Money Management

Rate cuts could be coming this year. Read on to find out how to get yourself in the best financial position if rates do start to drop. [[{“value”:”

The Federal Reserve started raising interest rates two years ago to combat rising inflation and has mostly been successful at cooling it down. The slowdown in inflation has caused the Fed to consider cutting interest rates several times later this year.

With these potential cuts on the horizon, many Americans are likely wondering what it could mean for their budgets when the cuts come. Here’s what interest rate cuts could mean for credit cards, auto loans, and mortgage rates.

1. Credit card APRs could come down

Americans are grappling with historically high credit card interest rates, with the average consumer paying a 24.6% annual percentage rate (APR). Unfortunately, many Americans have had to rely on their credit cards over the past couple of years as inflation drove prices higher, resulting in a record $1.13 trillion in credit card debt.

The good news is that if the Fed cuts interest rates, credit card APRs will likely fall. Credit cards typically have variable interest rates based on the market, so a rate cut could quickly help lower APRs.

The bad news is that because credit card interest rates are already so high, any pullback on rates may not offer enough relief to consumers. If you’re having a difficult time paying down your credit card balance, consider talking with a debt counselor or using a debt consolidation loan to combine your debts into one lower-interest fixed payment.

2. Auto loan rates could drop

Federal Reserve rate cuts won’t impact current car loans if you have one. Unlike credit cards, auto loan rates are fixed. So if you used a loan to buy a car recently, your interest rate on the loan will continue to be the same no matter what the Fed decides to do.

But if the Fed does cut rates this year, car loans that begin after the cuts could likely be lower than current rates. New car loans have interest rates of about 7.1% right now, so if you can wait for the rate cuts to buy a vehicle, it could be good for your finances.

Consider that a five-year car loan for $40,000 at 7.1% has monthly payments of about $794. But if that rate eventually drops to 6.1%, you’ll pay about $776 monthly.

3. Mortgage rates could slide lower

Many Americans (including me) are sitting on the sidelines of the housing market because of rising house prices and interest rates over the past couple of years.​ This combination has made housing more unaffordable than it has been in nearly 40 years.

If the Federal Reserve decides to cut rates, mortgage interest rates could also come down. That could open up more buying power for potential home buyers looking for financial relief in the housing market.

To help give you an idea of how much interest rates affect mortgage payments, let’s assume you want to buy a $350,000 house and are taking out a 30-year loan with a 7% interest rate and a 20% down payment. In this scenario, your monthly mortgage payment — principal and interest — would be $1,862. But if your interest rate were 6.5%, your monthly payment would be $1,771 — $91 cheaper!

It’s worth noting that other factors affect mortgage rates besides the federal funds rate. For example, the Wall Street Journal recently reported that demand for mortgage-backed securities isn’t as high as it once was.

Without going too deep into this market, mortgages are often packaged together and sold to investors on a secondary market. When they’re in demand, this can help bring rates down. But when they’re not in demand, rates don’t fall as easily.

With the appetite for mortgage-backed securities lower right now, mortgage interest rates could remain higher for longer even if the Fed cuts rates.

One way to help your finances no matter what the Fed does

You can’t control what the Federal Reserve does with interest rates, but you can improve your chances of getting a loan or a lower interest rate by improving your credit score. Lenders often give the best rates to borrowers they deem creditworthy, so here are a few ways to boost your score.

Pay your bills on time. Your payment history accounts for 35% of your FICO® Score. Making payments on time and for the total amount due helps lenders trust that you’ll pay them back on time for a new loan or line of credit.Reduce your balances. The amount of money you owe lenders is the second most important factor in your score, accounting for 30%. Try to pay off your smallest balance to reduce the amount you’re borrowing. This will help you lower the amount of money you owe relative to your available credit, called your credit utilization.Keep accounts open and active. Even if you pay off a credit card, keeping the account open may be a good idea. The length of your credit history accounts for 15% of your credit score, so don’t close accounts you’ve had open for a long time.

No one knows what the Federal Reserve will do with interest rates this year, but improving your credit score now could be the best way to take control of your finances. If you boost your score now and the Fed cuts rates later, you’ll be in an even better position than if you didn’t make these moves.

Alert: our top-rated cash back card now has 0% intro APR until 2025

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a lengthy 0% intro APR period, a cash back rate of up to 5%, and all somehow for no annual fee! Click here to read our full review for free and apply in just 2 minutes.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

“}]] Read More 

There are more buyers than houses available in many markets. Keep reading to see how to give yourself an edge. [[{“value”:”

It’s a lousy time to buy a house — and I feel qualified to say this, both as a personal finance writer and an aspiring homeowner. According to the National Association of Realtors, February 2024 featured just a 2.9-month supply of homes for sale — it takes four to six months’ worth to create a more balanced market between buyers and sellers. To add insult to injury, the price of homes for sale was also up 5.7% over a year prior.

Higher prices, fewer homes — what’s a hopeful buyer to do? Well, consider the following moves to give yourself an advantage.

1. Work with an experienced real estate agent

I feel so fortunate to be working with an agent who has more years in the real estate industry than I’ve been alive. She also has at least a nodding acquaintance with other agents, as well as local mortgage lenders. She came highly recommended by friends who worked with her when they bought their home five years ago.

A good real estate agent can be your best friend in the house-hunting and buying process — they’ve seen it all before, and can provide words of wisdom or reassure you when you’re low-key freaking out after signing an offer for a home. And best of all, they can help you craft an offer that will at least be considered seriously in a seller’s market.

2. Get pre-approved

If you’re getting a mortgage to buy a home, your financial situation is absolutely crucial to the whole process. Mortgage lenders consider your credit score, your existing debts, your employment situation, and your credit history to decide if you’re worth extending a loan to. This is what happens when you apply for mortgage pre-approval, which is a good idea if you’re hoping to buy a home.

Unfortunately, in a seller’s market, if you’re borrowing and one of the competing offers is a cash deal, you’ll be at a disadvantage no matter what. But if you can show a seller that you’re pre-approved, it holds you up as a serious buyer, and one whose deal is less likely to fall through than someone who hasn’t had their finances vetted.

3. Make a generous earnest money deposit

In some markets, you’ll need to make an earnest money deposit no matter what, but it becomes even more crucial in a seller’s market. You’re basically writing a check to make a “good faith deposit” on a given house, and showing a seller that not only have your financials been vetted, but you’ve got cash in the bank, ready to go.

If your offer is accepted, that check will be deposited in an escrow account, and assuming the deal goes through, it’ll be paid toward your down payment at closing. If you terminate the contract for a reason not specified in the paperwork, you’ll lose that money — so keep this in mind. An offer of several thousand dollars might nudge a seller to take your offer — because again, you look like a more serious and committed buyer.

4. Build an escalation clause into your offer

If you want an edge against competing buyers who might outbid you for a house, consider having your agent write an escalation clause into your offer. This says that your purchase price offer can be increased by set amounts to beat another offer, up to a certain point.

Don’t go over your pre-established budget to buy a home — you don’t want to end up house poor and struggling to afford the expenses of homeownership. But if your initial offer is $20,000 under your max, consider adding that escalation to give yourself an edge.

RELATED: Mortgage Calculator

5. Be a flexible buyer, if possible

If you have the ability to be flexible when buying a home, now is the time to play it up. There’s likely not going to be a way to write some of your flexibility into a contract, but if you have an agent who is neck-deep in your local market, they might be able to advocate on your behalf with a seller’s agent.

I’m hoping mine will make it known that I’m a serious buyer who is not selling a house, and I’m on a month-to-month lease. All of these factors mean that I have no set deadline to close or move, and if a seller needs more or less time, I can likely work with that.

If you’re OK waiving certain contingencies in your contract, this is a way you can be flexible — that said, I don’t think it’s a good idea for anyone to waive a home inspection. A bad inspection report doesn’t mean you have to terminate a contract — but it means you’ll have the full idea of what’s going on with a house. And knowledge is always power.

If you’re looking for a house to buy right now, you have my sympathies. Take a deep breath, polish your finances to get a better mortgage rate, and cross your fingers. You’ll get an offer accepted eventually.

Alert: our top-rated cash back card now has 0% intro APR until 2025

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a lengthy 0% intro APR period, a cash back rate of up to 5%, and all somehow for no annual fee! Click here to read our full review for free and apply in just 2 minutes.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

“}]] Read More 

Minimum coverage auto insurance costs less money than full coverage auto insurance, but drivers pay the price if something goes wrong. Find out why. [[{“value”:”

Minimum coverage auto insurance means buying the least amount of auto insurance required by law. Almost every state requires liability insurance, but many don’t mandate much, if any, coverage beyond that.

Minimum coverage auto insurance can be a lot cheaper than full coverage ($787 a year on average, compared to $3,296, according to research from The Motley Fool Ascent). But there are some serious downsides to choosing it. Here are some of the biggest disadvantages of buying only the auto insurance coverage mandated by the state where the car is registered.

1. There’s a risk of a personal lawsuit

One of the biggest risks of buying only minimum coverage auto insurance is the potential to be sued after causing an accident.

See, states usually don’t require large policy limits. It’s possible to comply with the law in some places with as little as $15,000 per person and $30,000 per accident in bodily injury liability coverage.

Even a relatively minor injury resulting in hospitalization could very quickly lead to bigger bills than that. And drivers who don’t have enough insurance could find themselves being personally sued with their own assets at risk. This is a huge disadvantage, as legal bills and damages could have to be paid out of a driver’s checking account.

2. Insurance won’t cover any repair or replacement of a policyholder’s own vehicle

States don’t require collision insurance, which pays for a policyholder’s vehicle repairs after a crash. Collision coverage will also pay for the fair market value of a vehicle if it’s totaled. If a driver gets into a crash that isn’t someone else’s fault, they can’t make a claim against another person — and also can’t turn to their own insurer without collision coverage.

Other things can also go wrong with a car, like hail damage, theft, vandalism, or a host of other problems. Comprehensive insurance would cover those things — if a driver had added it to their policy. States don’t require it, though.

Not having any coverage for collisions or other kinds of damage is a huge downside of buying minimum coverage auto insurance since neither coverage type would be part of a minimum coverage policy. No one should go without these coverages, unless they could just write a check to pay for a new car if they needed one.

3. Rental car costs will come out of pocket when a car is damaged or totaled

Finally, if a car is damaged or totaled, most people are going to need another vehicle to drive while theirs is being fixed or until they get a new one. A driver who has this happen but who doesn’t have rental car coverage could be forced to pay out of pocket for a rental vehicle. These prices could come in at around $100 a day or more.

A minimum coverage policy won’t have any coverage for rental cars at all. A driver with only liability coverage would be on their own to try to figure out how to get around if something went wrong with their car that wasn’t the fault of another driver. This could leave them stranded if they didn’t have the money to pay for a rental.

These disadvantages are, most often, not worth the benefit of saving on premiums. Motorists should make sure they have the coverage they need, and shopping around with the best cheap auto insurance providers is a good way to get it. Paying for it is well worth protecting against the kinds of devastating losses that could happen with just minimum coverage auto insurance.

Our best car insurance companies for 2024

Ready to shop for car insurance? Whether you’re focused on price, claims handling, or customer service, we’ve researched insurers nationwide to provide our best-in-class picks for car insurance coverage. Read our free expert review today to get started.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

“}]] Read More 

Some Americans are turning to their friends for a buying partner. Read on to find out a few ways to lower your mortgage payment. [[{“value”:”

With housing affordability at a near 40-year low, Americans are getting creative with their home buying. A recent survey conducted by JW Surety Bonds found 13% of Americans bought a home with a non-romantic partner. And more could follow suit. The survey said 61% of respondents are willing to buy a house with a friend.

Here’s why Americans are looking to less-traditional paths to homeownership and what you can do to potentially lower your mortgage payments if you’re considering buying a home.

Co-buying helps reduces mortgage costs

The average sales price of a home was $492,300 at the end of 2023 — up nearly 22% over the past three years. That jump alone has strained potential home buyers’ finances, and it’s been made worse by high mortgage rates.

For example, the average mortgage interest rate was 5.4% in 2022, but it’s now 6.5%. To put that increase in perspective, a $350,000 home at mortgage with a 20% down payment and a 5.4% interest rate would cost $1,572 per month (principal and interest). But with a 6.5% interest rate, the same home costs $1,771 per month — $199 higher.

This is why Americans are looking to divide the mortgage payment. Sharing the cost of a home was one of the main reasons people considered buying a house with a friend, along with being able to afford a better home.

Of course, buying a home with a friend may not be feasible, and not everyone wants to share homeownership. In fact, more than three-quarters of survey respondents said that interpersonal conflict was the biggest concern of sharing ownership. Thankfully, there are a few ways to make homeownership cheaper.

How to make your mortgage cheaper

If you’re in the market for a home right now and can’t wait for potential interest rate cuts that could come later this year, there are ways to lower your mortgage payment.

1. Use a financial gift for the down payment

You might be surprised to know that 38% of buyers use an inheritance or receive a financial gift from friends or family to use for a down payment. Just be aware that some loans have restrictions about receiving money to ensure it’s a gift and not a loan.

A financial gift could go a long way to lowering your mortgage payment. If you buy a $350,000 home with an interest rate of 6.5% and put 10% down, your combined principal, interest, and private mortgage insurance (PMI) payment would be $2,196 per month.

However, with a 20% down payment, you won’t have to pay PMI and will have a lower mortgage balance, making the payment $1,771 and saving you $425 per month. Plus, lenders may give you a better interest rate with a 20% down payment.

2. Improve your credit score

A higher credit score can help you get a better mortgage interest rate and, thus, lower your mortgage payment. The most effective way to improve your score is to pay your bills on time, since your payment history accounts for 35% of your overall score.

Late payments can stay on your credit report for up to seven years and one late payment can lower your score by as much as 180 points. The good news is that if you have a late payment on your report, the effect it has on your score diminishes over time.

Paying down your debts also does wonders for your score. The amount you owe lenders accounts for 30% of your total score. As a general rule, you should use less than 30% of credit that’s available to you. For example, if your credit card has a limit of $15,000, your balance should be under $4,500.

3. Shop around for the best rate

The bank you use for your personal checking and savings accounts may not be the best place to get a mortgage. Just like with nearly everything else you buy, if you want a good deal, you need to shop around. Not all mortgage lenders have the same criteria for borrowers, so comparison shopping can often help you find a better rate.

For example, if you find one bank that will lend you $350,000 for a home, charges a 6.5% interest rate, and requires 5% down, you’ll pay $2,307 per month in principal and interest. But if a competing lender offers a 6% rate with the same terms, you’ll pay $109 less per month.

Buying a house is challenging right now. Whether you go it alone or you’re considering co-buying with a friend, try to make as large a down payment as you can, improve your score before you apply for a mortgage, and shop around for the best rates.

Alert: our top-rated cash back card now has 0% intro APR until 2025

This credit card is not just good – it’s so exceptional that our experts use it personally. It features a lengthy 0% intro APR period, a cash back rate of up to 5%, and all somehow for no annual fee! Click here to read our full review for free and apply in just 2 minutes.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

“}]] Read More 

You’re really never too old to have life insurance. But you may not need as much at an older age as you do at a younger one. [[{“value”:”

Buying life insurance is a good way to protect the person or people that are most important to you. When you’re young and have a spouse and family to support, it’s important to buy enough life insurance to replace your income multiple times over in case you pass away. When you’re older, you may not need as much coverage. But it’s a good idea to have some life insurance nonetheless.

How much insurance should you have at age 70?

Some people don’t feel the need to have life insurance at all at age 70. The reason? A big purpose behind life insurance is to replace income. But by age 70, many people are retired and therefore aren’t earning an income. So if there’s no paycheck to replace, you might assume you don’t need life insurance.

Now, the reality is that you shouldn’t need as much life insurance at age 70 as at a younger age. But having some is a good idea.

When you’re younger, you’re generally told to aim for enough life insurance to replace your salary 10- to 12-times over. So if you earn $75,000 a year, you’d probably want a minimum of $750,000 in coverage. At age 70, rather than base the amount of life insurance you need as a multiple of your retirement income, you may instead want to get enough to cover larger expenses your spouse or survivors might struggle to pay for in your absence.

For example, let’s say you and your spouse each get a Social Security benefit and have an IRA you can withdraw from as well. Social Security is designed to keep paying for life, so if you pass, you don’t have to worry about that income going away for your spouse. And if you’re managing your IRA well, your money might last throughout retirement.

In that situation, what you may want life insurance to do is pick up the tab for larger costs, like home repairs and funeral expenses. If you still owe money on a mortgage, you may also want your policy to pay off the balance so your surviving spouse is left with one less thing to worry about.

So let’s say you owe $120,000 on your house and you estimate funeral costs at $10,000. Let’s also say you want to leave your spouse with a cushion for a bigger home repair. In that case, you may decide to get a $150,000 policy.

Remember, life insurance can be expensive to put in place when you’re older. You may want to be judicious with the amount of coverage you get so it’s affordable to you.

One option worth looking at

Since life insurance can be costly at an older age, you may want to look at final expense insurance — a policy that’s designed to cover end-of-life expenses specifically. Progressive says that the average funeral, for example, can cost $10,000 or more. So it could pay to buy coverage to specifically not leave your loved ones to bear that burden.

Either way, the amount of life insurance you buy isn’t a number you have to calculate on your own. If you have a financial advisor you work with, have them help you determine the right amount of coverage to put in place.

You may also want to loop your potential beneficiaries in on that conversation so that everyone is on the same page. You may be surprised — in a good way — at how much peace of mind getting life insurance brings you when you’re 70 years old.

Our picks for best life insurance companies

Life insurance is essential if you have people depending on you. We’ve combed through the options and developed a best-in-class list for life insurance coverage. This guide will help you find the best life insurance companies and the right type of policy for your needs. Read our free review today.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Maurie Backman has no position in any of the stocks mentioned. The Motley Fool recommends Progressive. The Motley Fool has a disclosure policy.

“}]] Read More 

Borrowing an unaffordable amount of money could have long-term financial consequences. Keep reading to learn more. [[{“value”:”

If you need to borrow money for a big purchase, a personal loan is one option. You can typically get a personal loan to pay for almost anything you want, and they come with an average interest rate of 12.35%. So you’re likely to be charged a lower rate to borrow than if you used a credit card.

Before you take a personal loan, though, you’ll want to be absolutely certain you can easily afford the payments. If not, you could face some pretty serious consequences. Specifically, here’s what could happen if you take out a personal loan that you struggle to pay back.

You could compromise other financial goals

If you take out a personal loan and your payments just fit into your budget, you may be able to afford to make them — but not to do much else. Devoting too much of your money to paying back your personal loan could mean you don’t have the funds to save for retirement or life’s other big purchases and expenses.

You could also have a harder time making your income stretch far enough even just to cover the basics if you’re sending a lot of it to personal loans. You don’t want to end up having to go further into debt because you have to borrow for essentials.

You could damage your credit score

Payment history is the most important factor in your credit score, and even one late payment could bring that score down by over 100 points. Unfortunately, if you are late paying your personal loan, your lender is most likely going to report that to the credit reporting agencies once you’re behind by a month or more. This could lead to very serious damage to your credit record.

Since everyone from landlords to utility companies to mortgage lenders check your credit score, the damage done by your unaffordable personal loan could stretch into many aspects of your future financial life.

You may be charged late fees

If you pay your personal loan late because you don’t really have the money to make payments on time, this could lead to late fees being charged. These are typically between $25 and $50, although it varies by lender.

If you are getting hit with late fees, then a loan that’s already too expensive becomes even less affordable.

You could end up getting a judgment against you

If you can’t pay back the loan at all, you could end up with the lender sending you to collections. This will show up on your credit report and do even more damage to your score.

The lender or a collection agency it sells your loan to might also sue you and get a court judgment ordering you to pay up. This could lead to further legal action, such as wages being garnished (taken to pay your creditors) or a lien being put on your property. Lenders don’t always sue, or even sue very often, but it is still a possibility you should be aware of.

For all of these reasons, it’s critical you make sure you can afford any personal loan you might take out. Find out exactly how much your monthly payments are going to be before you commit. Check your budget to see how they fit in and, if possible, consider practicing that payment by putting the amount you’d owe each month into a savings account for a few months and living on what you have left over.

If you find you can’t absolutely be 100% sure you can make your personal loan payment and still cover your other expenses, try to avoid borrowing at all costs. Otherwise, you could face all these undesirable consequences of taking out a personal loan you can’t afford.

Our picks for the best personal loans

Our team of independent experts pored over the fine print to find the select personal loans that offer competitive rates and low fees. Get started by reviewing our picks for the best personal loans.

We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

“}]] Read More