Consolidating debt that has a low interest already may not save you money – especially if the loan you will get has a higher interest rate than your existing. Loans with prepayment penalties may also be better off left alone and not consolidated.

Settle debts instead of consolidating them

There are other options to get out of debt if you think that debt consolidation loan is not the right solution. If you need a debt reduction and you want to get out of debt because you know that your income is not stable, then you may want to consider debt settlement instead.

Settling your debts involves an agreement between you and the creditor or lender that will allow you to pay only a portion of your current balance. What you will do is to negotiate so you can pay a settlement amount that is just a percentage of your balance. Once this amount is met, the creditor or lender will forgive whatever is left of your debt. It is like paying your debt pennies for every dollar.

While this debt reduction is very appealing, there are a couple of things that you need to understand about debt settlement.

  • You need to be in a financial crisis. It is important to note that only people who are in a financial crisis can find it easy to settle their debts. No creditor or lender will take notice of your proposal to settle unless your loan is already on default – or you have gone months without paying off your loan. If they know that you can still afford to pay each month, they will not settle with you. But if you can prove that you are in a financial crisis, things will be easier for you.
  • The decision to settle is in the hands of the creditor. Regardless of how strong your proof is that you are in a financial crisis, debt settlement will be completely under the discretion of the creditor or lender. There is no law backing you up here. So if they decide not to grant you a settlement, there is nothing that you can do about it. Your creditors consider your loan payments as part of their profit. If they allow you to pay only a portion of that, they are cutting into their earnings.
  • Debt settlement can ruin your credit score. Since creditors will hardly pay attention to your settlement proposal unless you are on default, you can expect that your credit score will not go unscathed. Regardless if you are successful in negotiating a lower payment or not, you will always end up with a damaged credit score.

The road to debt freedom, whether that is through debt consolidation loan or debt settlement, will always be tough. You need to make sacrifices if you want to eventually have financial freedom. But if you choose the right debt solution, it will be easier and less damaging.

Here is a video that will help you make better decisions about your personal finances.

Do you qualify for debt consolidation?

11 Questions You Absolutely Must Ask Any Debt Settlement Company

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A young female business manager behind a computer talks on a mobile phone.

If you’re laboring under a big cloud of debt the idea of getting relief from it probably sounds very good. If you were able to get those debts paid off you could stop worrying about them, quit sweating every time the phone rings because you’re afraid it’s yet another debt collector calling … and get back to having a better, less stressful life.

What exactly is debt relief?

Debt relief is a sort of an umbrella term that covers several different ways to deal with debt including forbearance, debt restructuring and debt settlement.

Forbearance generally means that the lender or lenders forgive your past due interest payments so long as you start making your payments. Debt restructuring is where an existing debt is replaced with a new debt. This usually involves a reduction in your principle or a change in the terms of the debt. For example, you might consolidate your credit card debts into a new personal loan that would be repaid over five or even 10 years. This would allow the same principle (your balance) to be amortized over more time resulting in smaller monthly payments.

Debt settlement

This form of debt relief grew in popularity as a result of the Great Recession that left many people either unemployed or underemployed. The way it works is that you contact with a debt settlement company that then offers lump sum payments to your creditors to settle your debts but for much less than their balances. In fact, good debt settlement companies are usually able to settle unsecured debts such as credit card debts for about fifty cents on the dollar.

Why would lenders ever agree to settle?

Lenders can be persuaded to settle debts when they are made to believe that it’s either that or you will be forced to file for bankruptcy. This comes under the old “half a loaf is better than none” idea. Companies that hold unsecured debts understand that if you file for bankruptcy they will get nothing. This is why most of them will settle.

Questions to ask any debt settlement company

While debt settlement can be an excellent way to get debt relief, it’s important to choose a reputable company. Here are 11 questions to ask any debt settlement company to gauge its honesty and reliability.

How long have you been in this business and how much debt have you settled?stash of cash

Young companies have very little experience in settling debts and may not have settled many at all. The company you chose should have been in business for at least five years and should have settled many millions of dollars in debts.

What do you charge?

The Federal Trade Commission has outlawed upfront fees so if a settlement company tells you that you must pay something upfront, run away. No reputable debt settlement company will charge you any fees until it has settled your debts. Before your sign an agreement with a debt settlement company be sure to ask for a full disclosure of is fees in writing.

Do you pay my creditors monthly?

Honest debt settlement companies do not pay your creditors monthly. As noted above they settle debts in the form of lump sum payments. If the settlement company says that it will be making monthly payments to your creditors, big red flag!

Will this affect my credit report?

The correct answer to this is, “yes.” Debt settlement will impact your credit report and credit score. If a debt settlement company claims anything to the contrary – another big red flag.

When will you settle my first debt?

When the debt settlement company will be able to settle your first debt will depend on your creditors and the amount of money you can save for your settlements. The more time the debt settlement company takes to settle your debts the greater are the chances you will end up getting sued over one of them.

How long will this take and how much will it cost?

It’s really impossible for a debt settlement company to tell you how long it will take to settle your debts. However, under the new rules for debt relief the company should be able to give you an estimated time frame based on the amount of debt you owe and how much you are able to save for your settlements. Most of the leading debt settlement companies operate on a fee basis, which varies from 15% to 25% depending on the size of your debt. Once the settlement company and you reach an agreement as to how much of your debt it will be settling it should be able to give you a very clear idea of what it’s fee will be.

Where is my money while you’re settling my debts?

Your money should be in an escrow account held by a third-party while your debts are being settled. This account should be FDIC insured. You must have control of the account and the ability to close it and get your money back without a penalty at any time. The best debt settlement companies offer a 100% satisfaction guaranty that you can withdraw from your program at any time for any reason and not be charged a single cent.

Are there alternatives to settling my debts?

A reputable debt settlement company will explain to you that there are alternatives available to debt settlement. For example, it will tell you if you would be a good candidate for a debt management plan. It should also not discourage you from talking with a bankruptcy attorney about that option. If the debt settlement company discourages you from looking into other options that’s another big red flag.

When will I hear from you?

Reputable debt settlement companies practice transparency. This means they will keep you in the loop with updates all along the way as to the status of their negotiations with your creditors.

Does debt settlement have tax consequences?

The answer to this is also “yes.” Lenders are required by the IRS to report any settlement of more than $500. However, many lenders simply do not do this. Plus, if you can show the IRS you are insolvent you’ll probably get those taxes waived.

How do you calculate my estimated savings?

Let’s assume for the sake of the example that the debt settlement company says it will save you 50% of your debt. It must base this estimate on the total amount of debt being settled plus any fees or interest that accumulate after you enroll in its program. Plus, they must include the fees that you’ll pay before they calculate your savings. If the debt settlement company doesn’t provide a complete disclosure of the savings it estimates it can get you, tell it so long.

What debt settlement companies may not tell you

Unfortunately, there are some things that the less than reputable settlement companies may not tell you. The following video discusses five of them.

Do you qualify for debt consolidation?

6 Ways To Slash Expenses … Practically Overnight

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cutting moneyIf you feel as if you are falling deeper and deeper into a financial hole it doesn’t take a crystal ball to figure out the problem. You’re spending too much money. If you don’t believe us, take out a piece of paper or your eTablet and write down all your spending for the past 30 days. If you have a problem remembering all of them, get out your credit card statements or your checkbook. Next, add everything up and compare it to your earnings. There, see, you’re spending more than you earn. And if you don’t do something about this, your financial problems are only going to get worse. So, what can you do? Here are six ways you could slash your spending.

Consolidate your debts

When you analyze your finances do you find you have multiple debts– especially credit card debts? If this is the case you should consolidate them so that you’ll have just one payment to make a month that should be much lower than the sum of the payments you’re currently making. One way to do this is with a debt consolidation loan. If you can qualify for an unsecured loan, meaning that you don’t have to offer any asset as collateral, you should have a much lower interest rate than those on your credit cards as well as a lower monthly payment. This will simplify your financial life because you’ll need to make only one payment a month instead of the multiple payments you’re now making. If you’re unable to get an unsecured loan you might try for a balance transfer where you transfer the balances on your high interest credit cards to one with a lower interest rate. You might be able to get one of those 0% interest balance transfer cards and pay no interest for anywhere from 12 to 18 months, which could shrink your monthly payment dramatically. There is also consumer credit counseling where a debt counselor would help you develop a debt management plan designed to get your finances back on track. While not all these options are for everyone there are circumstances where at least one of them could help.

House with cash on the roofRefinance your home

If you haven’t checked the interest rate on your mortgage recently, now might be a good time to do so. Mortgage interest rates are at nearly all time lows. Refinancing is where you get a new loan with new terms. This will change the length of your loan as you’ll be resetting it back to zero but this should help you get a better interest rate, which will mean a lower monthly payment. Go online to a refinance calculator and compare what your current mortgage monthly payments are vs. what a new, refinanced monthly payment would be to see how much you could save. You might be surprised at the difference. We know of people that have saved $300 or more a month by refinancing. However, it’s important to remember that in order to get a good interest rate you need to have a good credit score. You can get yours on sites such as CreditKarma.com, CreditSesame.com and www.myfico.com. Credit scores typically range from 300 to 850. If you want to get the best possible interest rate when you refinance, you will probably need to have a score of 750 or above.

Get green

Energy costs can be especially a problem these days as costs continue to increase as do the number of electronic devices we have in our homes. This can make it a good idea to take some environmentally friendly actions to slash you expenses and do something nice for mother Earth. You can get especially good savings by changing to energy efficient solutions such as compact florescent lights, timers, power strips and programmable thermostats. You should also consider air sealing your house – especially if it’s an older one– and do unplug your devices when they are not in use.

Revisit your insurance premiums

There’s no question but that you need insurance to protect yourself against the unexpected but there’s no reason to overpay for it. This can leave you vulnerable in another way and that’s to financial problems. If you haven’t shopped around for your homeowner’s, health, auto and life insurance recently you need to do so. Websites such as Esurance, NerdWallet, Selectquote and Intelliquote make it easy to compare insurance premiums from many different insurers. It’s just good to check your insurance options from time to time to make sure you’re getting the coverage you need at the best possible price.

Quit eating out

Ordering in or eating out can seem like a real timesaver. However, the cost of this is far from minimal. You could cut your food bill by cooking your meals at home and by packing lunches to work. If you would like to cut your spending even more, make meals in bulk and then freeze them for future use. You will also spend significantly less money if you buy store-brand or generic products in place of name brand items. And, of course, you could save even more if you start a garden and grow your own fruits and vegetables.

Smiling young male with tie posing next to his carBuy used

Thrift shopping can help you slash expenses by thousands of dollars a year. Vintage clothing, cell phones, furniture, computers, kitchen appliances – just about everything you can name can be purchased second hand on sites such as Craigslist, eBay and Etsy. There are probably second-hand stores near where you live as well as thrift stores run by nonprofit organizations like ARC (Association for Retarded Citizens) and Goodwill. Before you turn up your nose at the idea of shopping in a thrift store, go check one out. You might be surprised at the items you find and their prices. Sometimes people just need to get rid of stuff that’s in good shape because they’re downsizing, no longer have room for it and choose to donate it. We know of one young man that essentially furnished his living room out of a Goodwill Store and the furniture was in such good shape you’d never know where it came from.

Another area where you should definitely buy used is an automobile. You may have heard that a new car loses a chunk of its value the minute you drive it off the dealer’s lot and it’s true. In fact, the website Trusted Choice estimates that it drops 11% in value. This means if you buy a new car for $31,252 it’s worth only $27,814 the minute you get home. One year later, thanks to depreciation, it will be worth $23,523 and two years later that $31,22 car will be worth just $16,867. Now, for the good news. If you were to buy that car when it’s two years old and pay just $16,867, you’ll have saved $14,385 and will be driving a really great car that once sold for more than $31,000! To put this another way, that other guy’s loss is now your gain.

Buying used cars makes even more sense today thanks to leasing. You’ve undoubtedly seen those ads where new cars can be leased for $225 a month or even less. Where do you suppose those cars go when their leases are up? They go to auto auctions where used car dealers buy and resell them. If you shop carefully, you should be able to pick up one of these cars at a real bargain and drive home with one that’s only a couple of years old and is fully loaded.

Do you qualify for debt consolidation?