Money Management

Need a personal loan? Read on to see how you can keep your borrowing costs down. 

If you’ve been thinking about taking out a personal loan, you’re in good company. Between the final quarters of 2021 and 2022, U.S. personal loan balances grew from $167 billion to $222 billion, according to TransUnion.

As is the case with a credit card, you can use a personal loan to finance just about any purchase, whether it’s furniture, home improvements, or even a much-needed vacation. But unlike credit cards, the interest rate you lock in on a personal loan will be fixed, so your ongoing payments for that loan will be predictable.

Also, personal loan interest rates tend to be much lower than those associated with credit cards to begin with (the exception being 0% interest rate credit cards, of course, but those 0% rates only apply for a limited window of time).

But while personal loans tend to offer competitive interest rates for borrowers, it still pays to do what you can to lock in the lowest rate possible. Here’s how.

1. Boost your credit score

Personal loans are unsecured, so they’re not tied to a specific asset. As such, the higher your credit score, the more competitive a personal loan rate you’re likely to snag.

If your credit score is in the upper 700s or above, it means you’re in pretty good shape to lock in the lowest interest rate a given lender is offering. But if your credit score could use work, you can boost it by paying all your bills on time and checking your credit report for errors.

Paying off some existing credit card debt can also raise your credit score. But if you’re looking at taking out a personal loan, it’s a sign that you may not have a pile of cash available to do that.

2. Shop around

Each lender offering personal loans sets its own rates and closing costs. It’s a good idea to shop around for a personal loan rather than accept the first offer you get.

You may be in a hurry to get your hands on some money. But remember, personal loans tend to close pretty quickly — sometimes within days. So it pays to do a little rate shopping for the savings involved.

3. Choose a shorter repayment term

It’s common to pay off a personal loan in five years, and some lenders might give you even more time to get yours repaid. But if you’re able to pay off your loan in a shorter period of time — say, two years — then you might get a lower interest rate as a result. That’s because the less time you borrow for, the less risk your lender takes on.

These days, personal loan rates are up across the board because pretty much all types of consumer loans have gotten more expensive. And that’s why it’s so important to do what you can to lock in the lowest interest rate possible on one of these loans. Doing so could result in less money spent on interest — and more money you get to spend on the things you love.

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Having savings is important, but having too much isn’t so great. Read on to see why. 

You’ll often hear that it’s important to have money in your savings account at all times for emergencies. And that advice is spot-on.

You never know when life might throw you a curveball, whether in the form of an unplanned home repair or the loss of your job. And you don’t want to have to resort to credit card debt due to not having savings.

At a minimum, your goal should be to save enough money to be able to cover three months of essential living expenses. But if you’re able to save beyond that point, you might assume that’s a smart thing to do. After all, the more cash you have in the bank, the better, right?

Well, not necessarily. Though it is a good idea to have extra emergency savings — say, six to 12 months’ worth if you want that added protection — there does come a point when it pays to reconsider putting money into the bank.

You don’t want to sell yourself short

The amount of interest you’ll earn on your savings will hinge on what banks are paying. Savings account rates aren’t set in stone, and they can fluctuate over time.

Right now, a number of high-yield savings accounts are paying upward of 3% and even 4%, but a couple of years ago, that was far from the case. And if you keep too much cash in the bank, you might really stunt your money’s growth.

In fact, let’s say you spend $5,000 a month on essential bills and decide you really need a six-month emergency fund. That’s understandable. But if you have $50,000 in savings, what you may want to do is leave $30,000 in the bank and put the remaining $20,000 into a brokerage account. Doing so could help you grow that money into a much larger sum over time.

Let’s say you’re earning 4% on interest on your savings, and that rate remains in effect for the next 15 years. If you were to keep your extra $20,000 in the bank, it would grow into $36,000. So in that case, you’d gain $16,000.

Meanwhile, the stock market, as measured by the performance of the S&P 500 index, has generated an average annual return of 10% over the past 50 years (before inflation). If you were to invest $20,000 at a 10% return over a 15-year time frame, you’d grow it into about $83,500. That’s a gain of $63,500. So all told, you’d come out $47,500 ahead compared to keeping that money in a savings account paying 4% — and that’s if you’re able to even get 4% on your cash in savings for that long.

Put your money to work

You should absolutely prioritize your emergency fund over investments in your brokerage account. So if you don’t yet have enough cash in the bank to cover three full months of bills, put every extra dollar you get into your savings.

But once your emergency fund is set, it pays to invest your extra money in stocks and other assets that have the potential to deliver much higher returns. If you leave too much money in savings, you might end up unhappy with the amount of wealth you accumulate over time.

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A default on U.S. Treasuries is a rare but looming possibility. Here’s what will happen to your investment in Treasuries if the worst comes to pass. 

This $24 trillion U.S. Treasury marketplace serves as the main source of funding for the government and is the largest debt market worldwide. From mortgage rates to global currency values, this Treasury market is the backbone of the economy. In addition, its rock-solid creditworthiness even makes Treasury debt comparable to cash. U.S. Treasuries have long been a safe haven for investors. But what happens if the U.S. defaults on its debt and you have your money invested in Treasuries?

Treasury values would plummet

The first debt limit was imposed by Congress in 1917. It is just like a credit limit for a credit card. The government has hit the debt ceiling, and if Congress doesn’t raise it, then the U.S. would default on its obligations, including Treasuries.

If the U.S. defaults on its debt, the value of Treasuries would plummet, leaving investors with significant losses. This is because the default would undermine confidence in the creditworthiness of the U.S., and investors would start pricing in higher risks. This means that even if you are holding Treasuries that are still earning interest, your investment could be worth significantly less.

Mutual funds that hold government debt, such as Treasury bonds or bills, would be affected if the government defaults on its debt. The impact on your investments will depend on how much government debt the mutual fund holds. If it has a significant amount of government debt in its portfolio, the mutual fund may experience a significant decline in its net asset value.

Treasury payments delayed

In the event of a default, the U.S. government may not be able to make payments on time. This means that even if you are holding Treasuries that are still earning interest, you may not receive payments on time. This could lead to a financial strain if you rely on these payments to cover your living expenses.

There is more than $1 trillion of Treasury debt maturing between May 31 and the end of June, as well as $13.6 billion in interest payments due. If these payments are not made at all or even delayed, it would significantly impact the markets.

Treasuries may need to be sold at a discount

If the U.S. defaults on its debt, yields on Treasuries are likely to increase to compensate for the increased risk. Since the price and yield of a bond are inversely related, the price would decrease. This means that investors who hold Treasuries could face significant losses in value, and may not be able to recover their initial investment.

What can you do to protect yourself?

Fortunately, there are some practical steps you can take to protect yourself in such an event. Diversification is key — spread your investments across different asset classes such as bonds, stocks, and cash, rather than putting all your eggs in one basket. This will help you reduce your overall risk and protect your investments in case of a government default.

Additionally, consider investing in assets that are less likely to be affected by a government default, such as real estate, gold, or other alternative investments. Keeping an eye on economic indicators can also help you make informed investment decisions that keep you protected. Although there’s no foolproof way to completely avoid market fluctuations, taking these steps can help minimize the risk and keep your investments safe.

Make sure your emergency savings account is fully funded, as this can help you weather any kind of financial storm. Finally, focus on reducing debt and lowering your expenses so you have more cushion in case of financial hardship.

Investing in U.S. Treasuries is often seen as a safe bet, but in the event of a default, it may not lead to the best outcome. The value of Treasuries could drop significantly, payments may be delayed, and the global impact could be significant. While there may be opportunities in alternative investments, the key takeaway is the importance of diversification in your investment portfolio. By considering a variety of options, you can spread out your risk and potentially mitigate the impact of any financial crisis.

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Looking to pay off your home over 40 years? Read on to see why a shorter-term mortgage might be more ideal. 

If you’re looking to finance a home purchase with a mortgage loan, you can typically choose between a few different lengths, or terms. It’s common for home buyers to sign a 30-year mortgage, but 15-year loans are fairly popular, too. And some lenders offer borrowers the option to sign a 20-year mortgage as well.

The 40-year mortgage isn’t as popular, but some lenders do offer it, and more may in the future. And at first, the idea of signing a 40-year mortgage might be appealing.

The longer the term of your mortgage, the lower your individual monthly payments are likely to be. That could make your payments more affordable.

But while signing a 40-year mortgage might seem like a good idea, it could also backfire on you. Here’s why.

1. You’re likely to end up with a higher interest rate on your loan

The longer the term of your mortgage, the higher an interest rate you might end up with. That could mean spending extra money on interest — and taking longer to build equity in your home.

In the early stages of paying off a mortgage, much of the money you put in goes toward interest on your loan, not principal. But it’s paying off that principal that allows you to build up equity over time.

2. You’re apt to pay more total interest in the course of paying off your home

It’s not just that a 40-year mortgage will generally come with a higher interest rate than a shorter-term one. You’ll also end up spending more on interest by virtue of a longer repayment period.

Let’s say you’re borrowing $200,000 to buy a $250,000 home. If you sign a 30-year mortgage at 6.5%, you’ll end up spending a total of $255,280 on interest in the course of getting your home paid off.

If you sign a 40-year mortgage, even if your interest rate stays the same, you’re looking at $362,038 in interest. That’s a difference of almost $107,000 — and again, it also assumes the same interest rate for both loan products. In reality, the difference is likely to be even greater, which means you’ll spend even more on interest instead of keeping that money for yourself.

3. You may not get your home paid off in time for retirement

Carrying a mortgage into retirement isn’t the worst thing in the world. But given that many people see their income drop in retirement, you might find it more comfortable to not have to worry about housing payments once your career wraps up.

AARP reports that as of 2018, 44% of Americans aged 60 to 70 were still paying off a mortgage upon retiring. If you sign a 40-year mortgage, your chances of still having to make payments in retirement are higher. Even if you purchase your home at age 27, it means you wouldn’t have your loan whittled down to $0 until your late 60s. And given that many people don’t first buy a home until their 30s, a 40-year loan would have you saddled with mortgage debt into your 70s.

For some people, a 40-year mortgage may be a good choice. But be sure to consider these pitfalls before moving forward with one.

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CDs are a good way to keep your money secure while earning a nice rate of interest. Read on for a few reasons a CD could be a good move now. 

You’ve done it — you’ve scrimped and saved up a chunk of cash, and now you want to make sure it’s safe for the future. But you don’t have a long enough timeline for this money to make investing it worthwhile (after all, stocks and other assets might not earn you a sure return over the short term). Rather, this is money for a house down payment, or your dream vacation, or some other goal for the next few years.

You would like to earn a return on it, though, and are okay with being unable to withdraw or add more money to it for a period of time (say, six months to five years). And you’d like to find a new account for it, rather than just adding it to your savings account. What to do? Why not consider opening a certificate of deposit, also known as a CD?

Thanks to the Federal Reserve’s rate hikes over the last year, CDs are a pretty good prospect these days. Those rate hikes were an attempt to temper inflation, and they may be starting to work, as the most recent Consumer Price Index Summary showed a 4.9% rate of inflation across all categories — a great improvement over June 2022’s 9.1%, which was a 40-year high. Since we’re seeing this drop, right now might be a good time to jump on a CD, if you’ve been considering it. Here are two reasons why.

1. CD rates may fall

We’ve seen a whopping 10 increases to the federal funds rate since March 2022, and the most recent one on May 3 brought the rate from 5% to 5.25%. It’s worth noting that this is not the consumer interest rate; the Federal Reserve doesn’t set that. The federal funds rate is what banks charge each other for overnight borrowing, but it does have an impact on the interest rates you and I receive on things like credit cards, personal loans, and CDs.

What was interesting about this most recent rate hike (yes, I know using the word “interesting” in this context might seem a bit weird; go with me here) is that the Federal Reserve left open the possibility of taking a break on future ones. As reported by NBC, Fed Chair Jerome Powell noted that the Fed “may not be far off, or possibly even at” the point where further rate hikes won’t be needed.

What does this mean for generous rates on CDs? It likely means that we’ll see a drop in those rates. So if it’s a CD you want, now might be a good time to take a look at the best CD rates, find the right account for you and your money, and lock it up before rates fall.

2. CDs can give peace of mind

Another major throughline in the world of money this year has been several high profile bank collapses. The Silicon Valley Bank collapse in March was actually the largest bank failure since the Great Recession. The news of shake-ups in the banking industry could rightly lead you to wonder if your money is safe in the bank. And the good news is that CDs are one of the account types that qualify for FDIC insurance.

The FDIC insures customer deposits at banks, to the tune of $250,000 per eligible account (checking, savings, money market, and CDs). If you have questions about whether the banks you’re considering opening a CD with are covered, you can check using the FDIC’s BankFind Suite.

CDs aren’t right for every person or every bit of money. But if you’ve been looking for a new home for some cash, a CD could be a good bet now, while rates are still generous.

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If you earn a lot of money, you may wonder whether you really need a big savings account balance. Read on for advice regarding your emergency fund. 

It’s important to have money — and a decent chunk of it — to fall back on in the event of an emergency situation or expense. A recent SecureSave survey, however, finds that many Americans don’t. An estimated 67%, in fact, don’t have enough cash in savings to cover a $400 bill that pops up out of the blue.

The problem with not having an emergency fund is that you might be forced into credit card debt when unexpected bills pop up. And credit card debt can be very costly, not to mention damage your credit score.

But what if you happen to have a high-paying job? In that situation, you may be more equipped to handle a surprise expense than someone earning a lower wage. But having a higher salary does not mean you don’t need an emergency fund.

You still need money to fall back on

Whether you earn $30,000 a year or $300,000 a year, it’s important to have money in the bank in case you lose your job or encounter a really big bill your paycheck can’t cover. Now, if you earn $30,000 a year and are hit with an unexpected car repair costing $500, you might end up with credit card debt in the absence of an emergency fund. If you earn $300,000 a year, a surprise $500 expense might be something you can pay for out of your salary without having to risk debt. But what if you end up needing a $5,000 repair? Even with a higher paycheck, you may not earn enough to cover that sort of cost.

Similarly, what if you were to lose your job for a period of time? Without savings, you might quickly fall behind on your bills, resulting in a world of debt and long-term financial repercussions.

What’s more, people with higher-paying jobs commonly spend more than people who earn less. So if you were to lose your job, you might then get stuck with an expensive mortgage and car payment to cover. You need savings in case that happens. Without savings, you might risk losing your vehicle and home.

Use your higher salary to your advantage

When you only earn $30,000 a year, it can be difficult to carve out money for an emergency fund. But when you earn a high salary, there’s more opportunity to spend carefully and stick some of your earnings into the bank.

If you don’t have an emergency fund yet, aim for enough savings to cover at least three full months of living expenses. In fact, you may want to aim even higher, the reason being that if you were to lose your job, it might take longer than three months to find a new role with a high enough salary to meet your needs. So if you’re able to sock away enough money to cover more like six months’ worth of bills, you’ll be even more protected.

A higher paycheck might give you more leeway to cover expenses on a whim. But you’re still taking a really big risk if you don’t put together any sort of emergency fund at all.

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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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