Top 5 Reasons Why You Shouldnât Co-Sign a Friendâs Loan
Co-signing your friendâs loan might seem like a nice thing to do. But it can put many things in your life at risk, including your finances, your credit score and even your friendship. While itâs possible to co-sign a friendâs loan and never face any negative consequences, it might not be worth it. Check out five reasons why you shouldnât co-sign a friendâs loan.
1. Youâll Be Responsible for the Loan
No matter how trustworthy or wonderful your friend may be, he might end up defaulting on the loan he took out. Anything could happen. Your friend could lose his job or find out that a relative needs help paying for medical treatment.
If your friend canât pay back the money he borrowed, you would have to pay for the loan if you co-signed it.
2. Your Credit Could Take a Hit
If you co-sign a friendâs loan and he misses a single loan payment deadline, your credit score could drop. If that happens, it might be harder for you to buy a house or get a low interest rate on a loan in the future.
If your friend fails to pay back whatever he owes, the lender might sue you first. In the lenderâs eyes, you are far more likely to pay back the loan since your credit score is probably higher.
3. Your Property May Be at Risk
Sometimes a co-signer will secure a loan with his or her own property. If you (the co-signer) put up your car or house as collateral and your friend doesnât pay back the loan, you could potentially lose your property.
4. You Could Destroy Your Friendship
If youâre forced to cover the cost of the loan you co-signed, you could end up resenting your friend. After all, it can be difficult to remain friends with someone who put you in a complicated financial situation.
5. It Could Be Harder to Get a Loan Later On
Co-signing your friendâs loan could make qualifying for another loan more difficult. For example, if you co-sign your friendâs car loan and then you try to take out a personal loan, a lender might reject your application. Co-signing your friendâs loan will affect your debt-to-income ratio (the amount of debt youâre paying off compared to your monthly gross income). A lender might not want to lend money to someone who already has a lot of debt to pay off.
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5 Things to Consider Before Getting a Personal Loan
Itâs a new year and if one of your resolutions is to get out of debt, you might be thinking about consolidating your bills into a personal loan. With this kind of loan, you can streamline your payments and potentially get rid of your debt more quickly. If you plan on getting a personal loan in 2016, here are some key things to keep in mind before you start searching for a lender.
Check out our personal loan calculator.
1. Interest Rates Are Going Up
At the end of 2015, the Federal Reserve initiated a much anticipated hike in the federal funds rate. What this means for borrowers is that taking on debt is going to be more expensive going forward. That means that the personal loan rates youâre seeing now could be a lot higher six or nine months from now. If youâre planning on borrowing, it might be a good idea to scope out loan offers sooner rather than later.
2. Online Lenders Likely Have the Best Deals
The online lending marketplace has exploded in recent years. With an online lender, there are fewer overhead costs involved, which translates to fewer fees and lower rates for borrowers.
With a lower interest rate, more money will stay in your pocket in the long run. Lending Club, for example, claims that their customers have interest rates that are 33% lower, on average, after consolidating their debt or paying off credit cards using a personal loan.
Related Article: How to Get a Personal Loan
3. Your Credit Matters
Regardless of whether you go through a brick-and-mortar bank or an online lender, you likely wonât have access to the best rates if you donât have a great credit score. In the worst case scenario, you could be denied a personal loan altogether.
You can check your credit score for free. And each year, you have a chance to get a free credit report from Experian, Equifax and TransUnion. If you havenât pulled yours in a while, now might be a good time to take a look.
As you review your report, itâs important to make sure that all of your account information is being reported properly. If you see a paid account thatâs still showing a balance, for example, or a collection account you donât recognize, youâll need to dispute those items with the credit bureau thatâs reporting the information.
4. Personal Loan Scams Are Common
As more and more lenders enter the personal loan arena, the opportunity for scammers to cash in on unsuspecting victims also increases. If youâre applying for a loan online, itâs best to be careful about who you give your personal information to.
Some of the signs that may indicate that a personal loan agreement is actually a scam include lenders who use overly pushy sales tactics to get you to commit or ask you to put up a deposit as a guarantee against the loan. If you come across a lender who doesnât seem concerned about checking your credit or tells you they can give you a loan without doing any paperwork, those are big red flags that the lender may not be legit.
Related Article: How to Avoid Personal Loan Scams
5. Not Reading the Fine Print Could Cost You
Before you sign off on a personal loan, itâs best to take time to read over the details of the loan agreement. Something as simple as paying one date late could trigger a fee or cause a higher penalty rate to kick in, which would make the loan more expensive in the long run.
Photo credit: Â©iStock.com/DragonImages, Â©iStock.com/Vikram Raghuvanshi, Â©iStock.com/MachineHeadz
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Don’t Let Debt Ruin the Holidays: Proactive Steps
According to numbers for the 2018 holiday shopping season, American shoppers incurred an average debt of just over $1,000. And not everyone could pay that debt off quickly, leading to expensive, long-term credit card debt for some.
But holiday shopping debt isnât the only financial burden people face. Many enter the season with other debt. If thatâs you, donât let debt ruin the holidays. Instead, consider some of these tips to manage debt before the holidays so you can enjoy the festivities with reduced stress.
1. Find Out Exactly Where You Stand Financially
Before you create a plan to tackle your debt, ensure youâre accounting for all of it. According to a 2019 study, around one in five adult Americans werenât sure if they had credit card debt when asked.
Even if you think you have a handle on your debt, itâs a good idea to give your reports a once-over. This lets you ensure you didnât miss something important and that no one has used your identity to run up debt in your name. That could come as a nasty surprise if you try to use or obtain credit for holiday shopping.
You can get a free copy of your credit reports from AnnualCreditReport.com. Normally, you can get one per year from each of the three major credit bureaus. But because of assistance measures put in place for COVID-19, you can get a free copy from each bureau every week through April 2021. You can also get a free Credit Report Card from Credit.com, which includes your Experian VantageScore 3.0 and regular updates on what is affecting your scores.
2. Create a Monthly Budget
Once you know everything you owe, sit down and take a look at your monthly budget. List all of your regular expenses and decide where you can cut to help put more money toward your debt.
Use tools such as credit card debt calculators to determine how much you should pay every month on debt to reduce it in a certain amount of time. This helps you understand how much money you should be putting toward debt to pay it off before the holidays arrive.
3. Choose a Method for Paying Down Debt
Every situation is different, so the way you pay down debt depends on what might work best for your situation. Here are a few tips to consider.
Go with a Basic Snowball Method
The Snowball Method means you line up all your debts by total balance. You make a minimum payment on each while throwing anything extra at the debt with the smallest balance. You do so because youâll be able to pay off that one the fastest.
Once you pay off the first debt, you take everything you were putting on it each month and add it to what youâre paying on the next-smallest balance. As you pay off each debt, you have more money to put toward the next one. By the time you reach the biggest debt, you can pay it off fairly quickly.
Make Use of Balance Transfer Cards
If itâs not realistic to pay down all of your debt before the holidays, you might want to concentrate on getting your finances in order and ensuring your debt costs as little as possible. One way to do that is to make use of a balance transfer card.
These cards let you transfer existing high-interest credit card debt to a card that has 0% APR for a period of time. If you can pay the debt off within that timeâwhich can range from a year to two years on averageâyou can save a lot in interest.
Consider Taking Out a Personal Loan to Consolidate Debt
If youâre dealing with high-interest debt or payments that simply add up to more than you can handle every month, you might consider a personal loan to consolidate debt. A debt consolidation loan doesnât get rid of your debt, but it might make it more manageable. You might end up with a single monthly payment that reduces how much you must worry about during the holidays.
4. Set a Holiday Budget and Stick to It
Once you have a plan for dealing with your existing debt, ensure you donât re-create it with your holiday spending this year. Spend smart during the holidays. Make a list of what you want to do, the meals and treats you want to make, and the gifts you want to buy.
Assign everything on your list a dollar amount, and then take another look. Can you realistically afford all of this? You might need to make some priority decisions and reduce your list to fit a holiday budget you can afford without racking up too much debt this season.
5. Use Credit to Your Advantage
If you donât let debt ruin the holidays, you might be able to use credit as a financial tool to your advantage as you shop or participate in festivities. The right rewards credit cards help you earn points or miles as you spendâand you can earn even more points for spending in certain categories.
For example, you might have a cash-back credit card that gives you more cash back in the final quarter of the year on travel or grocery shopping. You could use that card to fund expenses as you go visit relatives or prepare a feast when they come to your home.
If you spend on your card only what you were going to spend with cash anyway, you can pay your balances off immediately. That means you get those rewards without any interest cost for doing so. If you donât have a rewards credit card, you can find options to consider in the Credit.com credit card marketplace. Here are a couple to start with.
Blue Cash Preferred Card from American Express
Blue Cash PreferredÂ® Card from American Express
- Earn a $250 statement credit after you spend $1,000 in purchases on your new Card within the first 3 months.
- 6% Cash Back at U.S. supermarkets on up to $6,000 per year in purchases (then 1%).
- 6% Cash Back on select U.S. streaming subscriptions.
- 3% Cash Back at U.S. gas stations and on transit (including taxis/rideshare, parking, tolls, trains, buses and more).
- 1% Cash Back on other purchases.
- Low intro APR: 0% for 12 months on purchases from the date of account opening, then a variable rate, 13.99% to 23.99%.
- Plan ItÂ® gives the option to select purchases of $100 or more to split up into monthly payments with a fixed fee.
- Cash Back is received in the form of Reward Dollars that can be redeemed as a statement credit.
- $95 Annual Fee.
- Terms Apply.
Card Details +
This card gives you 6% cash back at U.S. supermarkets, up to $6,000 per year in purchases. You can also get 3% cash back at U.S. gas stations and transit, making it a potentially good card to use when youâre traveling. The Blue Cash PreferredÂ® card allows you to earn a $250 statement credit after you spend $1,000 in purchases on your new card within the first 3 months.
Amalgamated Bank of Chicago Platinum Rewards Mastercard
Amalgamated Bank of Chicago Platinum Rewards MastercardÂ® Credit Card
- 0% Intro APR on Purchases for 12 months; after that the variable APR will be 12.90% â 22.90% (V), based on your creditworthiness
- Earn $150 Statement Credit after you spend $1,200 on purchases within the first 90 days from account opening
- Earn 5x rewards on up to $1,500 in combined purchases each quarter in popular categories such as dining, groceries, travel, and automotive
- No upper limit on the points you can accumulate, and since points never expire, you can save up for a big award!
- Earn Points on Every Purchase! Itâs simple: $1 = 1 Point
- No Annual Fee or Foreign Transaction Fee
- Select Your Rewards Your Way
- No Foreign Transaction Fee
Card Details +
The Amalgamated Bank of Chicago Platinum Rewards MastercardÂ® allows you to earn 5X rewards up to $1,500 in combined purchases each quarter in popular categories. Categories include dining, groceries, fuel, travel, and other popular spending areas. If youâll be spending in a certain category during the holidays, you could earn extra rewards points to redeem on travel or other purchases.
Itâs never too early or too late to start planning financially for big seasons such as the holidays. If youâre ready to take a step toward that plan today, consider signing up for ExtraCredit. Reward It from ExtraCredit connects you with personalized offers and offers cashback rewards when you sign up and are approved for them.
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