Money Management

It’s not a good situation to be in. 

It’s easy to see why personal loans appeal to so many consumers. These loans allow you to borrow money for any purpose (whereas with a mortgage, for example, you can only use your loan proceeds to finance a home purchase).

As of the fourth quarter of 2022, U.S. personal loan balances were at $222 billion, according to data from TransUnion. That’s up from $167 billion in personal loan balances a year prior.

Now you’re no doubt aware that when you take out a personal loan, you’re required to pay it back on a predetermined schedule. But what if you fall upon hard times and you’re unable to pay?

Not repaying a personal loan could have really negative consequences. And unfortunately, this holds true even if you miss a single payment.

When you can’t keep your end of the agreement

Any time you fail to repay a loan, whether it’s a personal loan, auto loan, or home equity loan, you risk major damage to your credit score. That’s because your payment history — which speaks to how timely you are with your bills — carries more weight when calculating your credit score than any other factor.

Now one thing you should know is that you usually won’t be reported as delinquent on your personal loan until you’re 30 days late with a payment. But once you miss a single payment, your credit score could take a big hit. And if you stop paying your loan altogether, your credit score could utterly plunge.

Not only that, but your lender could go after you in court in an effort to get repaid. You may, in some cases, face consequences like wage garnishment in that situation.

What to do if you can’t repay your loan

You may have taken out a personal loan with every intention of paying it back, only to struggle down the line. If you’re having a hard time repaying your personal loan, reach out to your lender to discuss your situation. Your lender may, depending on your circumstances, agree to let you pause your payments for a period of time or reduce your payments by extending your repayment window.

If you don’t think you’ll ever be able to repay your personal loan in full, another possibility is to negotiate a settlement of your debt where your lender agrees to accept a lower sum than what you owe. Often, these agreements are negotiated by attorneys or debt settlement firms. You’re allowed to try to negotiate yourself, but without a professional in your corner, your chances of success may be limited.

All told, failing to repay a personal loan could have negative consequences that impact you for a long time. So before you sign a personal loan, run the numbers to make sure you can afford your monthly payments. Granted, you can’t see into the future, and if things change, you might reach a point where a loan that was once affordable to you no longer is. But at the very least, make sure you’re starting out with monthly payments you’re capable of handling.

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Struggling to find a romantic partner? Your debt could be to blame. 

If you’re considering dating, you may want to consider how your personal finances could impact your dating experience. Debt can be a major turn-off for some adults looking to partner up. A recent study found that some American adults would reconsider a romantic relationship due to someone’s debt, so if you have credit card debt, it could limit your dating prospects.

Your debt could make it harder to find a romantic partner

According to a recent study by Finder, 37% of American adults would reconsider a romantic relationship because of someone’s debt. However, it turns out that many adults find some types of debt to be more concerning. Respondents were asked what type of debt would be a red flag when considering whether to date a potential partner.

Here are some notable findings of the study:

43% said that credit card debt would be a deal breaker.43% noted that a potential partner having payday loan debt would be an issue.46% said that someone owing money to friends or family would be a concern.

Payday loan and credit card debt are likely big issues for daters because these types of debts tend to have high interest rates. If you have credit card debt, you should pay off your debt as soon as possible to avoid accumulating additional interest charges.

One option to explore is transferring your outstanding card balance to a balance transfer credit card with a 0% interest rate, as this can save you on interest charges. Many balance transfer credit cards offer 0% APR for a set time.

Significant debt could be a problem

How much debt you have could make a difference. If you’re re-entering the dating world with a small amount of credit card debt, you may not struggle too much to find a partner. But if you have more debt, that may be a major red flag to potential romantic partners.

The same study looked at the amount of debt that daters considered to be “too much,” which would make them reconsider a relationship with a potential partner. Regarding credit card debt, respondents noted that $12,601 in credit card debt would be a deal breaker.

It turns out that the amount of credit card debt that is considered unacceptable varies between men and women. Women said a potential partner with $10,628 in credit card debt would make them reconsider going on a date. Men were more forgiving. A potential romantic partner with $14,646 in outstanding credit card debt would be a concern for men.

While the results of this study may be disappointing, it’s a good reminder that your current financial situation impacts many areas of your life. Having a lot of debt can negatively impact your credit score and make it more challenging to tackle other financial goals.

Your financial struggles can also be a concern to potential dating partners. At The Ascent, we recently discussed how your salary could make you undateable. Debt can be a problem for daters, too. If someone is dating you with the hopes of building a future together, they may be turned off by you having a massive amount of debt — especially if they have little or no debt.

Should you discuss your finances with a potential partner?

You may be wondering whether you should discuss your finances with potential partners. You get to decide how open you will be about your money. Talking about existing debt, future financial goals, and how you manage money with people you’re considering dating may be an excellent idea. Together, you can decide if you’re a good match for each other.

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It’s advice worth adhering to. 

Whether you’re investing your money in an IRA, a brokerage account, or a different savings plan, your goal is no doubt to make money. But taking a hands-off approach to investing might limit your ability to do that.

In fact, financial guru Suze Orman says it’s important to take an active role in managing your investment portfolio. Doing so could spell the difference between meeting your goals and falling short.

Don’t just set it and forget it

Some investing strategies allow you to take more of a hands-off approach. Many 401(k) plans, for example, allow you to put your money into target date funds. What these funds do is invest your money more aggressively during the early stages of your savings window, and then shift toward more conservative investments automatically as your target or milestone date arrives.

The whole purpose of putting money into a target date fund is to set it and forget it. But that’s not necessarily the best approach to take with your money, and it’s also why a target date fund may not be the best choice for you.

Target date funds often invest too conservatively on a whole, leaving savers short in the long run. So a better bet might be to choose different assets to invest in by doing thorough research.

But from there, you also need to take a hands-on approach, says Orman. In a recent podcast episode, Orman said, “It’s not enough for you to just invest your money and get your dividends and the stock that you happen to buy goes up and up and up and you think you’re doing fabulous when the truth is you’re not getting as much from your money as you could be.”

Rather, Orman says, “You have to get involved with your money and get the most out of it.” That could mean moving money into different assets as opportunities arise, and knowing when to unload assets that aren’t going to give you the returns you’re after.

As a general rule, it’s a good idea to buy quality assets and plan to hold them for many years, because often, their value will rise over time. But that doesn’t always happen. So it’s important to keep track of your holdings and make adjustments as necessary.

It’s also a good idea to pay attention to how products like I bonds and savings accounts are paying. If you’re closing in on retirement, it’s generally advisable to shift toward safer assets that might offer a lower return but also come with less risk.

Meanwhile, these days, many high-yield savings accounts and CDs are paying upwards of 4% interest. So if you’re on the cusp of retirement, it may not be a bad idea to move some of your money into cash, since you have an opportunity to earn a decent return on it that could be virtually risk-free (provided you’re at an FDIC-insured bank and don’t have more than $250,000 in cash).

Take control of your money

You’ve no doubt worked hard to free up money to save and invest. But that’s not enough. You should also make a point to keep tabs on your assets and make changes to your portfolio as necessary. Doing so could lead to a lot more of the long-term wealth you’re hoping to accumulate.

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Four factors working together makes a crash more likely. 

Nostradamus, we are not. But when it comes to the U.S. housing market, we can look to the past to get a sense of what the future may look like. Here, we’ll examine where the housing market stands today and attempt to predict what awaits us.

Setting the stage

A look back into American history helps us identify the factors that lead to a housing market nosedive. First, there has to be a housing bubble.

And that’s where we run into some confusion. Economists are not quite sure if we’re in a true housing bubble. Here’s a list of typical characteristics of a housing bubble. You’ll notice that we can’t check every factor off the list.

Home prices rise faster than income or inflation

Home prices have increased faster than income and inflation over the past three years.

Check and check.

High mortgage rates

Rates are undoubtedly higher today than they’ve been for several years, but throughout U.S. history, an interest rate of 6% would have been considered quite fair. What makes these mortgage rates feel sky-high is the fact that housing prices have not decreased enough to make up for the higher rates.

Check — sort of.

Low availability of affordable housing

There’s a nationwide housing shortage ranging from 2 million to nearly 6 million new housing units, depending on who you ask. Based on the law of supply and demand, this shortage has kept housing prices high.

Check.

High rates of subprime mortgages and predatory lending

A subprime mortgage is designed for borrowers with a poor credit history. They’re often adjustable-rate mortgages (ARMs) that start with a low enough interest rate to allow a borrower to qualify. By the time the rate on the ARM begins to rise, the borrower is already in the home and may be struggling to pay bills.

Subprime mortgages and predatory lending were two factors that led to the housing bubble burst of 2008, and subprime borrowers were among the first to default on their mortgage loans and lose their homes.

Not currently a factor.

As anyone who’s applied for a mortgage loan lately can tell you, it’s far tougher to qualify than it once was. That’s due to laws put into place to avoid a repeat of 2008. In addition, most mortgage lenders don’t want to be left holding the bag if a homeowner defaults on their loan. ­­­­­­­­­

Four signs to look out for

Based on pre-crash signals received before other housing market crashes, these four signs indicate that another may be on the way.

1. Home prices continue to soar

While this is true in some parts of the country, prices have cooled in others. There will be a “tipping point,” a time at which prices are far higher than buyers are willing to pay.

People have watched in amazement as prices soar. Perhaps what has surprised the market most over the past few years is that we haven’t hit a tipping point just yet.

2. Mortgage interest rates continue to climb

To slow spending and settle inflation, the Federal Reserve has raised the interest rate nine times since March 2022. However, with the rate increase implemented this month, the Fed indicated that hikes might be ending. The Fed will continue to monitor the situation, but believes additional policies may need to be enacted to make borrowing more restrictive.

3. Inventory drops

When the inventory of existing homes drops, it signals two things:

Homeowners are unwilling to sell their homes because they’re afraid they won’t find another home they can afford.Serious home buyers will fight over fewer homes available on the market, further driving prices upward.Anything that pushes prices higher could be the thing that leads to the tipping point mentioned above.

4. Predatory lending rears its ugly head

Because current laws make it more difficult for predatory lenders to do business, this factor is the least likely to occur. In order for predatory lending to play the same role as in 2008, there would have to be a huge number of under-the-table deals.

Simply put, credible lenders are no longer willing to take a risk on buyers who are not creditworthy. Shady lenders face the wrath of the U.S. government for making bad loans.

What a market crash would mean for homeowners

Between 2020 and 2022, U.S. home prices increased by 30%. Elevated home prices may have shocked the housing market, but came as good news to many existing homeowners. But for the average homeowner, a housing market crash would mean little. The average homeowner can likely ride out a loss of value. Even if prices dropped by 20%, homeowners would still be 10% ahead of where they were at the beginning of the pandemic.

However, there are two groups of homeowners who could be hit hard by a market crash:

Home sellers who must move for a job, illness, or other reason. Once the market crashes, it takes time to recover. Those who sell during the big dip are the ones who walk away with the least money.Homeowners counting on a home equity loan to make major repairs or changes. By now, most property owners have enjoyed several years of rapidly climbing home values. After three years, it’s natural to believe that values will continue to increase. If a crash occurs, at least a portion of that equity disappears.

Takeaway

There’s no reason to panic sell before prices begin to drop. Unless you must move, you may want to stay put for a while, particularly if your current mortgage has a low interest rate. Even if there is a market crash, economists say there’s little reason to believe it will be anything like the 2008 crash. Here are three reasons why:

The labor market remains strong. During the last housing downturn, there were 8 million job losses in one year. While there have been layoffs in 2023, the unemployment rate is still low.There are so few loan delinquencies. During the previous bust, about 10% of all borrowers were late on their payments. Today, the rate is 3.6%.Low foreclosure rates. During the last market crash, 4.6% of all mortgaged homes went into foreclosure. Today, that rate is 0.6% — a historic low.

Don’t allow talk of a housing market crash to push you into selling before the time is right.

What a market crash would mean for home buyers

The luckiest homeowner is the one who sells their property while prices are skyrocketing and buys another when prices are dropping. In the fourth quarter of 2008 — the heart of the housing market meltdown — home prices fell by 12.4%. That means that the average house selling for $300,000 earlier in the year could be purchased for $262,800.

While a 12.4% drop does not sound dramatic, it represents the average. According to news reports at the time, some areas of the country were hit much harder. For example, in the Cape Coral-Fort Myers, Florida area, prices dropped by 50.8% for the year. In Saginaw, Michigan, prices slid by 41.4%, and in the Riverside-San Bernardino, California area, home prices took a hit of 40.8%.

For buyers, dropping prices means a greater opportunity to purchase the home they’ve been waiting for.

Takeaway

If you’re a buyer who’s been priced out of the market, there’s no guarantee of either a market crash or lower prices in your region of the country. Still, if you’re serious about buying, check with a local real estate agent to learn what’s trending in your area. If now isn’t the right time for you, establishing a relationship with an agent you trust means knowing they will give you a call when prices begin to soften.

If you’re concerned about a potential crash, keep your eyes on the market. No single indicator shouts, “A housing market crash is on the way!” An entire chain of events would have to take place first. In the meantime, don’t make any decisions based solely on what you’re afraid may happen next.

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It’s really not a situation you want to land in. 

If you’ve ever been stopped by a police officer while driving, you may have been asked to provide them with your license, vehicle registration, and a copy of your auto insurance card. But what if you don’t have the latter?

If you actually have car insurance but don’t have a copy of your insurance card on you, you could face a fine or penalty. But if you actually don’t have an insurance policy in place at all, the consequences could be even more severe.

A risk not worth taking

Having auto insurance is a requirement no matter what state you reside in. If you’re caught driving a car without insurance, the repercussions could be financially devastating.

First, let’s talk about what happens if you have insurance but fail to produce proof of that during a traffic stop. In that case, you might face a fine, but a less costly one than you’d face for not actually having an insurance policy in place. Usually, in this situation, you’ll have a limited amount of time to remedy the situation by providing proof of your auto insurance policy.

Now, let’s talk about what happens when you don’t have car insurance at all. In that case, you could face costly fines or even the suspension of your license. That said, sometimes, once you’re able to show proof of insurance, your license suspension will end.

The penalties you’ll face for not having auto insurance will vary by state. In New York, for example, you could face a penalty of anywhere from $150 to $1,500 each time you’re caught driving without insurance. The latter end of that range is clearly a large amount of money.

Don’t forget, too, that if you lose your license for a period of time, it could result in the loss of your job if you rely on driving to get to work. So that’s another financial repercussion to consider.

A car accident without insurance could be devastating

It’s one thing to simply get caught driving without insurance. It’s another thing to get into an accident without insurance in place. In that situation, you could be sued personally for damages if you caused the accident, and that scenario could be financially catastrophic. Also, if you cause an accident that injures another driver, you could face jail time.

Don’t go without car insurance

If you’re going to drive a vehicle, it needs to be insured. There’s really no getting around that. If the cost of car insurance has been stopping you from renewing a policy or putting one into place, shop around with different auto insurers to compare rates. And also, ask if there are things you can do to keep your costs down. You might, for example, be able to find relatively affordable auto insurance if you bundle it with a homeowners insurance policy.

No matter where you live or what sort of car you drive, paying for auto insurance is an unavoidable expense you’ll need to bear. If you can’t swing it right now, you’ll need to stay off the road until your circumstances change.

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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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