Money Management

Consumers are loading up on personal loans. Read on to learn about the pros and cons of this type of borrowing. 

U.S. consumers don’t tend to shy away from borrowing money, whether in the form of auto loans, mortgages, or personal loans. And if you’ve been thinking about putting a personal loan in place, you’re in good company.

U.S. personal loan balances reached $241 billion during the third quarter of 2023, according to TransUnion. That’s an increase of 14.8% from a year prior.

You may be tempted to sign one of these loans yourself. But it’s important to know about the pros as well as the cons.

The upside of personal loans

There are plenty of good reasons to sign a personal loan:

Flexibility: You can take out a personal loan and use the proceeds for any purpose.Lower interest rates than credit cards: Right now, borrowing costs are up across a range of consumer loans and products. But generally speaking, personal loans are a relatively affordable way to borrow, especially compared to the interest rate on credit cards.Predictable monthly payments: Personal loans are installment loans, so you get a fixed interest rate on your debt and the same monthly payment throughout your repayment period.Quick closings: Personal loans tend to close quickly, so much so that you’ll sometimes have your loan proceeds the same day you apply (in many cases, you will have to wait a day or two).

The downside of personal loans

You might encounter certain pitfalls with a personal loan:

Flexibility: The fact that you can take out a personal loan for any purpose might lead you to borrow for the wrong reason.Credit score damage if you fail to make payments: Personal loans may be more affordable than other loan types, but the risk of falling behind still exists. If that happens, it could seriously wreck your credit.Fees: It costs money to put a personal loan in place. You can often roll your closing costs into your loan, but you’ll need to pay them nonetheless.

Should you sign a personal loan?

You may want to move forward with a personal loan if it helps you achieve one of these purposes:

Addressing an important home or car repairMaking a home improvement that could significantly impact your quality of lifeStarting a business or side hustle you can make money from

You probably don’t want to sign a personal loan to do things like:

Purchase holiday giftsBuy new clothing you don’t need for workUpgrade electronics when yours work perfectly well alreadyGo on vacation

The latter category represents things you should really aim to save up for rather than finance. But for bigger-ticket items that you need to function, like replacing your roof, signing a personal loan makes a lot of sense.

All told, you may decide to join the ranks of the many Americans who have a personal loan in place. But think about the pros and cons before applying for a loan of your own. And spend a little time shopping around with lenders so you can ideally walk away with the most favorable borrowing terms.

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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Hoping to finance a home purchase in the new year? Read on for some key moves to make. 

If you’re aiming to buy a home in the new year, then chances are, you’re going to need a mortgage — unless, of course, you somehow have hundreds of thousands of dollars in cash just sitting in the bank waiting. But assuming you are looking to sign a mortgage in 2024, the moves you make in the coming weeks could increase your chances of not only getting approved, but snagging a more competitive interest rate on your home loan. Here are three in particular worth focusing on.

1. Check your credit score

The higher your credit score, the more likely you are to get approved to borrow for a home purchase. A higher credit score could also mean snagging a lower interest rate on your mortgage, and getting to enjoy monthly savings.

According to myFICO, if you apply for a 30-year, $300,000 mortgage with a FICO® Score of 640 to 659, you might qualify for an interest rate of 7.580%, leaving you with a monthly payment of $2,114. But with a credit score of 660 to 679, you might snag that mortgage at 7.150%, leaving you with a monthly payment of $2,026. That’s a difference of $88 a month, or $1,056 a year.

If your credit score is in the upper 700s or higher, then you may not need to push yourself to boost it. A score like that is likely to lead to a favorable borrowing rate. Otherwise, you can raise your credit score by paying all bills on time, whittling down credit card debt, and correcting errors on your credit report, if applicable.

2. Pay down existing debt

Mortgage lenders will look at your debt-to-income ratio when determining whether you qualify to borrow for a home. The less debt you have relative to your income, the better your chances of getting approved.

Assess your current debts and see if it’s possible to reduce your load. Your best bet is to focus on credit card balances first, since paying off that specific type of debt could help your credit score improve, whereas paying off something like an auto loan may not actually help your credit score. (In fact, believe it or not, paying off a long-standing installment loan like that might cause your credit score to drop a bit.)

3. Fight for a raise at work

Homes are expensive these days, so it might take a larger mortgage to buy one. The higher your income, the more likely you are to be able to borrow the amount you need.

Meanwhile, at this point of the year, many companies are finalizing their financial plans for 2024. If you haven’t received word that you’ll be getting a raise for the new year, schedule a meeting with your manager and fight for one. Point to the various tasks you’ve accomplished this past year and the additional responsibilities you’ve taken on.

And if your manager isn’t looking to raise your pay based on that, see if there’s a higher-level position within your company that you can apply for. It might take a promotion to land a pay raise, but if you’re qualified to climb the ranks, you might as well go for it.

The moves you make in the near term could spell the difference between being able to buy a home in 2024 or not. In addition to these “must do” moves, here’s one thing not to do between now and your mortgage application — apply for a new loan or credit card.

Doing so could not only ding your credit score slightly, but also send the message that you’re someone who needs to borrow money for non-housing purposes. And when you’re asking for what could be a multi-hundred-thousand-dollar loan, that’s not a message you want to convey.

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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 almost Christmas, but you still have time to shop. Find out what shopping strategies could help you get what you need in the final days before Christmas. 

Christmas will be here before you know it. But there is still time if you have yet to complete your Christmas shopping. While you may not save as much money as those who shopped during Black Friday and Cyber Monday sales events, you can still finish shopping at the last minute without draining your bank account.

Ready to find the best presents for your favorite folks? Here are a few tips for a more successful holiday shopping experience.

Don’t ignore gifts that can be delivered by email

It can feel extra special to hand someone a physical present. But that isn’t always possible for numerous reasons. There may be limited gifts on store shelves when you shop at the last moment, and the risk of shipping delays may be too great.

An alternate solution is to purchase gifts that can be delivered to your recipients by email. This is ideal if you’re short on time. Not sure what to buy? Here are some great gift ideas you can order online and send to your loved one by email for a stress-free shopping experience:

Streaming app subscriptions (like ESPN+)A grocery delivery or food delivery app subscription (like Instacart+)Virtual retail and restaurant gift cards (like Target or The Cheesecake Factory)

Extended shopping hours and fast delivery may be available

Many retailers have extended store hours this month. Target is one company that makes it easier for you to complete your last-minute holiday shopping. Now through Dec. 23, the popular retailer will be open from 7 a.m. to midnight. Stores will also be open from 7 a.m. to 8 p.m. on Dec. 24, so you may want to shop here if you’re busy and still need to finish shopping.

Other retailers may have similar offerings, making it easier to squeeze in time to shop. Paying attention to holiday delivery and shipping timelines at your go-to retailers can also be wise. Some companies offer same-day or next-day delivery or pick-up on eligible online orders in the days leading up to Christmas.

Additionally, don’t neglect fast, free shipping perks offered with subscriptions and memberships like Amazon Prime. But be sure to carefully review all delivery and pick-up estimates before you place an order so you’re not left disappointed and without a gift.

Regift a present that someone else will put to good use

This one may be controversial to some, but it could save you if you find yourself in a tough spot right before Christmas. You’ve likely received gifts from others in the days leading up to the holiday. If you need a last-minute gift for a loved one, you may be able to find a new home for a present that isn’t a good fit for you.

I’m not suggesting you give away a meaningful present from your grandma, but that $20 or less White Elephant present you received at your office holiday party? If you have no use for it and think it would be loved by someone else, you could wrap it up and give it a new home.

You’ll free up clutter and keep more money in your wallet. Plus, you won’t be showing up empty-handed without a gift. If you do this, be cautious that you don’t get caught. Don’t give personalized gifts to others or exchange an item you received within the same social circle.

Spend within your means

As you finish up your Christmas shopping, keep your finances in mind. Don’t feel tempted to overspend because you waited until the last minute to shop, and there are fewer deals to score. You don’t want to start a brand-new year with expensive credit card debt.

But as long as you stay on budget, using a rewards credit card is an excellent way to earn rewards as you shop. Check out our personal finance resources for ways to save money.

Our picks for the best credit cards

Our experts vetted the most popular offers to land on the select picks that are worthy of a spot in your wallet. These best-in-class cards pack in rich perks, such as big sign-up bonuses, long 0% intro APR offers, and robust rewards. Get started today with our recommended credit cards.

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.John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Natasha Gabrielle has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Target. The Motley Fool has a disclosure policy.

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It’s important to be judicious when applying for credit cards. Read on for tips on striking a good balance in the new year. 

Applying for a new credit card is something you might feel compelled to do from time to time. And as a new year approaches, you may want to put a specific game plan in place.

Why it pays to be careful with credit card applications

Whenever you apply for credit, whether in the form of a credit card or personal loan, a hard inquiry is done on your credit report. That has the potential to lower your credit score by about five to 10 points.

Now if you’re sitting on a credit score of 825 and it drops to 820 after applying for a credit card, it’s frankly no big deal. You’re still left with excellent credit.

Even if your credit score isn’t quite as good, a small drop like that generally won’t impact your ability to borrow unless you happen to be right on the cusp of meeting a credit score minimum. To put it another way, a credit score of 725 isn’t as good as an 825. But applying to borrow with a 720 versus a 725 probably won’t make a big difference.

What you want to be careful of, however, is applying for too many new credit cards in short order. So if you’re wondering how many cards to apply for in 2024, the answer is really “as few as possible.” And if you’re compelled to apply for several, try to space those applications out by a minimum of 90 days, and, more ideally, 180 days. That way, you won’t have too many credit score dings in short order.

Also, do realize that the more credit cards you have, the more you might be tempted to spend. So that’s something to be careful about, too.

Ask these questions before applying for a new credit card

You may have different reasons for applying for a new credit card in the new year. But before you submit an application, ask yourself:

Is this card fulfilling a specific need? It may be that you’re looking for a travel rewards card because you plan to take a number of trips in 2024, and the right card could save you money on things like checked bags and in-flight purchases.Is there a particularly great sign-up bonus to snag? It may be that a given card puts out a really great welcome bonus offer. If you know that meeting the spending requirement will be easy for you, then it could pay to apply for a new card if you know it’ll mean getting several hundred dollars’ worth of cash back in your pocket.Am I making some large purchases that require more buying power? It’s often possible to get a credit card limit raised. But it’s not always possible. Meanwhile, let’s say you’ve been saving up for a large purchase, like new furniture. If your current credit cards don’t have a high enough spending limit to allow you to buy all of the things you need, then it could pay to get a new credit card. While you could pay cash, with a credit card, you get the points or cash back.

It’s important to be careful any time you’re applying for a new credit card. Ultimately, there’s no single “correct” number of credit cards you should get in the new year. Rather, focus on spacing out your applications and applying for the right reasons.

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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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