How Secured Loans Help Build Credit

pablo-7What is a secured loan?

A secured loan is money that you borrow from a financial institution that is secured against an asset that you own or money that you place on hold. These loans are great for people who want to build or repair their credit because they do not require credit history and they have lower interest rates.

If you are securing your savings account, you are able to build credit with an amount of money that you have already saved. Some institutions may require a minimum balance in order to fund a loan, but most of them have low minimum requirements, making this type of loan possible for many Americans.

What is an unsecured loan?

An unsecured loan is money borrowed from a bank or lender where you agree to make payments until the loan is paid in full. Because the loan isn’t secured on your home or car, the interest rates are usually higher. Missing payments could lead to late fees and negative history reported to the credit bureau.

Securing assets

Generally, you can secure a home or car can be used to secure a loan. If you are interested in either of these options, you will want to ensure you own the asset you would like to use. You can talk to your financial institution regarding their specific requirements.

What happens if you don’t make payments?

If you decide to secure your home or car for a secured loan, you run the risk of having a foreclosure or repossessed car if a payment is missed. Therefore, you will want to ensure that you are able to make the payments as required prior to taking out the loan.

How these improve credit score and history

Over time, a secured loan helps to establish a positive credit history. If you have little, no, or derogatory credit, talk to your financial institution to find the best loan for you. If a secured credit card is available, your credit purchasing amount will increase as you make payments. Be sure to ask about any additional fees to have these accounts.

Have you tried a secured loan? Share your experience with us.

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The Dark Truth About Payday Loans

pablo-11Payday loans, also known as cash advance loans or check advance loans, are loans that are given based on proof of income, some personal information, and government issued identification. These loans generally are targeted towards low-income earners who may not qualify for a loan from a bank or credit union due to poor credit history.

Payday loans may seem like a good resource when in a bind, but should not be used if they cannot be immediately repaid or if there is a high likelihood that you will need another one in the near future. If your debt is not repaid by the specified loan term, you face additional fees for failure to repay.

According to Pew Charitable Trusts, over twelve million Americans take out a payday loan each year. They also found that most of these borrowers earn less than $40,000/year and are not married. This same report also shows that the average borrower takes eight loans at $375 and end up paying $520 in interest only before the initial loan is repaid.

Beware of their tricky loan practices

Instead of advertising the interest rates, a monthly or weekly fee is advertised. For example: Just $50/week until the payment is made in full. This may sound great, until you realize that your loan term is 6-12 months and that this means you will be paying $200/month in interest alone. Once you realize that you aren’t actually able to make these payments, you are charged late payment fees. In most cases, you can end up paying over 200% back on the amount you initially borrowed. These payday lenders use these tactics to keep you in debt, but there are other ways to get the funds you need.

Before applying for a payday loan, you should consider other options:

Ask your employer for a check advance

While this may not be an option for everyone, it never hurts to ask your Human Resources department for an early wage payout or even a paid-time-off payout in advance. This may keep you from hefty repayment fees from the payday loan.

Withdraw from your savings or investment account

If you have an investment account that you cannot withdraw from without penalty, this may be a time to reach out to your accountant or a tax advisor to see if the penalty is worth paying. If you have a savings account that you are trying not to use, it is the best option when you need money in a pinch.

Auto refinance

This option may not help you today, but if you are noticing that you are short on a monthly basis, a payday loan is definitely not for you. Refinancing may allow you to skip your next payment and then also provide a lower payment going forward. This may help with the ongoing struggle of living paycheck-to-paycheck.

Mortgage refinance

If you have a mortgage and your credit or the market has improved since your purchase, it may be worth discussing with your bank or credit union. Again, this may provide a way to ease the burden of your monthly bills.

Reputable personal loans

FDIC or NCUA-insured banks and credit unions offer different types of personal loans. Speaking to your bank is a great option to ensure you are not being taken advantage of with ridiculous interest rates.

Lower insurance premiums

Lowering your home, life, auto, and health insurance are all ways to make sure you are getting the best deal on your monthly payments. Shop around for rates here.

Request an extension from your creditor

Some creditors are willing to work with you if you have a plan to pay them back. A simple phone call explaining your situation may keep your accounts out of collections and buy you some time to come up with a plan to repay.

Ask family for help

While most people are not interested in asking for help, this may the be best option in most cases as you can potentially have access to the money you need immediately. If you take out a payday loan instead and have issues repaying, you may end up asking for help later to get out of a worse situation. Weigh your options and talk to your family.

If you have ever used a payday loan, we would love to hear about your experience.

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5 Reasons To Start Planning Your Retirement Now

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Many people ask when they should start saving for retirement, and the simple answer is: When you get a job. It is absolutely never too early to start putting away a little at a time.

Whenever you start saving, be sure to avoid withdrawals unless absolutely necessary. You can choose to self-fund your retirement or you can contribute to your employer’s retirement plan. Research investment options and choose the one that makes the most sense for your situation.

Inflation

Simply put, if you are preparing for retirement, you cannot forget to factor inflation into the mix. Inflation is the rise of prices for goods and services over time. Therefore, you can save $100,000 and inflation will not affect the amount you have saved; however, it will affect your purchasing power—meaning the amount you can buy with that amount of money. Inflation can deplete your budget and saving accounts fast. Speak with a financial advisor to see how much inflation you should add to your plan.

Medical bills

While no one hopes to have a medical emergency late in life, it is best to prepare for the what-ifs. Even with health insurance, there may still be a need to pay out of pocket. Saving in advance can help you prepare for these possibilities without the added stress.

Unplanned early retirement

There are many reasons why someone would retire unexpectedly; including career layoffs, failed businesses, and disabilities. Since life is full of unknowns, saving for retirement early can help you to avoid a personal finance crisis late in life.

Bad investments

Maybe you started planning for retirement and make some investments that you thought would pay out in the long term. Perhaps you put most of your money into investing in a company or property that did not yield the ROI (return-on-investment) that you anticipated. This is why it is important to not only start saving early on, but also to make sure you have a well balanced investment portfolio.

Earn higher dividends

Preparing for retirement early can lead to higher dividends, or interest, accrued over time. Make your money work for you by speaking with an investment advisor to see what investment accounts work for you. If you start saving early, you could double the amount you have at the time of retirement.

What are you doing to prepare for retirement? Do you think retirement will look differently in the next 20 years? Let us know your thoughts.

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A Millennial’s Guide to Finances

pablo-12Millennials are hard at work making a name for themselves in business, fashion, and lifestyle. Their financial futures look bright due to endless opportunities and their zest for innovation, but are they making the right financial decisions? There are a few topics that are important, but do not get the attention they deserve.

Make your student loan debt a priority

Most millennials are either heading into college or have completed their degrees in the past few years. Kudos if you have completed your degree, way to stay focused and take charge of your future! What you may realize now, is that student loan debt follows you around long after you walk the stage. Looking for ways to lower your student loan debt? Start by evaluating all of your debt, lower your car payment, negotiate for lower insurance premiums, and focus on paying off one bill at a time.

Stop using your credit card

Credit cards can be tempting to use when you want to make a large purchase, but don’t quite have the funds in your account to cover it in cash. Avoid the temptation to buy something outside of your means and you could be well on your way to a debt- and stress-free life.

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Talk about money before marriage

Finding the right person to spend your life with is a process that can take some people years to accomplish. With divorce rates increasing a little each year, it is recommended to discuss finances before heading to the altar. Discussing finances can lead to a healthier relationship and clear expectations for the newlyweds.

Wondering which questions to ask your beau? Here are a few conversation starters:

  • Do you have debt?
  • How much debt do you have?
  • Do you have a savings account?
  • How do you feel about spending money on leisure, entertainment, and unnecessary items?
  • Do you follow a budget?
  • What are your financial goals?

Contribute to your 401k

Maybe you don’t plan on retiring anytime soon or perhaps you own your own business. Whether it is a 401k, mutual fund, or a savings account, millennials must start saving money now in order to prepare for the inflation that is sure to shake our financial market before they reach retirement ages. To get an idea of how much you will need to have a relaxing retirement, check out this calculator.

You aren’t too young to invest

Investing early allows time for your money to earn significant interest by the time you are ready for retirement. If you aren’t interested in the stock market, consider investing in a business or real estate. You are never too young to make your money work harder for you. By 50, you will appreciate the effort you put in at this age.

If you’re a millennial, tell us how you are taking control of your finances!

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