Money Management

Only considering how much you’ll pay every month is a huge mistake when getting a loan. Here’s what to do instead to benefit your personal finances. 

When you are looking to make a purchase, the best way to do it in most circumstances is to just pay for it out of your savings account. Sometimes, however, this simply isn’t possible because whatever you’re buying costs more than you have available to spend.

If you’re going to finance something by taking out a personal loan to buy it, lenders — or the salespeople selling the item — often try to get you to focus only on what you’ll pay every month. Unfortunately, doing that is a really bad idea. Here’s why — and what you should do instead.

Focusing only on monthly payments could cost you in the end

Only looking at monthly payments can make it seem as if a purchase is affordable, even when it really isn’t. That can happen if you finance the item over a very long period of time.

See, when you stretch out your payment over many years, each individual payment you make will be smaller — so it can feel as if the item is within your budget. But, ultimately, you are paying interest for a long period of time and the costs of that interest can add up to a lot. And you’ll be tying up income for a long period of time and preventing yourself from using it for other goals.

Between giving up the flexibility by committing your future income and making your already-expensive item cost more by tacking on a ton of interest charges, you could end up paying a big price for the purchase in terms of your financial security.

Say, for example, you wanted to spend $50,000 on your dream wedding or putting a designer kitchen in your house. Here’s what your loan might look like with different payment terms, assuming you get a personal loan at the national average interest rate (which is 12.17%, according to the Federal Reserve Bank of St. Louis):

As you can see, you’re going to spend a lot of money if you opt for the longer loan term, even though it may put payments within your budget. You’ll also be limiting what you can do with your money for a decade, since you’ll have to send $722.28 a month to your creditors for that entire time. That’s a lot of money you can’t use to invest for retirement or meet other goals.

And in reality, since interest rates are usually higher on loans with longer payoff times, you’d actually end up paying even more for your long-term loan than these numbers already show. With a longer payoff time, you pose a higher risk to the lender — a lot can happen in 10 years, after all. But this is still a pretty good illustration of how a loan with a low monthly payment could make something seem affordable when, in fact, it’s actually really expensive in the end.

Be sure to look at the big picture to decide if something is really affordable

Ultimately, the only way to know if financing a purchase fits into your personal finances is to take a look at total costs over time and ask yourself if it is worth the interest cost — and time commitment — to get the item.

And remember, when you pick your loan term, if whatever you are spending on will no longer be bringing you joy by the time the last payment is made, you should not get such a long personal loan to buy it. You don’t want to be still paying off that loan long after your kitchen has become outdated again or your wedding is a distant memory.

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Are your financial goals in line with those of your peers? Read on to find out. 

There’s something about the start of a new year that tends to motivate people to focus on their personal finances. A recent survey by The Ascent found that 67% of Americans are making financial resolutions for 2024. Here are some of the most popular goals your peers are trying to achieve.

1. Paying off debt

For 22% of respondents, paying off debt is a key goal for 2024. But if you’re going to tackle your debt, aim to do so strategically.

First, focus on your debt that’s costing you the most. If you’re juggling a $2,000 credit card balance at 24% interest and a $400 personal loan balance at 7%, chip away at the former first.

You may be inclined to pay down smaller debts ahead of larger ones, but you’ll reap the most savings by first tackling your debts with the highest interest rates. Plus, remember that too much credit card debt relative to your credit limit can hurt your credit score, whereas a personal loan balance may not hurt your credit score at all if you make your payments on time.

2. Saving for a big milestone

A good 16% of Americans are saving for a big event this year, like buying a home or having a baby. If you’re saving for a near-term milestone, your best bet is to keep your money in a regular savings account, where you won’t have to worry about your principal balance shrinking unless you take a withdrawal.

If you’re saving for a big milestone like retirement, though, that’s far away, then an IRA or 401(k) is generally a better bet. That way, you can invest your money and, ideally, grow it into a much larger sum over time. Plus, IRAs and 401(k)s offer tax benefits that a regular savings account doesn’t.

3. Saving for a large purchase

While many Americans are saving for a specific milestone, 12% are aiming to sock away money for a larger-than-usual purchase, like a TV or phone. And there’s nothing wrong with going this route if you’ve tackled your more pressing expenses.

But before you splurge on something like new electronics, make sure your home doesn’t need repairs or your car doesn’t need work. You’re better off saving for a new water heater than a new gaming system.

4. Boosting income

A good 11% of respondents want to see their earnings increase in 2024. And you can tackle that goal a couple of different ways.

First, you could try to boost your skills and set yourself up for a promotion at your current job that might come with a raise. Or, you can embrace the gig economy and take on a side hustle you do at your own pace. Your side gig could run the gamut from waiting tables at a local restaurant to house-sitting to driving for a ride-hailing service on weekends.

5. Building an emergency fund

You never know when life might throw you a curveball, whether it’s a sudden home repair or a medical bill. That’s why it’s important to have money in savings at all times.

A good 8% of respondents say they’re focused on building an emergency fund in 2024. You can do so by cutting your spending or boosting your income — whichever is easier.

It also pays to look at setting up an automatic transfer from your checking account to your savings account to stay on track with this goal. If you’re hoping to have $1,000 more saved for emergencies by the end of the year, arrange for about $83 to hit your savings each month off the bat. That automatic transfer could spell the difference between you spending that $83 on a whim versus banking it.

And there you have it — these are the financial goals Americans are targeting in 2024. Whether yours overlap or not, remember that meeting financial objectives is a marathon, not a sprint. Don’t get discouraged if your savings efforts, for example, happen to get off to a slow start. The key is to work toward your goals steadily and consistently throughout the year so you can end 2024 in a much better place.

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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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It’s easy to go overboard with Costco shopping. Read on for ways to avoid doing so in 2024. 

Costco is known for its competitive prices. And because of this, a lot of people tend to assume that shopping there will automatically equate to saving money.

However, since Costco’s inventory is so vast, and because the deals there tend to look appealing, it’s easy enough to go overboard on spending when shopping at your local warehouse club store. If you spent way too much money at Costco in 2023, then here are some steps worth taking to avoid a repeat situation this year.

1. Make a list when you go to the store instead of just winging it

Wandering around a store like Costco can be a dangerous thing, financially speaking. There are just so many deals to capitalize on.

If you know for a fact that you spent more than intended at Costco last year, then going forward, pledge to shop with a list to help yourself stay on track. More so than that, pledge to only visit aisles that contain an item on your list. If you never enter the snack aisle, you won’t be tempted to buy a giant vat of peanut butter pretzels.

2. Shop with a friend to keep yourself in check

Sometimes, it’s hard to exercise self-control when you’re left to roam the aisles of a store like Costco solo. If you tend to struggle with impulse purchases, then it’s a good idea to bring an accountability buddy along when you shop — whether it’s Costco, Target, or another retailer whose inventory tends to tempt you.

That said, you’ll need to choose the right shopping partner. Your neighborhood friend who’s careless with their own money probably isn’t a good choice. But if you have a budget-conscious parent in your friend group with habits and financial goals that seem similar to yours, then they might be a good person to try to shop with.

3. Downgrade your Costco membership

Costco offers two types of membership. A basic membership costs $60 a year, and an Executive membership costs $120 a year but offers 2% cash back on all Costco purchases.

An Executive membership can make a lot of sense when you shop at Costco frequently. Once your annual spending exceeds $3,000, you’ve come out ahead financially after paying an extra $60 for your membership upgrade. But having an Executive membership might also tempt you to spend more, the same way some people might think to themselves, “Hey, let me put some extra charges on my credit card for the reward points involved.”

If that’s a mentality you can own up to, it could make sense to downgrade your Costco membership to a basic one. The good news is that you can do so at any time, and Costco will refund you the price difference.

Going this route could mean losing out on some cash back at Costco. But you’re better off forgoing $90 in cash back than spending $600 extra in the course of a year.

The purpose of joining Costco is to save money — not waste money. If you feel as if you’ve been spending too much at Costco, employ these tips to break that habit in 2024.

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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 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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Personal loans have many advantages, but a major one is that you find out your total costs and payment timeline upfront. Find out why this is such a big perk. 

There are many ways to borrow money. Many people use credit cards because they seem like an easy option. After all, once you get a card, you can just charge things on it up to your credit limit and get bills in the mail or online.

There’s another alternative, though, that may be a better option in some circumstances. Personal loans are often a better choice. And that’s not just because they offer lower interest rates than credit cards, although that’s usually the case.

There’s another huge benefit that comes with getting a personal loan that can make it a great way to finance purchases. Here’s what it is.

This huge benefit of personal loans could make them the right borrowing choice for you

One of the single biggest benefits of getting a personal loan is that you can get a loan with fixed costs and a fixed repayment schedule right upfront. There’s not going to be any surprises about how much your monthly payment is or how much your total interest costs are if you choose a fixed-rate personal loan. You’ll see the details of how long to pay and what your total financing charges are and can decide if you want to move forward with borrowing.

If you use a credit card, on the other hand, your card probably has a variable APR, which means your rate can change over time. If interest rates go up across the board, paying interest on your card can become more expensive. You’ll also find that the minimum payment required is not enough to repay your debt in any reasonable time period. If you pay only the minimum amount owed, it could take decades to become debt free.

Card issuers often include minimum payment warnings on your statements, which show the total interest costs and number of years it would take to become debt free if you paid only the minimum. But you aren’t going to see that until after you’ve charged purchases on your card and get your statement in the mail. You won’t have the information upfront about the total costs of the loan before you make a decision to move forward with borrowing.

Things can also get confusing with credit cards, as you might charge other items on the card before you’re done paying off past purchases. This can make it really hard to know how much you’ve paid — including financing charges — for any one item you purchased. This, in turn, makes figuring out whether charging that item was worth it or not.

This isn’t an issue with a personal loan. There are no surprises, there’s no mystery of how long you’ll be stuck paying, and you can go in with both eyes open.

Should you get a personal loan?

Getting a personal loan can make sense when you need to finance a purchase over time, if the interest rate you’re offered is reasonable and if the loan payments you’re expected to make fit within your budget.

It’s almost always best to pay cash and avoid borrowing, but the fact that you can understand the costs of a personal loan upfront makes it less risky than other types of loans. So if you need to pay something off over time, getting a personal loan is definitely worth considering.

To decide if borrowing using a personal loan is right for you, get several quotes online from some of the best personal loan lenders. If the payments and interest costs seem reasonable and you need to make the purchase, you can move forward with this simple borrowing approach.

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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