5 Reasons to Start a Savings Account Today

5 Reasons to Start a Savings Account

Whether you have begun working or not, opening a savings account is one of the most important steps you can take toward becoming financially independent and achieving your dreams. Here are five good reasons why you should start a savings account today.

1. To Start Building Wealth

The road to financial freedom begins with a single dollar. Every dollar you can save is like adding a brick to the house you are building. And until you can accumulate sufficient amounts to invest in stocks and real estate, what could be a better place to park your hard-earned money than in a savings account? As the money sits in your account, it will earn interest and keep on growing for as long as you leave it there.

2. For Easy Accessibility

If you need easy access to your money, a savings account can give you just that. Keeping it at home is not a good idea because it may get stolen. On the other hand if you put all your money in investments, you won’t have any when you need it. Money saved in a savings account is easily accessible. You can withdraw it anytime you need it. Just make sure you understand your savings account’s terms — some accounts have a maximum number of times you can withdraw money from your savings account every month without a fee.

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3. To Help With Unexpected Expenses

Life is full of unexpected twists and turns. And when the unexpected happens, such as accidents, sickness or a furnace dying, you need money to pay for the unplanned bills. Having a savings account makes the money easily available to you. Thus, your savings account also serves as an emergency fund. To make sure that there will be sufficient funds to cover unexpected expenses, you should set aside three to six months of your income for emergencies. Having a substantial emergency fund can also help you stay out of debt, or at least reduce the amount you would need to put on a credit card in an emergency. Using too much of your available credit can have a negative impact on your credit scores and, if you have so much credit card debt you can’t afford to make the payments, you will definitely hurt your credit (you can see what impact your credit use and payment histories currently have on your credit by checking your scores for free on Credit.com).

4. To Accumulate Capital for Investment

Investing in assets like stocks, exchange-trade funds and real estate is a great way to make sure that your money will grow sufficiently to beat inflation. But to make any meaningful investment, you need quite a large amount of capital. By putting money regularly into your savings account, you can build some significant savings in no time, which will allow your savings account to serve as a launching pad for your investments.

5. To Save Money for the Things You Have Always Wanted

Have you always dreamed of buying an expensive car or vacationing in an exotic destination? Opening a savings account is the first step towards achieving that dream. But to make your dream come true, it’s important to set aside some money every month. Once you have deposited the money into your savings account, it’s best not to touch it until you have saved up enough to meet your goal.

Once you have opened a savings account, one of the best ways to save some money is to automate your savings so you don’t have to remember to set aside money every time you get paid. There are many innovative and easy-to-use automated saving tools that can help you save automatically, and can make saving money almost as easy as spending it.

More Money-Saving Reads:

  • What’s a Good Credit Score?
  • What’s a Bad Credit Score?
  • How Credit Impacts Your Day-to-Day Life

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The post 5 Reasons to Start a Savings Account Today appeared first on Credit.com.

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How to Maximize Credit Card Rewards and Earn Cash and Perks

If you’re looking for ways to put some extra cash in your pocket, make sure to take advantage of credit card rewards programs.

Credit card companies and banks make some of their money from the merchant interchange fees that are charged when you use your card.

As an incentive for you to use their cards, many credit card issuers pass some of those funds on to the consumer in the form of credit card rewards.

If you have good credit and the ability and discipline to pay off your credit cards in full each month, you should try to maximize your credit card rewards. Otherwise you may be leaving a lot of money on the table.

But it can be challenging to navigate the world of credit card rewards. Hundreds, if not thousands, of different credit cards exist, and the type and amount of rewards vary with each card.

There are three main kinds of rewards card offers available:

  • Bank and credit card points: Chase Ultimate Rewards, American Express Membership Rewards, etc.
  • Airline miles and hotel points: Delta SkyMiles, Hilton Honors points, etc.
  • Cash back: Straight cash that can be redeemed either as statement credits or checks mailed to you.

How to Maximize Your Credit Card Rewards

You have three different ways to maximize any credit card rewards program:

  • The sign-up bonus or welcome offer: Many cards offer a large number of miles or points as a welcome bonus for signing up and using the card to make purchases totaling a specific amount within a specified time period.
  • Rewards for spending: Most rewards credit cards offer between one and five points for every dollar you spend on the card. Some cards offer the same rewards on every purchase, while others offer a greater reward for buying certain products.
  • Perks: Simply having certain credit cards can get you perks like free checked bags on certain airlines, hotel elite status or membership with airline lounge clubs and other retail partners.

Usually, the rewards for signing up are much higher than the rewards you get from ongoing spending, so you may want to pursue sign-up bonuses on multiple credit cards as a way of racking up rewards.

Consider a card like the Chase Sapphire Preferred, where you can get 60,000 Ultimate Rewards points for spending $4,000 in the first three months of having the card. That means that while you’re meeting that minimum spending requirement, you’re earning 15 Ultimate Rewards points per dollar. Compare that to the one or two points you’ll earn with each dollar of spending after meeting the minimum spending. You can see the difference.

Other than getting the welcome bonus offers for signing up for new credit cards, another great way to maximize your rewards is by paying attention to bonus categories on your cards. Some cards offer a flat 1 or 2 points for every dollar you spend.

How Applying for Credit Cards Affects Your Credit Score

It’s important to be aware of how applying for new credit cards affects your credit score.

Your credit score consists of five factors, and one of the largest factors is your credit utilization.

Credit utilization is the percentage of your total available credit that you’re currently using. If you have one credit card with a $10,000 credit limit and you charge $2,000 to that card, then your utilization percentage is 20%. But if you have 10 different cards, each with $10,000 credit limits, then that your credit utilization percentage is only 2%.

Since a lower credit utilization is better, having multiple credit cards can actually help this part of your credit score.

New credit — how recently you’ve applied for new credit cards — accounts for about 10% of your credit score. When you apply for a new credit card, your credit score usually will dip 3-5 points. However, if you’re conscientious with your credit card usage, your score will come back up in a few months.

What to Watch Out for When Using Credit Card Rewards

While it’s true that careful use of credit cards can be a boon, you should watch out for pitfalls.

The first thing is to make sure that you have the financial ability, discipline and organization to manage all of your credit cards. Missing payments and paying credit card interest and fees will quickly sap up any rewards you might earn.

Another thing to be aware of is the psychology of credit card rewards. It can be easy to justify additional spending because you’re getting rewards or cash back, but remember that buying something that you don’t need in order to get 2% cash back is a waste of 98% of your money.

Pro Tip

Credit card rewards are alluring, but what do they really cost? Here’s what you should know about the dark side of credit card rewards.

The Best Credit Cards to Get Started

Before signing up for a new credit card, it’s best to pay off your existing cards first — otherwise the fees and interest will quickly outweigh any rewards you earn.

If you’re ready to start shopping rewards offers, here are five credit cards to consider. Note that these introductory offers are subject to change:

  • Chase Sapphire Preferred – The Sapphire Preferred card earns valuable Chase Ultimate Rewards and currently offers 60,000 Ultimate Rewards if you spend $4,000 in the first three months. It comes with a $95 annual fee.
  • Capital One Venture Rewards – The Capital One Venture Rewards is offering 100,000 Venture miles, which can be used on any airline or at any hotel. It also comes with a $95 annual fee.
  • Barclays American AAdvantage Aviator Red – With the AAdvantage Aviator Red card, you’ll get 50,000 American Airlines miles after paying the $99 annual fee and making only one purchase.
  • American Express Hilton Honors – If you’re looking for a hotel card, consider the no-fee Hilton Honors card, which comes with a signup bonus of 80,000 Hilton Honors points after spending $1,000 in three months. There is no annual fee.
  • Bank of America Premium Rewards – The Bank of America Premium Rewards card comes with a bonus of 50,000 Preferred Rewards points (worth $500) after spending $3,000 in the first three months. The card has a $95 annual fee.
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The Bottom Line

The best credit card is the one that gets you the rewards that help you do what is most important to you.

If you’re looking to maximize travel credit, then pick an upcoming trip and figure out what airline miles and hotel chain points you’ll need. Then pick the credit cards that give those miles and points. If you want to maximize your cash back, look for a card with a good signup bonus that either offers cash back or bank points that can be converted into cash.

Dan Miller is a contributor to The Penny Hoarder.

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

5 Online Learning Platforms to Help Bolster your Resume

Being a lifelong learner is one of the best ways to stay engaged in your job, whatever field you’re in.

There are a lot of ways to exemplify curiosity and a penchant for learning new skills: meeting regularly with your boss, attending professional development days and taking classes to hone a professional skill.

It has become more accessible and easier than ever to take courses to elevate your professional expertise. There are endless online resources to peruse, so it helps to be deliberate before diving in.

Julia Quirk, SPHR, a 10-year veteran of the HR industry and senior HR manager for TriSalus, recommends being practical and strategic about honing your professional talents.

“Look at the skills needed for your industry and the jobs you’re interested in,” said Quirk. “I recommend starting by first doing some research about what will actually be impressive to people in your career field, and then seeking out professional education opportunities from there.”

Quirk noted that digital classes and certifications are some of the best ways to boost your resume and grow in your current position. Here are some of her topic picks for online learning platforms.

1. Coursera

Coursera works with over 200 leading institutions and companies worldwide to provide courses on topics ranging from data science to personal improvement. Partners like Yale University, IBM and Google provide outlines for more than 3,900 courses.

Coursera is free to join and nearly all of its courses can be accessed at no cost. The catch here is that to take a course for free, you’ll be using the “audit” function, which means no grade and sometimes no official certificate is offered — but all the knowledge and coursework is. Some classes on Coursera are paid-only and will generally set you back about $50 per month.

Coursera also gives you the opportunity to see how a particular course benefited other students, breaking down what percentage of past students either started a new career after taking a course or got a tangible career benefit from it.

2. Google Skillshop

Google Skillshop is one of the classic online learning platforms. The technology behind Google Ads, Google Analytics and more is powerful, and mastering it can benefit nearly any line of work.

Google Skillshop provides learn-at-your-own-pace courses to help you become an expert in Google Ads, Google Analytics, Google Marketing Platform, Google My Business, Google Ad Manager, Google AdMob, Authorized Buyers, and Waze. All courses in the skillshop are free.

Most options are videos, slides and quick quizzes that build into a final assessment. A certificate is awarded to passing students and is usually valid for 12 months.

3. LinkedIn Learning

LinkedIn Learning (formerly Lynda.com) offers a free one-month trial before charging $30 a month as part of a larger LinkedIn Premium subscription.

LinkedIn Learning provides thousands of programs covering topics such as marketing tactics, mobile app development and how to use Photoshop. The courses are generally self-paced, with a LinkedIn Learning certificate awarded on completion that you can display on your LinkedIn profile.

And, with LinkedIn Learning, the classes are taught by top leaders from diverse backgrounds: Guy Kawasaki, Ben Long and David Rivers are just some of the highlights.

4. Online College Courses

One of the good things to come out of 2020 was the abundance of college courses made available for free online. While some universities have always offered a select few classes for no-cost online access, institutions like Yale and MIT expanded their libraries last year.

MIT offers free online programming not just on computer science, but also biology, race and ethics, accounting and more.

Yale also makes numerous introductory classes accessible to anyone with an internet connection. Last year, Yale made one of its most famous courses, the Science of Well-Being, available for free on Coursera. This class dives into the meaning of happiness.

Stanford is another university offering public access to many of its courses for free. The university breaks down its offerings into four main categories: Health and Medicine, Education, Engineering and Arts and Humanities.

It’s important to note that very few of these courses offer an official completion certificate or degree, but they’re still impressive to complete and are a strong addition to a resume. Other prestigious institutions like Harvard and Dartmouth also offer free online classes.

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5. Udemy

Udemy is an online learning platform specifically designed to help you bolster your professional skills. Although Udemy courses can range from $10 to $200, one resourceful way to access these classes is through your public library.

Hundreds of public libraries across the nation offer Udemy courses for no cost with just a library card. And if your public library doesn’t have a connection with Udemy, you may be able to get a digital library card elsewhere and still take part in all that Udemy has to offer.

Udemy offers more than 130,000 classes (boasting the world’s largest selection of courses) on topics like Python coding, piano playing and digital marketing.

When a course is complete, the student receives a digital badge and certificate they can affix to their LinkedIn profile (and that should be included on their hardcopy resume, too).

Shine a Spotlight on Your New Skills

Quirk offered some final advice about positioning these certificates and course completions on your resume: “Recruiters skim really fast,” she said. “Make it as easy as possible for recruiters to see the skills you have so they can line them up with the job description.”

Be sure to use keywords on your resume so screening software doesn’t pass you over.

Quirk advised putting the skills you gain from a course in the top part of your resume, but putting the actual course certifications lower down along with any other educational achievements.

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

I Dropped Out of College: My Student Loan Repayment Options

No one intends to drop out of college. If you show up to campus for your freshman year, chances are you plan to graduate in four years and use your degree to land a job. Maybe you even have the whole thing mapped out, step-by-step.

But then life happens. Whether it’s a family emergency, deteriorating health, stress burnout, or just the realization that college isn’t the right choice, plenty of people choose to drop out of their university every year. The problem is, your student loans don’t go away just because you never ended up with a degree.

So how should someone in this position approach student loan repayment? Are there any unique considerations to take into account? Here’s what you need to know.

Choose an Income-Based Repayment Plan

If you have federal student loans, you’re eligible for the same repayment options available to borrowers with a degree.

You may currently be on the standard 10-year repayment plan, which will have the highest monthly payments and the lowest total interest. You have the option of switching to a less expensive option if you’re struggling with those payments. Use the official repayment calculator to see which plan lets you pay the least.

When you choose an extended, income-based, or graduated repayment plan, you’ll pay more interest overall than if you stuck with the standard plan. If you’re not working toward a specific forgiveness program, then it’s best to switch back to the standard plan as soon as you can afford it to minimize the interest.

Refinance Private Loans

Private student loans have fewer income-based repayment options than federal loans, and they rarely offer deferment or forbearance options. But you can refinance private loans for a lower interest rate, even if you dropped out.

There are a few lenders that service borrowers with uncompleted degrees.

These may include:

  • MEF
  • RISLA Student Loan Refinance
  • EDvestinU
  • PNC
  • Wells Fargo
  • Purefy
  • Discover Bank
  • Advance Education Loan
  • Citizens Bank

To be a good candidate for a student loan refinance, you must have a high credit score and no recent bankruptcies or defaults on your credit report. You also need a low debt-to-income ratio, and some lenders may have income requirements.

Financial aid expert Mark Kantrowitz of SavingforCollege.com said borrowers are unlikely to be good refinance candidates immediately after college because lenders usually require a minimum amount of full-time employment.

If you dropped out recently, you may want to wait a year before trying to refinance private loans. During that time, check your credit score through Mint, pay all your bills on time, avoid opening new loans or lines of credit, and pay your credit card bill in full every month.

Explore Deferment and Forbearance

Once you leave school, you’re eligible for a six-month grace period where federal student loan payments are put on hold. You won’t accrue interest during this time if you have subsidized loans, but you will if you have unsubsidized loans.

If you still need more time after the grace period has expired, you can apply for deferment or forbearance. Borrowers have to apply for deferment and forbearance manually and wait to be approved.

Deferment and forbearance are both federal programs that let borrowers avoid paying their student loans while still remaining current. The main difference between the two options is that interest will not accrue on your loan balance during deferment, but it will accrue during forbearance. For that reason, it’s harder to qualify for deferment.

Be careful about putting your loans in deferment or forbearance for a long time. The interest that accrues will capitalize, meaning it will be added to your loan’s principal. This will increase your total monthly payments and could delay your debt payoff timeline.

Apply for Public Service Loan Forgiveness

Public Service Loan Forgiveness (PSLF) is a program that encourages borrowers to choose a non-profit or government job. In exchange, your remaining loan balance will be forgiven after 10 year’s worth of payments, which do not have to be consecutive. It’s even available to borrowers who dropped out and never finished a degree.

“PSLF is always an option because it’s employer-dependent,” said student loan lawyer Joshua R. I. Cohen.

PSLF is only available for federal loans, and only those loans that are part of the Direct Loan Program. If you have FFEL or Perkins loans, you’ll have to consolidate them as part of the Direct Consolidation Program. This process will render them eligible for PSLF.

Be sure not to consolidate loans that are already part of the Direct Loan Program. If you’ve already been making payments, consolidating loans will restart the clock on PSLF, and you could lose credit for eligible payments you’ve already made.

The employer you work for must also be an eligible non-profit or government entity. Only full-time employees qualify for PSLF, which excludes part-time workers and independent contractors.

To be eligible for PSLF, you should fill out the employment certification form every year. This form asks for your employer’s contact information, your employment status, and more.

Once you submit the form, you should receive a notice verifying your employer and how many eligible payments you’ve made. Doing this every year will make it easier when you apply for forgiveness after your 120 payments have been made.

“It also gives borrowers an opportunity to dispute any errors or undercounts well before they reach eligibility for loan forgiveness, giving them plenty of time to address disputes,” said student loan lawyer Adam S. Minsky.

Borrowers can save money while working toward PSLF by choosing an income-based repayment plan instead of the standard 10-year plan. They also won’t owe taxes on the forgiven amount, so it’s best to choose the least expensive monthly option.

Try to Discharge Your Loans

If you couldn’t complete college because the department you were studying in closed, or your school committed fraud, you may be a good candidate for discharging your student loans completely. If this happened to you, contact a student loan lawyer who can help you file a case.

 

The post I Dropped Out of College: My Student Loan Repayment Options appeared first on MintLife Blog.

Source: mint.intuit.com

How to Pay Off Credit Card Debt Faster

I've received several questions from Money Girl podcast listeners about paying off credit card debt. It's a fundamental goal because carrying card balances come with high interest, a waste of your financial resources. Instead of paying money to card companies, it's time to use it to build wealth for yourself.

7 Strategies to Pay Off Credit Card Debt Faster

1. Stop making new card charges

If you're carrying card balances from month-to-month, it's essential to understand what it costs you. As interest accrues, it can double or triple the original cost of a charged item, depending on how long it takes you to pay off.

The first step to improving any area of your life is to acknowledge your mistakes, and financing a lifestyle you can't afford using a credit card is a biggie. So, stop making new charges until you take control of your cards and can pay them off in full each month.

As interest accrues, it can double or triple the original cost of a charged item, depending on how long it takes you to pay off.

Yes, reining in your card spending will probably require sacrifices. Consider ways to earn extra income, such as starting a side gig, finding a better-paying job, or selling your unused stuff. Also, look for ways to cut costs by downsizing your home, vehicle, memberships, or unnecessary expenses.

2. Consider your big financial picture

Before you decide to pay off credit card debt aggressively, look at the "big picture" of your financial life. Consider any other debts or obligations you should prioritize, such as a tax delinquency, legal judgment, or unpaid child support. The next debts to pay off are those already in default or turned over to a collection agency.

In many cases, not having a cash reserve is why people get into credit card debt in the first place.

Assuming you don't have any debts in default, focus your attention on your emergency fund … or lack of one! I recommend maintaining a minimum of six months' worth of your living expenses on hand. In many cases, not having a cash reserve is why people get into credit card debt in the first place.

3. Make more than the minimum payment

Many people who can pay more than their monthly minimum card payment don't do it. The problem is that minimums go mostly toward interest and don't reduce your balance significantly.

For example, let's assume your card charges 15% APR, you have a $5,000 balance, and you never make another purchase on the card. If your minimum payment is 4% of your card balance, it will take you 10½ years to pay off. And here's the worst part—you'd have paid almost $2,400 in interest!

4. Target debts with the highest interest rates first

Make a list of all your debts, including credit cards, lines of credit, and loans. Include your balances owed and interest rates charged. Then rank your liabilities in order of highest to lowest interest rate.

Getting rid of the highest interest debts first saves you the most.

Remember that the higher a debt's interest rate, the more it costs you in interest per dollar of debt. So, getting rid of the highest interest debts first saves you the most. Then you can use the savings to pay more on your next highest interest debt and so on.

If you have several credit cards, evaluate them the same way—tackle them in order of highest to lowest interest rate to get the most bang for your buck. And if a credit card isn't the most expensive debt you have, make it a lower priority.

In general, debts that come with a tax deduction such as mortgages, home equity lines of credit, and student loans, should be paid off last. Not only do those types of debt have relatively low interest rates, but when some or all of the interest is tax-deductible, they cost you even less on an after-tax basis.

5. Use your assets to pay off cards

If you have assets such as savings and non-retirement investments that you could use to pay down high-interest credit cards, it may make sense. Just remember that you still need a healthy cash reserve, such as six months' worth of living expenses.

If you don't have any or enough emergency money saved, don't dip into your savings to pay off credit card debt. Also, consider what you could sell—such as unused sporting goods, jewelry, or a vehicle—to raise cash and increase your financial cushion.

6. Consider using a balance transfer card

If you can’t pay off credit card debt using existing assets, consider optimizing it by moving it from higher- to lower-interest options. That won’t make your debt disappear, but it will reduce the amount of interest you pay.

Balance transfers won’t make your debt disappear, but they will reduce the amount of interest you pay.

Using a balance transfer credit card is a common way to optimize debt temporarily. You receive a promotional offer during a set period if you move debt to the account. By transferring higher-interest debt to a lower- or zero-interest card, you save money and use it to pay down the balance faster.

7. Consolidate your high-rate balances

I received a question from Sarah F., who says, “I love your podcast and turn to it for a lot of my financial questions. I have credit card debt and am wondering if it’s a good idea to get a personal loan to pay it down, or is that a scam?”

And Rachel K. says, "I love listening to your podcasts and am focused on becoming more financially fit this year. I have a couple of credit cards with high interest rates. Would it be wise for me to consolidate them to a lower interest rate? If so, will it hurt my credit?" 

Depending on the terms you’re offered, using a personal loan can be an excellent way to reduce interest and get out of debt faster.

Thanks to Sarah and Rachel for your questions. Consolidating credit card debt using a personal loan is not a scam but a legitimate way to shift debt to a lower interest rate.

Having an additional loan added to your credit history helps you build credit if you make payments on time. It also works in your favor by reducing your credit utilization ratio when you reduce your credit card debt.

If you qualify for a low-rate personal loan, here are some benefits you get from debt consolidation:

  • Cutting your interest expense
  • Getting a fixed rate and term (such as 6% APR for 60 months with monthly payments of $600)
  • Having one monthly debt payment
  • Building credit

A couple of downsides of using a personal loan to consolidate debt include:

  • Being tempted to continue making credit card charges
  • Having potentially higher monthly loan payments (compared to minimum credit card payments)

While it may seem counterintuitive to use new debt to get out of old debt, it all comes down to the interest rate. Depending on the terms you’re offered, using a personal loan can be an excellent way to reduce interest and get out of debt faster.

What should you do after paying off a credit card?

Credit cards come with many benefits, such as purchase protection, convenience, and rewards. Don't forget that they're also powerful tools for building credit when used responsibly. If maintaining good credit is one of your goals, I recommend that you keep a paid-off card open instead of canceling it.

You don't need to carry a balance from month to month or pay interest on a credit card to build excellent credit.

To maintain or improve your credit, you must have credit accounts open in your name, and you must use them regularly. Making small purchases charges from time to time that you pay off in full and on time is enough to add positive data to your credit reports. You don't need to carry a balance from month to month or pay interest on a credit card to build excellent credit.

To learn more about building credit and getting out of debt, check out Laura’s best-selling online classes:

  • Build Better Credit—The Ultimate Credit Score Repair Guide
  • Get Out of Debt Fast—A Proven Plan to Stay Debt-Free Forever

Source: quickanddirtytips.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 can’t afford to pay to fix it today, you’re not alone. Most people don’t 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.

Don’t know how to get there? Having a budget (that you actually stick to) can help you get there. Here’s 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 you’ve probably heard us talk about it before if you’re a regular TPH reader. There are no fancy spreadsheets or pricy apps to download (unless you want to), and it’s very straightforward.

Here’s how it shakes out: 50% of your monthly take home income goes to your essentials — 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 don’t 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

You’re 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, when’s the last time you checked car insurance prices?

You should shop your options every six months or so — it could save you some serious money. Let’s be real, though. It’s probably not the first thing you think about when you wake up. But it doesn’t 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 it’ll 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, you’d probably laugh. It’s too good to be true, right? But we’re 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 won’t make you rich, but it’s possible to get up to $225 per month watching these videos. It’s already paid its users more than $56 million.

It takes about one minute to sign up, and you’ll 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 — not to mention the hundreds (or thousands) of dollars you’re 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. It’s getting rich by ripping you off with high interest rates — 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? You’ll be left with one bill to pay each month. And because personal loans have lower interest rates (AmOne rates start at 3.49% APR), you’ll 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 don’t worry — they won’t spam you with phone calls.

5. Get a Side Gig And Make More Money

Let’s face it — if your monthly income is less than what your monthly expenses are (and you’ve 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 we’re 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 “Gig Economy”. 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

What You Need to Know About Filing Taxes Jointly

couple filing taxes jointly

As a married couple, you and your spouse have the option of filing taxes jointly or separately. The IRS does encourage you to file your income tax returns jointly by providing a host of resources and incentives to do so. There are a lot of advantages to filing taxes jointly. However, there are also some instances where doing so might not be the best idea for your circumstances. Here are some things to know about filing taxes jointly and what it means for your finances.

What Does Filing Taxes Jointly Mean?

The IRS allows you to file taxes jointly as a married couple if you are married by the final day of the tax year-the 31st of December. Even if you are in the process of divorcing but haven’t finalized it by December 31st, you’re still considered married.

As a married couple filing under the “Married Filing Jointly” status, both of you can record:

  • Both your incomes
  • Each of your exemptions
  • Each of your deductions

Experts agree that filing your taxes jointly only works if one of you has a significantly higher income. However, if both of you work and have itemized deductions that are both large and unequal, then it may be a better idea to file separately.

However, the IRS considers you unmarried if the following conditions apply to your union:

  • You and your spouse lived apart from each other for at least the last six months of the year-business trips, military service, school and medical care are not taken into consideration.
  • You were the primary shelter provider for your dependents for at least the last six months of the year.
  • You paid over half the cost of upkeep for your home in the last six months of the year.

Whenever you choose to file your income taxes jointly, you need to realize that both of you are legally responsible for both the taxes and returns. If one of you understates the taxes due or tries to trick the system, then both of you are held liable for the penalties that are incurred. That is, unless one of you can prove that he/she wasn’t aware of what the husband/wife was doing and did not benefit in any way from the deceit. Proving this can be difficult because your finances are intertwined.

Tax law is tricky. If you and your spouse are having a difficult time determining your tax liability, it would be best to talk to an experienced tax preparer to ensure that you file your income tax return correctly. Whenever you file your taxes under married filing jointly, both of you will use the same tax return to report your income, credits, exemptions and tax deductions.

What Kind of Tax Credits Are Available for People Who File Jointly?

Several advantages come with filing taxes jointly. Primarily, these advantages come in the form of tax credits for couples who choose to file jointly. Some available tax credits include:

Earned Income Tax Credit

The Earned Income Tax Credit is one of the most substantial credits you can get from filing jointly. Generally speaking, this tax credit offsets some of your Social Security taxes. Your eligibility as well as the amount of credit is determined by your gross income, investment income and earned income. Here are some of the associated eligibility terms:

  • You have to be at least 25 years old but younger than 65 years.
  • Both of you must have valid Social Security numbers.
  • Both of you must have lived in the country for more than six months.

If you are married but decide to file separately, you don’t qualify for this credit.

American Opportunity Tax Credit

Formerly known as the Hope Credit, the American Opportunity Tax Credit helps families pay for four years of post-high school education. As a married couple filing jointly, the full American Opportunity Tax Credit is available if your adjusted gross income is $160,000 or less. The students in question must be enrolled for at least half-time and be in the school for at least one academic year. The best part is that this credit is offered on a per-student basis.

Lifetime Learning Credit

Similar to the American Opportunity Tax Credit, the Lifetime Learning Credit was also set up to help pay for post-secondary education. The main difference is that the LLC is available for many years of post-secondary education as opposed to just the first four as is the case with the American Opportunity Tax Credit. As a married couple filing jointly, you could get up to $2,000 per-student if you make less than $114,000 jointly.

Child and Dependent Care Credit

If you have to pay for childcare for kids under 13 years of age, then the Child and Dependent Care Credit is there for you. The credit is also available if you’re caring for a spouse or a dependent who is either physically or mentally incapable of taking care of themselves. The credit gives you up to 35% of qualifying expenses.

Savers Tax Credit

Formerly known as the Retirements Savings Contribution, the Savers Tax Credit is available to you if you have a qualified investment retirement account such as a 401(k) and other specific retirement plans. When filing jointly, you can get up to $2,000 in credit.

The Pros and Cons of Filing Taxes Jointly

Typically, the benefits of filing jointly tend to outweigh the cons. Here are some advantages of filing taxes jointly:

  • You can use your spouse as a tax shelter and save money.
  • Your jobless spouse can have an IRA.
  • You can greatly benefit from the tax credits that come with filing jointly.
  • Filing together can take less time and cost you less.

As is the case with everything that has a positive side, filing jointly also has its negative side:

  • Both spouses are responsible for the returns.
  • Your refunds can be blocked if one of you has a garnishment for unpaid child support or loan.

How Filing Taxes Jointly Works for Same-Sex Marriage

The Treasury and the IRS announced that all legally married same-sex couples must adhere to the same rules and laws as married heterosexual couples. That means that you can either file taxes jointly or separately.

When it comes to income and gift and estate taxes, they’re be treated the same as any other couple filing a joint tax return. It also applies to their filing status, their exemptions, standard deduction, employee benefits, IRA contributions, and the earned income and child tax credits.

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The post What You Need to Know About Filing Taxes Jointly appeared first on Credit.com.

Source: credit.com

How to Avoid Paying Taxes on a Savings Bond

U.S. savings bondsSavings bonds can be a safe way to save money for the long term while earning interest. You might use savings bonds to help pay for your child’s college, for example, or to set aside money for your grandchildren. Once you redeem them, you can collect the face value of the bond along with any interest earned. It’s important to realize, however, that interest on savings bonds can be taxed. If you’re wondering, how you can avoid paying taxes on savings bonds there are a few things to keep in mind. Of course, one key thing to keep in mind is that a financial advisor can be immensely helpful in minimizing your taxes.

How Savings Bonds Work

Savings bonds are issued by the U.S. Treasury. The most common savings bonds issued are Series EE bonds. These electronically issued bonds earn interest if you hold them for 30 years. Depending on when you purchased Series EE bonds, they may earn either a fixed or variable interest rate.

You can buy up to $10,000 in savings bonds per year if you file taxes as a single person. The cap doubles to $20,000 for married couples who file a joint return. If you decide you want to use some or all of your tax refund money to purchase savings bonds, you can earmark an additional $5,000 for Series I bonds. These are paper bonds, not electronic ones.

When Do You Pay Taxes on Savings Bond Interest?

When you’ll have to pay taxes on Treasury-issued savings bonds typically depends on the type of bond involved and how long you hold the bond. The Treasury gives you two options:

  • Report interest each year and pay taxes on it annually
  • Defer reporting interest until you redeem the bonds or give up ownership of the bond and it’s reissued or the bond is no longer earning interest because it’s matured

According to the Treasury Department, it’s typical to defer reporting interest until you redeem bonds at maturity. With electronic Series EE bonds, the redemption process is automatic and interest is reported to the IRS. Interest earnings on bonds are reported on IRS Form 1099-INT.

It’s important to keep in mind that savings bond interest is subject to more than one type of tax. If you hold savings bonds and redeem them with interest earned, that interest is subject to federal income tax and federal gift taxes. You won’t pay state or local income tax on interest earnings but you may pay state or inheritance taxes if those apply where you live.

How Can I Avoid Paying Taxes on Savings Bonds?

Whether you have to pay taxes on savings bonds depends on who owns it. Generally, taxes are owed on interest earned if you’re the only bond owner or you use your own funds to buy a bond that you co-own with someone else.

If you buy a bond but someone else is named as its only owner, they would be responsible for the taxes due. When you co-own a bond with someone else and share in funding it, or if you live in a community property state, you’d also share responsibility for the taxes owed with your co-owner or spouse.

Use the Education Exclusion 

The word "TAX" spelled out with blocksWith that in mind, you have one option for avoiding taxes on savings bonds: the education exclusion. You can skip paying taxes on interest earned with Series EE and Series I savings bonds if you’re using the money to pay for qualified higher education costs. That includes expenses you pay for yourself, your spouse or a qualified dependent. Only certain qualified higher education costs are covered, including:

  • Tuition
  • Fees
  • Some books
  • Equipment, such as a computer

You can still use savings bonds to pay for other education expenses, such as room and board or activity fees, but you wouldn’t be able to avoid paying taxes on interest.

Additionally, there are a few other rules that apply when using savings bonds to pay for higher education:

  • Bonds must have been issued after 1989
  • Bond owners must have been at least 24 years of age at the time the bonds were issued
  • Education costs must be paid using bond funds in the year the bonds are redeemed
  • Funds can only be used to pay for expenses at a school that’s eligible to participate in federal student aid programs

If you’re married you and your spouse have to file a joint return to take advantage of the education exclusion. And any money from a savings bond redemption that doesn’t go toward higher education expenses can still be taxed at a prorated amount.

There are also income thresholds you need to observe. For 2020, single tax filers can earn up to $82,350 and benefit from the full exclusion. Married couples filing jointly can do so with up to $123,550 in income. Once your income passes those limits, the amount of interest you can exclude is reduced until it eventually phases out altogether.

Roll Savings Bonds Into a College Savings Account

Another strategy for how to avoid taxes on savings bond interest involves rolling the money into a college savings account. You can roll savings bonds into a 529 college savings plan or a Coverdell Education Savings Account (ESA) to avoid taxes.

There are some advantages to either approach. With a 529 college savings plan, you can continue saving money on a tax-advantaged basis for higher education. You won’t pay any taxes on money that’s withdrawn for qualified education expenses. And if you have multiple children, you can reassign the account to a different beneficiary if one child decides he or she doesn’t want to go to college or doesn’t use up all the money in the account.

Contributions to 529 college savings accounts aren’t tax-deductible at the federal level, though some states do allow you to deduct contributions. You don’t have to live in any particular state to invest in that state’s 529 and plans can have very generous lifetime contribution limits. Keep in mind that gift tax exclusion limits still apply to any money you add to a 529 on a yearly basis.

Coverdell ESAs have lower annual contribution limits, capped at $2,000 per child. You can only contribute to one of these accounts on behalf of a child up to their 18th birthday. Withdrawals are tax-free when the money is used for qualified education expenses. But you have to withdraw all the funds by age 30 to avoid a tax penalty.

The Bottom Line

A Patriot BondSavings bonds typically offer a lower rate of return compared to stocks, mutual funds or other higher-risk securities. But they can be a good savings option if you want something that can earn interest over the long term. Minimizing the taxes you pay on that interest may be possible if you have children and you plan to use some or all of your savings bonds to help pay for college. Talking to a tax professional can also help with finding other college tax savings strategies.

Tips for Investing

  • Consider talking to a financial advisor about the best ways to manage savings bonds in your portfolio. If you don’t have a financial advisor yet, finding one doesn’t have to be difficult. SmartAsset’s financial advisor matching tool can make it easy to connect with professional advisors locally in just minutes. If you’re ready, get started now.
  • Savings bonds purchased on behalf of grandchildren don’t receive the same tax treatment for higher education purposes. Generally, the education exclusion only applies if the grandparent is claiming a grandchild on their taxes as a dependent. If your parents are interested in helping pay for your child’s college expenses, you may encourage them to open a 529 college savings account instead, then roll the bonds into it to avoid paying taxes on interest earned.

Photo credit: ©iStock.com/JJ Gouin, ©iStock.com/stockstudioX, ©iStock.com/larryhw

The post How to Avoid Paying Taxes on a Savings Bond appeared first on SmartAsset Blog.

Source: smartasset.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 home’s 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, we’ll dive into some of the situations when a VA cash-out refinance might be a good fit — 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 — 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 you’ve paid off $50,000, you can get up to $50,000 back in cash, while also potentially lowering your mortgage rate.

Veterans aren’t 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 — 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 you’ll 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 it’s a good decision for many homeowners, refinancing isn’t the best option for everyone. You should only refinance if you can gain something from the new loan. When determining whether you’re benefitting from a cash-out refinance, it’s 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, they’ll need to supply their credit score. If your credit score is lower than it was when you first applied for your mortgage, then there’s a good chance that the refinance could increase your mortgage rate.

The clock restarts on your mortgage.

It’s also important to remember that a cash-out refinance restarts the clock on your mortgage — you’re opening up a new loan with new terms, likely 30-years. This means additional interest costs. Because of this, it’s 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, it’s worth investigating other funding options such as personal loans, specialized loans (like student loans or small business loans) or second mortgages.

Finally, if you’re using cash from a VA cash-out refinance to pay off credit card debt, it’s important to remember that you’re paying off unsecured debt with secured debt — 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 Mae’s Ocober 2020 Origination Report, interest rates for VA loans hovered at an average of 2.75% — 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 — 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 don’t need cash, there’s 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 you’re 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 you’re looking to lower your interest rate and monthly payment, don’t 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). That’s 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. It’s also a good option for Veterans with a non-VA loan requiring mortgage insurance. VA loans don’t 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:

  • You’ll 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.
  • You’ll need a credit check and income verification to verify that you’re able to make the new VA loan payments.
  • You’ll 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