Money Management

Having a debt in collections can be bad news. Read on to see what consequences you could face. 

When you owe money, whether in the form of a mortgage, auto loan, or medical bill, you’re required to pay your bill. If you don’t, the entity you owe money to might put your debt into collections. And from there, a series of negative financial consequences could ensue.

How the collections process works

A lender or entity you owe money to might turn over your unpaid debt to an outside collection agency so that they can recoup that sum. Once that happens, you can expect your credit score to take a significant hit. And the lower your credit score, the harder it becomes to borrow money — or borrow affordably — when you need to. You may, for example, be denied a personal loan if you apply after your credit score has plunged.

Once your debt goes into collections, the collection agency has the right to contact you frequently and urge you to repay the sum you owe. However, there are rules that the agency needs to follow — more on that in a bit.

If you’re unable to pay your debt in full, you can try negotiating with the collection agency. It may agree to settle your debt for a reduced amount so it can get paid something. But that’s not guaranteed to happen.

If you don’t pay your debt, your collection agency may, at some point, take the case to court. If a judgment is entered against you requiring you to pay your debt, and you don’t do it, you could face consequences such as wage garnishment or having your bank accounts frozen so you can’t access your funds.

What happens when a collection agency harasses you?

Debt collectors are allowed to contact you many times over in an effort to get you to repay your debt. But there are still rules these agencies need to follow, and it’s important to know your rights.

The Fair Debt Collections Practices Act dictates that collection agencies cannot threaten you or use abusive language when they make contact. They cannot, for example, claim to have the right to throw you in jail for failing to repay your debt.

Debt collectors also have to contact you at reasonable hours. They aren’t allowed to call you prior to 8 a.m. or after 9 p.m.

Furthermore, if a debt collector is made aware that you’re not allowed to receive calls at your place of work, then it can’t continue to call you there. And, collection agencies cannot use social media to shame you or post about any sum you owe.

You may decide to hire a debt settlement attorney to help you deal with your debt. If that’s the case, the collection agency assigned to you must stop contacting you directly and instead direct future communication to the lawyer you’ve hired.

If a collection agency violates any of these rules, you can report it by submitting a complaint to the Consumer Financial Protection Bureau. Keep a record of all communications so you’re able to provide as much detail as possible.

All told, it’s really not a great thing to let your debt get to the point where it’s gone into collections. If you’re able to reach out to your original creditor and work out a payment plan first, you’ll generally be in a better position. But if that doesn’t work, it’s important to know your rights once you have a debt collector assigned to recoup the money you owe.

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Auto insurance is supposed to cover financial loss after a crash. Read on to learn why your coverage may not be all it’s cracked up to be. 

Drivers purchase auto insurance coverage so they have protection in place if an accident happens. But, many people assume their insurance will do more for them than it actually will. As a result, they could be disappointed in the financial help they get when a crash occurs.

Here are four big reasons why some motorists will end up feeling like their insurer didn’t do enough when something has gone wrong.

1. Not all drivers will have coverage for their losses

Most states have minimum coverage requirements that include liability insurance. But it’s generally not required for drivers to have collision coverage. If a driver is found to be at fault for an accident and does not have collision coverage, they would not get an insurance payout if they damaged their vehicle. This could mean they are stuck paying all crash-related costs out of their checking account.

Drivers do not want to face this fate, so it is important to understand what different types of auto insurance cover and to get the right protections in place. Most drivers who cannot afford to just replace their car outright if a crash occurs should put collision and comprehensive coverage in place so they get an insurance check if something goes wrong.

2. The deductible may mean paying hundreds or thousands of dollars out of pocket

When a driver signs up for auto insurance, they typically choose a policy with a deductible. That is money that has to be paid before an insurer starts covering costs. For example, a policyholder might have a $500 deductible or a $1,000 deductible, but it could be higher.

When a covered loss happens and a driver’s own insurance covers it, the driver has to pay this deductible first. Say, for example, a motorist hit a deer and incurred $5,000 in damage. Even if they had the necessary add-on coverages for their insurer to pay for their losses, they’d have to pay their deductible first. If they had a $2,500 deductible, they’d be responsible for covering fully half the cost of damages.

It’s important for drivers to think about how much they can afford to pay after a covered loss when deciding how big their deductible should be. Policies with smaller deductibles have higher premiums, but they also mean less out-of-pocket cost — and less disappointment — after an accident happens.

3. The insurance may not pay enough to repay an entire car loan

If a car is totaled, the insurer will pay fair market value for it. This is true whether a driver recovers from their own insurer or from another motorist’s insurer if the other motorist caused the crash.

Sometimes, the amount the policyholder owes on the car is more than the vehicle’s fair market value. This would mean the insurance payout isn’t enough to pay the loan balance in full. This could be a huge problem as the driver would have to come up with the rest of the money out of their own pocket.

This can be avoided by purchasing gap insurance, which would cover the difference between what the insurer paid out as the car’s fair market value and the outstanding loan balance.

4. The insurance may not pay enough to replace a totaled vehicle

Finally, an insurer may not always pay out enough to replace a totaled car without bringing extra cash to the table.

Say, for example, a driver had a great 2016 SUV they’d kept in perfect condition. Since the car is older, it wouldn’t necessarily be worth much so they might not get a big check if the car is totaled. When they go to buy a new car, they may not be able to find an equivalent 2016 SUV they could buy with their payout. To get something that they trust as much as their old car (and in the same condition), they might have to spend more for a newer and costlier vehicle.

For all of these reasons, drivers could find themselves disappointed with their auto insurance after a crash. Motorists need to make sure they buy the right insurance, understand the extent of their coverage, and have an emergency fund in case a crash occurs. That’s the only way to fully protect their finances in the event of an accident.

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If you neglect your loan payments, you could go into default and your account could be sent to collections. Here’s what you need to know. 

When you take out a personal loan, you commit to making payments on a set schedule. If you fail to follow through on sending those payments out of your bank account, you could face serious consequences. Specifically, here’s what could happen if you stop making payments on your personal loan.

You may be hit with late fees

Once you are late making a payment, a lender will generally charge you a late fee. The terms of your loan will dictate exactly how much you are charged for failing to pay on time. Late fees are typically around $25 or $30, but you could be charged as much as 5% of the amount you still owe to your lender in some circumstances.

Your late payment will be reported to the credit bureau

Once about 30 days have passed, your lender is typically going to report the missed payment to the credit reporting agency. This can result in damage to your credit score. In fact, if you previously had very good credit, the report that a payment is 30 days late could send your score tumbling by as many as 110 points.

Good credit is important for borrowing, as well as for other things like signing up for utility services or finding an apartment. Even insurance companies and landlords check your credit. So, this late payment could affect your financial life for years to come.

You will eventually go into default status

Lenders will consider your account to be delinquent as soon as you’re at least 30 days behind. During this time, you’ll likely receive calls from them trying to collect the money. You’ll continue to incur fees and penalties for non-payment.

Your account will be charged off

If a lender gives up hope of collecting, then it will “charge off” the account. This essentially means it writes the money off of its books and reports that to the credit reporting agencies. The lender will usually send your account to collections and a collection agency will then begin efforts to try to recover money from you.

You could face legal action

It is not super common, but in some cases, lenders will take legal action against you if you have defaulted on a loan. A lender may file a lawsuit against you, and the court could enter a judgment against you. This would be placed on your credit report and would damage your credit score for years to come.

When you get a judgment against you, you could also find yourself facing other collections efforts, such as a lien being placed on your house or your wages being garnished. This could leave you unable to sell your property without taking care of the debt or having money taken out of your bank account.

Try to keep making payments — or work something out with your lender

The consequences of default are serious. You want to try to avoid them whenever possible. So, if you have taken out a personal loan, try to cut other items in your budget so you can keep paying it.

If you run into trouble, reach out to your lender as soon as possible to find out what options you have. Your lender may be willing to work with you to help you avoid falling into default so you can avoid these dire consequences.

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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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Used car prices dropped 5.2% in June 2023, but that doesn’t mean you have to buy a car now. Read to learn what lower prices mean for you. 

Used car prices are finally coming down, and by the latest measure, they could be dropping hard.

According to the latest Consumer Price Index (CPI), used car prices fell about 0.5% in June 2023 and a whopping 5.2% year over year. That means, a used car that would have cost you $10,000 in June 2022 would have hypothetically cost you $520 less in June of this year.

If you’ve gotten used to rising prices on cars, then you might welcome this as good news, especially if you’re currently shopping for a used car. Used cars can be significantly cheaper than newer models, not only on the sticker price but on car insurance premiums, too.

But just because car prices have declined broadly, does that mean now is the right time to buy a used car? Let’s take a closer look at the data and see if it will save you money.

Understand which used cars are declining in price

Now, just because the general direction of used car prices is trending downward that doesn’t mean the car you’re looking for has declined in price. In fact, some cars have actually gotten more expensive over the last year, even while most makes and models have gotten cheaper.

The CPI doesn’t break used car prices into makes and models. But the automotive research site CarGurus does have an index that aligns closely with the CPI and will separate car types to give you a better idea of how their prices are changing. Here’s how the prices on some popular car types have moved year over year:

So, according to CarGurus data, the price of vans, sedans, and wagons have declined the most year over year, while coupes and pickup trucks have declined the least (with convertibles actually getting more expensive). Now let’s see how prices have changed on some of the most popular car makes in the U.S.:

Based on CarGurus’ data, many popular car brands (excluding Jeep) have seen a decline in price. That said, only four makes (Nissan, Kia, Honda, and Tesla) have declined more significantly than the general price decline as recorded in the CPI, while five makes have actually declined by rates of less than 5.2%.

Used cars are getting cheaper, but don’t lower your guard

Used cars might be significantly cheaper this year than they were in 2022. But whether they’re cheaper for you will depend on a few factors.

First off, the price you pay for a car doesn’t always match up to the agreed-upon price with the seller. That’s because some used cars come with hidden problems that will add on to the sticker price later. It’s important to test drive a used car before buying, as well as to call attention to strange noises, smells, and other things that don’t “seem right.” Trust me — you don’t want to buy a low-priced car only to realize you got a lemon.

Secondly, if you’re going to finance the car purchase, first look for the best auto loans with the lowest APRs. In this high-rate environment, it’s quite expensive to borrow money, and your interest payments could work against whatever you’re saving by buying a used car. Better yet, if you can pay cash, you can avoid interest payments altogether.

Is now the right time to buy a used car?

Truth be told, the right time to buy a used car is when you need one. That said, prices on most used cars are lower today than they were last year, and it’s not clear if prices will go back up or continue this downward trend. Check out used car sites for yourself — such as CarGurus, Craigslist, Carvana, or CarMax — but if you’re ready to buy a used car, now might be a good time to start shopping.

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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 positions in and recommends Tesla. The Motley Fool has a disclosure policy.

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Costco Next is a program you may not know about. Read on to learn more about what it is and how it works. 

If you’re a Costco member, you may be aware that your annual fee gives you access to not just low-cost groceries and household supplies, but also, a host of other services, from travel to tire care. You may even be aware of the fact that you can buy your next car through Costco.

But even seasoned Costco members often overlook one program the warehouse club giant offers. It’s called Costco Next, and it’s an option you may want to take advantage of.

What is Costco Next?

Costco Next is a program that allows members to buy different items directly from manufacturer websites at a discount. Some of the brands Costco Next currently features include:

Case MateDearfoamsInspireBriggs & RileyCuckooVikingTravelpro

Your best bet is to browse the site and see which companies catch your eye.

How exactly does it work?

When you visit Costco Next and click on the name of a manufacturer, you’ll be taken to its site to shop directly. But first, you’ll need to sign in with Costco by entering your name and Costco membership ID number. From there, you’ll be eligible to purchase items at a discount based on the offer that’s available at the time you do your shopping.

Is there a benefit to using Costco Next?

With Costco Next, you may be able to access a wider range of products beyond what you’ll find available through Costco online or at your local warehouse club store. And you may end up privy to a nice discount on the items you purchase.

Remember, too, that Costco Next companies are all Costco suppliers. So you’re getting access to a wider range of inventory from brands that Costco already endorses.

In fact, if you spend a lot of time at your local Costco store, you may occasionally see new vendors set up booths to introduce and peddle their products, only to then disappear. It’s those vendors whose sites you may be able to access through Costco Next. So if you missed your chance to pick up that amazing kitchen blender you saw being demonstrated a few months ago, you may be able to find it via Costco Next.

That said, one thing you should know about Costco Next purchases is that they don’t qualify for the 2% cash back you get as a Costco executive member. Even though online Costco purchases do render you eligible for 2% back, they have to be made on Costco’s site directly — not a partner site you’re redirected to.

An option worth checking out

If you’ve never even heard of Costco Next, don’t sweat it. There are no doubt plenty of members who have yet to give it a try.

The good news is that you can browse different manufacturer sites without any obligation to buy anything. So if you have the time, you may want to look around and see what you find.

But always compare prices before making a purchase. This advice applies to Costco Next purchases, regular Costco purchases, and really all purchases. Unless you’re buying a truly inexpensive item, like a $5 pair of socks, it always pays to spend a little time trying to compare prices so you can feel confident you’re getting a great deal.

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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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I have traditionally kept money in savings accounts so I could access it when I want to. Find out why I’m now thinking of buying a CD. 

I have never purchased a certificate of deposit before, but that may change soon. In fact, I am considering moving forward with buying a CD in the coming weeks. Here’s why I’ve decided to branch out into this category of investment.

I finally have some money I’m OK tying up for the short-term

Certificates of deposit require you to tie up your money for some time — typically, a minimum of three months. They generally also require that you make a certain minimum deposit, such as $2,500.

I generally have not been interested in putting money in a CD and facing the risk of a penalty if I need to take it out early. I try to invest the bulk of my money in a brokerage account that can provide a better return than either a savings account or a CD can offer. The only money I have kept in savings accounts is my emergency fund and money I’ll need for short-term purchases that I wanted to keep accessible.

Now, however, I have some money I don’t want to invest because I’ll need it in five to six months to start a remodeling project on a new house I’m buying. And I definitely won’t be taking the funds out until that project starts, so there’s no chance I’d need early access to them.

These conditions are ideal for investing in a CD because I can avoid risking my money (due to the fact CDs are FDIC insured) and I can also get a better return on investment than a savings account alone would provide me. The rates on CDs (and high-yield savings accounts) have been climbing as the Federal Reserve has hiked interest rates to combat inflation. With a lot of money set aside for the remodel, it just makes sense to try to get the highest rate I can in a safe investment. That will come from a CD rather than savings.

Is a CD right for you?

A CD is one option to save for medium-term purchases, along with a high-yield savings account. CDs can often provide you with a slightly better rate than a savings account can, but the tradeoff is that you give up liquidity. You can’t sell a CD whenever you want to because you’d have to pay a penalty. For example, you wouldn’t want to keep your emergency fund in a CD because you don’t know when you’re going to have to take it out to cover unexpected expenses.

On the other hand, if your investing timeline is more than a few years, you can typically earn a much better rate of return by investing in an S&P 500 fund rather than a CD. That means the bulk of your investment dollars should probably be in the market.

Ultimately, the right place for your money is going to depend on what you’re hoping to do with it and when you’ll need to use it. But if you have cash you want to earn a good return on and are OK with locking it up for a few months to a few years, you may want to join me in putting that money into a CD.

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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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