Money Management

It’s not you — it’s the general borrowing environment. 

If you’re looking to borrow money, you may be aware that a personal loan will generally come with a lower interest rate than what a credit card will charge you. In 2022, many consumers took advantage of personal loans, to the point where total personal loan debt grew to $222 billion by the end of the year, as per TransUnion.

It’s easy to see why personal loans are such a popular borrowing option. Because they’re unsecured, you don’t need to put up a specific asset as collateral. And personal loans let you borrow money for any purpose, whether it’s to renovate your home, fix up your car, or start a small business.

But while personal loans are generally pretty affordable, at least compared to other borrowing choices, these days, you run the risk of seriously overpaying for one. Here’s why.

It’s more expensive to borrow across the board

You’re probably aware that inflation has been a problem for consumers for more than a year now. The Federal Reserve has been trying to solve the problem of inflation by raising interest rates.

Now, the Fed doesn’t dictate the borrowing rates personal loans come with. It doesn’t set any consumer interest rates, for that matter.

Rather, the Fed oversees the federal funds rate, which is what banks charge each other for short-term borrowing. But when the Fed raises its benchmark interest rate, the cost of consumer borrowing tends to increase, too. And that’s why you might get stuck with a higher interest rate on a personal loan today than you’d like.

How to snag a lower interest rate on a personal loan

Because personal loans are unsecured, the key to snagging the most competitive interest rate on one boils down to creditworthiness. If you have a high credit score, you’re likely to qualify for a more attractive interest rate on a personal loan than someone whose credit is poor.

Before you apply for a personal loan, see what your credit score looks like. If it’s in the upper 700s or higher, congratulations. That means you have really solid credit and are likely to snag a competitive interest rate when you apply for a personal loan. But if your score is lower, improving it might result in a nice amount of savings.

There are different things you can do to raise your credit score, but one area to focus on is your payment history. It carries more weight than any other factor when calculating your credit score, so if you make a point to pay your bills on time, your credit score could rise.

It also helps to check your credit report for errors, because a mistake like a misreported delinquent debt could be dragging your score down needlessly. Credit reports are available for free on a weekly basis this year — a carryover benefit from the pandemic.

All told, you may find that a personal loan makes sense for you this year. But don’t be shocked if the interest rate you’re presented with is higher than you’d like it to be — even if you happen to be a borrower with very strong credit.

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Could listening to Ramsey help save you from a housing disaster? 

When you’re buying a house, you need to set a realistic budget. But it can sometimes be hard to figure out how to do that. While it may be tempting to allow the bank to just look at your finances and tell you how large your mortgage loan can be, it’s smarter to do the math yourself to make sure you’re taking all your financial goals into account.

If you aren’t sure where to start when determining how much house is within your budget, some advice from finance expert Dave Ramsey could potentially be helpful in answering this question.

Here’s what Ramsey says you can pay for a house

Dave Ramsey has a simple answer to the question of how big your housing budget should be.

“We recommend keeping your mortgage payment to 25% or less of your monthly take-home pay,” Ramsey said. He gave the example of someone who brings home $5,000 a month, who would be able to afford a monthly mortgage payment totaling $1,250 on the basis of that income.

After calculating how much mortgage you can cover with your income, you can work backward from there to decide how much you can afford to borrow in total — and thus how much you can afford when adding your loan to your down payment. The exact amount you’ll be able to borrow while sticking within this 25% limit is going to vary depending on what mortgage rates are at the time you buy your house.

Ramsey urges keeping your housing costs to this level or below so you avoid committing to more than you can comfortably afford to pay. “Buying too much house can quickly turn your home into a liability instead of an asset,” he warned.

Ramsey also suggested doing the calculations and setting your budget before you even meet with a real estate agent, so you don’t find yourself wasting time looking at houses above your price range (or, worse, falling in love with one and stretching to buy it).

Should you listen to Ramsey?

Most experts recommend keeping total housing costs to about 30% of your income or less, while Ramsey is suggesting setting your limit at 25%. Lenders will also give you a little bit more leeway, with most lenders preferring you keep your total housing payment — including principal, interest, property taxes, and insurance (PITI) — to about 28%.

But trying to stick close to this 25% range is a good idea if it is possible for you. You don’t want to overcommit to a huge housing payment because that would leave you less money for things like retirement savings and big purchases you might want to make over time. And a small decline in income could leave you stressed about how to cover the bills if you stretched to the top of your budget to buy a home.

The bottom line is, being house poor is a really stressful situation to be in, so by following Ramsey’s advice and not spending more than 25% of your take-home pay on your house, you can avoid this unpleasant situation and likely end up happier in your home.

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You’ll want to steer clear of these. 

There’s a reason consumers are often told to purchase life insurance at a relatively young age. The younger you are when you apply for coverage, the lower your premium costs are likely to be.

Forbes Advisor reports that the average cost of a 30-year, $250,000 term life insurance policy for a 30-year-old male is $276 a year. For a 40-year-old male, the cost of the same length and amount of coverage rises to $372 a year.

But while applying for a life insurance policy at a young age might help you save some money, it might also backfire on you. Here are a few mistakes you risk making when you apply for a life insurance policy when you’re very young.

1. Failing to account for having kids

Let’s say you buy life insurance at age 25 when it’s just you and a spouse. Maybe your life plan is to not have kids because you’re put off by the cost of raising them and can’t imagine being in a secure enough spot financially to comfortably afford them.

But what if, during your 30s, your financial situation changes — your income rises, you’re able to boost your savings account balance, and you feel far more secure? At that point, you may decide to bring children into the world after all. But at that point, you may not have enough life insurance coverage given your new family dynamic.

2. Failing to account for future wages

It’s common to calculate your life insurance payout as a multiple of your salary. So if you earn $50,000 a year now, you may decide you want to replace your annual income 10 times over, leaving you with a life insurance benefit of $500,000.

But chances are, as you progress in your career, your income will pick up. If that happens at a faster pace than you expect it to, you could run into a situation where your life insurance benefit will no longer cut it.

In fact, let’s say your income rises from $50,000 a year to $80,000 a year within three years because you work hard and get promoted. In that case, you might want a life insurance benefit worth $800,000, but you’ll be limited to $500,000.

3. Failing to put coverage in place for a long enough term

When you’re young, it can be hard to picture the future. And so you may be inclined to secure life insurance coverage for a limited term — say, 10 years. You might need a longer term life insurance policy to give your beneficiaries adequate protection, though. So locking in too short a term may end up leaving your loved ones high and dry.

It’s a great thing to prioritize life insurance at a young age. But if you’re going to apply for a policy when you’re young, do your best to think about the ways your circumstances might change. You might expand your family, your earnings could pick up, and you may end up needing coverage for more years than expected.

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If you’re interested in a timeshare, make sure you buy one you’re likely to get good use out of. 

The decision to sign a mortgage and purchase a home is a big one. And it’s one you probably put a ton of thought into. But if you’re buying a timeshare, well, that’s the sort of purchase you may be more inclined to jump into.

For one thing, the people who sell timeshares tend to be very persuasive. And you may be enticed by the idea of having access to vacation lodging every year without having to think about where to stay.

In some cases, a timeshare could end up being a smart choice. If the area you like to vacation in grows increasingly popular, the cost of finding lodging there could become prohibitively expensive. But if you own a timeshare, you’ll have locked in your costs.

That said, if you’re going to buy a timeshare, you really need to make sure you’re choosing a property that suits your needs well. And if these signs apply to you, you may be about to make a big mistake when buying a timeshare.

1. The maintenance fees are really high

When you buy a timeshare, you don’t just hand over money and call it a day. Like townhouses and condos, which commonly come with ongoing HOA fees, timeshares require you to pay an ongoing maintenance fee that is usually due once a year. But if you choose a timeshare with higher-than-average fees, it might really strain your budget (not to mention make that timeshare harder to sell down the line).

The American Resort Development Association says that as of 2018, average timeshare maintenance fees were $1,000 a year. However, the amount of fees you’ll be charged will hinge on factors like location and the amenities offered by your timeshare resort. A good bet, therefore, is to research and compare fees before buying your timeshare — and consider staying away from a timeshare that seems to charge more fees than its counterparts nearby.

2. The area is oversaturated with timeshares

You might think that an area that’s loaded with timeshares is apt to be a popular one, which makes it a good choice for you. But actually, if you buy in an area that’s already overloaded with timeshares, you might struggle to sell yours if you eventually outgrow it.

It boils down to the basic concept of supply and demand. Any time there’s too much supply, you take a financial risk, and this is no exception.

3. You’re not taking your future needs into account

Maybe your preschool-aged kids love visiting a certain theme park, and so you’re looking at buying a timeshare in close proximity to it. That may seem like a good idea. But what if, by the time your kids are pre-teens, they outgrow that theme park? That could leave you stuck with a timeshare you don’t want to use.

You may find that a timeshare is something that benefits you through the years. But it’s important to buy the right timeshare, and that means keeping these warning signs on your radar before moving forward with your purchase.

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Here’s my take on the best and worst features of the Admirals Club lounges.  

My husband and I have a travel credit card that allows us access to the Admirals Club lounge. We fly around once per month on American Airlines, so we visit this lounge regularly. There are some things that are great about it — but also some things I don’t like very much at all.

Here are three things I love (along with three things I hate) about the lounge our credit card lets us access.

Three things I love about the Admirals Club lounge

Here are my three favorite features of the Admirals Club lounge.

1. The food is really good — especially the desserts

The free food available at the lounge was one of the main reasons we signed up for a credit card to gain access. We don’t like eating fast food when we travel and we don’t have to, thanks to the spread the Admirals Club puts out.

And the food is really delicious at the lounges we’ve been to — especially the dessert selection consisting of cookies, Rice Krispy treats, and brownies. These deserts are a much higher quality than you’d expect and taste better than the ones on offer at typical buffet restaurants.

2. There’s a great drink selection (even for non-alcoholic drinks)

The Admirals Club lounges offer a great selection of complimentary drinks. I’m nursing a baby so I can’t drink alcohol, but there’s a ton of non-alcoholic drinks on offer too. Last time we visited, a Blueberry Hibiscus Lemonade was the drink of the month. We’ve also enjoyed fresh-squeezed orange juice, among other selections.

3. The seating is really comfortable

In every lounge I’ve been in, there have been comfortable chairs with little attached tables to dine on. The seating beats standard airline waiting room seats any day of the week and it’s comfortable to sit on for longer periods of time when our planes have been delayed.

Three things I hate about the Admirals Club lounge

Despite really enjoying the Admirals Club, there are some things I don’t like about it. Here are the three things I hate.

1. Some of the lounges get really crowded

A few of the lounges I’ve been in — particularly the one at Orlando airport — are much smaller than they should be given the size of the potential crowds. I’ve had trouble finding a place to sit on numerous occasions and these aren’t even on super busy travel days.

2. There’s very little variety in the food

Although the food is good at the Admirals Club lounge, there’s not a lot of variety. Every time I’ve had dinner at one lounge, for example, there’s been taco meat while another has featured meatballs every single time. I would definitely prefer to have different selections, especially since I travel so much and am visiting the lounge regularly.

3. Sometimes the location isn’t convenient

Finally, some of the Admirals Club lounges have been located pretty far from the gate where we end up checking off, which can be a hassle since we have to leave the lounge earlier than we’d like to get to our flight on time.

Overall, I’m happy with our experience, but I do think there’s room for improvement. I’ll be keeping my card that provides access, though, as the annual fee is well worth paying for the perks an Admirals Club membership offers.

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If you want your score to increase, you may need to make some changes. 

The average credit score for U.S. consumers was 716 in 2022, according to FICO. That’s not a bad credit score at all, but it also means there’s room for improvement. In fact, to snag the most competitive interest rate on a loan, and to be able to apply for one with confidence, it will help to get your credit score into the upper 700s or above.

But what if your credit score is way lower than that and doesn’t seem to want to budge? There are several reasons why your credit score may not be where you want it to be. But here are some habits that could be keeping it trapped in less-than-favorable territory.

1. Being late with bills

Your payment history carries more weight than any other factor when calculating your credit score. But if you’re consistently late paying your bills, your score is unlikely to increase.

If you’ve been struggling with bills lately due to inflation or another factor, put together a budget and start trimming expenses so you can keep up with your bills more easily. You may also want to consider getting a second job to boost your income.

2. Carrying too high a credit card balance

If you make your minimum credit card payments every month, you won’t be considered late with your bills — so that’s a good thing. But even so, if your credit card balance is too high relative to your total spending limit, it could drag your credit score down.

Once your credit utilization ratio (a measure of how much revolving credit you’re using at once) exceeds 30%, it has the potential to damage your credit score. So if you have a $10,000 spending limit across your various cards but are carrying a $5,000 balance (50% utilization), your score might get stuck where it is — even if you’re timely with your minimum payments. Bringing that balance down to $3,000 or less, on the other hand, could help your score improve.

Now, you’re most likely not going to magically come up with $2,000 out of nowhere. But if you’re willing to work a side hustle for a while, you might manage to scrounge up that cash fairly quickly. So that’s an option worth considering. And if you’re getting a nice tax refund this year, that’s money that could go toward whittling down your balance, too.

3. Not checking your credit report

You may not feel compelled to check your credit report all that often. But you should make a point to check it every few months. If you don’t, you might sentence yourself to a lower credit score than you deserve.

It’s not uncommon for credit reports to contain errors. And if yours has a mistake that paints you in an unfavorable light, like a delinquent debt you settled many years ago, it could be dragging your credit score down. You won’t know about that mistake, however, if you never check your credit report.

You should also know that this year, credit reports are available for free on a weekly basis. So there’s really no excuse not to pull yours and give it a read. And if you’re worried that checking your own credit report will hurt your credit score, rest assured that it won’t.

A higher credit score could make it easier for you to borrow money when you need to, and at a more affordable rate. So if you’ve been paying your bills late, carrying a large credit card balance, and neglecting your credit report, it’s time to break those habits for the sake of seeing your credit score rise.

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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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