Money Management

After my friend stopped making car payments on her loan, something surprising happened. Learn why car repossession isn’t always the end of the story. 

A car loan is a secured loan. That means the vehicle acts as collateral and guarantees the lender will be repaid. If the lender is not paid back, it can repossess the vehicle. That means the lender sends someone out to take the car back.

Recently, my friend stopped making payments on her car loan. She’d made a mistake and bought a new vehicle, but couldn’t sell her old one for enough to pay off the remaining loan balance. Since she couldn’t afford two car payments and the lender was unwilling to work with her, she felt as if she had no choice.

After she stopped making those payments, she expected her car to be repossessed right away and thought that would be the end of it. But here’s what actually happened next.

It took a long time for the lender to come and get the vehicle

As soon as my friend fell behind on her car payments, the lender began trying to get in touch with her.

She spoke on the phone with the lender and explained her situation, indicating that she couldn’t afford the payments. While the lender urged her to try to get caught up, she simply said that she couldn’t do it and said that the car was in her driveway and that the lender could come and repossess the vehicle whenever it wanted.

Despite numerous phone calls asking for money over the coming months, the lender didn’t come and get the car right away or even with any speed or urgency. In the end, it took nine months from the time that she missed her first payment and the collection calls started until the time when someone actually came and repossessed her car.

This was a long period of time for the car to sit untouched in her driveway waiting for someone to come for it. During this time, the late payments were being reported on her credit report, sending her credit score plummeting. And interest and fees kept being added to the loan balance.

If you fall behind on your car payments, you’ll likely face collection calls and damaged credit like my friend did. But don’t worry that someone is going to break down your door tomorrow.

While you’ll begin incurring added costs right away and a lender can take your car back immediately, it has to comply with legal requirements to do so. In some states, this means the lender must provide notice before acting. And even if your lender doesn’t need to notify you first, it doesn’t want your car — it wants the money you owe on the loan. As such, lenders will usually make every effort to give you a chance to get caught up before they come for the car. So, expect it to take months for the car to disappear once you stop making payments.

My friend is stuck with a bill that the lender expects her to pay

Once the lender eventually repossessed my friend’s car, she had some possible options, including acting within the time period allowed in her state to pay the past due balance and fees and recover the vehicle (the laws differ on this depending where you live). She didn’t have the money in her bank account, nor did she want the car anymore, so she just let the lender repossess and didn’t fight it.

When the tow truck came to her house, she had her belongings out of the car since she was expecting it. If you don’t, you should contact your lender about getting your property back ASAP after the car is taken.

She also had her car ready and waiting for them, and many people don’t in this situation. The good news is, lenders are also often subject to rules on how they can act when repossessing a vehicle. For example, state laws may prohibit them from getting the car from an enclosed garage without permission. And they can’t damage your property or cause a disturbance when trying to recover the vehicle.

While the repo people took my friend’s car without issue, that was not the end of the story. Sometimes, after a repossessed car is taken and sold, money is still owed on the car loan since, after all, the car is often worth less than the loan balance. If that’s the case, as it was for my friend, lenders may be able to collect the remaining amount, which is called a deficiency balance. They can even go to a debt collector or to court to try to get the money.

It’s important to realize that you may still have to pay the bills for a car even after a lender takes it from you. If you are in danger of having your car repossessed, reach out to your lender ASAP to see if there are any options it can offer to help you avoid these undesirable outcomes and a major impact to your personal finances as a result.

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High-yield savings accounts help you grow your wealth effortlessly. Here are a few reasons to open one in 2024. 

Saving more money is a popular New Year’s resolution, but it’s often easier said than done. Many find budgets difficult to stick with, and pinching pennies can sometimes lead to burnout. But fortunately, that’s not the only way to boost your savings in 2024.

Switching to a high-yield savings account could also make a big difference, and there are other perks to changing banks as well. We’ll look at these in detail below.

Switching banks could earn you hundreds in 2024

The best high-yield savings accounts today have annual percentage rates (APYs) hovering around 4.30% to 4.60%. That’s enough to put $430 to $460 in your pocket in 2024 if you have a $10,000 initial balance. By contrast, many brick-and-mortar bank accounts pay you just a few pennies per year.

It’s important to recognize that high-yield savings account rates can fluctuate just like traditional savings account rates, so it’s possible they could increase further or drop throughout the year. This will affect how much you earn in interest, and so will the size of your balance over time. But even if rates fall a little, you could still earn tens, hundreds, or even thousands of dollars with little to no effort on your part.

It could save you money on bank fees, too

High-yield savings accounts are typically available through online banks. They can offer these competitive yields because they don’t have large and costly branch networks to maintain. They’re also able to pass their savings onto customers in other ways, including reducing or eliminating common bank fees.

Maintenance fees in particular are almost nonexistent among online-only banks. These annoying fees can sometimes cost you more than you earn in interest at a brick-and-mortar bank. While many traditional institutions give you the opportunity to waive them, not all customers can. If your goal is to hold onto as much of your hard-earned cash as possible, it’s best to go for a savings account that doesn’t charge you to own it in the first place.

How to choose the right high-yield savings account for you in 2024

The interest rate is probably the most important consideration when choosing a high-yield savings account, but it’s not the only one. As discussed above, you also need to pay attention to the fees the bank charges you. It should have a fee schedule on its site explaining what it can charge you for and how much you could owe. Contact the bank if you have any questions about this.

You should also look for an account that includes an ATM card if you hope to withdraw cash directly from your high-yield savings account. This is a little less common, though there are plenty of online-only banks that offer them. If you are OK with transferring cash to a local checking account before withdrawing it, this may not be necessary.

Customer service is also important, even if you don’t plan to contact your bank often. You never know when you could run into issues with your online or mobile bank accounts. These are often the only way to access funds held in an online savings account since there are no bank branches. It’s crucial to make sure you have access to helpful customer support when you need it.

And if you’re still on the fence after comparing several offers, see if any of the savings accounts you’re interested in offer a welcome bonus. This is a cash bonus you get after completing certain qualifying activities, like maintaining a certain minimum balance for a number of statement cycles. They’re pretty rare among savings accounts, but they do exist and could serve as a tiebreaker if you’re torn between two accounts.

Take your time with this decision. You’ll probably have this account for many years, so you want to make sure you’re happy with its features. Compare a few offers side by side before settling on one. Then, apply online so you can start making deposits and growing your wealth as quickly as possible.

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A balance transfer credit card can help you pay off debt more cheaply. Keep reading for one potential pitfall you may experience. 

Among the pantheon of scary emails you could receive, learning that your credit score has plummeted by 61 points in a month has to rank highly. After all, your credit score is a pretty significant part of your personal finances, and a lower credit score means paying more to borrow money, in the form of a higher interest rate — assuming you can even be approved at all.

I know someone who recently experienced this. He had a dramatic 61-point drop in his credit score, but while it was a bit of a shock at the moment, he knew why it had happened. Here’s how transferring a credit card balance can hit your credit score hard — and why it’s ultimately nothing to worry about.

Credit scores 101

You probably don’t think about credit scores all that often, unless you are also a personal finance writer (in which case, hello!). In case you’ve forgotten or just never knew, your credit score is based on several different factors that are weighted in different ways.

Generally, when we talk about credit scores, we’re specifically talking about FICO® Scores, which are used by 90% of lenders when deciding whether to loan you money (and at what interest rate). FICO® Scores range from 300 to 850, and are based on these five factors:

Payment history: 35%Amounts owed: 30%Length of credit history: 15%Credit mix: 10%New credit: 10%

In the case of a balance transfer, it’s “amounts owed” that we’re concerned with. For credit cards and other revolving debt (meaning you can consistently borrow and repay a line of credit), it’s important to keep your credit utilization ratio (the amount of credit you’re using) low. It’s recommended to keep this number below 30%.

So if you have a credit card with a $10,000 credit limit, you should ideally be carrying a balance of no more than $3,000 at any given time. If you use more credit than this, you’ll risk credit score damage. A higher utilization ratio could indicate that you’re living above your means or having difficulty managing credit, both of which are red flags to lenders.

A balance transfer’s impact on your score

Balance transfer credit cards can be a great way to pay off debt without incurring additional interest charges (assuming you have a plan to pay the card off in full before your 0% APR period ends, that is). But they can impact your credit score in a few ways.

First, you could see a small credit score drop after you apply for a new balance transfer card, because the lender will perform a hard inquiry — this results in the loss of a few points. But you could see a big drop because of how balances are reported to the credit bureaus by card issuers. Your balances are reported every month — but different issuers report at different times.

Let’s say you move $3,000 from one credit card to a new card with a different issuer. (Note: you generally won’t be allowed to transfer a balance to a card with the same issuer to skip out on paying interest on that balance you owe; you’ll need to apply with a different issuer.)

But your previous balance on the old card was just reported to the credit bureaus, and your new card issuer reports that you’ve got a new card with $3,000 charged to it. Uh-oh. Now your credit utilization ratio is up, and to the credit bureaus, it looks as if you just went on a $3,000 spending spree. Hence, your credit score plummets.

But have no fear! Your score will recover. In the case of my friend, his score bounced back up the following month, once his old card issuer reported the now-$0 balance on the card he transferred the balance from. If this phenomenon happens to you, take a deep breath and know that your lower credit score isn’t forever.

One word of caution

It pays to be careful about when you move a credit card balance to a new card, because of the potential for a big temporary credit score hit. Let’s say you’re transferring a balance, and also intend to apply for a car loan soon. If your credit score hasn’t recovered by the time you apply for that loan, you could find yourself facing a higher APR on the amount you’re borrowing.

As such, it’s a much better idea to finish any credit card balance transfers well before you intend to apply for a loan of any kind. If you’re borrowing money, ensuring your credit score is in the best shape possible beforehand will save you money. Keep this in mind, and if you see a big credit score hit after transferring a credit card balance, rest assured that your score will recover soon.

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If you’ve got companion animals, you might want to get pet insurance. Here’s why, along with a closer look at how pet insurance policies work. 

I have a New Year’s confession to make: I don’t have pet insurance. Now that I’ve gotten that off my chest, I’ll explain myself. I have three cats, and I’ve been quite fortunate in that, for the most part, they’ve been pretty healthy. I’ve also nearly always lived paycheck to paycheck, and shelling out money for an extra bit of insurance wasn’t really in my budget.

But as we start off a new year, I am wondering whether I should get policies for my three furballs. Let’s consider it together — and discuss another good idea for funding veterinary care for your beloved pets.

Pet insurance has benefits

I don’t have space to give you a complete rundown of how pet insurance works here, but let’s cover the basics. A pet insurance policy generally consists of paying a monthly premium for your pet — this cost is based on the pet’s species, age, breed, and sex. Older pets generally cost more — if I decide to take the plunge, I’ll pay more to insure my 12-year-old orange tabby than my 2-year-old tuxedo cat. And most policies only include coverage for accidents and illnesses that crop up while the pet is insured — pre-existing conditions are not covered (unlike human health insurance under the Affordable Care Act of 2010).

And your pet insurance policy likely also won’t include preventive care, which is sometimes called wellness coverage. This means you’ll have to pay for your pet’s annual exams and care related to that, like rabies shots. If your pet is quite healthy, you may not have much cause to use your pet insurance. That said, accidents and illnesses can happen at any time, which is why I’m considering pet insurance in 2024. My cats and I have a big year ahead of us — I’m planning to buy us a house, and while I don’t necessarily want to commit to an extra monthly expense right now, having insurance would give me more peace of mind while I have so many other unknown costs to worry about.

You might also choose to save money for vet care

I do have another option to cover medical care for my pets, and you do too. We can opt to put the money we would’ve spent on pet insurance into a good savings account, and have it at the ready in case of an emergency. I did some advance planning for vet care at the end of 2023. I knew my cats would all be visiting the vet for their annual exams and vaccines near the end of the year, and I was able to put aside several hundred dollars ahead of time, so I could easily pay for their visits.

I intend to do this again for 2024, as it took away the financial stress of regular vet care (although, not the stress of bundling my calico cat into her carrier and then my car — that’s her least-favorite thing in the world).

Going back to how pet insurance works, having money put aside is still important even if your pet has a policy. Pet insurers generally reimburse you after care — you pay your vet’s office upfront, then submit your bills to the insurance company and wait to be paid back at whatever level of coverage you have. You likely also have to meet a deductible, and like with health insurance, car insurance, or home insurance, the higher your deductible, the lower your premium costs will be (and vice versa).

It’s important to note that vet care for an accident or illness can be extremely expensive, and without a pet insurance policy, you’d be on the hook for hundreds or thousands of dollars. Do what I’m doing, and shop around with the best pet insurance companies to get quotes to insure your pets. You may want to make the same move I’m considering, which is accident and illness coverage, and choosing to just save money for regularly scheduled care. This way, you can get the benefits of pet insurance without overspending.

Ultimately, the choice to get pet insurance this year is yours and yours alone. I know you’ll make the right call for you and your beloved pets.

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Want to improve your personal finances by paying off debt? Ask yourself these four questions to decide which debt to pay off first. 

Many people have multiple different kinds of debt to pay off. For example, you might have several credit cards that you owe money on. Or you might have a credit card, a personal loan, and a car payment that you want to get paid off for good.

If you have several kinds of debt to take care of, you’ll need to make a strategic choice about which to focus on repaying first. Answering these four questions will enable you to make your plan so you can develop a clear path toward the financial freedom that comes with being debt free.

1. How motivated am I to repay this debt?

Paying off debt can be hard work, so if you don’t stay motivated, you may give up doing things like making extra payments. There’s one approach to becoming debt free that’s designed to help you stay on track by giving you small wins. It was made popular by finance guru Dave Ramsey and it’s called the debt snowball method.

With this approach, you send extra payments to the debt with the smallest balance first so you can pay that one off in full and score a win so you’re more likely to stay on track. Then you pay extra on the debt with the next smallest balance, and so on, until you’re out of debt. This approach is backed by science, and researchers at Northwestern University’s Kellogg School of Management found it does work to keep people motivated and maximize their chances of success.

However, if your larger balances have higher interest rates, it would make mathematical sense to pay off those debts first so you can stop paying those bigger financing charges. The key is, you would need to find your own motivation to keep slogging away, especially if it takes you a very long time to actually eliminate the debt.

If you’re super excited about paying off what you owe and you don’t need the extra mental boost that comes from being able to erase a loan entirely from your balance sheet, then you should consider skipping the snowball approach and trying to get rid of those high-rate loans ASAP by paying extra on them first. (This is commonly called the debt avalanche method.)

2. Which debt has the highest interest rate?

As mentioned above, it’s important to pay attention to the interest rate on your loans when you’re repaying debt. If you have loans at a very high rate, it can make sense to get serious about paying them back right away.

Say, for example, you had the following debts:

A $1,000 balance at 4% APR you were paying $75 per month onA $5,000 balance at 9% APR you were paying $125 per month onA $9,000 balance at 25% APR you were paying $278 per month onA $12,000 balance at 18% APR you were paying $300 per month on

If you could pay a total of $1,000 a month to your debts (which total $27,000) and you paid off your loans in order of highest to lowest interest rate, you’d end up saving $1,862 in interest and would be out of debt two months sooner than if you instead opted for the debt snowball method.

The bigger the difference between your highest and lowest rate, the more you can save by focusing on paying your more expensive debts first. You can check your APRs by reading your card and loan statements to decide if you should go in order of high to low rates when trying to get a debt paid down.

3. Are there any prepayment penalties I need to worry about?

Sometimes, loans come with prepayment penalties. That would mean if you paid them off ahead of schedule, you would have to pay a fee to your lender. This fee is often a percentage of your loan balance.

If a debt has a prepayment penalty, paying it off early may not make as much sense since you won’t save as much. Check the fine print on your loan agreements to see if that’s the case.

4. Should the debt really be paid off early?

Finally, you’ll want to think about whether it really even makes sense to pay off a particular loan ahead of schedule. If the interest rate on the loan is below what you could earn by investing in something safe (like an S&P 500 fund that has consistently paid 10% average annual returns), then you may not want to make any extra payments on that loan at all. Mortgage loans are a good example of a type of debt considered “good debt,” and since even the higher mortgage rates of today are well under 10%, you’re likely ok continuing to repay your mortgage loan as scheduled.

By asking yourself these key questions, you can decide what debt payoff approach is right for you. Figure it out ASAP and start working on paying extra to at least some of your creditors so you can be done with your debt for good and improve your personal finances.

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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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