Money Management

A personal loan can allow you to consolidate credit card debt and reduce your interest rate. Here’s what you need to know about using one for credit card payoff. 

If you have credit card debt and are trying to pay it off, taking on additional debt may be the last thing on your mind. But, the reality is, getting a personal loan could actually help you pay off your credit cards more easily in many situations.

There are three big reasons why a personal loan could actually help you deal with your credit card debt.

1. You can consolidate multiple cards into one loan

Personal loans can simplify the process of repaying your credit card debt if you have multiple cards to pay off. Say you have three different credit cards you owe money on. You have to send a payment to each one every single month and decide what order to pay them off.

If you get a personal loan, though, you could pay off all three credit cards. Instead of having multiple payments to manage, you would just have one loan to pay back each month instead. That’s easier to remember and there’s no complicated choices about which of your cards to send extra money to in any particular month.

2. You can often reduce your interest rate

Credit cards are notorious for having very high interest rates. But personal loans can be a whole lot more affordable. If you can get a personal loan that has a lower rate than your credit cards, you can reduce your interest costs substantially.

If you drop your rate, each payment you make on your loan each month will do more to pay down your balance. The payment will be applied to reducing the principal, or amount due, rather than just covering your interest expenses. You can become free of your debt faster and spend less out of your pocket doing it.

3. You’ll have a predictable, fixed payoff schedule

Personal loans aren’t like credit cards in terms of how you pay them. Credit cards require you to make only small minimum payments — which could mean you’d be in debt for decades. As you pay down your card and then charge more on it, you also change the time it will take to become debt-free so you won’t really know exactly when you’ll have your full balance paid off.

With a personal loan, though, you pick a repayment term when you take out the loan. For example, you might select a loan with a five year or seven year payoff timeline. And then your monthly payment is set based on your interest rate and principal balance to ensure you pay off your loan by that deadline.

If you have a fixed-rate loan, the monthly payment set upfront will not change. This means you’ll know exactly what you will pay each month during those years until you are debt-free.

This gives you a lot more predictability in terms of making sure you pay off your debt on a schedule that works for you, with a set monthly payment you can’t just change on a whim. This is a huge benefit because it can be hard to stay motivated to pay off credit cards if you don’t have a set end date in sight.

For all of these reasons, a personal loan could definitely make card repayment easier if you can qualify for one at a competitive rate.

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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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Not a fan of budgeting? Read on to see what you can do instead. 

You’ll often hear that budgeting is the key to managing your money well and meeting your savings goals. But let’s face — budgeting can be a drag. You have to first create your budget, keep tabs on it, and continuously adjust your budget to account for changes to your bills. So if the idea of setting up and sticking to a budget doesn’t appeal to you, here are some other things you can try that will allow you to get to a good place financially.

1. Automate transfers to a savings account

A big benefit of budgeting is that it can become easier to carve out money to put into your savings account. After all, if you’re not spending your entire paycheck month after month, there’s more opportunity to save.

But budgeting isn’t the only option for boosting your savings. You can also set up an automatic transfer from your checking account to your savings at the start of each month. That could lead to successful savings efforts because a chunk of your money will be taken away, so to speak, before you get a chance to spend it.

2. Sign up for your company’s 401(k) plan

If your employer offers a 401(k) plan, signing up to contribute is a great way to ensure you’re building yourself a nest egg for retirement. The great thing about 401(k)s is that they’re funded automatically with payroll deductions. So if you commit to saving a certain amount of money each month, by the time your paychecks get to you, those contributions will have been taken care of.

3. Put IRA contributions on autopilot

It’s also possible to automate contributions to an IRA (or at least you can in many cases). If you don’t have a 401(k) through your employer, or if there’s something about your company’s 401(k) that you just don’t like, such as the fees it charges or its limited investment choices, then an IRA may be a better choice for your long-term savings anyway. And automating your contributions is a great way to make sure you’re meeting your investment goals.

4. Put money into an FSA

With an FSA, or flexible spending account, you commit to contributing a set amount of money for the next year’s medical expenses. Like 401(k) plan contributions, FSA contributions are deducted from your earnings before you get paid, and they go in tax-free, which is another benefit. By using an FSA, you’ll have dedicated funds set aside for medical spending as you incur healthcare costs. And you won’t automatically land in debt when medical bills arise unexpectedly.

5. Fund an HSA

If you’re enrolled in a high-deductible health insurance plan (which, for 2023, is defined as an individual deductible of $1,500 and a family-level deductible of $3,000), then your plan may be compatible with a health savings account, or HSA. HSAs are worth participating in because they allow you to save for healthcare costs in a tax-advantaged manner, and they’re funded similarly to the way FSAs are funded.

The difference, though, is that HSAs don’t require you to spend down your plan balance every year, whereas FSAs do. That gives you more flexibility while helping ensure you have money available for medical bills.

6. Keep your rent or mortgage low

RentCafe reports that the average U.S. rent is now $1,702. If you’re not into budgeting, a good bet is to keep your large expenses on the low side, and that includes housing (which might actually be your single largest monthly expense).

When buying a home or renting one, it’s generally a good rule of thumb to make sure your housing costs do not exceed 30% of your take-home pay. But if you’re not going to budget, you may want to keep that expense to 20% or less of your income so you have more wiggle room with other bills.

7. Buy a less expensive car

The average new car price in March was $48,008, according to data from Kelley Blue Book. But the less you spend on a vehicle, the lower your car payments are apt to be. That could help you avoid going overboard on spending on a whole — even if you aren’t following a budget on a regular basis.

8. Don’t dine out more than once a week

Even if you generally avoid high-end restaurants, dining out is pretty much always going to be more expensive than cooking your own meals at home. If you don’t want to worry about overspending but you’re also not looking to budget, pledge to keep your restaurant meals to a minimum. One such meal per week might be reasonable, but beyond that, you may be pushing it.

9. Opt for frugal entertainment

If you’re the type of person who insists on going out multiple times a week to clubs or seeing concerts, then you may have to budget to avoid landing in debt. On the other hand, if you make a point to spend very little on entertainment, you can potentially get away with skipping the budget and just sticking to frugal choices, like streaming services that don’t cost very much and low-key gatherings with friends at someone’s apartment.

10. Work a side hustle

The danger of not following a budget is spending more money than what you earn and racking up costly debt in the process. But if you’re able to boost your income, you can generally cover your bills with more confidence. So it may be worth it to pick up a side hustle not just for the extra money, but for the option to know that you’re able to pay your bills without stress.

In 2022, 40% of U.S. workers had some sort of side hustle, according to Zapier. And the gig economy is still in good shape today. So think about your skills and schedule and find a side job that works for you, whether it’s driving for a ride hailing service, tutoring, or walking dogs. You can even find a side hustle you can do from home if that’s easier for you to manage.

Budgeting actually isn’t super difficult, and there are different budgeting apps that make it pretty seamless. But if you’re set against it, you can make these moves instead. And with any luck, they’ll allow you to get to a great place financially and stay there.

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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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Worried about a recession? Read on to see how to safeguard yourself. 

If you think about the state of the economy today, you should feel pretty good. The unemployment rate is 3.5%, which is comparable to where it was prior to the pandemic. And while a number of major companies have announced layoffs over the past few months, for the most part, we seem to be in a pretty stable place.

That has the potential to change, though. If the Federal Reserve keeps raising interest rates to cope with high levels of inflation, it could trigger a pullback in consumer spending. And if spending declines a lot, we could end up with a recession on our hands.

That’s the bad news. The good news, though, is that there are steps you can take to protect yourself financially if the economy takes a turn for the worse.

1. Build a solid emergency fund — or boost an existing one

It’s easy to think of a recession as a scary thing, but actually, financial guru Suze Orman insists that recessions are a natural part of our economy. And so when it comes to our next recession, Orman says, “The question isn’t ‘if’, it’s ‘when.'”

That’s why it’s so important to have a fully loaded emergency fund. That means having enough money in your savings account to cover a year’s worth of bills, says Orman.

Now, that may seem excessive. But the logic is that our next recession could be short-lived or prolonged, and it’s difficult to know which end of the spectrum we’ll be dealing with. So for the best protection, it’s wise to sock away enough money to ensure you can pay your bills for a year in the absence of a paycheck.

2. Make sure your money is at an FDIC-insured bank

The recent collapse of Silicon Valley Bank has left a lot of consumers spooked. If you’re going to build an emergency fund to cope with a recession, you’ll want to make sure your money is actually safe. But there’s an easy way to do that — choose a bank that’s FDIC-insured.

If you go this route, you won’t have to worry about losing money if your bank fails, provided your deposits don’t exceed $250,000. And if you happen to have a lot of cash, you can spread your money across several FDIC-insured banks.

That $250,000 protection is given on a per-bank basis. So if you have $500,000 in savings with $250,000 per account at two FDIC-insured banks, you should be well protected. A joint bank account with two people on the account at just one bank will also provide $500,000 in coverage.

We don’t know whether a recession will hit in 2023, and the idea of one may be terrifying to you. But try to put those thoughts out of your head and instead focus on the things you can do to protect yourself financially. In addition to boosting your savings and choosing the right bank(s), aim to steer clear of high-interest debt in the near term, and put off big purchases that aren’t essential. That should help you free up cash at a time when you might need it.

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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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Before picking a personal loan, you’ll need to consider a few important factors. Learn about the considerations when selecting a lender. 

If you’re taking out a personal loan, you don’t want to just borrow from the first lender you come across. In fact, just like when you get a mortgage or a credit card, you’ll want to shop around and see what offers are out there before you commit to borrowing from any one particular financial institution.

If you’re not sure exactly how to pick the best personal loan lender, you should be aware there are a few top considerations to think about.

1. What interest rate are you being offered?

The No. 1 consideration with a personal loan is your interest rate. If your rate is higher, your monthly payments are going to be higher, too. And you will pay a lot of interest to your lender over time, since a big portion of your monthly payment will go toward financing charges.

How much of an impact will your rate have? If you borrow $10,000 at 4% for 10 years, you’d pay $101.25 per month and $2,149.42 in total interest. But if you took the same loan at 10%, you’d pay $5,858.09 in total interest and $132.15 per month. That’s a lot of extra cash just to borrow the same amount of money.

When you compare the interest rates on offer, confirm you’re comparing apples to apples. Fixed-rate loans are safer because the rate and payment won’t ever change. Variable-rate loans come with more risk because while the initial rate may start lower, it can rise over time. So decide if you want a fixed or variable rate and then compare it with similar loans only.

2. What fees will you have to pay?

Does your lender charge you an origination fee, prepayment penalty, or any fees that will add to your borrowing costs? You can usually find fee-free lenders, so think twice about whether it makes sense to use a company that charges fees.

3. How long will it take you to pay off your loan?

Your repayment timeline matters a lot in terms of how much your loan costs and, of course, it dictates how quickly you’ll be debt-free.

A $10,000 loan at 5% repaid over 10 years would cost you $2,727.86 in total interest and would come with a monthly payment of $106.07. But the same loan repaid over five years would only cost you $1,322.74 in interest. Your monthly payment would be higher though — $188.71 — but you’d be debt-free sooner and make fewer payments.

If keeping monthly payments low is a key goal, then choose a lender offering a longer payoff period. But if you would rather pay less over time, a lender with a shorter timeline is the better choice.

4. What’s the lender’s reputation?

Finally, consider the lender’s reputation. You don’t want to borrow from a personal loan lender that is going to give you a lot of hassle by misapplying payments, making incorrect reports to the credit bureaus, or surprising you with fees.

By taking these four considerations into account, you can find the loan that actually makes the most sense for your situation.

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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.Christy Bieber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool has a disclosure policy.

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