Tag: Budgeting

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Why Refinance Rates Are Higher Than Purchase Loan Rates

Recent figures from Freddie Mac show that mortgage refinances surged in the first quarter of 2020, with nearly $400 billion first home loans refinanced. However, as it turns out, refinancing your mortgage might actually be more expensive than purchasing a new home. 

This surprised us, too — why would there be a difference at all? 

We investigated how refinancing rates and new purchase home loan rates are set, and found several reasons for this rate disparity. On top of the rate difference, mortgage refinancing is even more difficult to qualify for, given the current economy.

Before rushing to refinance your home, read on to gather the information you need to make the right financial decision for your situation.

Pandemic Effects on Home Lending

Just as mortgage rates have stumbled, banks and lenders have tightened the screws on borrowers due to COVID-19, requiring higher credit scores and down payment amounts. Chase, for example, raised its minimum FICO score requirements for home purchases and refinances to 700 with a down payment requirement of at least 20%. 

Low rates have also driven a massive move to mortgage refinances. According to the same Freddie Mac report, 42% of homeowners who refinanced did so at a higher loan amount so they could “cash out.”

Unfortunately, homeowners who want to refinance might face the same stringent loan requirements as those who are taking out a purchase loan. Mortgage refinance rates are also generally higher than home purchase rates for a handful of reasons, all of which can make refinancing considerably less appealing. 

How Refinance Rates Are Priced

Although some lenders might not make it obvious that their refinance rates are higher, others make the higher prices for a home refinance clear. When you head to the mortgage section on the Wells Fargo website, for example, it lists rates for home purchases and refinances separately, with a .625 difference in rates for a thirty-year home loan. 

There are a few reasons why big banks might charge higher rates to refinance, including:

Added Refinance Fees

In August of 2020, Fannie Mae and Freddie Mac announced it was tacking on a .5% fee on refinance mortgages starting on September 1. This fee will be assessed on cash-out refinances and no cash-out refinances. According to Freddie Mac, the new fee was introduced “as a result of risk management and loss forecasting precipitated by COVID-19 related economic and market uncertainty.”

By making refinancing more costly, lenders can taper the number of refinance loans they have to process, giving them more time to focus on purchase loans and other business.

Lenders Restraining New Application Volume

Demand for mortgage refinancing has been so high that some lenders are unable to handle all requests. Reluctant to add more employees to handle a surge that won’t last forever, many lenders are simply limiting the number of refinance applications they process, or setting additional terms that limit the number of loans that might qualify.

Also note that some lenders are prioritizing new purchase loans over mortgage refinance applications since new home buyers have deadlines to meet. With the housing market also on an upswing in many parts of the country, many major banks and lenders simply can’t keep up.

Rate Locks Cost Money

Generally speaking, it costs lenders more to lock the rate for refinance loans when compared to purchase loans. This is leaving lenders disinterested in allocating resources on the recent surge in mortgage refinance applications.

This is especially true since many refinancers might lock in a rate with one provider but switch lenders and lock in a rate again if interest rates go down. Lenders exist to turn a profit, after all, and it makes sense they would spend their time on loans that provide the greatest return.

Tighter Requirements Due to COVID-19

According to the Brookings Institute, Fannie Mae and Freddie Mac have been asking lenders to make sure any disruption to a borrower’s employment or income due to COVID-19 won’t impact their ability to repay their loan. 

Many lenders are also increasing the minimum credit score borrowers must have while making other requirements harder to meet. As an example, U.S. Bank increased its minimum credit score requirement to 680 for mortgage customers, and it also implemented a maximum debt-to-income ratio of 50 percent.

This combination of factors can make it difficult to save as much money with a refinance, or to even find a lender that’s willing to process your application. With this in mind, run the math and to see if refinancing is right for your situation before contacting a mortgage lender.

How Mortgage Purchase Rates Are Priced

Mortgage purchase rates are priced using a similar method as refinance rates. When you apply for a home mortgage, the lender looks at factors like your credit score, your income, your down payment and your other debt to determine your eligibility.

The overall economy also plays a giant role in mortgage rates for home loans, including purchase loans and refinance loans. Mortgage rates tend to go up during periods of speedy economic growth, and they tend to drop during periods of slower economic growth. Meanwhile, inflation can also play a role. Low levels of inflation contribute to lower interest rates on mortgage loans and other financial products.

Mortgage lenders can also price their loans based on the amount of business they have coming in, and whether they have the capacity to process more loans. They might lower rates to drum up business or raise rates when they’re at or nearing capacity. This is part of the reason rates can vary among lenders, and why it always makes sense to shop around for a home loan.

Many people believe that the Federal Reserve sets mortgage rates, but this is not exactly true. The Federal Reserve sets the federal funds rate, which lenders use to ensure they meet mandated cash reserve requirements. When the Fed raises this rate, banks have to pay more to borrow from one another, and these costs are often passed on to consumers. Likewise, costs can go down when the Fed lowers the federal funds rate, which can mean lower costs and interest rates for borrowers.

The Bottom Line

Refinancing your existing mortgage can absolutely make sense in terms of interest savings, but don’t rule out buying a new home instead. Buying a new home could help you save money on interest and get the space and the features you really want. 

Remember, there are steps you can take to become a more attractive borrower whether you choose to refinance or invest in a new place. You can’t control the economy or the Federal Reserve, but you have control over your personal finances.

Improving your credit score right away, and paying down debt to lower your debt-to-income ratio are just a couple of strategies to start. And if you’re planning on buying a new home, make sure you save a hefty down payment amount. These steps help you improve your chances at getting the best rates and terms whether you choose to move or stick with the home you have. 

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How to Budget Groceries: 11 Easy Tips

Have you ever sat down to go over your budget only to find out that you’ve outrageously overspent on food? Local, organic, artisan goods and trendy new restaurant outings with friends make it easy to do. With food being the second highest household expense behind mortgage or rent, our food choices have a huge impact on our budget. Using this monthly budget calculator can also help guide how to budget for food. 

You may be surprised to find out that the most nutrient-dense foods are often the most budget-friendly. It’s not only possible, but fun and easy to eat nourishing, delicious food while still sticking to your budget. Here are 11 ways to help you learn how to budget groceries.

1. Track Current Spending

Before you figure out what you should be spending on food, it’s important to figure out what you are spending on food. Keep grocery store receipts to get a realistic picture of your current spending habits. If you feel inclined, create a spreadsheet to break down your spending by category, including beverages, produce, etc. Once you’ve done this, you can get an idea of where to trim down spending.

2. Allocate a Percentage of Your Income

How much each household spends on food varies based on income level and how many people need to be fed. Consider using a grocery calculator if you’re not sure where to start. While people spent about 30 percent of their income on food in 1950, this percentage has dropped to 9–12 today. Consider allocating 10 percent of your income to food as a starting point, and increase from there if necessary.

3. Avoid Eating Out

This is the least fun tip, we promise. Eating out is a quick and easy way to ruin your food budget. If you’re actively dating or enjoy going out to eat with friends, be sure to factor restaurants into your food budget — and strictly adhere to your limit. Coffee drinkers, consider making your favorite concoctions at home.

4. Plan Your Meals

It’s much easier to stick to a budget when you have a plan. Plus, having a purpose for each grocery item you buy will ensure nothing goes to waste or just sits in your pantry unused. Don’t be afraid of simple salads or meatless Mondays. Not every meal has to be a gourmet, grandiose experience.

5. Keep a Fridge Grocery List

Keep a magnetized grocery list on your fridge so that you can replace items as needed. This ensures you’re buying food you know you’ll eat because you’re already used to buying it. Sticking to a list in the grocery store is an effective way to keep yourself accountable and not spend money on processed or pricey items — there’s no need to take a stroll down the candy aisle if it’s not on the list.

6. Eat Before You Go to the Store

If your mother gave you this advice growing up, she was onto something: according to a survey, shoppers spend an average of 64 percent more when hungry. Sticking to a budget is all about eliminating temptations, so plan to eat beforehand to eliminate tantalizing foods that will cause you to go over-budget.

7. Be Careful with Coupons

50 percent off ketchup is a great deal — unless you don’t need ketchup. Beware of coupons that claim you’ll “save” money. If the item isn’t on your list, you’re not saving at all, but rather spending on something you don’t truly need. This discretion is key to saving money at the grocery store.

8. Embrace the Bulk Section

Not only is the bulk section of your grocery store great for cheap, filling staples, but it’s also the perfect way to discover new foods and bring variety into your diet. Take the time to compare the price of buying pre-packaged goods versus bulk — it’s almost always cheaper to buy in bulk, plus eliminating unnecessary packaging is good for the planet.

Bonus: a diet rich in unprocessed, whole plant foods provides virtually every nutrient, ensuring optimal health and keeping you from spending an excess amount on healthcare costs.

9. Bring Lunch to Work

Picture this: you’re trying to stick to a strict food budget, and one day at work you realize it’s lunchtime and you’re hungry. But alas, you forgot to pack a lunch. All the meal planning and smart shopping in the world won’t solve the work-lunch-dilemma. Brown-bagging your lunch is key to ensuring your food budget is successful. Plus, it can be fun! Think mason jar salads and Thai curry bowls.

10. Love Your Leftovers

Would you ever consider throwing $640 cash into the trash? This is what the average American household does every year — only instead of cash, it’s $640 worth of food that’s wasted. With millions of undernourished people around the globe, throwing away food not only hurts our budget but is a waste of the world’s resources. Tossing food is no joke. Eat your leftovers.

11. Freeze Foods That Are Going Bad

To avoid wasting food, freeze things that look like they’re about to go bad. Fruit that’s past its prime can be frozen and used in smoothies. Make double batches of soups, sauces, and baked goods so you’ll always have an alternative to ordering takeout when you don’t feel like cooking.

Sticking to a food budget takes planning and discipline. While it may not seem fun at first, you’ll likely find that you enjoy cooking and trying a variety of new foods you wouldn’t have thought to use before. Being resourceful and cooking healthfully is a skill that will benefit your wallet and waistline for years to come.

Sources: Turbo | Fool | Forbes | Medical Daily | GO Banking Rates | Value Penguin

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What’s the Difference Between 401(k) and 403(b) Retirement Plans?

Investing in your retirement early is the best way to ensure financial stability as you age, especially when it comes to understanding various retirement options. Getting started may feel overwhelming — luckily we’re here to help. We help break down the difference between 401(k) and 403(b) accounts, and how they can impact your financial life.

You may already know the value in adjusting your budget to make saving for a rainy day a priority. But are you also prioritizing your retirement savings? If you’re just getting started in the workforce and looking for ways to invest in yourself, 401(k) and 403(b) plans are great options to know about. And, the main difference between a 401(k) and a 403(b) is the company who’s offering them.

401(k) accounts are offered by for-profit companies and 403(b) accounts are offered by nonprofit, scientific, religious, research, or university companies. To understand the similarities and differences between plans in depth, skip to the sections below or keep reading for an in-depth explanation.

How a 401(k) Works
How a 403(b) Works
The Difference Between 401(k) and 403(b)
The Similarities Between 401(k) and 403(b)
5 Ways to Grow Your Retirement Savings
What is a 401(k) and 403(b)

How a 401(k) Works

A 401(k) is a retirement account set up by for-profit employers for employees to contribute before-tax earnings. Employer-sponsored 401(k) accounts give employees the opportunity to build retirement savings in different forms — including company stocks, before-tax earnings, and exchange-traded funds (ETFs).

Each company’s retirement plans may vary on benefits like employee matching, stock options, and more. In addition, you’re able to choose how much you’d like to contribute on a monthly basis. Keep in mind, both 401(k) and 403(b) plans have a yearly limit of $19,500 with your employer matches. Plus, most retirement funds have required minimum distributions (RMDs) by the time you turn 70. This essentially means you have to take a minimum amount of money out each month whether you want to or not.

In most cases, employers will offer 401(k) matching to encourage consistent contributions. For example, your employer match may be 50 cents of every dollar you contribute up to six percent of your salary. For example, with this employer match on a $40,000 salary, you would contribute $200 and your employer would contribute an additional $100 each month. This pattern would continue until your annual contributions hit $2,400 and your employer contributes $1,200.

Employee matching is essentially free money. You’re monetarily rewarded for your retirement payments. Be sure to pay attention to vesting periods when setting up your employer match. Vesting periods are an agreed amount of time you need to work at a company before you receive your 401(k) benefits. For example, some companies may require you to work for their team for a year before earning retirement benefits. Other employers may offer retirement benefits starting the day you start working with them.

How a 403(b) Works

A 403(b) is a retirement account made by employers for tax-exempt, charitable nonprofit, scientific, religious, research, or university employees. Organizations that qualify for 403(b) accounts include school boards, public schools, churches, hospitals, and more. This type of account is also known as a tax-sheltered annuity plan — they allow pre-tax income to be invested until taken out.

Employers that offer 403(b) retirement plans may offer a pool of provider options that undergo nondiscrimination testing. This allows employers that qualify for this account to shop around for plans that offer the best benefits and don’t discriminate in favor of highly compensated employees (HCEs). For instance, some 403(b) accounts may charge more administrative fees than others.

Employers are able to offer employee matching on 403(b) accounts if they decide to. To cut costs for nonprofit companies, 403(b) retirement plans generally cost less than 401(k) accounts. Costs associated with starting up these accounts may not affect you, but it may affect your employer.

Account Type 401(k) 403(b)
Yearly Contribution Limit $19,500 $19,500
Employer-Issued Packages For-profit employers:
Corporations, private establishments, etc. and sole proprietors		 Non-profit, scientific, religious, research, or university employers:
School boards, public schools, hospitals, etc.
Minimum Withdrawal Age 59.5 years old 59.5 years old
Early Withdrawal Fees 10% penalty, tax, and additional fees may vary 10% penalty, tax, and additional fees may vary
Source: IRS.org

The Differences Between 401(k) and 403(b)

Both a 401(k) and 403(b) are similar in the way they operate, but they do have a few differences. Here are the biggest contrasts to be aware of:

  • Eligibility: 401(k) retirement plans are issued by for-profit employers and the self employed, 403(b) retirement plans are for tax-exempt, non-profit, scientific, religious, research, or university employees. As well as Hospitals and Charities.
  • Investment options: 401(k)s offer more investment opportunities than 403(b)s. 401(k) accounts may include mutual funds, annuities, stocks, and bonds, while 403(b) accounts only offer annuities and mutual funds. Each employer varies in retirement benefits — reach out to a trusted financial advisor if you have questions about your account.
  • Employer expenses: 401(k) accounts are generally more expensive than 403(b) accounts. For-profit 401(k) accounts may pay sales charges, management fees, recordkeeping, and other additional expenses. 403(b) plans may have lower administrative costs to avoid adding a burden for non-profit establishments. These costs vary depending on the employer.
  • Nondiscrimination testing: This form of testing ensures that 403(b) retirement plans are not offered in favor of highly compensated employees (HCEs). However, 401(k) plans do not require this test.

The Similarities Between 401(k) and 403(b)

Aside from their differences, both accounts are set up to aid employees in retirement savings. Here’s how:

  • Contribution limits: Both accounts cap your annual contributions at $19,500. In the event you contribute over this limit, your earnings will be distributed back to you by April 15th. If you’re under your retirement contributions by the time you’re 50 years old, you’re allowed to make catch-up contributions. This means that, if you’re eligible, you can contribute $6,500 more than the yearly contribution limit.
  • Withdrawal eligibility: You must be at least 59.5 years old before withdrawing your retirement savings. In the case of an emergency, you may be eligible for early withdrawal. However, you may be charged penalties, taxes, and fees for doing so.
  • Employer matching: Both retirement account options allow employers to match your contributions, but are not required to. When starting your retirement fund, ask your HR representative about potential benefits and employer matching.
  • Early withdrawal penalties: If you choose to withdraw your retirement savings early, you may be penalized. In most cases, you need a valid reason to withdraw your funds early. Eligible reasons may include outstanding debt, bankruptcy, foreclosure, or medical bills. In addition, you may be charged a 10 percent penalty fee, taxes, and other fees. During a downturned economy, as we’ve seen with the COVID-19 pandemic, fees may be waived.

5 Ways to Grow Your Retirement Savings

5 Ways to Grow Your Retirement Savings

Contributing to a 401(k) or 403(b) can help grow your investments at a reduced risk. You’re able to grow your non-taxed income to put towards your future goals. The more you contribute, the more you may have by the time you retire. Here are a few tips to get ahead of the game and invest in your financial future.

1. Create a Retirement Account Early

It’s never too late to start a retirement account. If you’re currently employed, but haven’t set up your retirement account, reach out to your HR representative. Ask about retirement plan options and their benefits. When employers offer retirement matches, consider contributing as much as you can to meet their match.

2. Set up Monthly Automatic Contributions

Save time and energy by setting up automatic contributions. You may feel less interested in contributing to your retirement as your payday approaches. Taking time to set up a retirement fund and budgeting for this change may be holding you back. To meet your retirement goals, consider setting up automatic payments through your employer. After a while, you may not even notice the slight budget adjustment.

3. Leverage Employer Matching

Employer matching is essentially free money. Employers may put money towards your future for nothing but your own contribution. This encourages employees to consistently put money towards their retirement savings. Not only are you able to earn extra money each month, but this “free money” will grow with interest over time. If you can, match your employer’s contribution percentage, if not more.

4. Avoid Early Withdrawal

Credit card balances, student loans, and mortgages can be stressful. Instead of withdrawing early from your retirement fund to pay for these, consider other debt payoff methods. If you’re eligible to withdraw from your retirement early, you may face penalty fees, taxes, and administrative expenses. This may hinder your savings potential or push back your desired retirement date.

5. Contribute Your Future Raises and Bonuses

If you’re saving less than $19,500 to your retirement fund this year, consider contributing more. If you earn a bonus or a raise, stick to your current budget and consider increasing your contributions. Ask your employer to increase your retirement payments right before you receive a bonus or raise. The more you contribute, the more interest you’ll accrue over time.

Whether your retirement funds are established through a 401(k) or a 403(b), these accounts offer you the chance to build your financial portfolio. Consistently funding your retirement account may better your financial plan and set you at ease. As your contributions age, so do your interest earnings. You’ll be able to make money on your pre-taxed income and set your future self up for success. Get started by checking in on your budget and carving out a specific amount to put towards your retirement each month.

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8 Ways to Save Money on Date Night

Planning budget-friendly date nights can keep your relationship and your finances healthy.

Whether you’re cozying up on the couch together with a bottle of wine or headed out to the trendy restaurant everyone’s talking about, date night is an essential part of most relationships.

“Date nights are important because they give new couples a chance to get to know each other and established couples a chance to have fun or blow off some steam after a rough week,” says Holly Shaftel, a relationship expert and certified dating coach. “Penciling in a regular date can ensure that you make time for each other when your jobs and other aspects of your life might keep you busy.”

Finding ways to spend less on date night can be easy if you're willing to be creative.

There’s just one small snag. Or, maybe it’s a big one. Date nights can get expensive. According to financial news website 24/7 Wall St., the cost of an average date consisting of two dinners, a bottle of wine and two movie tickets is about $102.

When you’re focused on improving your finances as a couple, finding ways to spend less on date night is a no-brainer. But you may be wondering: How can we save money on date night and still get that much-needed break from the daily grind?

There are plenty of ways to save money on date night by bringing just a little creativity into the mix. Here are eight suggestions to try:

1. Share common interests on the cheap

When Shaftel and her boyfriend were in the early stages of their relationship, they learned they were both active in sports. They were able to plan their date nights around low-cost (and sometimes free) sports activities, like hitting the driving range or playing tennis at their local park.

One way to save money on date night is to explore outdoor activities.

If you’re trying to find ways to spend less on date night, you can plan your own free or low-cost date nights around your and your partner’s shared interests. If you’re both avid readers, for example, even a simple afternoon browsing your local library’s shelves or a cool independent bookstore can make for a memorable time. If you’re both adventurous, check into your local sporting goods stores for organized hikes, stargazing outings or mountaineering workshops. They often post a schedule of events that are free, low-cost or discounted for members.

2. Create a low-budget date night bucket list

Dustyn Ferguson, a personal finance blogger at Dime Will Tell, suggests using the “bucket list” approach to find the best ways to save money on date night. To gather ideas, make it a game. At your next group gathering, ask guests to write down a fun, low-budget date night idea. The host then gets to read and keep all of the suggestions. When Ferguson and his girlfriend did this at a friend’s party, they submitted camping on the beach, which didn’t cost a dime.

The cost of an average date consisting of two dinners, a bottle of wine and two movie tickets is about $102.

– Financial news website 24/7 Wall St.

To make your own date night bucket list with the best ways to save money on date night, sit down with your partner and come up with free or cheap activities that you normally wouldn’t think to do. Spur ideas by making it a challenge—for instance, who can come up with the most ideas of dates you can do from the couch? According to the blog Marriage Laboratory, these “couch dates” are no-cost, low-energy things you can do together after a busy week (besides watching TV). A few good ones to get your list started: utilize fun apps (apps for lip sync battles are a real thing), grab a pencil or watercolors for an artistic endeavor or work on a puzzle. If you’re looking for even more ways to spend less on date night, take the question to social media and see what turns up.

3. Alternate paid date nights with free ones

If you’re looking for ways to spend less on date night, don’t focus on cutting costs on every single date. Instead, make half of your dates spending-free. “Go out for a nice dinner one week, and the next, go for a drive and bring a picnic,” says Bethany Palmer, a financial advisor who authors the finance blog The Money Couple, along with her husband Scott.

4. Have a date—and get stuff done

Getting stuff done around the house or yard may not sound all that romantic, but it can be one of the best ways to save money on date night when you’re trying to be budget-conscious. And, tackling your to-do list—like cleaning out the garage or raking leaves—can be much more enjoyable when you and your partner take it on together.

5. Search for off-the-wall spots

If dinner and a movie is your status quo, mix it up with some new ideas for low-cost ways to save money on date night. That might include fun things to do without spending money, like heading to your local farmer’s market, checking out free festivals or concerts in your area, geocaching—outdoor treasure hunting—around your hometown, heading to a free wine tasting or taking a free DIY class at your neighborhood arts and crafts store.

“Staying creative allows you to remain flexible and not bound to simply doing the same thing over and over,” Ferguson says.

6. Leverage coupons and deals

When researching the best ways to save money on date night, don’t overlook coupon and discount sites, where you can get deals on everything from food, retail and travel. These can be a great resource for finding deep discounts on activities you may not try otherwise. That’s how Palmer and her husband ended up on a date night where they played a game that combined lacrosse and bumper cars.

Turn to coupons and money-saving apps for fun ways to save money on date night.

There are also a ton of apps on the market that can help you find ways to save money on date night. For instance, you can find apps that offer discounts at restaurants, apps that let you purchase movie theater gift cards at a reduced price and apps that help you earn cash rewards when shopping for wine or groceries if you’re planning a date night at home.

7. Join restaurant loyalty programs

If you’re a frugal foodie and have a favorite bar or restaurant where you like to spend date nights, sign up for its rewards program and newsletter as a way to spend less on date night. You could earn points toward free drinks and food through the rewards program and get access to coupons or other discounts through your inbox. Have new restaurants on your bucket list? Sign up for their rewards programs and newsletters, too. If you’re able to score a deal, it might be time to move that date up. Pronto.

8. Make a date night out of budgeting for date night

When the well runs dry, one of the best ways to save money on date night may not be the most exciting—but it is the easiest: Devote one of your dates to a budgeting session and brainstorm ideas. Make sure to set an overall budget for what you want to spend on your dates, either weekly or monthly. Having a number and concrete plan will help you stick to your date night budget.

“Staying creative allows you to remain flexible and not bound to simply doing the same thing over and over.”

– Dustyn Ferguson, personal finance blogger at Dime Will Tell

Ferguson says he and his girlfriend use two different numbers to create their date night budget: how much disposable income they have left after paying their monthly expenses and the number of date nights they want to have each month.

“You can decide how much money you can spend per date by dividing the total amount you can allocate to dates by the amount of dates you plan to go on,” Ferguson says. You may also decide you want to allot more to special occasions and less to regular get-togethers.

Put your date night savings toward shared goals

Once you’ve put these creative ways to save money on date night into practice, think about what you want to do with the cash you’re saving. Consider putting the money in a special savings account for a joint purpose you both agree on, such as planning a dream vacation, paying down debt or buying a home. Working as a team toward a common objective can get you excited about the future and make these budget-friendly date nights feel even more rewarding.

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How To Become a Freelancer and Make a Full-Time Income

Today, I have a fun interview to share with you that will show you how to become a freelancer.

I recently had the chance to interview Ben Taylor. Ben has been freelancing since 2004, and he has worked for dozens of companies.

Yes, this is a career path that you can learn!

As Ben will tell you in the interview below, a freelancer can be anything. You can be a freelance designer, personal trainer, nutrition coach, online teacher, virtual assistant, writer, and more.

If you are looking for a new business or even just a side hustle so that you can learn how to make extra money, learning how to become a freelancer may be something that you want to look into.

In this interview, you will learn:

  • What a freelancer is, who they work for, what they do, etc.
  • How much a new freelancer should expect to earn
  • How a person can find their first freelancing job
  • The steps needed to take to make money as a freelancer

And much more!

He also has an informative course called Freelance Kickstarter. This course takes you through the step by step process of creating your own freelance business.

Check out the interview below for more information.

How to become a freelancer.

1. Please give us a background on yourself and how you started as a freelancer.

I’m Ben, and I live by the sea in England with my wife and two young sons.

I started a career in tech back in 1998, and by 2004 was Head of IT for a government department. It didn’t take long for me to tire of company politics, and the endless meetings that were more about displays of ego than really getting anything done.

I came from an entrepreneurial family and my parents both had businesses rather than jobs. The businesses weren’t always successful, and there were definitely periods of “feast and famine.” However, I was well used to that and I think that branching out on my own was something I was destined to do.

My move into freelancing splits into a couple of clear phases:

Initially, in 2004, I quit my IT job, walking away from business class travel and a gold-plated pension with nothing more than a vague plan to begin to work as a freelancer!

I started to provide IT support and consultancy to both businesses and individuals. I do actually still do some of that work for a select group of long-term clients, but by 2009 I had managed to burn myself out with it. The business was going well, but I was working ridiculously long days and every holiday I tried to take was interrupted by constant phone calls and emails.

So phase two began when I sold off most of my client-base and moved to Portugal! That’s when I really started to broaden my freelance horizons. I had to start from scratch, with an unclear intention to start writing for a living, and no real plan for how to do it.

I did lots of things, including wasting a LOT of time down fruitless blind alleys. I wrote for content mills, started blogs, found clients on freelance job boards, and – slowly and steadily – started to build my income back up. The difference was that I was doing it all completely on my terms with work I really enjoyed. 

I was also living in a dream destination whilst doing it.

2. Can you explain what exactly a freelancer is, who they work for, what they do, etc.?

This seems like a basic question, but it’s very worthwhile. There’s a considerable difference between freelancing and remote working that not everybody appreciates.

First off, a freelancer can be anything. For some reason many people immediately think of writing when they think about freelancing. But you can be a freelancer designer, personal trainer, nutrition coach, online teacher, virtual assistant, and dozens of other things.

It’s also worth noting you don’t only have to be one of those things. I AM a freelancer writer, but I also still dabble in IT consultancy, run my own blogs, provide coaching, and even build websites for people (if they ask nicely and the price is right!)

Regardless of what you do as a freelancer, the important thing to realise is that you are running your own business. The big plus of this is that you are in total charge. But the big negative is that you don’t have any of the safety nets you have if you are employed by a single company. This means you’re responsible for everything from your own insurance and healthcare to your own technical support!

Freelancers typically work for several different clients. There are myriad places to find those clients. It’s quite common for freelancers to find clients within their existing professional networks, and not at all unusual for ex-employers to be among them. Then there are freelance job boards like Upwork and PeoplePerHour, which provide an endless stream of new opportunities.

3. How much should a new/beginner freelancer expect to earn?

This is an incredibly difficult question to answer! I can think of one freelancer I coached who’s in a very specific writing niche. He went onto Upwork with an initial rate of $100 per hour and found lots of work. I started out in IT consultancy charging a similar rate and was quickly earning more than I did in my full-time job.   

However, at the other end of the scale there are people with limited experience or specialist skills who will need to pay their dues. This means building the foundations of a freelance career by proving yourself and taking low paying jobs to build up examples of work and positive feedback. My move into writing was much more like this!

I think “job replacement income” is a useful target for new freelancers to keep in mind. That can vary vastly from individual to individual. Obviously replacing and exceeding a corporate-level income takes much more than freelancing as an alternative to a part-time, entry-level job. That said, people with senior-level experience command much higher freelance rates.

Related content: 20 Of The Best Entry Level Work From Home Jobs

4. What do you like about being a freelancer?

Not having a boss!

The difference in lifestyle is massive when you work for yourself. This is always brought home to me when I’m making plans with friends and family, and people say “I’ll see if I can get the time off.”

This makes me shudder, because it’s SO alien to me now. The example I always use is that I never have to ask anybody before I can tell my children I’ll be at their sports day or nativity play.

When you have what I call a “traditional job,” you DO have the security of healthcare, and perhaps things like holiday and sick pay. But you give up a tremendous amount of freedom in return. Freelancing is profoundly different, and it’s rare to find people who’ve given it a go that would ever choose to go back to full-time employment.

So that’s a huge thing for me, but there are other huge benefits too. I love the fact I can pivot into different things, which always allows me to keep things fresh.

About four times a year I reassess my priorities and lay out new goals for the short, medium and long term. They might involve starting a new blog, writing another book, learning a new marketable skill. For somebody like me who relishes variety, I love having total control of this.

5. How can a person find their first freelancing job?

There are SO many ways to find freelance jobs. I have an article listing 50 different options!

However, they broadly split into two categories that I call “real world” and “online world.”

It’s always worth starting out by thinking of your real life networks. As I’ve said, many freelancers do their first self-employed work for people who already know them. I’d advise people to think about any contacts who’ve already seen the kind of work they’re capable of. These are “warm leads” that are well worth perusing.

It makes sense to think about personal contacts as well as business contacts, too. Plenty of freelancers find clients who are their “wife’s best friend’s brother” or something like that!

Remaining in the “real world,” there are also options like local business groups and networking events – although they are obviously far less accessible at the present time.

Moving to the online world, the freelance job boards are the place to be. They can be intimidating places initially, and it’s crucial to learn how to use them and how to avoid scammers and low paying clients. But there are plenty of great clients out there, including many household name companies who use those boards to hire freelancers.

Often, a quick one-off $50 job can evolve into a long and lucrative client relationship. My wife and I both have clients who we first met on the freelance boards years ago. We still work with them now.

There’s no one-size-fits-all answer to where to find the first client, but there are options for everybody.

setting rates when learning how to become a freelancer

setting rates when learning how to become a freelancer

6. How does a freelancer decide what to set their rates at?

This is a question I’m asked a LOT! The answer leads to lots more questions, and I think many of my readers are disappointed when I don’t just give them an answer of “$x per hour” or “$x per article!”

It’s a subject I cover in my Freelance Kickstarter course, and I’m happy to share a slide from that particular lesson here. The factors to consider include tangible things like the “market rates” for specific types of work, and how each client’s geographical location could impact how much they expect to pay.

But there’s much more to consider beyond that: How much does the gig align with your long-term goals? Will the job produce a great example of work that will help you win more clients in the future? Is this a job that could lead to on-going, long-term work?

I guess a simpler answer is that your rate needs to be fair and competitive, and sufficient to make it worth your while to do the job. However, the rate for each job really needs to be assessed on a case-by-case basis.

The reality is that there are millions of freelancers out there charging vastly different rates, often for very similar services. There’s a bit of an art to working out where you sit on the pricing spectrum, but it’s an art you can learn, and it gets easier with experience.

7. What steps does a person need to take to make money as a freelancer?

The first and most important is working out what it is you actually want to do. That may seem obvious, but my inbox is full of emails from people asking what they should do, without telling me what they’re capable of and what kind of work would make them happy.

I will attempt to lay it out in a fairly simple series of steps:

  1. Work out what skills you have and what market there is for them.
  2. Look at who else is providing those services, what they charge, and what you can provide that will make you stand out and appeal to clients.
  3. Identify any gaps in your knowledge and experience, and work to fill them. This could mean doing some training, or doing some voluntary jobs to bulk out your portfolio.
  4. Establish a personal brand. This isn’t as big a deal as it sounds, but does mean having a solid resumé and LinkedIn profile, and sometimes some other ways to demonstrate your expertise.
  5. Learn how the freelance job boards work. Even if you have a rich personal network to draw on, it’s wise to understand the wider world of freelancing.
  6. Put yourself out there, and start pitching and applying for things.
  7. Make sure you provide perfect work and delight your clients, so that they want to work with you again and recommend you to others.

Repeating and refining these steps is the essence of becoming a successful freelancer.

8. How much does it cost to start this type of business and how much on a monthly basis to maintain it?

Freelancing is generally a low-cost venture, but that’s not to say it’s free. Depending on what you do, you may need specialist equipment and / or software. And if you’re switching from an employed position, you may have to buy things like this yourself for the first time.

A good computer is a must, as it’s often the key tool of your trade. You may also need to budget for things like insurance, possibly including healthcare cover if you are somewhere like the US where this isn’t covered by tax payments.

When it comes to monthly costs, the main things I pay for include software subscriptions and insurance policies. Thankfully these tend to build over time and no individual thing is particularly expensive. You can start out as an online freelancer without even having a personal website, and add things like that once you gain some momentum.

I also recommend budgeting for ongoing training and learning. Thankfully there are all kinds of ways to learn online inexpensively. Companies have training budgets, but when you’re a freelancer, keeping your skills on point is on you.

9. What kind of training is needed to become a freelancer?

I’d say the training splits into two: learning about freelancing itself, and building skills around the specific work you want to do.

Courses like my own Freelance Kickstarter cover the first part. Freelancing is a skill in itself, and we’ve covered some of the important areas in this interview already. Stuff like setting rates isn’t immediately obvious, so learning from those who have been there and done it already is very valuable.

When it comes to skills-specific training it depends what work you’re doing. Let’s say somebody wanted to work as a freelance social media manager. Not that long ago it would have been all about Twitter and Facebook. Nowadays Pinterest is a much bigger deal for many people, and TikTok is emerging as the latest trend.

So as that freelancer, you need to decide what you’re going to focus on. Do you want to be the “go-to guru” for TikTok, or be more of a generalist with social media in general?

It’s wonderful to have the choice.

10. Are there any other tips that you have for someone who wants to become a freelancer?

I have many!

The one I repeat over and over is that you have to eventually go for it and make the jump. I see a lot of people who never get past the “thinking about it” phase. Meanwhile the go-getters have taken the leap of faith and started to build success.

Moving to freelancing is one of those things where there may never be a perfect time to do it. Those who keep waiting for that time to arrive can easily find themselves looking back ten years later with the same commute and the same job.

Another thing I’m like a broken record about is the importance of “paying your dues.” There are often plenty of less-than-ideal gigs to finish successfully before you arrive at the amazing ones.

I wrote about some really dull topics in my early days of freelance writing, for example. But I had to wade through that stuff to build my reputation. It all felt thoroughly worth it a few years later when I was being well paid for travel articles and restaurant reviews!

You learn something from every job along the way: How to handle clients, renegotiate rates, refine your skills, and get work done more efficiently so that you’re boosting the value of your time. Freelancing isn’t supposed to be easy but it’s almost always challenging, interesting and rewarding.

And let’s face it, many people don’t feel that way about their jobs.

11. What can a person learn from your course? Can you tell us about some of the people who have successfully taken your course?

OK, so Freelance Kickstarter expands on all of the topics I’ve touched on here, and many others. It’s intended to remove confusion, and that feeling of overwhelm that often descends when researching this stuff online. It helps new freelancers make a clear plan for getting started. As the strapline goes, the idea is that people “stop wasting time, and start making money!”

I never intended to create a course, but after running the HomeWorkingClub website for several years, it became clear there was a space for something like this. I make it very clear that it’s not some kind of “get rich quick” scheme.

To be brutally honest, I don’t want students who are looking for shortcuts. There is real hard work involved in being a successful freelancer, but it’s a more than viable option for those willing to do what’s required.

The course starts with the basics of working out what you can do and want to do, and presents LOTS of different options. It then moves on to auditing your skills and experience, building your brand, and working out your own personal goals. I particularly like that section because it helps people learn the exact process I use myself every few months to keep things moving forward.

The next lessons cover finding clients, and there’s a big module on learning how to use freelance job boards like Upwork. Once people have completed this, they will know how to uncover the good and genuine jobs, and how to side-step the time-drains and scams.

Students also learn about setting rates, and all the other practicalities of running a freelance business, from getting the tech right to taking undisturbed holidays! We also cover side gigs, and long-term slow-burn projects like blogs and self-published books.

I provide personal support on the course, and people can ask me all the questions they need as they go along. There are also regular exclusive podcasts with extra advice and news of industry developments and new opportunities.

In terms of people who have already taken the course, I recently published a case study from a lady called Lyn. She now has “more work than she can handle” as a freelance writer working via Upwork. Two things that have particularly pleased me about her situation is that she’s cherry-picking projects that interest her, and that she’s been able to do exactly what I suggest in increasing her rates as she builds experience and reputation.

I’ve also had great feedback from people at a much earlier stage. I’ve kept the course price low so that people can use it to help decide if freelancing is for them – just dipping their toes in for the first time.

As one student said, the course is “ideal if you are considering going freelance and don’t know where or when to start, or even if freelancing is for you.”

Several of the testimonials so far have aligned perfectly with the original objective, which was – essentially – to help people see the wood for the trees in an environment than can seem very daunting to begin with.

I set out to create the course I wish I’d had! I’ve made more than my fair share of mistakes in over 16 years of freelancing. The people taking Freelance Kickstarter should hopefully be able to avoid the same ones!

Click here to learn more about Freelance Kickstarter.

 Are you interested in learning how to become a freelancer?

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Source: makingsenseofcents.com

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How to Manage Your Debt Effectively

Love it or hate it, debt is an integral part of modern life in the United States. And, when you think about it, debt in itself really isn’t a bad thing. Neither are credit cards or loans.

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They only become a potentially negative thing when they’re misused or mismanaged. And once they get out of control, they can head down a long spiral and bring you down with them.

The wise use of debt — whether it’s revolving (like credit cards and lines of credit) or fixed (like a secured car loan or mortgage) — is like the skillful use of the right tool at the right time for the right purpose.

So, it’s important to realize that avoiding debt isn’t really the answer. In fact, trying to go through life without incurring any debt or using credit can be unnecessarily difficult and troublesome. It can even impact non-credit-related situations like renting an apartment. The skill Americans truly need to focus on developing is how to manage debt effectively.

Following are 7 tips to help you manage your debt more effectively:

1. Think Before You Sign

Banks, retailers, and many other organizations make credit very easy to obtain if you have a good credit score.

Nearly every department store or specialty shop has its own credit card that you can sign up for instantly while you’re making a purchase, and it often comes with the enticement of an immediate discount off your purchase.

Even if your credit score isn’t very good, there are many lenders who are willing to offer credit at high interest rates, from 25% APR credit cards to 33% payday loans.

The point to keep in mind is that lenders and retailers want you to spend money with them. They’re not concerned in the least with what more debt is going to do to your budget, your lifestyle, or your future.

So, the first tip is simple:

2. Avoid Applying for Credit Impulsively

Don’t sign up for additional credit as an impulse buy or based on desperation. It’s always going to be a bad idea under those circumstances.

However, if you frequent a certain store and routinely spend money there anyway, and you’re confident you can be responsible with a new credit line, it may be beneficial to sign up. The point is, that needs to be a conscious decision, not a second thought for the sake of a one-time 15% discount.

3. Educate Yourself About Your Credit Score

Your credit score is a 3-digit number calculated by credit reporting agencies based on a number of factors, many of which the average American couldn’t even name. While it may seem somewhat arbitrary, that doesn’t change the fact that that 3-digit number can determine:

  • Whether you qualify for a 0% introductory interest rate or have to settle for a rate that fluctuates at “prime plus 23%”.
  • Whether you’re considered financially trustworthy or not, and therefore whether a landlord will rent to you or certain employers will hire you.
  • Whether or not you can afford to buy your own house one day.
  • And much more…

There are numerous situations that are partially or fully out of your control that can result in damage to your credit score. However, much of the damage done could be avoided if consumers simply understood the basic factors that affect their credit score. Then, they could actively work to improve a bad score or maintain a good one.

So, our second tip is: Seek out reliable information about managing debt effectively and educate yourself, so you’re equipped to take strategic action.

4. Assess Your Current Debt Situation

As you learn more about managing debt and understanding your credit score, you’ll begin learning terms like credit utilization ratio and debt-to-income (DTI) ratio. These simple calculations have a huge impact on your score, and on how willing lenders may be to offer you favorable terms or to offer any credit at all.

  • Credit utilization ratio is the percentage of your currently available credit that you’re already using. (A simple example: If you own one credit card with a $1,000 credit limit, and it has a current balance of $200, you have a credit utilization ratio of 20%.)
  • Debt-to-income ratio is the percentage of your monthly or annual income that goes toward paying off debt you’ve already incurred. (Another simple example: If you earn $6,000 per month and the combined total of your existing car loan, mortgage, and minimum credit card payments amount to $2,000, you have a debt-to-income ratio of 33%.)

There are other important factors as well, but these two figures form a significant part of the calculation when determining your credit score. If they’re going to offer you the best possible terms, lenders want to be relatively confident you’re able to easily afford to pay for the credit they’re offering you.

They can make that decision based, in part, on how much of your current reliable income is already going toward other debt you’ve incurred in the past, as well as how much of your available credit you’ve taken advantage of thus far.

5. Keep Your Credit Utilization Ratio Low

If you already have four credit cards and they’re all maxed out, when you apply for a new credit card, it’s a pretty good bet you’re going to max that one out too. You already have a 100% credit utilization ratio.

This shows you’re probably not great at managing debt, and there’s a good chance you’ll eventually overdraw your ability to pay. So, the credit card company may decline your application, or they may offer a lower credit limit and/or a higher interest rate to help mitigate their risk.

Of course, if your income is such that, even with all those maxed-out cards, you’re having no trouble at all making the monthly payments, (your DTI ratio is still low,) they may not worry about your utilization at all. And that’s where debt tends to snowball quickly and dangerously.

To sum up, here’s the tip: To improve your credit score and make sure you’re managing your debt effectively, you should shoot to maintain a credit utilization ratio and a DTI ratio of no more than 30%. In other words, you’re taking advantage of available credit, but you’re coming nowhere near the maximum you can afford to spend on it.

6. Make and Keep a Budget

This one requires very little explanation. Everyone realizes that creating a budget is necessary if you’re going to manage your spending. The more formal your budget, the better.

If you’re currently in good shape, your credit score is high and your debt is low, A strategic budget can help keep it that way while improving important tools like emergency savings and investments.

If you’re on the other end of the spectrum, your credit score is low and/or your debt is getting out of control. A budget can be the lifeline you need to slowly but surely pull yourself out of that downward spiral one penny at a time.

The formula is very simple: Income > Expenses.

Of course, putting it into practice is a little more challenging. There are plenty of tools available, from a pile of envelopes with cash set aside for various expenses to smartphone apps, but the real value of budgeting depends on your own self-discipline and willingness to stick to the plan you create.

So, for this tip: Make a budget that consistently keeps your income above your expenses, and do everything you possibly can to stick to it.

7. Get Professional Help with Credit Repair If It’s Needed

While all of the above tips are self-serve actions you can take right now to make a difference in your debt management, many Americans are already in a situation where it may not be possible to turn it around completely on their own.

For instance, if the loss of a job, divorce, military deployment, or other major life events caused you to unexpectedly rely on credit cards for months, you may be in a desperate situation that isn’t really even your fault.

Likewise, if you’re like so many Americans who grew up, finished school, and left home without ever learning the basics of financial responsibility, you may have gotten in over your head in debt without even realizing that was possible.

No matter what the reason is for your current situation, you don’t have to go it alone.

Hire a Credit Repair Company

Get in touch with a reputable credit repair agency and discuss your situation with a professional who can help. For a small fee, they can take the reins on your situation by:

  • Investigating your credit report to confirm its accuracy and completeness
  • Working with creditors on your behalf to negotiate payment plans or better terms
  • Disputing errors and eliminating inconsistencies on your report
  • Setting up a realistic budget and debt reduction plan
  • Guiding you through the challenges that will inevitably rise as you resolve your situation

So, the final tip is this: If you need help getting out of snowballing debt and getting yourself to the point that you can effectively manage it going forward, don’t hesitate. Get the help you need.

In modern America, completely avoiding debt is not only difficult, it’s potentially harmful. However, incurring debt without managing it effectively can be even worse. Follow the tips above, and you’re sure to get a solid handle on debt and use it skillfully.

Source: crediful.com

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Debt Settlement vs Bankruptcy: Which is Best?

  • Get Out of Debt

You’ve tried debt payoff strategies, balance transfers, consolidation, and even debt management; you’ve begged your creditors, liquidated your assets, and pestered your friends and families for any money they can afford, but after all of that, you still have more debt than you can handle.

Now what?

Once you reach the end of your rope, the options that remain are not as forgiving as debt management and they’ll do much more damage to your credit score than debt payoff strategies. However, if you’ve tried other forms of debt relief and nothing seems to work, all that remains is to consider debt settlement and bankruptcy.

Debt settlement is a very good way to clear your debt. It’s one of the cheapest and most complete ways to eradicate credit card debt and can help with most other forms of unsecured debt as well. Bankruptcy, on the other hand, is a last resort option for debtors who can’t meet those monthly payments and have exhausted all other possibilities.

But which option is right for you, should you be looking for a debt settlement company or a bankruptcy attorney?

Similarities Between Bankruptcy and Debt Settlement

Firstly, let’s look at the similarities between bankruptcy and debt settlement, which are actually few and far between. In fact, beyond the fact that they are both debt relief options that can clear your debt, there are very few similarities, with the main one being that they both impact your credit score quite heavily.

A bankruptcy can stay on your credit report for up to 10 years and do a lot of damage when it is applied. It may take several years before you can successfully apply for loans and high credit lines again, and it will continue to impact your score for years to come.

Debt settlement is not quite as destructive, but it can reduce your credit score in a similar way and last for up to 7 years. Accounts do not disappear in the same way as when you pay them in full, so future creditors will know that the accounts were settled for less than the balance and this may scare them away.

In both cases, you could lose a couple hundred points off your credit score, but it all depends on how high your score is to begin with, as well as how many accounts you have on your credit report and how extensive the settlement/bankruptcy process is.

Differences Between Bankruptcy and Debt Settlement

The main two types of bankruptcy are Chapter 7 and Chapter 13. The former liquidates assets and uses the funds generated from this liquidation to pay creditors. The latter creates a repayment plan with a goal of repaying all debts within a fixed period of time using an installment plan that suits the filer.

Debt settlement, on the other hand, is more of a personal process, the goal of which is to offer a reduced settlement sum to creditors and debt collectors, clearing the debts with a lump sum payment that is significantly less than the balance.

Chapter 7 Bankruptcy and Chapter 13 Bankruptcy

When people think of bankruptcy, it’s often a Chapter 7 that they have in mind. With a Chapter 7 bankruptcy, all non-exempt assets will be sold, and the money then used to pay lenders. There are filing costs and it’s advised that you hire a bankruptcy attorney to ensure the process runs smoothly.

Chapter 7 bankruptcy is quick and complete, typically finishing in 6 months and clearing most unsecured debts in this time. There is no repayment plan to follow and no lawsuits or wage garnishment to worry about.

Chapter 13, on the other hand, focuses on a repayment plan that typically spans up to 5 years. The debts are not wiped clear but are instead restructured in a way that the debtor can handle. This method of bankruptcy is typically more expensive, but only worthwhile for debtors who can afford to repay their debts.

Filing for bankruptcy is not easy and there is no guarantee you will be successful. There are strict bankruptcy laws to follow and the bankruptcy court must determine that you have exhausted all other options and have no choice but to file.

Bankruptcy will require you to see a credit counselor, which helps to ensure that you don’t make the same mistakes in the future. This can feel like a pointless and demeaning requirement, as many debtors understand the rights and wrongs and got into a mess because of uncontrollable circumstances and not reckless spending, but sessions are short, cheap, and shouldn’t cause much stress.

How Debt Settlement Works

The goal of debt settlement is to get creditors to agree to a settlement offer. This can be performed by the debtor directly, but it’s often done with help from a debt settlement company.

The debt specialist may request that you stop making payments on your debts every month. This has two big benefits:

1. More Money

You will have more money in your account every month, which means you’ll have more funds to go towards debt settlement offers. 

The idea of making large lump sum payments can seem alien to someone who has a lot of debt. After all, if you’re struggling to make $400 debt payments every month on over $20,000 worth of debt, how can you ever hope to get the $5,000 to $15,000 you need to clear those debts in full?

But if you stop making all payments and instead move that money to a secured account, you’ll have $4,800 extra at the end of the year, which should be enough to start making those offers and getting those debts cleared.

2. Creditor Panic

Another aspect of the debt settlement process that confuses debtors is the idea that creditors would be willing to accept reduced offers. If you have a debt worth $20,000 and are paying large amounts of interest every month, why would they accept a lump sum and potentially take a loss overall?

The truth is, if you keep making monthly payments, creditors will be reluctant to accept a settled debt offer. But as soon as you start missing those payments, the risk increases, and the creditor faces the very real possibility that they will need to sell that debt to a collection agency. If you have a debt of $20,000, it may be sold for as little as $20 to $200, so if you come in with an offer of $10,000 before it reaches that point, they’ll snap your hand off!

Types of Debt

A debt settlement program works best when dealing with credit card debt, but it can also help to clear loan debt, medical bills, and more. Providing it’s not government debt or secured debt, it will work. 

With government debt, you need specific tax relief services, and, in most cases, there is no way to avoid it. With secured debt, the lender will simply take your asset as soon as you default.

Debt settlement companies may place some demanding restrictions on you, and in the short term, this will increase your total debt and worsen your financial situation. In addition to requesting that you stop making monthly payments, they may ask that you place yourself on a budget, stop spending money on luxuries, stop acquiring new debt, and start putting every penny you have towards the settlement.

It can have a negative impact on your life, but the end goal is usually worth it, as you’ll be debt-free within 5 years.

Pros and Cons of Debt Settlement and Bankruptcy

Neither of these processes are free or easy. With bankruptcy, you may pay up to $2,000 for Chapter 7 and $4,000 for Chapter 13 (including filing fees and legal fees) while debt settlement is charged as a fixed percentage of the debt or the money saved. 

As mentioned already, both methods can also damage your credit score. But ultimately, they will clear your debts and the responsibilities that go with them. If you’ve been losing sleep because of your debt, this can feel like a godsend—a massive weight lifted off your shoulders.

It’s also worth noting that scams exist for both options, so whether you’re filing bankruptcy or choosing a debt settlement plan, make sure you’re dealing with a reputable company/lawyer and are not being asked to pay unreasonable upfront fees. Reputable debt settlement companies will provide you with a free consultation in the first instance, and you can use the NACBA directory to find a suitable lawyer.

Bankruptcy and Debt Settlement: The End Goal

For all the ways that these two options differ, there is one important similarity: They give you a chance to make a fresh start. You can never underestimate the benefits of this, even if it comes with a reduced credit score and a derogatory mark that will remain on your credit report for years to come.

If you’re heavily in debt, it can feel like your money isn’t your own, your life isn’t secure, and your future is not certain. With bankruptcy and debt settlement, your credit score and finances may suffer temporarily, but it gives you a chance to wipe the slate clean and start again.

What’s more, this process may take several years to complete and in the case of bankruptcy, it comes with credit counseling. Once you make it through all of this, you’ll be more knowledgeable about debt, you’ll have a better grip on your finances, and your impulse control. 

And even if you don’t, you’ll be forced to adopt a little restraint after the process ends as your credit score will be too low for you to apply for new personal loans and high limit cards.

Other Options for Last Ditch Debt Relief

Many debtors preparing for debt settlement or bankruptcy may actually have more options than they think. For instance, bankruptcy is often seen as a get-out-of-jail-free card, an easy escape that you can use to your advantage whenever you have debts you don’t want to pay.

But that’s simply not the case and unless you have tried all other options and can prove that none of them have worked, your case may be thrown out. If that happens, you’ll waste money on legal and filing fees and will be sent back to the drawing board.

So, regardless of the amount of debt you have, make sure you’ve looked into the following debt relief options before you focus on debt settlement or bankruptcy. 

Debt Consolidation

A debt consolidation loan is provided by a specialized lender. They pay off all your existing debts and give you a single large loan in return, one that has a lower interest rate and a lower monthly payment. 

Your debt-to-income ratio will improve, and you’ll have more money in your pocket at the end of the month. However, in exchange, you’ll be given a much longer-term, which means you’ll pay more interest over the life of the loan.

A Debt Management Plan

Debt management combines counseling services with debt consolidation. A debt management plan requires you to continue making your monthly payment, only this will go to the debt management company and not directly to the creditors. They will then distribute the money to your creditors.

You’ll be given a monthly payment that you can manage, along with the budgeting advice you need to keep meeting those payments. In exchange, however, you’ll be asked to close all but one credit card (which can hurt your credit score) and if you miss a payment then your creditors may back out of the agreement.

Balance Transfer Card

If all your debts are tied into credit cards, you can use a balance transfer credit card to make everything more manageable. With a balance transfer credit card, you move one or more debts onto a new card, one that offers a 0% APR for a fixed period. 

The idea is that you continue making your monthly payment, only because there is no interest, all the money goes towards the principal.

Home Equity Loans

If you have built substantial equity in your home then you can look into home equity loans and lines of credit. These are secured loans, which means there is a risk of repossession if you fail to keep up your payments, but for this, you’ll get a greatly reduced interest rate and a sum large enough to clear your debts.

Bottom Line: The Best Option

Debt settlement and bankruptcy are both considered to be last resort debt-relief options, but they couldn’t be more different from one another. Generally speaking, we would always recommend debt settlement first, especially if you have a lot of money tied up in credit card debt.

If not, and you can’t bear the idea of spending several months ignoring your creditors, missing payments, and accumulating late fees, it might be time to consider bankruptcy. In any case, make sure you exhaust all other possibilities first.

Source: pocketyourdollars.com

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What Are the Best Car Loans When You Have Bad Credit?

Apply now with our top pick: OneMain Financial

In this guide we also help you understand the factors that go into selecting the right auto lender, and how to get the best rate you can.

Most Important Factors for Bad Credit Car Loans

If you’re in the market for a bad credit car loan, there are a plethora of factors to consider and compare. Here are the main loan details we looked at in our study, and the ones you should prioritize as you select the best car loan for your needs.

  • Check your credit score. And understand what is in your credit report.
  • FICO scores under 579 is considered ‘poor’. But you may need a bad credit loan with a score as high as 669.
  • Interest rates and fees matter. These can make a huge difference in how much you pay for an auto loan each month.
  • Compare loan terms. Consider your repayment timeline and compare lenders with this in mind.
  • Getting prequalified online can help. Some lenders, including ones that made our ranking, let you get prequalified for a loan online without a hard inquiry on your credit report.
  • Watch out for loan restrictions. Some lenders impose restrictions on what car you can purchase. Keep this in mind to avoid unpleasant surprises later.

The Best Bad Credit Car Loans of 2020

The best bad credit car loans make it easy for consumers to qualify for the financing they need. The following lenders made our list due to their superior loan offerings, excellent customer service, and reputation in this industry.

Why Some Lenders Didn’t Make the Cut

While the lenders we are profiling are the best of the best, there are plenty of bad credit car loans that didn’t quite make the cut. We didn’t include any lenders that only offer auto loan refinancing, for example, since we know many people need a car loan in order to purchase a new or used car or truck. We also stayed away from bad credit car loans that charge outrageous fees for consumers with the lowest credit scores.

Bad Credit Auto Loan Reviews

We listed the top companies we selected in our study above, but we also aim to provide readers with more insights and details on each. The reviews below highlight the highlights of each lender that made our list, plus our take on who they might be best for.

OneMain Financial: Best for Flexibility

OneMain Financial offers personal loans and auto loans with interest rates that range from 18.00% to 35.99%. You can repay your auto loan in 24, 36, 48, or 60 months, and you can use this lender to borrow up to $20,000 for a new or used car. You can apply for your auto loan online and from the comfort of your own home, and it’s possible to get approved within a matter of minutes.

While OneMain Financial doesn’t list a minimum credit score requirement, it’s believed they will approve consumers with scores as low as 600. You should also note that auto loans from OneMain Financial come with an origination fee of up to 5% of your loan amount.

Sign Up With OneMain Financial Today

Why This Lender Made Our List: OneMain Financial offers a lot of flexibility in terms of your loan terms, including the option to repay your auto loan over five years. OneMain Financial also has pretty decent reviews from users for a bad credit lender, and they have an A+ rating with the Better Business Bureau.

Potential Downsides to Be Aware Of: OneMain Financial charges some pretty high rates for its bad credit loans, and don’t forget that you may need to pay an origination fee that is up to 5% of your loan amount. Their loans are also capped at $20,000, which means this lender won’t work for everyone.

Who It’s Best For: This lender is best for consumers with really poor credit who need auto financing but can’t get approved for a better loan.

Upgrade: Best Personal Loan Option

Upgrade is an online lender that offers personal loans with fixed interest rates, fixed monthly payments, and a fixed repayment timeline. You can borrow up to $50,000 in an unsecured loan, which means you won’t actually use the car you purchase as collateral for the loan.

You can repay the money you borrow over 36 to 60 months, which makes it possible for you to tweak your loan offer to secure a monthly payment you can afford. Upgrade has a minimum credit score requirement of 620 to qualify, although they’ll consider additional factors such as your income and employment history.

Sign Up With Upgrade Today

Why This Lender Made Our List: Upgrade lets you “check your rate” online without a hard inquiry on your credit report. This makes it easy to shop around and compare this loan offer to others without having to fill out a full loan application. Also note that Upgrade has an A+ rating with the BBB.

Potential Downsides to Be Aware Of: Upgrade charges APRs as high as 35.89% for consumers with the worst credit, and an origination fee of up to 6% of your loan amount might also apply.

Who It’s Best For: Upgrade is best for consumers with decent credit who need to borrow a larger loan amount. This loan is also best for anyone who wants an auto loan that isn’t secured by their vehicle.

AutoCreditExpress.com: Best Loan for Bad Credit and No Credit

AutoCreditExpress.com is an online platform that lets consumers with bad credit and even no credit get the financing they need. Once you fill out some basic loan information, you’ll be connected with a lender who can offer you financing as well as a dealership in your area. From there, you’ll head to the local dealership and pull the pieces of your auto loan together, including the purchase price of the car you want.

Sign Up With Autocreditexpress.com Today

Why This Lender Made Our List: AutoCreditExpress.com has an A+ rating with the Better Business Bureau. This platform also makes it possible for consumers with no credit at all to finance a car, which is a welcome relief for people who are building credit for the first time.

Potential Downsides to Be Aware Of: This website is a loan platform but they don’t offer loans directly to consumers. This means you won’t have any idea on rates and terms until you fill out an application and get connected with a lender.

Who It’s Best For: This loan is best for consumers with no credit or minimal credit history who cannot get approved for a loan elsewhere.

MyAutoLoan.com: Best Loan Comparison Site

MyAutoLoan.com is a loan comparison site that makes it easy to compare up to four auto loan offers in a matter of minutes. You can use this website to apply for a new auto loan, but you can also utilize it to consider refinancing offers for an auto loan you already have. You can also use funds from this platform to purchase a car from a dealer or from a private seller.

Sign Up With MyAutoLoan.com Today

Why This Lender Made Our List: Comparing auto loans in terms of their terms, rates, and fees is the best way to save money and wind up with the best deal. Since MyAutoLoan.com is a loan comparison site, they make it easy to shop around and compare competing offers.

Potential Downsides to Be Aware Of: Loan comparison sites connect you with other lenders who have their own loan terms and minimum requirements for approval. Make sure you know and understand all the details of loans you’re considering before you sign on the dotted line.

Who It’s Best For: MyAutoLoan.com is best for consumers who want to do all their auto loan shopping with a single website.

Capital One: Best Big Bank Loan for Bad Credit

Capital One offers online auto loan financing in conjunction with a program called Auto Navigator®. This program lets you get prequalified for an auto loan online, then work with a participating dealer to coordinate a loan for the car you want. Capital One also lets you search available vehicles at participating dealerships before you apply for financing, making it easy to figure out how much you might need to borrow ahead of time.

Sign Up With Capital One Today

Why This Lender Made Our List: Capital One offers the huge benefit of letting you get prequalified online without a hard inquiry to your credit report. Capital One is also a reputable bank with a long history, which should give borrowers some comfort. They have an A+ rating with the BBB and plenty of decent reviews from consumers.

Potential Downsides to Be Aware Of: You should be aware that Capital One auto loans only work at participating dealers, so you may be limited in terms of available cars to choose from.

Who It’s Best For: Capital One auto loans are best for consumers who find a car they want to buy at one of the participating lenders that works with this program.

LightStream: Best for Fast Funding

LightStream offers online loans for a variety of purposes, including auto financing. Their auto loans for consumers with excellent credit start at just 3.99% with autopay, and even their loans for consumers with lower credit scores only run as high as 16.79% with autopay.

You can apply for your LightStream loan online and get approved in a matter of minutes. This lender can also send your funds as soon as the same business day you apply.

A minimum credit score of 660 is required for loan approval, although other factors like your work history and income are considered.

Sign Up With LightStream Today

Why This Lender Made Our List: LightStream offers auto loans with exceptional terms, and that’s even true for consumers with less than perfect credit. You can also get your loan funded as soon as the same business day you apply, which is crucial if you need auto financing so you can get back on the road.

Potential Downsides to Be Aware Of: With a minimum credit score requirement of 660, these loans won’t work for consumers with the lowest credit scores.

Who It’s Best For: LightStream is best for people with decent credit who need to get auto loan financing as quickly as possible.

What You Need To Know When Applying For A Car Loan With Bad Credit

Interest rates and fees matter.

If you think your interest rate and loan fees won’t make a big difference in your monthly payment, think again. The reality is that rates and fees can make a huge difference in how much you pay for an auto loan each month. Consider this: A $10,000 loan with an APR of 35.89% will require you to pay $361 per month for five years. The same loan amount at 21.99% APR will only set you back $276 per month. At 9.99%, you would pay only $212 per month for five years. The bottom line: Make sure to compare auto loans for bad credit so you wind up with the lowest possible APR you can qualify for.

Take steps to improve your credit score before you apply.

It’s not always possible to wait to apply for a car loan, but you may be able to secure a lower interest rate and better loan terms if you can improve your credit score before you borrow money. The most important steps you can take to improve your score include paying all your bills early or on time, as well as paying down debt in order to decrease your credit utilization. You should also refrain from opening or closing too many credit card accounts in order to avoid new inquiries on your credit report and maintain the longest average length of your credit history possible.

Compare loan terms.

Some lenders let you borrow money for up to 84 months, while others let you repay your loan over 36 or 60 months at most. If you need to repay your loan over a longer timeline in order to secure an affordable monthly payment, make sure to compare lenders based on this factor. If you’re having trouble figuring out how much can you can afford, gauging affordability based on the monthly payments you can handle can also help in that effort.

Getting prequalified online can help.

Some lenders, including ones that made our ranking, let you get prequalified for a loan online without a hard inquiry on your credit report. This makes it considerably easier to compare rates and shop around without formally applying for an auto loan. Getting prequalified with more than one lender can also help you determine which one might offer the lowest rate without having to fill out a full loan application.

Watch out for loan restrictions.

As you compare the lenders on this list, keep in mind that not all lenders extend loans for any car you want. Some only let you finance cars with participating lenders in their network, which can drastically limit your options and make it impossible to purchase a car from a private seller. If you hope to purchase a car from someone you know or a website like craigslist.org, you may want to consider reaching out to your personal bank or a credit union you have a relationship with.

Bad credit car loans don’t have to be forever.

Finally, you should know that a car loan for bad credit doesn’t have to last forever. You may need to borrow money for a car right now regardless of the interest rate and terms you can qualify for, but it may be possible to refinance your loan into a better loan product later on. This is especially true if you focus on improving your credit score right away, and if you use your auto loan as an opportunity to prove your creditworthiness.

How to Get the Best Rate

1. Check your credit score.

Your credit score is one of the most important defining factors that dictate loan costs. Before you apply for an auto loan, it can help you check your credit score to see where you stand. Your score may not be as bad as you realize, but it could also be worse than you ever imagined. Either way, it helps to know this important information before you start shopping for an auto loan.

2. Improve your credit over time.

If your credit score needs work, you’ll want to take steps to start improving it right away. The most important steps you can take to boost your credit score include paying all your bills early or on time and paying down debt to decrease your credit utilization. Also, make sure you’re not opening or closing too many credit accounts within a short amount of time.

3. Check your credit reports.

Use the website AnnualCreditReport.com to get a free copy of your credit reports from all three credit bureaus. Once you have this information, check over your credit reports for errors. If you find false information that might be hurting your score, take the steps to have the incorrect information removed.

4. Compare loan offers from at least three lenders.

A crucial step to get the best rate involves shopping around and comparing loan offers from at least three different lenders. This is important since lenders with different criteria might offer a lower APR or better terms than others.

5. Be flexible with repayment terms.

Also consider a few different loan terms provided you can afford the monthly payment with each. Some auto lenders offer better rates for shorter terms, which can help you save money if you can afford to repay your loan over 24 or 36 months instead of 60+.

How We Chose the Best Auto Loans

The lenders on our list weren’t plucked out of thin air. In fact, the team behind this guide spent hours comparing auto lenders based on a wide range of criteria. Here’s everything we considered when comparing the best bad credit car loans of 2020:

Interest Rates and Loan Terms: Our team looked for loans that offer reasonable rates and terms for consumers with poor credit. While higher APRs are typically charged to consumers with a low credit score, we only considered lenders that offer sensible rates that don’t seem out of line for the auto loan market.

Ratings and Reviews: We gave preference to lenders who have decent reviews online, either through Consumer Affairs, Trustpilot, or another third party website. We also gave higher marks to lenders who have a positive rating with the Better Business Bureau (BBB).

Online Availability: Lenders who offer full loan details online were definitely given top priority in our ranking, and lenders who let you get prequalified online without a hard inquiry on your credit report were given the most points in this category. But since not everyone wants to apply for a loan online, we also included some lenders that let you apply over the phone.

Approval Requirements: Finally, we looked for lenders that extend credit to consumers with low credit scores in the first place. Not all lenders offer specific information on approval requirements, but we did our best to sort out lenders that only accept borrowers with good or excellent credit.

Summary: Best Bad Credit Card Loans of 2020

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Budgeting for Beginners: These 5 Steps Will Help You Get Started

Setting up a budget is challenging. Doing it forces you to face your spending habits and then work to change them.

But when you decide to make a budget, it means you’re serious about your money. Maybe you even have some financial goals in mind.

The end result will bring you peace of mind. But if you’re creating a budget for the first time, remember that budgets will vary by individual and family. It’s important to set up a budget that’s a fit for YOU.

Budgeting for Beginners in 5 Painless Steps

Follow these basic steps and tailor them to your needs to create a monthly budget that will set you up for financial success.

Step 1: Set a Financial Goal

First thing’s first: Why do you want a budget?

Your reason will be your anchor and incentive as you create a budget, and it will help you stick to it.

Set a short-term or long-term goal. It can be to pay off debts like student loans, credit cards or a mortgage, or to save for retirement, an emergency fund, a new car, a home down payment or a vacation.

For example, creating a budget is a must for many people trying to buy their first home. But it shouldn’t stop there. Once you’ve bought a home, keep sticking to a budget in order to pay off debt and give yourself some wiggle room for unexpected expenses.

Once one goal is complete, you can move on to another and personalize your budget to fit whatever your needs are.

Step 2: Log Your Income, Expenses and Savings

You’ll want to use a Microsoft Excel spreadsheet or another budget template to track all of your monthly expenses and spending. List out each expense line by line. This list is the foundation for your monthly budget.

Tally Your Monthly Income

Review your pay stubs and determine how much money you and anyone else in your household take home every month. Include any passive income, rental income, child support payments or side gigs.

If your income varies, estimate as best as you can, or use the average of your income for the past three months.

Make a List of Your Mandatory Monthly Expenses

Start with:

  1. Rent or mortgage payment.

  2. Living expenses like utilities (electric, gas and water bills), internet and phone.

  3. Car payment and transportation costs.

  4. Insurance (car, life, health).

  5. Child care.

  6. Groceries.

  7. Debt repayments for things like credit cards, student loans, medical debt, etc.

Anything that will result in a late fee for not paying goes in this category.

List Non-Essential Monthly and Irregular Expenses

Non-essential expenses include entertainment, coffee, subscription and streaming services, memberships, cable TV, gifts, dining out and miscellaneous items.

Don’t forget to account for expenses you don’t incur every month, such as annual fees, taxes, car registration, oil changes and one-time charges. Add them to the month in which they usually occur OR tally up all of your irregular expenses for the year and divide by 12 so you can work them into your monthly budget.

Pro Tip

Review all of your bank account statements for the past 12 months to make sure you don’t miss periodic expenses like quarterly insurance premiums.

A woman with a dog reviews financial docements spread out on the floor.
Getty Images

Don’t Forget Your Savings

Be sure to include a line item for savings in your monthly budget. Use it for those short- or long-term savings goals, building up an emergency fund or investments.

Figure out how much you can afford — no matter how big or small. If you get direct deposit, saving can be simplified with an automated paycheck deduction. Something as little as $10 a week adds up to over $500 in a year.

Step 3: Adjust Your Expenses to Match Your Income

Now, what does your monthly budget look like so far?

Are you living within your income, or spending more money than you make? Either way, it’s time to make some adjustments to meet your goals.

How to Cut Your Expenses

If you are overspending each month, don’t panic. This is a great opportunity to evaluate areas to save money now that you have itemized your spending. Truthfully, this is the exact reason you created a budget!

Here are some ways you can save money each month:

Cut optional outings like happy hours and eating out. Even cutting a $4 daily purchase on weekdays will add up to over $1,000 a year.

Consider pulling the plug on cable TV or a subscription service. The average cost of cable is $1,284 a year, so if you cut the cord and switch to a streaming service, you could save at least $50 a month.

Fine-tune your grocery bill and practice meal prepping. You’ll save money by planning and prepping recipes for the week that use many of the same ingredients. Use the circulars to see what’s on sale, and plan your meals around those sales.

Make homemade gifts for family and friends. Special occasions and holidays happen constantly and can get expensive. Honing in on thoughtful and homemade gifts like framed pictures, magnets and ornaments costs more time and less money.

Consolidate credit cards or transfer high-interest balances. You can consolidate multiple credit card payments into one and lower the amount of interest you’re paying every month by applying for a debt consolidation loan or by taking advantage of a 0% balance-transfer credit card offer. The sooner you pay off that principal balance, the sooner you’ll be out of debt.

Refinance loans. Refinancing your mortgage, student loan or car loan can lower your interest rates and cut your monthly payments. You could save significantly if you’ve improved your credit since you got the original loan.

Get a new quote for car insurance to lower monthly payments. Use a free online service to shop around for new quotes based on your needs. A $20 savings every month is $20 that can go toward savings or debt repayments.

Start small and see how big of a wave it makes.

Oh, and don’t forget to remind yourself of your financial goal when you’re craving Starbucks at 3 p.m. But remember that it’s OK to treat yourself — occasionally.

A couple organize tax-related paperwork.
Lindsey Cox and Jonathan Tuttle dig into income- and expense-related paperwork as they prepare to file their taxes at their home in Temple Terrace, Fla. Tina Russell/The Penny Hoarder

What to Do With Your Extra Cash

If you have money left over after paying for your monthly expenses, prioritize building an emergency fund if you don’t have one.

Having an emergency fund is often what makes it possible to stick to a budget. Because when an unexpected expense crops up, like a broken appliance or a big car repair, you won’t have to borrow money to cover it.

When you do dip into that emergency fund, immediately start building it up again.

Otherwise, you can use any extra money outside your expenses to reach your financial goals.

Here are four questions to ask yourself before dipping into your emergency fund..

Step 4: Choose a Budgeting Method

You have your income, expenses and spending spelled out in a monthly budget, but how do you act on it? Trying out a budgeting method helps manage your money and accommodates your lifestyle.

Living on a budget doesn’t mean you can’t have fun or splurges, and fortunately many budgeting methods account for those things. Here are a few to consider:

A hand writes financial-related labels on envelopes.
Tina Russell/The Penny Hoarder

Budgeting Apps

Another money management option is to use a budgeting app. Apps can help you organize and access your personal finances on the go and can alert you of finance charges, late fees and bill payment due dates. Many also offer free credit score monitoring.

Step 5: Follow Through

Budgeting becomes super easy once you get in the groove, but you can’t set it and forget it. You should review your budget monthly to monitor your expenses and spending and adjust accordingly. Review checking and savings account statements for any irregularities even if you set bills to autopay.

Even if your income increases, try to prioritize saving the extra money. That will help you avoid lifestyle inflation, which happens when your spending increases as your income rises.

The thrill of being debt-free or finally having enough money to travel might even inspire you to seek out other financial opportunities or advice. For example, if you’re looking for professional help, set up a consultation with a certified financial planner who can assist you with long-term goals like retirement and savings plans.

Stephanie Bolling is a former staff writer at The Penny Hoarder.

Source: thepennyhoarder.com

Prepare for Holiday Shopping with These Timely Credit Tips

October 29, 2020 &• 5 min read by Constance Brinkley-Badgett Comments 0 Comments

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According to a YouGov Parent Survey in 2019, a quarter of parents entered the 2019 holiday shopping seasonstill paying down debt related to 2018 holiday spending. Deloitte numbers put holidayretail salesgrowth in 2019 at 4.1% year-over-year. In 2020, Deloitte predicts growth of between 1% and 1.5% year-over-year for the holiday season.

It might be that some people no longer want to pay for holiday gifts, decorations and food a year down the road. But it’s also true that the COVID-19 pandemic has hit consumerwallets and some people might be cutting back this year.

That doesn’t mean that people aren’t shopping. Google and other thought leaders note that changes to shopping habits and the need for social distancing and other measures will likely spread the holiday shopping season out longer. Shoppers are also likely to turn to online shopping.

With a ton of shopping opportunities, a longer holiday shopping season and pent-up pandemic energy, it might be easy to overspend and create debt you’ll deal with into the future. Follow these tips to prepare for holiday shopping so you can protect your financial standing, save money and make the most of the resources you have this season.

1. Check your credit scores

Begin by checking your credit scores and reports. They tell you where you stand if you want to apply for credit. They also give you a baseline of where you are so you know if your score goes up or down later with no explanation.

An unexplained drop in your credit score can be a sign your financial information is compromised. Unfortunately, the holidays are prime time for many scammers. Using a service, such as ExtraCredit’s Track It feature to keep tabs on 28 of your FICO scores, helps you know when you need to act to protect your credit.

2. Ask for a credit limit increase

If you have existing credit cards and you’re a cardholder in good standing, the months prior to the holidays can be a good time to ask for a credit limit increase. You’re not asking so you can spend more-it’s typically advisable to keep spending in line with your budget no matter how much credit you have.

You’re asking for a higher limit so you can spend what you already planned to without hurting your credit utilization. Credit utilization is the second-most important factor in determining your credit score-second only to payment history. It’s the ratio between your credit limit and how much of that credit you have used.

If you have a card with a limit of $1,000 and you spend $300, that’s a utilization rate of 30%. But if you get approved for a credit limit of $2,000 and you spend $300, that’s a utilization rate of only 15%, which is better for your score.

3. Apply for a credit cardwith a 0% APR introductory offer

Those with good or excellent credit might want to consider applying for a card with a 0% APR introductory offer. If you qualify for such a card, you typically have one or two years to pay off purchases made during the introductory period without accruing any interest.

This can be a way to finance your entire holiday without paying anything more for the privilege of doing so. However, it’s still important to maintain your budget and not overspend just because you won’t be paying the balance off until later. Otherwise, you make this season’s holiday festivities next season’s problem.

4. Pay down debt before-and after-the holidays

Speaking of last season’s debt: If you can pay it down before you start spending this season, that’s a great accomplishment. It also frees up your credit and your budget so you can better enjoy the current holiday season. If you’re paying $100 a month on your debt, that’s $100 a month that might go toward gifts or celebrations that you don’t have to put on a card this year.

If you do use credit to pay for the 2020 holidays, have a plan for paying it down as soon as possible. That’s especially true with 0% interest cards. The longer you wait, the greater the chance you’ll miss the introductory period and potentially be on the hook for a lot of interest expense.

5. Create a holiday spending budget

Whether you’re using cash or credit-or a mix of both-enter the 2020 holiday shopping season with a plan. Take an honest look at your personal budget. If you don’t have a budget, create one before you move forward. Then decide how much you can realistically spend during the holidays.

Consider which gifts you want to buy and which events you want to host or attend. You might not be able to do everything, and that’s OK. Be honest with yourself, your family and your friends about what you can afford to do with your time and money this year.

Then make a list and assign each item a monetary budget. That can include:

  • Gifts as a total
  • Gift extras, such as wrapping and tags
  • Shipping, both for receiving items you buy and for shipping gifts to others
  • Food and drinks
  • Travel
  • Decor
  • General festivities, such as tickets to holiday events

Once you assign a dollar amount to a category, stick to it. That’s a good idea even if you’re spending with credit.

6. Align budgeted spendingwith credit cardrewards

Once you know how much you want to spend, decide how best to spend it. If you’re using credit cards for the holidays, check your accounts to see if any offer cash back or rewards points. If they do, double-check which categories or stores you can shop in to earn the most points with each card.

For example, some travel rewards cards offer 6x points when you shop at supermarkets. You could use such a card to cover the food-and-drink portion of your holiday budget and reap the biggest rewards possible from that spending. You might also be able to maximize rewards when purchasing gift cards.

7. Guard your financial information and identity

As you enjoy holiday shopping, be on guard. Don’t use debit card PIN numbers unless you have to, and shield the keypad when you enter your information. Keep a close eye on your wallet or purse, and check your credit card statements regularly to ensure all charges are yours. You can also use ExtraCredit’s Guard It feature to help keep your identity and account information safe during and beyond the season.

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