When it comes to paying off debts, a lot of people are turning to personal loans. This is due to how easy it is for some people to get these types of loans, plus the ways that it can benefit credit when used properly. However, most people do not research ahead of time to figure out if this method of paying off debt is what’s best for their situation. Here are some ways to decide if a personal loan is the right way to pay off your debt.
The Interest Rate
If the debt you are trying to pay off has a higher interest rate than the personal loan you are applying for, it can be a very good choice. The savings in interest can then be applied as extra principle each month, helping you pay down the personal loan even faster. For example, if your current debt is costing you $500 a month, but with a personal loan it only costs you $400 each month, you can apply the extra $100 toward the principle of the loan and get your debt paid off a few months early. Just make sure there is no prepayment penalty that could end up costing you a fee in the end.
The Type of Debt
One of the biggest reasons that paying off debt with a personal loan is considered a good thing is because it changes the type of debt you are paying. Revolving debt, which is what your credit card debt is, can harm your credit a lot more than an installment loan can. Since most personal loans are installment loans, this can be a big boost to your credit. The lower revolving debt you have, the better your overall credit report will look. Plus, if you have only utilized a small percentage of the total credit that’s been extended to you, this will boost how your credit report looks as well. Now, if you are paying off another loan, you will not be changing up the type of debt you have, and you will end up doing more harm to your credit report than good.
Stop Using Credit Cards
If you pay off credit card debt, the one thing you have to make sure you do, or rather don’t do, is use the credit cards again until the personal loan is paid off. For those who end up paying off their credit cards with a personal loan, only to add to the credit card debt once more, will end up in a worse off financial situation than they started in, and their credit will suffer for it. Pay off the credit card and then put it somewhere safe until the personal loan is paid in full. Once the loan is paid off, use your credit cards carefully. Since you have been living without credit cards for a while anyway, you should be able to go without using them unless it is absolutely necessary.
It’s not often recommended to take out a line of credit to pay off another line of credit, but there are times when the scenario can work in your favor. If you are able to change the type of debt you have to improve your credit report, it could work to your benefit. Just make sure you understand what the differences will be before looking into personal loans as a viable option. Don’t take out one loan to pay off another line of credit, and then rack up more debt, or the situation you have been trying to get out of will only end up worse. Taking the time to fix up your credit is worth it when down the line, you are able to get the credit you need and not have to worry about the struggle to pay down the hefty balances.
Falling behind on your bills seems to be easier than ever these days. Getting bills back on track is something many people are trying to figure out so that once the economy does bounce back, they are not stuck with horrible credit and no place to turn. There are a few different things that you can do to help you get back on track, but you need to make sure you are being attentive to your bills and not pushing them aside. Give these tips a try and see how quickly you can get your bills back under control.
Tip #1: Get a Credit Check
It’s never too late to get your credit checked. Even if you haven’t done this in years, it’s still important. It may be one of the most important steps when trying to get your bills back on track because this will show you how much you owe and who you owe it to. You should also go through and make sure that only accurate information is on your credit report. This should be something you do often, meaning at least once every calendar year. Ideally you should go through and monitor your credit weekly so that you know exactly what money you need to pay off each of your bills on time.
Tip #2: Know Your Due Dates
Paying your bills on time is essential when trying to get them back on track. This is because every late payment has two negatives. First, the late payment can be reported to the credit bureau and can damage your credit. Second, each late payment can be accompanied by a late payment, thus increasing what you owe and making it harder to get your bills in line. If you pay your bills on time, meaning on or before the date they are due, then you will bypass late fees and higher interest rates that could come back to haunt you.
Tip #3: Budget Your Finances
Write down exactly what you spend your money on and take out those items you don’t actually need. Make sure you include all of your bills and your luxury purchases so that you can see where you truly stand. From there, cut out what you don’t need, and cut out 75% or more of the things you want, and see how much money you have left over. Now, use this new money to apply towards paying down your bills until they are back on track. This will let you pay back your bills without falling behind on any other bills in the process.
Tip #4: Plan Ahead
Planning ahead is something most people need to do more of. One way of doing this is by establishing an emergency fund. This is a savings account that is only touched when an emergency arises, such as a major health crisis or unavoidable car repair that you need in order to make it to work. As soon as any money goes out of this fund, you should add it to your list of bills to replace.
Tip #5: Continue Saving
It may sound counter-intuitive, but setting aside a little money into savings each month will allow you to be ready for little changes that were not in your budget. Maybe one month you stayed home sick from work for a day or two. While you may not have been paid for those missed days, you can make up the difference from your savings without falling behind on any bills due to the lack of income. Your bills can get back on track with some determination and planning. Don’t let one lapse in bills deter you from working to get your financial life back in order.
Most people strive to have a solid credit score in the upper 700s or low 800s most of their adult life. However, not everyone worries about his or her credit score come retirement. By the time most people retire, they have moved beyond the constant worry of everything being perfectly on time due to the misconception that credit scores do not matter after retirement. The truth is that credit scores are an imperative part of life from the time credit is started until the day we pass on. Here are a few examples of times where a good credit score will have benefits to you after retirement.
Credit Cards
Credit cards come in many different shapes and sizes, figuratively speaking. There are rewards cards, bonus cards, higher interest rate cards, lower interest rate cards, and many different variances in between. If you want to be able to apply for and use credit later in life, you need to start with a good credit rating. The higher your credit score, the lower your interest rates will be on your credit cards, and the more bonuses you will have access to. If you have very few credit cards prior to retirement, but you want to apply for more after you retire, you will need to have solid credit in order to make that happen. Credit card companies are more leery about giving credit to older individuals, as they are closer to passing away and not being able to repay their debts. Showing a solid history of paying your bills on time will go a long way when it comes to convincing a credit card company that you are worth the risk.
Buying a New Car
There will come a time when the car you are currently driving will need repairs. Some of those repairs may end up costing you more than the car is worth, making the purchase of a new car a sound decision. When this happens, you will want the lowest interest rate possible so that you don’t end up spending twice what the car is worth. Installment loans, like car loans, are more difficult to get when you are older, especially when you have less than perfect credit. The better your credit score is when you apply, the better offer you will get for the car you want or need.
Most Types of Insurance
There are many different types of insurance that require good credit to keep the costs down. You will end up paying higher premiums if you have bad credit for many types of life insurance, car insurance, homeowners insurance, and even renters insurance if you do not own your own home. The best way to keep the premiums at a minimal price is to have a long-standing history of on-time payments for all of your bills and utilities. Most lenders will also look at the fact if you have had other installment loans in your history, such as mortgage payments, to determine if you are worth the risk of lending to as well. The more on-time payments you have in your history, the more likely you are to be able to get the insurance you need at a price you can afford.
No matter what you end up needing to buy after you retire, the better credit you have, the less it will end up costing you in the long run. It is worth taking the time to monitor your credit and ensure that you start with sound financial choices from a young age. You should start positive spending habits young, and never allow your situation to stop them from being your normal routine.
Many people think that using a prepaid credit card is ideal when it comes to not overspending, and they are especially appealing to those who have imperfect credit ratings. The problem is that these cards often have hidden fees that people do not know about before signing on the dotted line and opening the account. Once people start losing their hard-earned money, they begin to understand how much these hidden fees can really add up. At that point, the consumer must decide if they want to continue to lose money or if they should cancel the account, but that option doesn’t always remedy the situation.
The Sign-up Fee
The first hidden fee most consumers find out about is some type of sign-up fee. This can range from a few dollars to a hundred dollars, sometimes even more. This costs the consumer just to open up the account and have the privilege of using the credit card. The fee is usually taken out of the initial deposit, lowering the actual amount that can be spent right from the start.
The Deposit Fee
For some prepaid credit cards, the hidden fees lie with the deposits. They charge you every time you deposit money on to the card, no matter how much or how little you put on. These fees can vary, but each deposit typically costs the consumer a few dollars. If you add money to your account each week when you get paid, those few dollars can quickly add up and decrease the amount of money you have available to spend.
The Balance Check Fee
While many cards allow you to check your balance through some means for free, others will charge you some hidden fees to have constant access to that information. For example, most companies allow you to check your prepaid credit card balance online for free, but if you want to set up mobile balance checks, that often costs a fee each time you use it. The cost is usually minimal, but if you check your balance often, it can add up quite quickly. Even if the hidden fee is only a dollar, just checking your balance once a day can cost you $30.00 a month on average.
The Allowable Overdraft Fee
Some of the prepaid credit cards on the market today allow you to buy overdraft protection on your card. What this means is that you can overdraft your account by a slight amount if necessary to pay for an expense with your card. What the company does not often tell you is that there is a hidden fee involved with this privilege, plus the interest rate often contains a percentage with triple digits. This means that if you overdraft your prepaid credit card, you will likely be paying back at least twice the same amount you over-drafted by, plus the fees. That can add up quite quickly, even if you only overdraft your card by a few dollars.
The Cancelation Fee
The biggest hidden fee that most prepaid credit card companies do not tell you about is their cancelation fee. This is because they want you to stay with them even after you find out what the fees are going to be. They often charge a relatively hefty fee to try and deter you from leaving or stopping using their services. This fee is often unavoidable, so make sure you know and understand the fine print before signing up for any of these types of prepaid credit cards.
Prepaid credit cards can be a service of convenience, but they can also be costly. Make sure you fully understand what you are getting yourself into before signing up for one of these cards blindly. The fees can take away a good portion of your money before you even get a chance to spend it, if you pick the wrong card, so do your homework to help avoid any of the hidden fees you can.
