Money Management

A good interest rate on a personal loan is one that beats the national average. Find out how to get the lowest rate on your next loan. 

When you take out a personal loan, the amount you borrow and the rate that you pay will determine both how much your monthly payments are and how much the loan costs you in total over time.

The amount you borrow should be the lowest possible amount you need to accomplish your goals, whether that’s paying off debt, renovating a home, or financing a big purchase. And as for the rate, you’ll always want to try to get the lowest possible interest rate. A higher rate means borrowing is more expensive.

The big question you might have, though, is what exactly is a “good” rate and is your lender charging you a fair amount or not? Here’s what you need to know.

This is a good rate on a personal loan

A good personal loan interest rate is not the same for everyone. That’s because borrowers with great financial credentials can generally get better rates than those with a lower credit score.

But in general, if you are being offered a rate that is below the national average and you have an average credit score (around 714, according to Experian), then you are most likely getting a decent deal. As of November 2023, the national average personal loan rate was 12.35%, according to the Federal Reserve Bank of St. Louis.

Now, if you have great credit, then you can expect a good rate to be below this — a good rate might be somewhere closer to 8%. And if you have poor credit, with a score in the low 500s, then you’d be lucky to get a rate that’s around double the average. The table below shows what a $10,000 personal loan paid off over five years at each of these rates would look like, so you can get an idea of what these rates might mean for you.

You likely have access to your credit score via your bank or a credit card issuer, so check to see where you stand and to get an idea of what rates you might expect to pay.

You should also get quotes from at least three to five different personal loan lenders. If you are getting similar rates from all of them and one is charging less than the others (and doesn’t have a lot of surprise fees or unfavorable terms like a prepayment penalty), then the lowest-price lender of the bunch is probably offering you a good rate.

How to get the best personal loan rates

If you want to make sure you’re getting the best possible rate on a personal loan, there are a few steps you should take to make that happen:

Shop around: As mentioned above, rates do vary by lender so you’ll want to compare your options to make sure you get a good rate.Improve your credit: Pay off debts, keep your credit card balances well below 30% of available credit, and ask creditors to remove negative information as a gesture of good will if you’ve generally been a good customer.Borrow the lowest amount possible: A loan with a lower balance may come with a better rate.Choose a shorter repayment term: With a shorter timeline, a lender takes on less risk, so rates can be lower.Consider a cosigner: If you can’t get the best rates on your own, having a cosigner who is better qualified may help.

If you take these steps, ideally you can land a good rate on a personal loan so your borrowing will be as affordable as possible.

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.

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Maxing out your IRA in 2024 will help you shield some of your income from taxes. Find out how an IRA contribution could benefit your finances. 

Contributing to an IRA is a great way to save for retirement. You can open an IRA with any brokerage firm, so even if you don’t have access to an employer-sponsored retirement plan, you can still use this account. And IRAs usually offer many investment options — more than 401(k)s do — so once you have contributed enough to a 401(k) to earn any matching funds your employer is offering, you may want to switch to putting money into an IRA.

One of the biggest benefits of an IRA is that as long as you meet income limits (which apply if either you or your spouse has another workplace plan), you can deduct from your taxes the amount that you contribute each year. The savings on your taxes helps you offset the contributions you are making to the IRA, so each contribution doesn’t reduce your take-home income by the full amount.

But just how much could you save on taxes if you max out your IRA in 2024? Here’s what you need to know.

This is your potential tax savings for a maxed out IRA

In 2024, the maximum contribution you can make to an IRA is $7,000, or $8,000 if you are 50 or over and are eligible to make catch-up contributions.

The amount of money you would save on your taxes if you contribute either $7,000 or $8,000 depends on what tax bracket you fall into. The table below shows the maximum tax savings that could come from a contribution, depending on what your marginal tax rate is.

Find out what tax bracket you fall into so you can see your maximum savings based on your marginal tax rate.

How much will you actually save?

When you’re figuring out how much you personally will save, you need to know how marginal tax rates work. If you are in the 22% tax bracket, you don’t pay 22% on all your income. You only pay 22% on income above the threshold at which you crossed into that tax bracket. So, for example, married joint filers would pay:

10% on income up to $23,20012% on income between $23,200 and $94,30022% on income between $94,300 and $201,050

And so on, up to the highest marginal tax rate of 37%, which married joint filers would pay on income above $731,200.

The tax savings you get comes from deducting (subtracting) the amount you contribute to your IRA from your income and thus not paying taxes on that amount of earnings. So if you cross tax brackets thanks to your contribution, your savings would be less.

Say, for example, that you made $96,300 and you contributed the maximum $7,000 to your IRA (since you are under 50). Here’s what that would look like:

Your IRA contribution would bring your taxable income from $96,300 to $89,300.If you hadn’t made this contribution, you otherwise would have paid 22% tax on $2,000 in income (the $2,000 above $94,300 that got you to $96,300). So you save 22% on $2,000 of your contribution, or $440.You have $5,000 in remaining contributions that bring your income down from $94,300 to $89,300. You save the 12% tax you’d otherwise have paid on those contributions, or $600.

In this example, since you crossed tax brackets due to your savings, your IRA contribution ends up reducing your tax bill by $1,040.

READ MORE: The Ascent’s Complete Guide to Taxes

Now you understand how it works and can figure out exactly how much you can save by maxing out your IRA. As you can see, the savings are substantial. In our above example, you would have contributed $7,000 but paid $1,040 less in taxes, so you would have actually only reduced your take-home pay by $5,960.

It’s worth trying to get as close as you can to maxing out your IRA so you can benefit from this tax break. If you don’t already have one, open an account with the best brokers for IRAs today and start making contributions ASAP so you can get as close to $7,000 or $8,000 in deposited funds over the course of the year.

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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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Credit utilization is a big part of your credit score. Discover the common misconceptions about credit utilization so you know how to manage your credit. 

If you’ve ever read about how credit scores work, you’ve probably heard about credit utilization. This is the ratio between your credit card balances and their credit limits. For example, if you have one credit card with a $5,000 balance and a $10,000 limit, your credit utilization is 50%.

Credit utilization is one of the most important factors in your credit score. And the golden rule everybody repeats is to keep your credit utilization below 30%.

It’s not a bad rule. I’ve repeated it myself quite a few times. But it’s also a simplification of credit utilization, and it’s not entirely accurate. With a better understanding of how credit utilization works, you’ll have a much easier time managing your credit score.

30% isn’t the magic number — lower is better

The 30% rule for credit utilization gets thrown around all the time. It gives the impression that using under 30% of your credit is good, and 30% or above is bad. That’s the biggest misconception about credit utilization.

It’s more accurate to say that the lower your credit utilization is, the better. Utilization of 10% is better than 20%, which is better than 30%. Consumers with a FICO® Score of 800 or above, the highest range, have 7% credit utilization on average.

What makes it confusing is that 0% credit utilization is actually considered worse than 1% credit utilization. That’s according to Experian, one of the three credit bureaus that calculate credit scores. It’s a quirk of credit scoring systems. But this isn’t something anyone needs to worry about — you can have an excellent credit score with 0% or 1% utilization.

So, where’d that 30% rule come from? Experian has clarified that “while there’s no specific point when your utilization rate goes from good to bad, 30% is the point at which it starts to have a more pronounced negative effect on your credit score.”

Only your current credit utilization matters

Some people learn about credit utilization, and they think they need to micromanage it. This is understandable, especially if you use a free credit score tool that sends out alarming updates like “Alert: Your credit utilization went up.”

The only number that matters is your current credit utilization. That’s what lenders see when they check your credit, and that’s the number used to calculate your credit score. If your credit utilization is 5% right now, it doesn’t matter if it was 75% two months ago. Your high credit utilization two months ago affected your credit score then, but not anymore.

If you have any sort of credit check coming up, then you should make sure your credit utilization is as low as possible. For example, your credit utilization is important if you plan to apply for any of the following in the next month or two:

Credit cardsMortgagesPersonal loans

When no one’s going to check your credit score in the near future, your credit utilization isn’t a big deal. You should, however, aim to pay off your credit cards in full every month. By paying in full, you won’t be charged interest on your purchases, and you’ll avoid debt.

Credit utilization history could be important with new scoring systems

There are many credit scoring systems out there. FICO® Score is the most widely used by lenders, but even that has dozens of variations. There’s FICO® Score 8, FICO® Score 9, and FICO® Score 10, plus other versions used in auto lending, credit cards, and mortgage lending.

The scoring systems that are currently used don’t consider your credit utilization over time. As explained above, only your current credit utilization matters. But new credit scoring systems, including FICO® Score 10, look at data trends over 24 to 30 months.

If companies start using these newer scoring systems, then your historical credit utilization could become important. For now, that’s not the case.

How to handle your credit utilization

To sum it up, it’s always a good idea to pay your credit cards in full to stay out of debt. If you do that, your credit utilization will be low, which helps your credit score.

If your credit utilization increases from time to time, that’s not necessarily an issue. You don’t need to always keep it below 30%. That’s just a rule of thumb. The only time your credit utilization comes into play is when someone’s checking your credit score, and it’s just your current credit utilization that matters.

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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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Health insurance plans with high deductibles may be HSA-eligible. But plans could lose eligibility based on the out-of-pocket maximum. Here’s why that matters. 

Health insurance plans in the U.S. can range from affordable on a monthly basis (but don’t cover much) to an expensive monthly plan that offers good coverage if you need it. And there are a lot of options in between. If you’re considering getting a health savings account (HSA) to save for future medical costs, you may be in for a surprise about whether your plan qualifies or not.

Why some high-deductible health plans don’t qualify for HSAs

To get an HSA, you have to have an HSA-eligible health plan. That requires you to have a high-deductible health plan (HDHP), which is defined as a plan that has an annual deductible of $1,600 (individuals) or $3,200 (families) as of 2024. If you shopped around for a new health plan recently, you’ll know that isn’t exactly a rarity. But here’s the catch: While many plans come with a high deductible, they might actually have an out-of-pocket maximum that’s too high to get that distinction.

The out-of-pocket maximum limit acts as a cap on how much you’d have to pay for in-network services — including the deductible, copayments, and any coinsurance — before your insurance would cover 100% of your qualifying costs for that year. And the out-of-pocket maximum for HSA-eligible plans is roughly five times higher than the deductible. In other words, health plans that have a high deductible but don’t qualify for HSAs because of this cap can be some of the most expensive if you end up having a major medical event. Worst case: You may end up paying the full out-of-pocket maximum without getting any of the tax benefits offered by HSAs.

How to know if an HSA is right for you

The point of HSAs is to give people a way to save for health costs and potentially avoid medical debt, and there are many benefits. For example, it’s triple tax-advantaged: You wouldn’t pay taxes on the cash you put away, it can earn tax-free interest, and you don’t pay taxes when you use it on qualifying medical costs. Plus that cash can be rolled over from year to year, providing a longer-term financial cushion. But in exchange for a typically lower monthly premium, you’d have to potentially pay that high deductible before your insurance would start paying out if you required a lot of medical attention. So there is a bit of risk.

Let’s say your current non-eligible plan costs $500 per month, and has a $700 deductible. If you were to switch to a HDHP, you might only pay $250 per month, in exchange for a $1,700 deductible. So you’d save $250 per month, and you could reduce your taxable income by $3,000 if you took that savings and stashed it in an HSA, which would be enough to cover your new deductible.

However, you’ll still need to weigh the potential costs versus the savings you’d get on taxes to see if that high deductible is worth the potential savings.

For instance, if you have an expensive medical condition, putting money in an HSA might not be appealing if you’d want to reduce your deductible, and therefore minimize health costs. But for those who are in relatively good health, there is the potential to protect against future medical events by socking money away each year while lowering your taxable income. That can be useful since the likelihood of needing that cash increases over time.

Another thing to note is that the HSA contribution limit for 2024 is $4,150 for single folks, or $8,300 for families, which is higher than the deductible limit to qualify as an HDHP. So there is the opportunity to grow that extra cash over time, even if you have a year where you pay the full deductible. The best way to understand if it’s a good idea is to:

Calculate your average health insurance costs, including things like medications, procedures, and copayments for doctors visitsEstimate how much you can put into an HSA each monthCompare your annual tax burden based on your earnings versus what it would be if you subtracted HSA contributionsLook at the monthly premiums associated with HSA-eligible health plans as well as lower deductible plansDecide whether you want to save for qualified health costs that may not be covered by your insurance, like eye laser surgery or dental work

This can be complex, and on top of these factors, HSA providers may charge fees which can further muddle things. So if you’re still unsure, talking to a financial advisor can be useful here.

How to find HSA-eligible health insurance plans

If you’re interested in finding an HSA-eligible HDHP, the process is actually quite simple. You can limit your plan results on the marketplace website. To do that, click “Add filters,” located in the top-left part of the screen, and then check “Eligible for an HSA.” Or if you get your health insurance via your employer, they should clarify which plans are HSA-eligible. If not, contact your plan administrator for clarification.

You’ll then have to open your HSA with a separate financial institution that offers those accounts and make contributions through that company.

If you can benefit from an HSA, they can be vital tools for saving for medical costs while reducing taxable income — potentially a win for your personal finances. You just have to make sure your health plan qualifies first.

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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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