The rules for getting personal loans have changed since more online lenders have entered the industry. If you’re a millennial looking to get a loan, keep…
Source: smartasset.com
The Millennial Guide to Getting a Personal Loan – SmartAsset
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.
Photo credit: ©iStock.com/BernardaSv, ©iStock.com/alexskopje, ©iStock.com/dolgachov
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Source: smartasset.com
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: ©iStock.com/DragonImages, ©iStock.com/Vikram Raghuvanshi, ©iStock.com/MachineHeadz
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Source: smartasset.com
Should I Take Money Out of My 401(k) Now?
Is taking money from your 401(k) plan a good idea? Generally speaking, the common advice for raiding your 401(k) is to only take this step if you absolutely have to. After all, your retirement funds are meant to grow and flourish until you reach retirement age and actually need them. If you take money from your 401(k) and donât replace it, you could be putting your future self at a financial disadvantage.
Still, we all know that times are hard right now, and that there are situations where removing money from a 401(k) plan seems inevitable. In that case, you should know all your options when it comes to withdrawing from a 401(k) plan early or taking out a 401(k) loan.
If you take money from your 401(k) and donât replace it, you could be putting your future self at a financial disadvantage.
401(k) Withdrawal Options if Youâve Been Impacted by COVID-19
First off, you should know that you have some new options when it comes to taking money from your 401(k) if you have been negatively impacted by coronavirus. Generally speaking, these new options that arose from the CARES Act include the chance to withdraw money from your 401(k) without the normal 10% penalty, but you also get the chance to take out a 401(k) loan in a larger amount than usual.
Here are the specifics:
401(k) Withdrawal
The CARES Act will allow you to withdraw money from your 401(k) plan before the age of 59 ½ without the normal 10% penalty for doing so. Note that these same rules apply to other tax-deferred accounts like a traditional IRA or a 403(b).
To qualify for this early penalty-free withdrawal, you do have to meet some specific criteria. For example, you, a spouse, or a dependent must have been diagnosed with a CDC-approved COVID-19 test. As an alternative, you can qualify if you have âexperienced adverse financial consequences as a result of certain COVID-19-related conditions, such as a delayed start date for a job, rescinded job offer, quarantine, lay off, furlough, reduction in pay or hours or self-employment income, the closing or reduction of your business, an inability to work due to lack of childcare, or other factors identified by the Department of Treasury,â notes the Consumer Financial Protection Bureau (CFPB).
Due to this temporary change, you can withdraw up to $100,000 from your 401(k) plan regardless of your age and without the normal 10% penalty. Also be aware that the CARES Act also removed the 20 percent automatic withholding that is normally set aside to pay taxes on this money. With that in mind, you should save some of your withdrawal since you will owe income taxes on the money you remove from your 401(k).
401(k) Loan
The Cares Act also made it possible for consumers to take out a 401(k) loan for twice the amount as usual, or $100,000 instead of $50,000. According to Fidelity, you may be able to take out as much as 50% of the amount you have saved for retirement. However, not all employers offer 401(k) loan options through their plans and they may not have adopted the new CARES Act provisions at all, so you should check with your current employer to find out.
A 401(k) loan is unique from a 401(k) withdrawal since youâll be required to pay the money back (plus interest) over the course of 5 years in most cases. However, the interest you pay actually goes back into your retirement account. Further, you wonât owe income taxes on money you take out in the form of a 401(k) loan.
Taking Money out of Your 401(k): What You Should Know
Only you can decide whether taking money from your 401(k) is a good idea, but you should know all the pros and cons ahead of time. You should also be aware that the advantages and disadvantages can vary based on whether you borrow from your 401(k) or take a withdrawal without the intention of paying it back.
If You Qualify Through the CARES Act
With a 401(k) withdrawal of up to $100,000 and no 10% penalty thanks to the CARES Act, the major disadvantage is the fact that youâre removing money from retirement that you will most certainly need later on. Not only that, but you are stunting the growth of your retirement account and limiting the potential benefits of compound interest. After all, money you have in your 401(k) account is normally left to grow over the decades you have until retirement. When you remove a big chunk, your account balance will grow at a slower pace.
As an example, letâs say you have $300,000 in a 401(k) plan and you leave it alone to grow for 20 years. If you achieved a return of 7 percent and never added another dime, you would have $1,160,905.34 after that time. If you removed $100,00 from your account and left the remaining $200,000 to grow for 20 years, on the other hand, you would only have $773,936.89.
Also be aware that, while you donât have to pay the 10% penalty for an early 401(k) withdrawal if you qualify through the CARES Act, you do have to pay income taxes on amounts you take out.
When you borrow money with a 401(k) loan using new rules from the CARES Act, on the other hand, the pros and cons can be slightly different. One major disadvantage is the fact that youâll need to repay the money you borrow, usually over a five-year span. You will pay interest back into your retirement account during this time, but this amount may be less than what you would have earned through compound growth if you left the money alone.
Also be aware that, if you leave your current job, you may be required to pay back your 401(k) loan in a short amount of time. If you canât repay your loan because you are still experiencing hardship, then you could wind up owing income taxes on the amounts you borrow as well as a 10% penalty.
Note: The same rules will generally apply if you quit your job and move out of the United States as well, so donât think that moving away can get you off the hook from repaying your 401(k) loan. If youâre planning to leave the U.S. and youâre unsure how to handle your 401(k) or 401(k) loan, speaking with a tax expert is your best move.
Keep in mind that, with both explanations of a 401(k) loan and a 401(k) early withdrawal above, these pros and cons are predicated on the idea you can qualify for the special benefits included in the CARES Act. While the IRS rules for qualifying for a coronavirus withdrawal are fairly broad, you do have to be facing financial hardship or lack of childcare due to coronavirus. You can read all the potential qualification categories on this PDF from the Internal Revenue Service (IRS).
If You Don’t Qualify Through the CARES Act
If you donât qualify for special accommodation through the CARES Act, then you will have to pay a 10% penalty on withdrawals from your 401(k) as well as income taxes on amounts you take out. With a traditional 401(k) loan, on the other hand, you may be limited to borrowing just 50% of your vested funds or $50,000, whichever is less.
However, you should note that the IRS extends other hardship distribution categories you may qualify for if youâre struggling financially . You can read about all applicable hardship distribution requirements on the IRS website.
Taking Money Out of Your 401(k): Main Pros and Cons
The situations where you might take money out of your 401(k) can be complicated, but there are some general advantages and disadvantages to be aware of. Before you take money from your 401(k), consider the following:
Pros of taking money out of your 401(k):
- You are able to access your money, which could be important if youâre suffering from financial hardship.
- If you qualify for special accommodations through the CARES Act, you can avoid the 10% penalty for taking money from your 401(k) before retirement age.
- You can take out more money (up to $100,000) than usual from your 401(k) with a 401(k) withdrawal or a 401(k) loan thanks to CARES Act rules.
Cons of taking money out of your 401(k):
- If you take money out of your 401(k), youâll have to pay income taxes on those funds.
- Removing money from your 401(k) means you are reducing your current retirement savings.
- Not only are you removing retirement savings from your account, but youâre limiting the growth on the money you take out.
- If you take out a 401(k) loan, youâll have to pay the money back.
Alternatives to Taking Money from your 401(k)
There may be some situations where taking money out of your 401(k) makes sense, including instances where you have no other option but to access this money to keep the lights on and food on the table. If you cash out your 401(k) and the market tanks afterward, you could even wind up feeling like a genius. Then again, the chances of optimally timing your 401(k) withdrawal are extremely slim.
With that being said, if you donât have to take money out of your 401(k) plan or a similar retirement plan, you shouldnât do it. You will absolutely want to retire one day, so leaving the money youâve already saved to grow and compound is always going to leave you ahead in the long run.
With that in mind, you should consider some of the alternatives of taking money from a 401(k) plan:
- See if you qualify for unemployment benefits. If you were laid off or furloughed from your job, you may qualify for unemployment benefits you donât even know about. To find out, you should contact your stateâs unemployment insurance program.
- Apply for temporary cash assistance. If you are facing a complete loss in income, consider applying for Temporary Assistance for Needy Families (TANF), which lets you receive cash payments. To see if you qualify, call your state TANF office.
- Take out a short-term personal loan. You can also consider a personal loan that does not use funding from your 401(k). Personal loans tend to come with competitive interest rates for consumers with good or excellent credit, and you can typically choose your repayment term.
- Tap into your home equity. If you have more than 20% equity in your home, consider borrowing against that equity with a home equity loan or home equity line of credit (HELOC). Both options let you use the value of your home as collateral, and they tend to offer low interest rates as a result.
- Consider a 0% APR credit card. Also look into 0% APR credit cards that allow you to make purchases without any interest charged for up to 15 months or potentially longer. Just remember that youâll have to repay all the purchases you charge to your card, and that your interest rate will reset to a much higher variable rate after the introductory offer ends.
The Bottom Line
In times of financial turmoil, it may be tempting to pull money out of your 401(k). After all, it is your money. But the ramifications to your future financial wellbeing may be substantial. The CARES Act has introduced new options to leverage your 401(k), without the normal penalties. Find out if you qualify and take time to understand the details behind the options. We recommend speaking to a tax expert if you have any questions or concerns regarding possible tax penalties.
The traditional wisdom is to leave your retirement untouched, and we agree with that. If you’re in a financial bind, consider other options to get you through the rough patch. Tapping into your 401(k) should really be your last resort.
The post Should I Take Money Out of My 401(k) Now? appeared first on Good Financial Cents®.
Source: goodfinancialcents.com
Guide to Small Business Startup Loans
It takes money to make money and virtually any small business will require some startup capital to get up and running. While the personal savings of the founders is likely the most common source of startup funding, many startups also employ loans to provide seed capital. New enterprises with no established credit cannot get loans as easily from many sources, but startup loans are available for entrepreneurs who know where to look. Here are some of those places to look, plus ways to supplement loans. For help with loans and any other financial questions you have, consider working with a financial advisor.
Startup Loans: Preparing to Borrow
Before starting to look for a startup loan, the primary question for the entrepreneur is how much he or she needs to borrow. The size of the loan is a key factor in determining where funding is likely to be available. Some sources will only fund very small loans, for example, while others will only deal with borrowers seeking sizable amounts.
The founderâs personal credit history is another important element. Because the business has no previous history of operating, paying bills or borrowing money and paying it back, the likelihood of any loan is likely to hinge on the founderâs credit score. The founder is also likely to have to personally guarantee the loan, so the amount and size of personal financial resources is another factor.
Business documents that may be needed to apply include a business plan, financial projections and a description of how funds will be used.
Startup Loan Types
There are a number of ways to obtain startup loans. Here are several of them.
Personal loan â A personal loan is another way to get seed money. Using a personal loan to fund a startup could be a good idea for business owners who have good credit and donât require a lot of money to bootstrap their operation. However, personal loans tend to carry a higher interest rate than business loans and the amount banks are willing to lend may not be enough.
Loans from friends and family â This can work for an entrepreneur who has access to well-heeled relatives and comrades. Friends and family are not likely to be as demanding as other sources of loans when it comes to credit scores. However, if a startup is unable to repay a loan from a friend or relative, the result can be a damaged relationship as well as a failed business.
Venture capitalists â While these people typically take equity positions in startups their investments are often structured as loans. Venture capitalists can provide more money than friends and family. However, they often take an active hand in managing their investments so founders may need to be ready to surrender considerable control.
Government-backed startup loans â These are available through programs administered by the U.S. Department of Commerceâs Small Business Administration (SBA) as well as, to a lesser degree, the Interior, Agriculture and Treasury departments. Borrowers apply for these through affiliated private financial institutions, including banks. LenderMatch is a tool startup businesses use to find these affiliated private financial institutions. Government-guaranteed loans charge lower interest rates and are easier to qualify for than non-guaranteed bank loans.
Bank loans â These are the most popular form of business funding, and they offer attractive interest rates and bankers donât try to take control as venture investors might. However, banks are reluctant to lend to new businesses without a track record. Using a bank to finance a startup generally means taking out a personal loan, which means the owner will need a good personal credit score and be ready to put up collateral to secure approval.
Credit cards â Using credit cards to fund a new business is easy, quick and requires little paperwork. However, interest rates and penalties are high and the amount of money that can be raised is limited.
Self-funding â Rather than simply putting money into the business that he or she owns, the founder can structure the cash infusion as a loan that the business will pay back. One potential benefit of this is that interest paid to the owner for the loan can be deducted from future profits, reducing the businessâs tax burden.
Alternatives to Startup Loans
Crowdfunding â This lets entrepreneurs use social media to reach large numbers of private individuals, borrowing small amounts from each to reach the critical mass required to get a new business up and running. As with friends and family, credit history isnât likely to be a big concern. However, crowdfunding works best with businesses that have a new product that requires funding to complete design and begin production.
Nonprofits and community organizations â These groups engage in microfinancing. Getting a grant from one of these groups an option for a startup that requires a small amount, from a few hundred to a few tens of thousands of dollars. If you need more, one of the other channels is likely to be a better bet.
The Bottom Line
Startup businesses seeking financing have a number of options for getting a loan. While it is often difficult for a brand-new company to get a conventional business bank loan, friends and family, venture investors, government-backed loan programs, crowdfunding, microloans and credit cards may provide solutions. The size of the loan amount and the personal credit history and financial assets of the founder are likely to be important in determining which financing channel is most appropriate.
Tips on Funding a Startup
- If you are searching for a way to fund a business startup, consider working with an experienced financial advisor. Finding the right financial advisor who fits your needs doesnât have to be hard. SmartAssetâs free tool matches you with financial advisors in your area in five minutes. If youâre ready to be matched with local advisors who will help you achieve your financial goals, get started now.
- One way to minimize the challenge of getting startup funding is to take a âlean startupâ approach. That approach could be especially helpful to baby boomers, who are âaging outâ of their careers and living longer than earlier generations but still need (or want) an income. Learn how many of them are turning their retirement into business opportunities.
Photo credit: ©iStock.com/Andrii Yalanskyi, ©iStock.com/teekid, ©iStock.com/Thithawat_s
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Source: smartasset.com
Things Break. How to Make Sure Your Emergency Fund Can Cover Them
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Your washing machine. Your car. Your front tooth.
If any of those broke right now, would you be able to get it fixed immediately? Or would you have to walk around with a gap in your smile for months until you could get the money together?
If you canât afford to pay to fix it today, youâre not alone. Most people donât have $400 saved in case of an emergency either. So before your car breaks down on the side of the road on your way to an interview, make sure you have a solid emergency fund of at least $500.
Donât know how to get there? Having a budget (that you actually stick to) can help you get there. Hereâs one budgeting strategy we recommend, and four other tips that can help you keep your expenses in line.
1. The 50/30/20 Budgeting Rule
The 50/30/20 rule is one of the simplest budgeting methods out there, which is why youâve probably heard us talk about it before if youâre a regular TPH reader. There are no fancy spreadsheets or pricy apps to download (unless you want to), and itâs very straightforward.
Hereâs how it shakes out: 50% of your monthly take home income goes to your essentials â your rent, your groceries, your minimum debt payments, and other necessities. 30% of your cash goes to the fun stuff, and 20% is dedicated to your financial goals. That could be paying more than the minimum on your debts or adding to your investments. And it definitely includes building up your emergency fund!
If you take a look at your budget and realized you donât have enough leftover to contribute to your emergency fund, here are a few ways to help balance your budget:
2. Cut More Than $500 From One Of Your Must-Have Bills
Youâre probably overpaying the bills you have to pay each month. But you can cut those expenses down, without sacrificing anything. Maybe even enough to cover that window your kid just smashed with a ball. Definitely enough to grow your emergency fund a meaningful amount.
So, whenâs the last time you checked car insurance prices?
You should shop your options every six months or so â it could save you some serious money. Letâs be real, though. Itâs probably not the first thing you think about when you wake up. But it doesnât have to be.
A website called Insure.com makes it super easy to compare car insurance prices. All you have to do is enter your ZIP code and your age, and itâll show you your options.
Using Insure.com, people have saved an average of $540 a year.
Yup. That could be $500 back in your pocket just for taking a few minutes to look at your options.
3. Earn Up to $225 in Easy, Extra Cash
If we told you you could get free money just for watching videos on your computer, youâd probably laugh. Itâs too good to be true, right? But weâre serious. You can really add up to a few hundred bucks to your emergency savings with some mindless entertainment.
A website called InboxDollars will pay you to watch short video clips online. One minute you might watch someone bake brownies and the next you might get the latest updates on Kardashian drama.
All you have to do is choose which videos you want to watch and answer a few quick questions about them afterward. Brands pay InboxDollars to get these videos in front of viewers, and it passes a cut onto you.
InboxDollars wonât make you rich, but itâs possible to get up to $225 per month watching these videos. Itâs already paid its users more than $56 million.
It takes about one minute to sign up, and youâll immediately earn a $5 bonus to get you started.
4. Ask This Website to Pay Your Credit Card Bill This Month
Just by paying the minimum amount on your credit cards, you are extending the life of your debt exponentially â not to mention the hundreds (or thousands) of dollars youâre wasting on interest payments. You could be using that money to beef up your emergency savings, instead.
The truth is, your credit card company is happy to let you pay just the minimum every month. Itâs getting rich by ripping you off with high interest rates â some up to nearly 30%. But a website called AmOne wants to help.
If you owe your credit card companies $50,000 or less, AmOne will match you with a low-interest loan you can use to pay off every single one of your balances.
The benefit? Youâll be left with one bill to pay each month. And because personal loans have lower interest rates (AmOne rates start at 3.49% APR), youâll get out of debt that much faster. Plus: No credit card payment this month.
AmOne keeps your information confidential and secure, which is probably why after 20 years in business, it still has an A+ rating with the Better Business Bureau.
It takes two minutes to see if you qualify for up to $50,000 online. You do need to give AmOne a real phone number in order to qualify, but donât worry â they wonât spam you with phone calls.
5. Get a Side Gig And Make More Money
Letâs face it â if your monthly income is less than what your monthly expenses are (and youâve run out of things to cut), you need more money.
Well, we all could use more money. And by earning a little bit extra each month, we could make sure weâre never taken by surprise when an ER visit tries to drain our savings.
Luckily, earning money has never been easier with the rise of the âGig Economyâ. Here are 31 simple ways to make money online. Which one could you do to pad your emergency savings?
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
Source: thepennyhoarder.com
Should You Transfer Balances to No-Interest Credit Cards Multiple Times?
Karen, our editor at Quick and Dirty Tips, has a friend named Heather who listens to the Money Girl podcast and has a money question. She thought it would be a great podcast topic and sent it to me.
Heather says:
I had a financial crisis and ended up with a $2,500 balance on my new credit card, which had a no-interest promotion for 18 months when I got it. That promotional rate is going to expire in a couple of months. I have good credit, and I keep getting offers from other card companies for zero-interest balance transfer promotions. Would it be a good idea to apply for another card and transfer my balance so I don't have to pay any interest? Are there any downsides that I should watch out for?
Thanks, Karen and Heather! That's a terrific question. I'm sure many podcast listeners and readers also wonder if it's a good idea to transfer a balance multiple times.
This article will explain balance transfer credit cards, how they make paying off high-interest debt easier, and tips to handle them the right way. You'll learn some pros and cons of doing multiple balance transfers and mistakes to avoid.
What is a balance transfer credit card or offer?
A balance transfer credit card is also known as a no-interest or zero-interest credit card. It's a card feature that includes an offer for you to transfer balances from other accounts and save money for a limited period.
You typically pay an annual percentage rate (APR) of 0% during a promotional period ranging from 6 to 18 months. In general, you'll need good credit to qualify for the best transfer deals.
Every transfer offer is different because it depends on the issuer and your financial situation; however, the longer the promotional period, the better. You don't accrue one penny of interest until the promotion expires.
However, you typically must pay a one-time transfer fee in the range of 2% to 5%. For example, if you transfer $1,000 to a card with a 2% transfer fee, you'll be charged $20, which increases your debt to $1,020. So, choose a transfer card with the lowest transfer fee and no annual fee, when possible.
When you get approved for a new balance transfer card, you get a credit limit, just like you do with other credit cards. You can only transfer amounts up to that limit.
Missing a payment means your sweet 0% APR could end and that you could get charged a default APR as high as 29.99%!
You can use a transfer card for just about any type of debt, such as credit cards, auto loans, and personal loans. The issuer may give you the option to have funds deposited into your bank account so that you can send it to the creditor of your choice. Or you might be asked to complete an online form indicating who to pay, the account number, and the amount so that the transfer card company can pay it on your behalf.
Once the transfer is complete, the debt balance moves over to your transfer card account, and any transfer fee gets added. But even though no interest accrues to your account, you must still make monthly minimum payments throughout the promotional period.
Missing a payment means your sweet 0% APR could end and that you could get charged a default APR as high as 29.99%! That could easily wipe out any benefits you hoped to gain by doing a balance transfer in the first place.
How does a balance transfer affect your credit?
A common question about balance transfers is how they affect your credit. One of the most significant factors in your credit scores is your credit utilization ratio. It's the amount of debt you owe on revolving accounts (such as credit cards and lines of credit) compared to your available credit limits.
For example, if you have $2,000 on a credit card and $8,000 in available credit, you're using one-quarter of your limit and have a 25% credit utilization ratio. This ratio gets calculated for each of your revolving accounts and as a total on all of them.
Getting a new balance transfer credit card (or an additional limit on an existing card) instantly raises your available credit, while your debt level remains the same. That causes your credit utilization ratio to plummet, boosting your scores.
I recommend using no more than 20% of your available credit to build or maintain optimal credit scores. Having a low utilization shows that you can use credit responsibly without maxing out your accounts.
Getting a new balance transfer credit card (or an additional limit on an existing card) instantly raises your available credit, while your debt level remains the same. That causes your credit utilization ratio to plummet, boosting your scores.
Likewise, the opposite is true when you close a credit card or a line of credit. So, if you transfer a card balance and close the old account, it reduces your available credit, which spikes your utilization ratio and causes your credit scores to drop.
Only cancel a paid-off card if you're prepared to see your credit scores take a dip.
So, only cancel a paid-off card if you're prepared to see your scores take a dip. A better decision may be to file away a card or use it sparingly for purchases you pay off in full each month.
Another factor that plays a small role in your credit scores is the number of recent inquiries for new credit. Applying for a new transfer card typically causes a slight, short-term dip in your credit. Having a temporary ding on your credit usually isn't a problem, unless you have plans to finance a big purchase, such as a house or car, within the next six months.
The takeaway is that if you don't close a credit card after transferring a balance to a new account, and you don't apply for other new credit accounts around the same time, the net effect should raise your credit scores, not hurt them.
RELATED: When to Cancel a Credit Card? 10 Dos and Don’ts to Follow
When is using a balance transfer credit card a good idea?
I've done many zero-interest balance transfers because they save money when used correctly. It's a good strategy if you can pay off the balance before the offer's expiration date.
Let's say you're having a good year and expect to receive a bonus within a few months that you can use to pay off a credit card balance. Instead of waiting for the bonus to hit your bank account, you could use a no-interest transfer card. That will cut the amount of interest you must pay during the card's promotional period.
When should you do multiple balance transfers?
But what if you're like Heather and won't pay off a no-interest promotional offer before it ends? Carrying a balance after the promotion means your interest rate goes back up to the standard rate, which could be higher than what you paid before the transfer. So, doing another transfer to defer interest for an additional promotional period can make sense.
If you make a second or third balance transfer but aren't making any progress toward paying down your debt, it can become a shell game.
However, it may only be possible if you're like Heather and have good credit to qualify. Balance transfer cards and promotions are typically only offered to consumers with good or excellent credit.
If you make a second or third balance transfer but aren't making any progress toward paying down your debt, it can become a shell game. And don't forget about the transfer fee you typically must pay that gets added to your outstanding balance. While avoiding interest is a good move, creating a solid plan to pay down your debt is even better.
If you have a goal to pay off your card balance and find reasonable transfer offers, there's no harm in using a balance transfer to cut interest while you regroup.
Advantages of doing a balance transfer
Here are several advantages of using a balance transfer credit card.
- Reducing your interest. That's the point of transferring debt, so you save money for a limited period, even after paying a transfer fee.
- Paying off debt faster. If you put the extra savings from doing a transfer toward your balance, you can eliminate it more quickly.
- Boosting your credit. This is a nice side effect if you open a new balance transfer card and instantly have more available credit in your name, which lowers your credit utilization ratio.
Disadvantages of doing a balance transfer
Here are some cons for doing a balance transfer.
- Paying a fee. It's standard with most cards, which charge in the range of 2% to 5% per transfer.
- Paying higher interest. When the promotion ends, your rate will vary by issuer and your financial situation, but it could spike dramatically.
- Giving up student loan benefits. This is a downside if you're considering using a transfer card to pay off federal student loans that come with repayment or forgiveness options. Once the debt gets transferred to a credit card, the loan benefits, including a tax deduction on interest, no longer apply.
Tips for using a balance transfer credit card wisely
The best way to use a balance transfer is to have a realistic plan to pay off the balance before the promotion expires.
The best way to use a balance transfer is to have a realistic plan to pay off the balance before the promotion expires. Or be sure that the interest rate will be reasonable after the promotion ends.
Shifting a high-interest debt to a no-interest transfer account is a smart way to save money. It doesn't make your debt disappear, but it does make it less expensive for a period.
If you can save money during the promotional period, despite any balance transfer fees, you'll come out ahead. And if you plow your savings back into your balance, instead of spending it, you'll get out of debt faster than you thought possible.
Source: quickanddirtytips.com
VA Cash-Out Refinance: Is It a Good Idea? | Rates & Guidelines 2021
The VA cash-out refinance program enables veterans and active-duty service members to tap into their homeâs equity and, depending on current refinance interest rates, lower their interest rate at the same time.
The idea of getting cash out of your home is appealing, but is it a good idea for you? Below, weâll dive into some of the situations when a VA cash-out refinance might be a good fit â and when it might not.
Check your eligibility for a VA cash-out refinance loan today.
Reasons veterans get a VA cash-out refinance
Veterans use the VA cash-out refinance for plenty of reasons â the biggest being that they want to get cash. The cash comes from home equity. So, if you have a mortgage for $200,000 and youâve paid off $50,000, you can get up to $50,000 back in cash, while also potentially lowering your mortgage rate.
Veterans arenât required to take out the full amount possible, though. A homeowner in the same situation could take out $10,000 to fund a small kitchen remodel, to buy a new car, or pay for a vacation, for example.
The most common reasons to get cash from a cash-out refinance is to fund remodels, renovations, and repairs to your home â or to use the cash to pay off other debts. (It may be financially responsible to use a cash-out refinance to pay off credit card debt if the rate on the other debt is significantly higher than the new rate youâll get from a cash-out refinance.)
But, there are other potential benefits to a VA cash-out refinance. You may be able to lower your interest rate and monthly mortgage payment. And, if you have an FHA or conventional loan with mortgage insurance, you could remove that extra monthly cost by refinancing into a VA loan.
Reasons to avoid a cash-out refinance
While itâs a good decision for many homeowners, refinancing isnât the best option for everyone. You should only refinance if you can gain something from the new loan. When determining whether youâre benefitting from a cash-out refinance, itâs important to consider your whole financial situation and your goals.
It could increase your mortgage rate.
When veterans apply for a VA cash-out refinance, theyâll need to supply their credit score. If your credit score is lower than it was when you first applied for your mortgage, then thereâs a good chance that the refinance could increase your mortgage rate.
The clock restarts on your mortgage.
Itâs also important to remember that a cash-out refinance restarts the clock on your mortgage â youâre opening up a new loan with new terms, likely 30-years. This means additional interest costs. Because of this, itâs best to use a VA cash-out refinance for things that will improve your financial situation, and, in turn, improve your ability to repay the loan.
Riskier than other loan types.
VA cash-out finances are often used for home improvements that increase the overall value of the investment, education expenses to increase earning potential, new business ventures, or debt consolidation. Still, all of these options can represent a financial risk. Before proceeding with a cash-out refinance, itâs worth investigating other funding options such as personal loans, specialized loans (like student loans or small business loans) or second mortgages.
Finally, if youâre using cash from a VA cash-out refinance to pay off credit card debt, itâs important to remember that youâre paying off unsecured debt with secured debt â in other words, you risk foreclosure on your home if you are unable to make your mortgage payments for any reason.
VA cash-out refinance rates
VA cash-out refinance rates are currently low. According to Ellie Maeâs Ocober 2020 Origination Report, interest rates for VA loans hovered at an average of 2.75% â 0.26% lower than interest rates for 30-year, fixed-rate conventional loans.
Read more: Current VA Refinance Rates
With rates projected to remain low, Veterans who purchased a home within the last few years should check to see if a refinance could reduce their interest rate and monthly mortgage payment. Your potential savings are dependent on your unique situation â remember to comparison shop with multiple lenders to see who can offer you the best deal.
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When a VA streamline refinance is right instead
If you donât need cash, thereâs no reason to get a cash-out refinance. In these situations, a VA streamline refinance (also known as an interest rate reduction refinance loan or IRRRL) makes more sense. The rates associated with the IRRRL tend to be lower, so you could save more money with that type of refinance.
If youâre looking to take out cash for energy-efficiency improvements to your home, the IRRRL allows homeowners to finance up to $6,000 in improvements that will save money over time, including programmable thermostats, insulation, solar heating, and caulking/weather stripping.
VA streamline refinance vs. VA cash-out refinance
If youâre looking to lower your interest rate and monthly payment, donât need cash out and already have a VA loan, an IRRRL is the easier, quicker, and just plain better option. In fact, streamline refinances require that Veterans lower their mortgage rate to qualify for the loan (also called a net tangible benefit). Thatâs not a requirement with the cash-out refinance.
If you are looking to get cash for an expense like a remodel or debt consolidation, then a VA cash-out loan is likely the better option. Itâs also a good option for Veterans with a non-VA loan requiring mortgage insurance. VA loans donât require mortgage insurance, so refinancing into one, could remove that monthly expense.
How to apply for a VA cash-out refinance
The application and approval process for a VA cash-out refinance is very similar to the loan application process for a home purchase, including:
- Youâll likely need a VA appraisal, especially if your existing loan is a non-VA loan. This establishes the current value of your home and helps determine the amount of cash you can take out.
- Youâll need a credit check and income verification to verify that youâre able to make the new VA loan payments.
- Youâll need to establish eligibility with minimum service requirements, especially if you currently have a non-VA loan.
Also, shop around with multiple lenders to compare rates and terms. This can save you lots of money over the life of the loan and allow you to negotiate better terms.
Check your eligibility for a VA cash-out refinance loan today.
Source: militaryvaloan.com
A Guide to Consolidating and Refinancing Student Loans
Student loan consolidation and refinancing can help you manage your debts, reducing monthly payments, creating more favorable terms, and ensuring you have more money in your pocket at the end of the month.Â
But how do these payoff strategies work, what are the differences between private loans and federal loans, and how much money can consolidation save you?
Private and Federal Student Loan Consolidation
Federal student loan consolidation can combine multiple federal loans into one. Private consolidation can combine both federal loans and private loans into a new private loan. The act of consolidation can improve your debt-to-income ratio, which can help when applying for a mortgage and greatly improve your financial situation.
Which Loans Qualify for Student Loan Consolidation?
You can generally consolidate all student loans, including Federal Perkins loans, Direct loans, and other federal loans, as well as those from private lenders. You cannot consolidate private loans with federal loans, but you can consolidate them with other private loans.
What Should you Think About Before Consolidating Student Loans?
Consolidating isnât just something to consider if youâre struggling to meet current terms. In fact, private lenders often require a minimum credit score in the high-600s and youâll also need to have a stable income (or a cosigner) and a history of at least a few punctual payments.
Federal student loans are a little easier to consolidate and available to more borrowers, including those looking to qualify for income-based repayment or student loan forgiveness schemes.
In either case, it can reduce your monthly payments, making your loans more manageable.
How to Consolidate Private Student Loans
Some of the private lenders offering this service include:
- LendKey
- Citizens One
- CommonBond
- SoFi
- Earnest
The rate you receive will depend on your credit score and whether you opt for a variable interest rate or a fixed interest rate, but generally, they range from 3% to 8%. Each lender has their own set of terms and requirements, but theyâll often require you to:
- Be at least 18 years old
- Have no more than $150,000 in debt
- Be the main borrower (not the cosigner)
- Complete a credit check
The lender will run some basic checks to determine your creditworthiness before offering you a consolidation sum that will clear your debts and leave you with a single monthly payment. There are different types of private loan depending on whether youâre applying to consolidate just private loans or both federal loans and private loans.
If you only have federal loans, you should apply for federal student loan consolidation instead.
What Will I Pay?
The main goal of student loan consolidation is to reduce your monthly payment. If you have a strong credit score you can get a reduced interest rate and may even benefit from a reduced repayment term. However, as with most forms of consolidation, itâs all about reducing that monthly payment, improving your debt to income ratio and increasing the money you have leftover every month.
Shop around, consider all loan terms carefully, run some calculations to make sure you can meet the monthly payment, and compare repayment options to find something suitable for you.
Donât feel like you need to jump at the first offer you receive. A personal loan application can show on your credit report and reduce your credit score by as much as 5 points, but multiple applications with multiple private lenders will be classed as ârate shoppingâ, providing they all occur within 14 days (some credit scoring systems allow for 30 or 45 days).
How Federal Debt Consolidation Loan Works
Federal student loan consolidation wonât reduce your interest rate, but it does make your repayments easier by rolling multiple payments into one and there is no minimum credit score requirement either.
When you consolidate federal student loans, the government basically clears your existing debt and then replaces it with a Direct Consolidation Loan.
You can consolidate directly through the government, with the loan being handled by the Department of Education. There are companies out there that claim to provide federal student loan consolidation on behalf of the government, but some of these are scams and the others are unnecessaryâyou can do it all yourself.
You can apply for consolidation once you graduate or leave school and you will be given an extended loan term between 10 and 30 years.
Just visit the StudentLoans.gov website to go through this process and find a repayment plan that suits you.
What is Student Loan Refinancing?
Student loan refinancing is very similar to consolidation and the two are often used interchangeably. In both cases, you apply for a new loan and this is used to pay off the old one(s), but refinancing is only offered by private lenders and can be used to ârefinanceâ a single loan.
The process is the same for both and in most cases, youâll see âconsolidationâ being used for federal loans and ârefinancingâ for private loans.
Student Loan Forgiveness and Other Options
You may qualify to have your federal student loans fully or partially forgiven. This is true whether you have previously been accepted or refused for repayment plans and it can help to lift this significant burden off your shoulders.
- Public Service Loan Forgiveness (PSLF): Offered to government workers and employees with qualifying non-profit companies. You can have your federal loans forgiven after making 120-payments. This program works best with income-focused repayment plans, otherwise, you may have very little left to forgive (if anything) after that period.
- Teacher Loan Forgiveness: Teachers can have their federal student loans partially forgiven if they have been employed in low-income schools for at least five years. They can have up to $17,500 forgiven.
- Student Loan Forgiveness for Nurses: Nurses can qualify for PSLF and this is often the best option for getting federal student loans forgiven or reduced. However, there are a couple of highly competitive options, including the NURSE Corps Loan Repayment Program.
There are also Income-Driven Repayment Plans, which is definitely an option worth considering.
Income-Driven Repayment Plans
An income-focused repayment plan is tied to your earnings, taking between 10% and 20% of your earnings, before being forgiven completely after 20 or 25 years. There are four plans:
- Pay as you Earn (PAYE): If you have graduate loans and are married with two incomes then you may qualify.
- Revised Pay as you Earn (REPAYE): Offered to individuals who are single, donât have graduate loans, and have the potential to become high earners.
- Income-Based Repayment: If you have federal student loans but donât qualify for PAYE.
- Income-Contingent Repayment: If you have Parent Plus loans and are seeking a reduced monthly payment.
These programs can greatly reduce your monthly payment and your obligations, but they are not without their disadvantages. For instance, they will seek to extend the repayment term to over 20 years, which will greatly increase the total interest you pay. If anything is forgiven, you may also pay taxes on the forgiven amount.
You can discuss the right option for you with your loan servicer, looking at the payment term in addition to your current circumstances and projected income as well as your student loan terms.
Conclusion: Help and More Information
Student loan refinancing and consolidation can help whether youâre struggling with federal loans or private loans, and there are multiple options available, as discussed in this guide. If you have credit card debt, personal loan debt, and other obligations weighing you down, you may also benefit from a debt management plan, balance transfer credit card, or a debt settlement program.
You can find information on all these programs on this site, as well as everything else you could ever want to know about federal student loans and private loans.
A Guide to Consolidating and Refinancing Student Loans is a post from Pocket Your Dollars.
Source: pocketyourdollars.com
Got Cash? What to Do with Extra Money
I received a great email from Magen L., who says:
I no longer have any retirement savings because I cashed it all out to pay my debt. We also sold our home and moved into an apartment just as the pandemic was hitting. With the sale of our house, the fact that my husband is working overtime, and the stimulus money, we've saved nearly $10,000 and should have more by the end of the year. My primary question is, what should we do with it?
Right now, I have our extra money in a low-interest bank savings [account], and I'm considering moving it to a high-yield savings [account] as our emergency fund. Is that a good idea? For additional money we save, I intend to use it as a down payment on a new house. However, should I be investing in Roth IRAs instead? What is the best option?
Another question comes from Bianca G., who says:
I have zero credit card debt, but I have a car loan and a student loan. I will be receiving a large amount of money sometime next year. If my fiancé and I want to buy a home, is it better to pay off my car first and then my student loan, or should I just pay down a big portion of my student loan?
Thanks Megan and Bianca for your questions. I'll answer them and give you a three-step plan to prioritize your extra money and make your finances more secure. No matter if you're a good saver or you get a cash windfall from a tax refund, an inheritance, or the sale of a home, extra money should never be squandered.
What to do with extra cash
Maybe you're like Magen and have extra cash that could be working harder for you, but you're not sure what to do with it. You may even be paralyzed and do nothing because you have a deep-seated fear of making a big mistake with your cash.
In some cases, having your money sit idle is precisely the right financial move. But it depends on whether or not you've accomplished three fundamental financial goals, which we'll cover.
To know the right way to manage extra cash, you need to step back and take a holistic view of your entire financial life.
To know the right way to manage extra cash, you need to step back and take a holistic view of your entire financial life. Consider what you're doing right and where you're vulnerable.
Try using a three-pronged approach that I call the PIP plan, which stands for:
- Prepare for the unexpected
- Invest for the future
- Pay off high-interest debt
Let's examine each one to understand how to use the PIP (prepare, invest, and pay off) approach for your situation.
How to prepare for the unexpected
The first fundamental goal you should have is to prepare for the unexpected. As you know, life is full of surprises. Some of them bring happiness, but there's an infinite number of devastating events that could hurt you financially.
In an instant, you could get fired from your job, experience a natural disaster, get a severe illness, or lose a spouse. If 2020 has taught us anything, it's that we have to be as mentally, physically, and financially prepared as possible for what may be around the corner.
While no amount of money can reverse a tragedy, having safety nets can protect your finances. That makes coping with a tragedy easier.
Getting equipped for the unexpected is an ongoing challenge. Your approach should change over time because it depends on your income, debt, number of dependents, and breadwinners in a family.
While no amount of money can reverse a tragedy, having safety nets—such as an emergency fund and various types of insurance—can protect your finances. That makes coping with a tragedy easier.
Everyone should accumulate an emergency fund equal to at least three to six months' worth of their living expenses. For instance, if you spend $3,000 a month on essentials—such as housing, utilities, food, and debt payments—make a goal to keep at least $9,000 in an FDIC-insured bank savings account.
While keeping that much in savings may sound boring, the goal for an emergency fund is safety, not growth. The idea is to have immediate access to your cash when you need it. That's why I don't recommend investing your emergency money unless you have more than a six-month reserve.
The goal for an emergency fund is safety, not growth.
If you don't have enough saved, aim to bridge the gap over a reasonable period. For instance, you could save one half of your target over two years or one third over three years. You can put your goal on autopilot by creating an automatic monthly transfer from your checking into your savings account.
Megan mentioned using high-yield savings, which can be a good option because it pays a bit more interest for large balances. However, the higher rate typically comes with limitations, such as applying only to a threshold balance, so be sure to understand the account terms.
Insurance protects your finances
Another critical aspect of preparing for the unexpected is having enough of the right kinds of insurance. Here are some policies you may need:
- Auto insurance if you drive your own or someone else's vehicle
- Homeowners insurance, which is typically required when you have a mortgage
- Renters insurance if you rent a home or apartment
- Health insurance, which pays a portion of your medical bills
- Disability insurance replaces a percentage of income if you get sick or injured and can no longer work
- Life insurance if you have dependents or debt co-signers who would suffer financial hardship if you died
RELATED: How to Create Foolproof Safety Nets
How to invest for your future
Once you get as prepared as possible for the unexpected by building an emergency fund and getting the right kinds of insurance, the next goal I mentioned is investing for retirement. That’s the “I” in PIP, right behind prepare for the unexpected.
Investments can go down in value—you should never invest money you can’t live without.
While many people use the terms saving and investing interchangeably, they’re not the same. Let’s clarify the difference between investing and saving so you can think strategically about them:
Saving is for the money you expect to spend within the next few years and don’t want to risk losing it. In other words, you save money that you want to keep 100% safe because you know you’ll need it or because you could need it. While it won’t earn much interest, you’ll be able to tap it in an instant.
Investing is for the money you expect to spend in the future, such as in five or more years. Purchasing an investment means you’re exposing money to some amount of risk to make it grow. Investments can go down in value; therefore, you should never invest money you can’t live without.
In general, I recommend that you invest through a qualified retirement account, such as a workplace plan or an IRA, which come with tax benefits to boost your growth. My recommendation is to contribute no less than 10% to 15% of your pre-tax income for retirement.
Magen mentioned Roth IRAs, and it may be a good option for her to rebuild her retirement savings. For 2020, you can contribute up to $6,000, or $7,000 if you’re over age 50, to a traditional or a Roth IRA. You typically must have income to qualify for an IRA. However, if you’re married and file taxes jointly, a non-working spouse can max out an IRA based on household income.
For workplace retirement plans, such as a 401(k), you can contribute up to $19,500, or $26,000 if you’re over 50 for 2020. Some employers match a certain percent of contributions, which turbocharges your account. That’s why it’s wise to invest enough to max out any free retirement matching at work. If your employer kicks in matching funds, you can exceed the annual contribution limits that I mentioned.
RELATED: A 5-Point Checklist for How to Invest Money Wisely
How to pay off high-interest debt
Once you're working on the first two parts of my PIP plan by preparing for the unexpected and investing for the future, you're in a perfect position also to pay off high-interest debt, the final "P."
Always tackle your high-interest debts before any other debts because they cost you the most. They usually include credit cards, car loans, personal loans, and payday loans with double-digit interest rates. Remember that when you pay off a credit card that charges 18%, that's just like earning 18% on an investment after taxes—pretty impressive!
Remember that when you pay off a credit card that charges 18%, that's just like earning 18% on an investment after taxes—pretty impressive!
Typical low-interest loans include student loans, mortgages, and home equity lines of credit. These types of debt also come with tax breaks for some of the interest you pay, making them cost even less. So, don't even think about paying them down before implementing your PIP plan.
Getting back to Bianca's situation, she didn't mention having emergency savings or regularly investing for retirement. I recommend using her upcoming cash windfall to set these up before paying off a low-rate student loan.
Let's say Bianca sets aside enough for her emergency fund, purchases any missing insurance, and still has cash left over. She could use some or all of it to pay down her auto loan. Since the auto loan probably has a higher interest rate than her student loan and doesn't come with any tax advantages, it's wise to pay it down first.
Once you've put your PIP plan into motion, you can work on other goals, such as saving for a house, vacation, college, or any other dream you have.
Questions to ask when you have extra money
Here are five questions to ask yourself when you have a cash windfall or accumulate savings and aren’t sure what to do with it.
1. Do I have emergency savings?
Having some emergency money is critical for a healthy financial life because no one can predict the future. You might have a considerable unexpected expense or lose income.
Without emergency money to fall back on, you're living on the edge, financially speaking. So never turn down the opportunity to build a cash reserve before spending money on anything else.
2. Do I contribute to a retirement account at work?
Getting a windfall could be the ticket to getting started with a retirement plan or increasing contributions. It's wise to invest at least 10% to 15% of your gross income for retirement.
Investing in a workplace retirement plan is an excellent way to set aside small amounts of money regularly. You'll build wealth for the future, cut your taxes, and maybe even get some employer matching.
3. Do I have an IRA?
Don't have a job with a retirement plan? Not a problem. If you (or a spouse when you file taxes jointly) have some amount of earned income, you can contribute to a traditional or a Roth IRA. Even if you contribute to a retirement plan at work, you can still max out an IRA in the same year—which is a great way to use a cash windfall.
4. Do I have high-interest debt?
If you have expensive debt, such as credit cards or payday loans, paying them down is the next best way to spend extra money. Take the opportunity to use a windfall to get rid of high-interest debt and stay out of debt in the future.
5. Do I have other financial goals?
After you’ve built up your emergency fund, have money flowing into tax-advantaged retirement accounts, and are whittling down high-interest debt, start thinking about other financial goals. Do you want to buy a house? Go to graduate school? Send your kids to college?
How to manage a cash windfall
Review your financial situation at least once a year to make sure you’re still on track.
When it comes to managing extra money, always consider the big picture of your financial life and choose strategies that follow my PIP plan in order: prepare for the unexpected, invest for the future, and pay off high-interest debt.
Review your situation at least once a year to make sure you’re still on track. As your life changes, you may need more or less emergency money or insurance coverage.
When your income increases, take the opportunity to bump up your retirement contribution—even increasing it one percent per year can make a huge difference.
And here's another important quick and dirty tip: when you make more money, don't let your cost of living increase as well. If you earn more but maintain or even decrease your expenses, you'll be able to reach your financial goals faster.
Source: quickanddirtytips.com