Money Management

A personal loan is a better way to borrow than a credit card in my book. Read on to see why. 

Although I’ve been a credit card user for many years, I’ve always paid my monthly balances in full, and I’ve never taken out a personal loan. And the reason is simple. I’ve yet to purchase something I couldn’t pay for outright, other than a car or a house. I also make a point to maintain a decent emergency fund so I have money to tap in a pinch.

But there may come a point when I need to borrow money. If I find myself up against a massive home repair, for example, borrowing could be my only choice. But in that case, I’d turn to a personal loan over a credit card in a heartbeat. Here’s why.

1. The interest rate would likely be much lower

The last time I checked my credit score, it was over 800. That’s considered a really good score. And because of that, I’m likely to qualify for a competitive interest rate on a personal loan — a rate that would most likely be far lower than what a credit card would charge me.

Of course, there is such a thing as a 0% interest credit card. Based on my credit score, I would likely qualify for one of those offers.

But those 0% interest credit cards only give you 0% interest for a limited period — sometimes as little as a year. Meanwhile, if I’m looking at such a large expense that I need to borrow for it, then I’m not sure I’d be able to pay it off in a year. And once you’re past your introductory period on a 0% credit card, your interest rate has the potential to skyrocket. So a personal loan seems like a safer bet either way.

2. My payments would be more predictable

Credit card interest tends to be variable, which means the interest rate you’re paying on your balance can change with market conditions. With a personal loan, you get to lock in a fixed interest rate that results in predictable monthly payments.

I know myself, and the idea of having to factor a debt payment into my budget would no doubt be something I’d stress over. So I’d much prefer to have to deal with a payment that’s set in stone.

3. My credit score wouldn’t take a hit by virtue of having debt

Whenever you apply for a new loan or credit card, your credit score can take a small hit because a hard inquiry is performed. That might lower your score by five to 10 points, give or take.

Meanwhile, if you keep up with personal loan payments, it can reflect well on your credit score and even help it improve. But even if you make all of your credit card payments in a timely manner, your score can still take a hit by virtue of an increase in your credit utilization ratio.

Your credit utilization ratio speaks to how much of your revolving credit you’re using at once, and it makes up 30% of your total credit score. When that ratio climbs above 30% (meaning, you’re borrowing more than 30% of your total credit limit), your credit score can take a dive even if you make every single monthly payment on time. That’s not something I would want.

I hope to always be in a position where my savings account balance is sufficient to cover unplanned bills. But if I ever have to borrow, I’d much rather turn to a personal loan than a credit card.

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.The Motley Fool has a disclosure policy.

 Read More 

Some industries are at greater risk during times of recession. Find out the six industries economists believe may experience tough times ahead. 

With a potential recession on the horizon, the research group The Conference Board, Inc. has released a study showing which industries are at the greatest risk of layoffs. Here’s what The Conference Board found.

1. Tech companies

According to The Conference Board Job Loss Risk Index, the information services sector currently carries the highest risk of job losses during a recession. During the pandemic, tech companies had to hire as many new employees as they could to fulfill the technological demand of those working or studying from home.

Once pandemic-related restrictions began to lift, tech companies found themselves with too many employees. As high-growth, highly leveraged companies, these tech businesses were more sensitive to interest rate hikes than most industries. As the Federal Reserve began raising the interest rate to fight inflation, the companies almost immediately lost value.

By the end of 2022, more than 93,000 tech jobs had been cut from public and private tech companies. So far this year, another 158,535 workers at U.S.-based tech companies have experienced a job loss and been faced with making their money stretch as they look for a new position.

2. Warehousing and transportation-dependent companies

Again, the pandemic impacted how many new employees were brought on board. In this case, it was for companies catering to all the online shopping that occurred during the lockdowns. Once life approached normal and people began to visit brick-and-mortar stores, the need for warehouse and transportation workers diminished.

3. Construction and repair

One of the more surprising findings of the Job Loss Risk Index is the probability that jobs in construction, repair, and maintenance are expected to be on the line. It’s natural for the housing industry to weaken during a recession due to construction’s sensitivity to interest rate hikes.

Unfortunately, along with less demand for new construction projects, there is expected to be less demand for home repair and maintenance workers to look over existing structures, due to belt-tightening.

4. Manufacturing companies

How susceptible a company is to layoffs depends, in part, on what it manufactures and how likely consumers are to cut that product out of their budgets during a recession. For example, consumers will continue to spend on healthcare, utilities, food, and household items during an economic downturn. There are likely to be fewer layoffs in companies manufacturing those goods. Companies that manufacture non-essentials are at greater risk of cutbacks.

5. Wholesale trade companies

Let’s say a company has built strong relationships within the lumber industry, and buys wood in bulk and at a discount. That company then sells the wood to furniture manufacturers for a tidy profit. Profits are divided between their next wholesale deal, business checking account, and the everyday cost of doing business.

When a recession hits and Americans put furniture purchases on hold, there’s a trickle-down effect. Furniture stores suffer, furniture manufacturers hurt, and wholesalers feel the sting. As the industries they service begin layoffs, wholesalers begin their own layoff process.

6. Real estate, rental, and leasing companies

As mentioned, the housing market is extremely sensitive to interest rate hikes. During a recession, fewer potential buyers and renters are willing to take the leap, leading to job loss in sectors that facilitate purchases and rentals. Depending on how hesitant home buyers are, mortgage lenders may also feel the pinch.

If you’re concerned about your job

Even thinking about a layoff is enough to strike fear into the average worker’s heart. If it’s something you find yourself worrying about, there are concrete steps you can take to prepare. Hopefully, you’ll never need to implement a “layoff plan,” but if you do, you’ll be ready.

Here’s a good way to get started.

Familiarize yourself with unemployment laws in your state.

Losing a job is stressful for most people, and the last thing anyone wants to do following a job loss is figure out how they plan to pay bills. The good news is that unemployment benefits are available to those who have experienced a layoff due to no fault of their own.

Weekly benefits are based on your income, and the maximum amount a person can collect per week also varies by state. For example, maximum weekly benefits range from $235 to $1,015, depending on your state.

Take action: Learn everything you can about unemployment benefits in your state. The idea is to know how much money you’ll be working with.

Create a layoff budget

A layoff budget is essentially your monthly budget on a diet. Go through your budget line by line to determine which expenses can be cut or reduced.

Take action: Rather than wait until you’re in the middle of a stressful situation, decide now what can be slashed from your budget. It may be a gym membership, hobby, dining out, monthly subscriptions, or a multitude of streaming services.

Build an emergency savings account

If you don’t already have an emergency fund in place, use this time to stash away as much money as possible. The goal is to save enough to cover three to six months’ worth of bills. If you can’t possibly afford to put money away each paycheck, look for new ways to fund the account. For example:

If you typically receive an income tax refund each year, that means you’re having too much withheld from your paycheck. Ask someone in your company’s human resource department to walk you through the process of having less deducted so earnings hit your bank account with each paycheck, rather than at tax time.Get serious about discount shopping. Today, there are some great coupon apps that make it easy to plan and save, directly from your smartphone.Look for a side hustle. These side hustle apps are designed for people who want to earn extra income, but also want to enjoy what they’re doing.Shop for cheaper insurance. According to Insurance.com, the average person can cut 19% from their current auto insurance bill by shopping around and switching insurance carriers. You can save even more by switching homeowners insurance and bundling.

While job cuts are more common in some businesses than others, it can happen anywhere. If you take this time to plan for the worst and hope for the best, you’ll be in good shape to ride out a layoff.

Alert: highest cash back card we’ve seen now has 0% intro APR until nearly 2025

If you’re using the wrong credit or debit card, it could be costing you serious money. Our experts love this top pick, which features a 0% intro APR for 15 months, an insane cash back rate of up to 5%, and all somehow for no annual fee.

In fact, this card is so good that our experts even use it personally. Click here to read our full review for free and apply in just 2 minutes.

Read our free review

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.

 Read More 

Homes have declined in price over the past year, but that doesn’t mean it’s easy to buy one. Read on to learn why we still have a difficult housing market. 

I’m hoping to buy a home next year, and watching the current market has been very depressing. You might think I’d be feeling optimistic about the possibility of at least getting a good price on a house. After all, according to the S&P CoreLogic Case-Shiller National Home Price Index, home prices fell by almost 0.5% between May 2022 and May 2023. As reported by Business Insider, this was the biggest year-over-year drop since way back in 2012.

Unfortunately, mortgage rates are making homes less affordable than ever. Let’s take a look at the impact of higher mortgage rates on the costs of buying a home.

What can a 7% mortgage do for you?

Since very few of us can actually expect to pay for a home outright, many people rely on a mortgage loan to fund a home purchase. But these days, contemplating the cost of doing so isn’t for the faint of heart. I turned to The Ascent’s mortgage calculator to get a look at the differences between buying with a 3% mortgage, which you might have scored if you’d bought at the end of 2021, versus buying with one at 6.96% — the average rate on a 30-year fixed-rate mortgage loan as of this writing, according to Freddie Mac. The results aren’t pretty.

Let’s say you were planning to buy a $250,000 home with 10% down. You’d be taking out a mortgage for $225,000 ($250,000 minus a down payment of $25,000). If you managed to snag a 3% rate for a 30-year loan, your monthly payment (including just principal and interest, along with PMI) would come out to $1,046. Not too bad!

But what if you wanted to buy the same house with the same down payment, and your mortgage rate is 6.96%? In this instance, your monthly cost for principal and interest (and PMI, or private mortgage insurance, which you’ll be required to pay when you buy with a conventional loan and a down payment less than 20%) comes to $1,637. That’s a bump of nearly $600 more per month. It’s easy to see how homes are less affordable than ever, even as prices drop overall.

How can you get ready to buy?

I hope I haven’t burst your bubble regarding how affordable it is to buy a home right now, but it’s important to acknowledge reality and make a plan to cope. Remember, knowledge is power. It doesn’t seem likely that mortgage rates will suddenly fall, either.

So here are a few moves you can make to ensure that when the time is right, you can get the best deal possible on a mortgage — even if that deal is far less impressive than what you might’ve snagged had you bought in 2019, 2020, or 2021.

Save, save, and save some more

The larger the sum you can put down to buy a house, the less you will have to finance with a mortgage loan and the less interest you’ll pay. You’ll also spare yourself the cost of PMI if you’re buying with a conventional loan and can put at least 20% down.

I’m hesitant to recommend cutting your spending to the bone, because you should also be able to live your life. So what I recommend instead is asking for a raise at work, picking up a side hustle, or changing jobs altogether. Never underestimate the potential impact of a higher income on your finances. And owning a home is expensive, so give yourself the best chance of success.

Whip your credit into shape

Your credit score is important for many aspects of your financial life, and this is especially true for borrowing a large sum of money in the form of a mortgage loan. The better your credit score, the more likely you are to snag the best rate available at the time you apply (which, let’s be real, will still be higher than you want in this current market).

How do you increase your credit score? Well, try paying down existing debt, committing to making all your payments on time, and going through your credit report to look for errors you can have removed. And exercise patience!

Shop around

When it’s time to buy, don’t just go with the first mortgage lender you talk to. Apply for pre-approval with a few, and see what kind of rates you can get. Shopping around is one of the best ways to save money, and it’s crucial that you save as much as possible when making a many-year commitment to a home purchase.

It’s rough out there, but don’t lose hope. Keep working on your finances while you wait for the right time to buy.

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.The Motley Fool has a disclosure policy.

 Read More 

Even seasoned Costco shoppers make their share of mistakes. Here are a few poor choices I’ve made. 

My Costco membership is something I use often. My family typically shops there once a week, and I generally get an opportunity to save a fair amount of money on groceries and household supplies.

But if you’re not careful about the items you buy at Costco, you could end up wasting your money instead of saving it. Here are three specific occasions when I fell into that trap.

1. Buying a massive cheesecake to consume solo

There are certain things I buy at Costco weekly, like milk and produce, so I typically don’t shop there with a list. Because of that, I tend to give in to impulse purchases when I’m roaming the aisles.

Sometimes, that’s not a big deal. I once picked up a box of pre-made lentils simply because they were on sale, but I wound up serving them over rice for dinner a couple of nights in a row during a busy week. So even though that was an unplanned buy, it wasn’t a wasteful one.

But sometimes, my impulse purchases don’t work out so well for me. Earlier this year, I saw a red velvet Junior’s cheesecake at my local Costco for under $20. Seeing as how this dessert normally retails for more like $60, I decided I had to have it.

But cheesecake has a limited shelf life. And my freezers at home were completely full at the time. So once I brought that cake home, I had a choice — consume it within a few days or throw a bunch out.

I thought I was up to the challenge of devouring an entire Junior’s cheesecake in three or four days, but I was wrong. Even with the help of my husband (my kids don’t really care for cheesecake), we wound up dumping about half of it.

2. Buying bulk veggies and fruit right before a vacation

It normally makes sense for my family to buy fruits and vegetables from Costco since we tend to go through a lot of them. Earlier this year, we took a quick getaway in late May that had us away from the house for four days. But a few days before that trip, we stocked up on our usual haul of fruits and veggies from Costco, thinking we’d maybe pack a cooler and take some of them with us since our rental house had a full-sized fridge.

Only in regular me fashion, instead of packing for our trip calmly, I wound up throwing bags together at the very last minute and forgetting all about the produce we were supposed to bring along in a cooler. By the time we got back from our trip, most of it had spoiled.

3. Buying pain relievers in bulk and throwing out half the bottle

A pack of 1,000 Kirkland brand Ibuprofen pills costs $13.99 online right now, bringing the cost to $0.01 per pill. By contrast, a smaller batch of Amazon’s generic Ibuprofen costs $0.05 a pill.

The last time I needed to stock up on Ibuprofen, I did so at Costco for the savings and brought home a 1,000-pack of pills. But 1,000 pills is 500 standard doses, and that’s a lot to go through in 18 months, which was the expiration window on the bottle. So in the end, I wound up throwing out a lot of those pills.

Most of the time, I come out ahead financially by doing my shopping at Costco. But these specific incidents were clearly an exception. Luckily, I can learn from my mistakes and hopefully make better choices going forward. That means not bringing home a massive cheesecake unless I’m hosting guests who can help me eat it, not stocking up on perishable items right before a trip, and not overbuying pain relief medication despite the appealing price point.

Alert: highest cash back card we’ve seen now has 0% intro APR until nearly 2025

If you’re using the wrong credit or debit card, it could be costing you serious money. Our experts love this top pick, which features a 0% intro APR for 15 months, an insane cash back rate of up to 5%, and all somehow for no annual fee.

In fact, this card is so good that our experts even use it personally. Click here to read our full review for free and apply in just 2 minutes.

Read our free review

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. Maurie Backman has positions in Amazon.com. The Motley Fool has positions in and recommends Amazon.com and Costco Wholesale. The Motley Fool has a disclosure policy.

 Read More