Money Management

Personal loans and credit cards can both be helpful tools — but how do they compare? Find out here. [[{“value”:”

You can borrow money using a personal loan. You can also borrow money using a credit card. While both provide you with the flexibility to access funds you can use for almost anything you want, there are very important differences between them. Find out about some of those discrepancies so you can decide which is the right choice for you.

Applying and accessing credit on a personal loan vs. credit card

You can apply for both a personal loan and a credit card online and can usually get a quick (or even instant) decision when you do so. Personal loans may ask for a little more information, like proof of income, although that really depends on the lender.

The big difference is that you can apply for a credit card any time and you’ll get approved for a line of credit. So you can borrow up to that amount at any one given time. You could apply for a card and in two months or two years or five years, could access credit on it. You won’t pay interest until you do access credit, and if you pay off your balance in full when the statement comes, you won’t pay interest at all. As you pay down what you borrowed, you’re also allowed to borrow more.

RELATED: How Do Credit Cards Work?

With a personal loan, however, you have to specify how much you want to apply for and, if approved, the money will usually be deposited into your bank account within a few days (or even as soon as the same business day with some lenders). Interest will start accruing as soon as you get the borrowed funds, and you’ll typically have to make payments monthly. And you can’t just borrow more later — you’ll only get the amount you requested and can’t withdraw funds again, even after you start making payments.

RELATED: How Do Personal Loans Work?

Interest rates on a personal loan vs. a credit card

Interest rates also differ on a personal loan vs. a credit card. Typically, credit cards charge a higher rate. The average interest rate on credit cards is 21.47%, while the average interest rate on a personal loan is 12.35%. This usually means borrowing using a personal loan is more affordable.

However, sometimes credit cards offer 0% promotional rates. This means you get a special 0% rate on purchases for a limited period of time. Often, these promotions are available to new cardmembers and apply to purchases within the first 12 to 15 months of account opening. If you can qualify for a 0% APR and pay off the balance before it expires, you could get an interest-free loan for a year or even longer. That’s a big advantage over a personal loan, since you start accruing interest right away on personal loans.

You can typically choose a personal loan with a fixed interest rate when you apply, so you won’t have to worry about your rate and payment going up. Credit cards, on the other hand, typically have variable interest rates.

Repayment process for a personal loan vs. a credit card

When you take out a personal loan, you decide on your repayment timeline. You may decide to pay back the loan over two, five, or seven years. You’ll have a set monthly payment schedule to ensure you pay it back. So you’ll know upfront when your loan will be fully repaid and what it will cost you every month and overall.

With a credit card, you will pay a minimum payment that’s usually around 1.5% to 2% of your balance.The minimum payment will typically go toward accrued interest, so you’ll only pay down a little bit of principal. As a result, you could get stuck in debt for decades. A credit card minimum payment will generally be lower than a personal loan monthly payment, though, so it may seem more affordable even if it costs more over time.

It’s worth considering all of these differences when deciding which option is right for you. If you can’t qualify for a 0% APR card and you want a predictable, affordable loan so you’ll know when you’ll be debt free, a personal loan is a good option. But if you want the flexibility to borrow from a line of credit when and if you need it, or you can qualify for a 0% APR offer, then a credit card may be a better choice.

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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.

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A layoff could upend your finances. But so could a pay cut. Read on to learn more. [[{“value”:”

Despite a fairly strong economy, there are still reports of layoffs happening at major employers. You may be in a mild (or perhaps not so mild) panic over the idea of losing your job. You may also be willing to go to certain lengths, like taking on extra responsibility at work, to avoid winding up on the chopping block.

Data from Clarify Capital finds that 19% of workers today would consider taking a pay cut to avoid being laid off. But that’s a move that might backfire on you financially.

A mixed bag

When you lose your job, you lose your entire paycheck. In some cases, it may be possible to file for unemployment and get weekly benefits while you’re out of work. But those unemployment benefits won’t replace your paycheck in full — not even close. So if you’re left with no income, you might have to rely on your credit cards to pay your bills in the absence of savings. That could hurt your finances big time.

As such, you might assume that taking a pay cut is preferable to getting laid off. And to an extent, it might be.

But over time, a lower paycheck could hurt you financially as well. If your pay cut is substantial enough that it renders you unable to cover your essential monthly bills, you might still end up with costly credit card debt on your hands. That’s not good.

Also, a significant pay cut could negatively impact your quality of life. If you’re no longer able to spend money on leisure and hobbies because you don’t earn enough, it could make you pretty miserable. That’s not a situation you want to be in for months on end.

Consider a pay cut a temporary solution

You may decide to agree to a pay cut if it means being able to save your job. But don’t just resign yourself to lower pay for the foreseeable future. Instead, keep plugging away to retain your paycheck and avoid getting let go — but at the same time, start looking for a job that pays more so you’re not stuck with your reduced paycheck for the long haul.

Before you agree to a pay cut, you may want to try to talk to your employer to understand what it entails. If your company is going through a rough patch and expects your pay cut to be temporary, that’s one thing. It’s another thing to sign up for a permanently reduced paycheck to keep your job.

Finally, if you have a large amount of emergency savings, you may decide to say no to a pay cut and accept your fate as a laid-off employee. If your job is demanding, the idea of doing it for less money due to no fault of your own may not sit right in your head.

If you have enough of a financial cushion to avoid that scenario, there’s nothing wrong with that. This way, you can dedicate your time to finding a job where you’ll be paid a more equitable wage. And you won’t have to feel bad about working just as hard as ever for less money.

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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.

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Mortgages are expensive to sign right now. Do these things to make a home purchase more affordable. [[{“value”:”

It’s hardly a secret that mortgages have been expensive to sign since the start of the year. And while rates have fluctuated a bit, they’ve remained elevated since January. As of this writing, the average rate on a 30-year mortgage is 6.87%, says Freddie Mac. Now in time, mortgage rates are likely to come down. But that may not happen for a while.

There are steps you can take to try to save money on a mortgage, like boosting your credit score to potentially snag a lower rate. But an 800 credit score isn’t going to take the average 30-year mortgage rate of 6.87% down to 5.1% for you magically.

Mortgage rates are largely a function of market conditions. And right now, conditions aren’t so favorable for borrowers. As such, if you’re hoping to purchase a home this year, it could pay to focus more on ways to spend less on the property you’re buying. And here are three options for potentially spending less on a home.

1. Buy a fixer-upper

If you’re only willing to buy a home in pristine, move-in-ready condition, then you may end up spending a small fortune on a property this year. But if you’re willing to buy a home that needs work, you can potentially reap some savings.

That said, if you’re going to purchase a fixer-upper, make sure to get an estimate from a contractor or set of contractors before finalizing your purchase agreement. You don’t want to end up taking on such costly repairs that they negate the savings of a lower home price.

For example, it may be that move-in-ready homes in your target neighborhood are selling for an average of $500,000. A fixer-upper might cost only $350,000. But if you’re looking at $150,000 of work, you’re not really saving any money. And, you’re taking on the hassle of having to live in a construction zone.

2. Choose more of an up-and-coming neighborhood

There are different factors that can make one neighborhood more desirable than another, such as access to amenities and great schools. But if you’re willing to take a chance on an up-and-coming neighborhood, you may find that you’re able to spend less on a home.

That said, if you have kids, it’s important to research school districts before settling on a neighborhood to make sure you’re not compromising on your children’s education. And also, recognize that it can take a number of years for an up-and-coming neighborhood to grow into a fully developed one. If you don’t think you can sit tight that long, then you may want to stick to an established neighborhood if you can swing the higher cost.

3. Find a home with a separate living space you can rent out for income

Maybe you don’t want to buy a house that needs work and you want to move into a specific neighborhood with a great reputation. That may still be on the table if you’re able to purchase a home with a separate living area, like a finished basement.

The reason? You can potentially rent out space in your home for additional income. That could make it more affordable.

And remember, you’re not signing up to have a tenant living under your roof forever. If your income rises in a few years, you can reclaim the space you’re renting out and enjoy more privacy once your finances improve.

Mortgage rates are apt to come down in time, but right now, they’re pretty high. And while raising your credit score and shopping around with different mortgage lenders could result in some savings, those savings may be limited.

As such, you may want to focus on ways to save on the purchase price of your home. But either way, make certain you’re not signing up to spend more than 30% of your take-home pay on housing, including mortgage payments, property taxes, and homeowners insurance. Going above that threshold could put you at risk of falling behind on not just your housing expenses, but your various bills across the board.

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

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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 positions in Target. The Motley Fool has positions in and recommends Target. The Motley Fool has a disclosure policy.

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Don’t live near a Costco? That’s not necessarily a deal-breaker when it comes to signing up. Read on to see why. [[{“value”:”

As of mid-March 2024, Costco maintained 604 warehouse club locations in the U.S. and Puerto Rico. Despite that, you might still happen to live someplace where there’s no Costco location anywhere nearby.

If you don’t live near a Costco store, you might assume that joining is a poor financial decision. But actually, there’s one service Costco offers that you may be able to use even if you’re not able to make it to the store on a regular basis.

When you’re someone who enjoys travel

Travel has the potential to be a very expensive hobby. And if it’s something you like to do often, you may be eager to find ways to save money in the course of doing it. That’s where Costco comes in.

Costco’s travel service gives members access to competitively priced vacation packages. You can also look to Costco to save money on things like theme park admissions, cruises, and rental cars.

Plus, many of Costco’s travel packages are unique to Costco — meaning, you won’t be able to secure those deals even if you decide to use a travel agent. Costco, for example, often negotiates on-site perks for members who stay at its partner hotels or resorts.

So you might receive a $100 resort credit, for instance, that you can redeem for perks like drinks or spa treatments, if you book a Costco vacation package. Or, you may be eligible for a Costco Shop Card thanks to booking travel. That’s a gift card you can redeem for Costco merchandise.

The savings you reap by booking travel through Costco may be enough to pay for your annual membership — even an Executive one. A Costco Executive membership costs $120 a year, as opposed to $60 for a basic membership. But with that upgraded membership, you get 2% cash back on your Costco purchases.

Meanwhile, let’s say you book a vacation package for Costco for $3,000 that would cost $3,500 elsewhere. In that case, you’re not only saving $500. As an Executive member, you’re also getting 2% of that $3,000, or $60, coming back your way. Book a second package of that price later in the year, and you’ve just racked up $120 in cash back to pay for your Executive membership in full.

Don’t write off Costco just because there’s no store nearby

The closer you live to a Costco location, the more often you might get to use your membership. But don’t assume you’ll be wasting money on a membership if there’s no Costco nearby. The chain’s travel service alone might offer enough financial benefit to justify a membership.

And remember, as a member, you can always place orders on Costco.com. The online prices are usually higher than those you’ll find in stores. But you might still save a bundle compared to the cost of buying goods at a more traditional retailer.

Finally, there’s always the option to drive a distance to Costco a few times a year for a major stock-up. It may not be something you can do every month, but you may be surprised at how you’re able to work the occasional Costco trip into your schedule.

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.Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.

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