What is revolving debt and how does it differ from installment debt?

The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

Revolving debt is any debt without a set loan amount for a specific amount of time. Revolving accounts have an established credit limit, but you don’t have to follow a payment schedule or pay a fixed minimum amount each month. 

Not all debts are created equal, and it’s important to understand how different types can affect your credit score. Two of the major debt types—revolving debt and installment debt—work in different ways, and learning the nuances of each can help you manage your debt and maintain a higher credit score. 

How revolving debt works

The most common form of revolving debt is a credit card. With revolving credit, you have an established line of credit that you can draw on as often as you need to, so long as you don’t go over your limit. Your credit limit is determined based on your income, assets and credit history. 

Here are the basics of revolving debt:

  • Instead of paying a fixed minimum payment each month, your payments are a percentage of how much you borrowed that month. This means your monthly payment rates can change. 
  • You aren’t obligated to pay off the entire balance each month, but you’ll be charged interest on whatever balance you still owe. Revolving credit—such as credit cards—often have high interest rates. 
  • As you pay down your balance, you can continue to borrow more until you reach your credit limit. For example, if you reach your credit limit of $300, a payment of $100 will immediately allow you to borrow an additional $100. 
Revolving debt doesn't obligate you to pay a set balance each month. Like a revolving door, you can borrow repeatedly until you reach your credit limit.

Types of revolving debt accounts

Some types of revolving debt are backed by your assets, while others are not. The most well-known form of revolving debt is a credit card, which is unsecured. A home equity line of credit is another form of revolving debt, which is secured by your home.

These are the most common examples of revolving debt:

Credit cards

A credit card allows you to use any available funds at any time, as long as you continue to make minimum payments and don’t go over your credit limit. Carrying a balance on a credit card subjects you to accruing interest rates, whereas paying in full by the due date listed on your statement allows you to avoid interest charges. 

Home equity lines of credit (HELOCs) 

HELOC funds are commonly used by homeowners who need to cover a large expense, such as a home remodel. How much you can borrow is based on the equity of your home, which also serves as collateral. You aren’t required to pay a specific balance each month, but making payments replenishes your available credit (similar to a credit card). 

The main difference between HELOCs and credit cards is that you can only access a HELOC during a defined amount of time, known as the “draw period.” It typically lasts around five to 10 years, after which the debt must be paid back during a “repayment” period and funds can no longer be withdrawn. A HELOC usually has far lower interest rates than a credit card, since it’s backed by an asset (your home). 

Personal lines of credit 

Very similar to a credit card, these are funds you can borrow as needed and repay immediately or over time. Personal lines of credit allow you to carry a balance that accrues interest as you continue to borrow. Interest rates are usually variable, so it’s tough to predict how much you’ll end up paying for what you borrow. 

Lines of credit usually allow you to withdraw money in the form of a check or cash. If you need cash, a personal line of credit can be the more affordable option due to the high fees associated with credit card cash withdrawals. It’s also possible to receive a higher credit limit with a personal line. 

Business lines of credit

Business lines of credit operate almost identically to personal lines of credit, except they’re used for business expenses. This type of revolving loan lets you access your funds as needed to finance continuous short-term purchases, such as inventory, equipment repair or filling in a gap in cash flow. 

common types of installment debt

How revolving debt and installment debt impact your credit

Revolving debt and installment debt both impact your credit score. Having a mix of different types of credit accounts is one way to build your credit score. Successfully managing multiple kinds of credit is a good indicator to lenders that you’re a responsible borrower. 

While late credit payments of any kind will always negatively impact your credit score, revolving debt in the form of credit cards can look riskier to lenders. This is because unlike installment credit, there’s no personal asset—like a house or a car—attached to it that can be repossessed if you don’t pay on time. 

How revolving debt affects your credit score 

Credit bureaus consider credit card debt to be one of the most reliable indicators of your risk as a borrower. Since lines of credit are one of the most common forms of revolving debt, it’s important to understand the ramifications it can have on your credit score.

Pay attention to these factors when managing revolving debt:

  • High credit utilization ratio: The higher risk attached to revolving credit is mainly due to its impact on your credit utilization ratio. Credit utilization is the amount you owe versus the amount you have available to borrow. Your credit score can drop if you’ve reached your credit limit on all your credit cards—the FICO® scoring method ranks credit utilization as the number two factor used to measure your credit score (right after your payment history). 
  • Number of open revolving accounts: There is no specific number of credit cards that is considered the right number, but lenders do take it into consideration along with your credit history. 
  • Age of open revolving accounts: The older your revolving credit accounts are, the greater the benefit to your credit score. A longer history of responsible credit management indicates less risk to lenders. 
The higher risk attached to revolving credit is mainly because of how it impacts your credit utilization score

How installment debt affects your credit score 

Installment debt is typically considered less risky than revolving debt since it’s secured by an asset that you wouldn’t want to lose—whether that’s a new home, your car or your college tuition. It’s also considered more stable, so it has lower interest rates and less of an impact on your credit score.

Here are a few ways installment debt impacts your credit: 

  • Credit mix: Since having a mix of different credit types can boost your credit score, adding installment debt into that mix will help you diversify if, for example, you’ve only ever built your credit by using credit cards. 
  • Payment history: If you faithfully pay your installment debt each month for the agreed upon loan term, your credit score can go up substantially. 
  • Credit utilization ratio: You can use installment debt like personal loans to pay off high balances on your credit cards. This can significantly benefit your credit score because by using an installment loan to immediately pay off credit card debt, your credit utilization ratio is instantly lowered. 
  • Hard inquiries: Shopping around for installment loans like mortgages and auto loans triggers hard inquiries that lower your credit score. 

Should I be carrying revolving debt?

While revolving credit can certainly improve your credit score, it requires careful attention in how you use it. If you have a habit of missing payments or using too much available credit, it might harm your score more than it would help it. It’s also possible for lenders to make a mistake and inaccurately report a missed payment on a revolving debt account. 

Here are some helpful questions to ask yourself if you’re thinking about building your credit with revolving debt:

  • Do I need to borrow a large sum of money quickly? While you can use revolving debt to finance a large expense, a key component of using revolving credit responsibly is keeping your credit utilization low. Your credit score can dip if you borrow too much too often, or if you’re close to reaching your maximum borrowing limit. It might make more sense to consider a personal loan with a fixed payment timeline instead. 
  • Will I make my payments on time? Payment history plays a crucial part in how your credit score is determined. If you can’t consistently pay for revolving debt on time every month, it might be best to avoid it for the sake of preserving your credit score. 
  • How is my current credit history? Even if you end up getting approved for a line of revolving credit, lenders could hit you with high interest rates if you don’t have a favorable credit history. 

The credit repair consultants at Lexington Law can help you remove questionable negative items that might be harming your credit score. Since revolving debt can have a significant impact on your score, make sure you address errors on your credit report as soon as possible. 

Source: lexingtonlaw.com

Using a Personal Cash Flow Statement

If you’re often surprised when you open up your credit card and bank statements and see how much money you spent, or you worry that your cash outflow may be exceeding your cash inflow, there could be a simple solution: A personal cash flow statement.

Creating a personal cash flow statement can give you a clear picture of your monthly cash inflow (money you earn) and your monthly cash outflow (money you spend) to determine if you have a positive or negative net cash flow.

And while it may sound intimidating, creating a personal cash flow statement is relatively simple. All you need to get started is to gather up your bank statements and bills for one month (or more). Then, it’s a matter of some basic calculations.

Once you have your personal financial statement, you’ll know where you currently stand. You’ll also be able to use your personal financial statement to help you create a budget and goals for increasing your net worth.

Here’s how to start getting your financial life back into balance.

What Is a Personal Cash Flow Statement?

“Cash flow” is a term commonly used by businesses to detail the amount of money flowing in and out of a company.

Companies can use cash flow statements to determine how well the company is generating cash to pay its debts and operating expenses.

Just like the ones used by companies, tracking your own cash flow can provide you with a snapshot of your financial condition.

You might learn, for example, that you have less leftover at the end of each month than you thought, or that you are indeed going backwards.

Once you have the numbers down in black and white, you can then make any needed changes, such as reducing costs and expenditures, increasing income, and making sure that your spending is in line with your goals.

So, how do you set up a personal finance cash flow statement?

It might seem overwhelming to get started, but these steps can simplify the process.

Listing all Your Sources of Income

A good first step when creating a personal cash flow statement is to get out all of your pay stubs, bank statements, credit card statements, and bills.

Next, you’ll want to start listing any and all sources of income–the inflow.

Cash inflows generally include: salaries, anything you make from side hustles, interest from savings accounts, income from a rental property, dividends from investments, and capital gains from the sale of financial securities like stocks and bonds.

Since a cash flow statement is designed to give a snapshot into the overall flow of where your money is coming from and where it is going, you might want to avoid listing money in accounts that aren’t available for spending.

For example, you may not want to list dividends and capital gains from investment accounts if they are being automatically reinvested, or are part of a retirement account from which you aren’t actively taking withdrawals.

Since income can vary from one month to the next, you might choose to tally inflow for the last three or six in order to come up with an average.

Once you’ve collected and listed all of your income for the month, you can then calculate the total inflow.

Listing all of Your Expenses

Now that you know how much money is coming in each month, you’ll want to use those same statements and bills, as well as any statements for any debts (such as mortgage, auto loan, or student loans) to list how much was spent during the month.

Again, if your spending tends to fluctuate quite a bit from month to month you may want to track it for several months and come up with an average.

To create a complete picture of how much of your money is flowing out each month, you’ll want to include necessities like food and gas, and also discretionary expenses, such as trips to the nail salon or your monthly streaming services.

Small expenses can add up quickly, so it’s wise to be precise.

Once you’ve compiled all of your expenses, you can calculate the total and come up with your total outflow for the month.

Determining Your Net Cash Flow

To calculate your net cash flow, all you need to do is subtract your monthly outflow from your monthly inflow. The result is your net cash flow.

A positive number means you have a surplus, while a negative means you have a deficit in your budget.

A positive cash flow is desirable, of course, since it can provide more flexibility, and can allow you to decide how to best use the surplus.

There are a variety of options. You could choose to save for an upcoming expense, make additional contributions to your retirement fund, create or add to an emergency fund, or, if your savings are in good shape, consider a splurging on something fun.

A negative cash flow can signal that you are living a more expensive life than your income can support. In the future, maintaining this habit could lead to additional debt.

It’s also possible to have net neutral cash flow (all money coming in and going out is fairly equal).

In that case, you may still want to jigger things around if you are not already putting the annual maximum into your retirement fund and/or you don’t have a comfortable emergency cushion.

The Difference Between a Personal Cash Flow Statement and a Budget

A personal cash flow statement provides a comprehensive look at what is currently coming in and going out of your bank accounts each month.

A cash flow statement tells you where you are.

A personal budget, on the other hand, helps you to get where you want to go by giving you a spending plan that is based on your income.

A budget can provide you with some general spending guidelines, such as how much you should spend on groceries, entertainment and clothing each month so that you don’t exceed your income–and end up with a negative net flow.

Creating a budget can also be a good opportunity to check in with your financial goals.

For example, are you on track for saving for retirement? Do you want to amp up your emergency fund?

Are you interested in tackling the credit card debt that has been spiraling due to high interest rates?

Perhaps you want to work toward paying off your student loans.

Whatever your goal, a well-crafted budget could serve as a roadmap to help you get there.

Using Your Personal Financial Statement to Create a Simple Budget

Because a cash flow statement provides a comprehensive look at your overall spending habits, it can be a great jumping off point to set up a simple budget.

When you’re ready to create a budget, there are a variety of resources online, from apps, like SoFi Relay®, to spreadsheet templates and printable worksheets .

A good first step in creating a budget is to organize all of your monthly expenses into categories.

Spending categories typically include necessities, such as rent or mortgage, transportation (like car expenses or public transportation costs), food, cell phone, healthcare/insurance, life insurance, childcare, and any debts (credit cards/ loans).

You’ll also need to list nonessential spending, such as cable television, streaming services, concert and movie tickets, restaurants, clothing, etc.

You may also want to include monthly contributions to a retirement plan and personal savings into the expense category as well.

And, if you don’t have emergency savings in place that could cover at least three to six months of living expenses, consider putting that on the spending list as well, so you can start putting some money towards it each month.

Once you have a sense of your monthly earnings and spending, you may want to see how your numbers line up with general budgeting guidelines. Financial counselors sometimes recommend the 50/30/20 model, which looks like this:

•  50% of money goes towards necessities such as a home, car, cell phone, or utility bills.
•  30% goes towards your wants, such as entertainment and dining out.
•  20% goes towards your savings goals, such as a retirement plan, a downpayment on a home, emergency fund, or investments.

Improving Your Net Cash Flow

If your net cash flow is not where you want it or, worse, dipping into negative territory, a budget can help bring these numbers into balance.

The key is to look closely at each one of your spending categories and see if you can find some ways to trim back.

The easiest way to change your spending habits is to trim some of your nonessential expenditures. If you’re paying for cable but mostly watch streaming services, for example, you could score some real savings by getting rid of that cable bill.

Not taking as many trips to the mall or cooking (instead of getting takeout) more often could start adding up to a big difference.

Living on a budget may also require looking at the bigger picture and finding places for more significant savings.

For example, maybe rent eats up 50% of your income and it’d be better to move to a less costly apartment. Or, you might want to consider trading in an expensive car lease for a less pricey or pre-owned model.

There may also be opportunities to lower some of your recurring expenses by finding a better deal or negotiating with your service providers.

You may also want to look into any ways you might be able to change the other side of the equation–the inflow.

Some options might include asking for a raise, or finding an additional income stream through some sort of side hustle.

The Takeaway

One of the most important steps towards achieving financial wellness is cash flow management–i.e., making sure that your cash outflow is not exceeding your cash inflow.

Creating a simple cash flow statement for yourself can be an extremely useful tool.

For one reason, it can show you exactly where you stand. For another, a personal cash flow statement can help you create a budget that can bring the inflow and outflow of money into a healthier balance.

Creating–and sticking with–a budget that creates a positive net cash flow, and also allows for monthly saving (for retirement, a future purchase, or a rainy day) can help you build financial security and future wealth.

If you need help with tracking your spending, a SoFi Money® cash management account may be a good option for you.

With SoFi Money, you can see your weekly spending on your dashboard, which can help you stay on top of your spending and make sure you are on track with your budget.

Check out everything a SoFi Money cash management account has to offer today!



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8 Ways to Use Synthetic Turf to Beautify your Yard

Choosing between installing artificial grass, also known as synthetic turf, and natural grass can be a difficult decision for some homeowners. While you may be drawn to natural grass for its feel and organic look, there are a number of benefits to choosing synthetic turf that may make you think twice. If you are too busy to upkeep your lawn, turf provides less maintenance and a longer lifespan compared to traditional grass. It’s also typically created from recycled materials, comes in a variety of textures and colors, and even has the potential to increase your home value.

In some locations, it might even make sense to install artificial grass over natural grass. For example, if you live in a city that has a hot and dry climate such as Las Vegas, NV or Austin, TX, having turf can prevent your lawn from wilting and dying due to the amount of sun those cities get annually. However, if you’re set on using natural grass for your lawn, there are still many creative and aesthetically pleasing ways to incorporate artificial grass into your lawn. Take a look at these 8 ideas on how you can work with an artificial grass company to beautify your yard.

1. Install a synthetic turf golf green 

Your short game is just as important as your long, so installing an artificial grass putting green is the perfect way to get some practice without leaving your home. Golf greens are easy to install and can be customizable. Typically, they are around 1,000-1,500 square feet. For best results, source out an area that is flat, has minimal bumps and extrusions, and gets just the right amount of sunlight. A local turf company can then help excavate, cut, and install the artificial grass and holes. Finished with the proper landscaping, golf greens can serve as a stunning backyard feature that is both aesthetic and fun for the whole family.

2. Build a dog area for play and potty time

If you own a dog and live in a small place like an apartment, having a synthetic turf potty pad for your dog can be a great solution. Typically, they are built with short bristles for cleaning and a drainage system to catch urine. Turf doggy mats are versatile in size and can fit on a sunroom, patio, terrace, or balcony. They are especially great for training puppies or older dogs with bad bladder control. When not in use, synthetic turf potty pads blend in to look like a patch of grass. Not to mention, it saves your real grass from developing brown spots.

If you have the outdoor space, you can use turf to create a play area for your pet. Pet-friendly synthetic turf is a great option if you are trying to keep your dog away from natural grass chemicals. Installing artificial grass for pets also helps prevent fleas and ticks, worrying about patches and brown spots, and digging unwanted holes. Give your dog the ability to roll around in the grass without the worry of getting sick.

3. Use synthetic turf walls and dividers for privacy 

Fences can be an eyesore. However, they are critical for privacy and to keep intruders out. Installing artificial grass fences or hedges is a great way to maintain privacy, while also elevating the look of your backyard by adding greenery. If you are looking for flexibility, some individual paneled artificial grass fences come on rollers that can be used to section certain parts of your yard if you are hosting a garden party or small get together.

4. Make an entertainment area for backyard hangouts 

Do you love to have people over for bonfires, casual wine nights, or backyard parties? Maybe you want to kick your feet up by the fire while you sip on a glass of wine. If you are worried about your feet suffering from uncomfortable surfaces, installing artificial grass around your bonfire pits and patio is a comfortable and stylish solution. Section off a small area, place patio furniture on top, and enjoy a relaxing hangout area on the turf.

5. Create an elegant driveway

For a touch of added elegance, use synthetic turf in between your driveway to bring in patterns and color to the exterior of your home. Real grass can become compact due to the weight of a car. Installing artificial grass between flagstones or concrete can make your driveway pop and always looks fresh.

6. Cover your outdoor furniture with synthetic turf

If you’re tired of boring patio furniture, a fun and unique way to include synthetic turf in your backyard is by purchasing turf-covered furniture. These pieces are designed for outdoor living, are low maintenance, and can be left outside year-round. They are a great way to blend nature with your home and can be designed to look good under a deck, gazebo, fire pit, or play area.

7. Design a multipurpose sports field

For the athlete looking for a way to get some practice in, installing an artificial grass sports field in a larger backyard can get you the training you need without having to go to the local park. Multipurpose sports fields can be used for soccer, lacrosse, or even spikeball whether you want to increase your skills or just get a friendly game in. 

8. Construct a playground 

When constructing your playground, safety will likely be top of mind. In that case, you’ll want to choose a surface that has some cushion to it and is free of chemicals. Synthetic turf is a great alternative to wood chips or gravel, as it has a soft texture and natural aesthetic feel. You can even include a shock pad underneath turf to reduce fall injuries. 

*Before attempting these projects, consult with a turf professional.

Source: redfin.com

You Should Never Buy These 12 Things New

Man with guitar
Luis Molinero / Shutterstock.com

Some things really are better the second time around.

In fact, many used items can be every bit as good as those purchased new. Plus, buying used almost always saves you cash.

So, without further ado, following is our list of the top things you should never buy new.

1. Timeshares

pbk-pg / Shutterstock.com

Don’t ever pay full price for a timeshare. Some people are practically giving them away because they’re so desperate to get out from under the annual fees.

As Money Talks News founder Stacy Johnson puts it in “Ask Stacy: How Can I Sell My Timeshare?“:

“I’d chop off my own foot with a dull ax before buying a timeshare, especially a new one from a developer.”

2. Basic tools

javitrapero.com / Shutterstock.com

If you are handy, you need a good set of tools. Buying tools used typically will save you money, and you might even end up with something that is better crafted than what you would find new today.

In fact, Money Talks News’ resident thrifting expert Kentin Waits cites tools in both “8 Things I Always Buy at Thrift Stores” and “7 Things You Should Buy at Estate Sales.”

If you aren’t handy, you might be able to check out tools from your local library when you do need them.

3. Cars

Driver with thumbs up
pathdoc / Shutterstock.com

We’ve talked about it time and time again: The value of a new car drops like a rock as soon as you drive it off the lot.

Rather than finding yourself upside-down on your car loan five minutes after signing the paperwork, look for a quality used car that has already taken the huge depreciation hit.

4. Books

TORWAISTUDIO / Shutterstock.com

We could take this category one step further and say you shouldn’t buy books at all. Many of us live near a public library system that can meet most of our reading needs.

However, we won’t go quite to that extreme. I personally enjoy having a well-stocked home library. I also realize that some books, such as college textbooks, have to be purchased. But that doesn’t mean you have to pay full price.

Check out “11 Places to Find Free E-Books,” or head to Amazon to find cheap used books, which are often as good as new.

5. Big toys like boats, motorcycles and RVs

Boating
freevideophotoagency / Shutterstock.com

That advice about buying a used car can apply to any type of vehicle.

Virtually anything with an engine — from off-road vehicles to yachts — will depreciate over time. So, in most cases, you’ll get more bang for your buck by purchasing used.

New boats, for example, depreciate quickly. So, even if you buy a vessel that’s just 1 year old, you stand to save a boatload.

6. Houses

sirtravelalot / Shutterstock.com

Your house is another big-ticket item that is better to buy used rather than new. Not only can you save money, but older homes also may have better “bones” than some new construction.

If you love the idea of new construction, remember that an existing home doesn’t necessarily have to be 50 years old. If you want an energy-efficient home with new amenities, you can probably find it at a lower price if you’re willing to be owner No. 2 or No. 3.

7. Movies and CDs

Monkey Business Images / Shutterstock.com

Many of the same places that sell used books also sell used DVDs, Blu-ray Discs and CDs. No need to spend money for a new disc when you can get a used one for less money online, at a garage sale or in the thrift shop.

Of course, there’s also your public library, where movies and music are free for the (temporary) taking and cheap when the library holds a sale.

8. Sports gear

Africa Studio / Shutterstock.com

Raise your hand if your kids have ever started a sport and quit after one season. I’m right there with you.

Instead of spending tons for new equipment, go to a specialty store like Play It Again Sports and buy used items. You can also scour garage sales, thrift stores and Craigslist for bargain finds.

Don’t forget to look for fitness equipment for yourself, too. Buying new weights and kettlebells, for example, doesn’t make sense if you can get used ones for a fraction of the price.

9. Musical instruments

Africa Studio / Shutterstock.com

Musical instruments are another parental purchase that could be money down the drain.

To avoid purchasing something overpriced or broken when buying used, consider spending a few dollars to have it appraised by a local music store. Or, better yet, buy a used item directly from a shop.

Renting an instrument is another option. However, keep in mind that renting a clarinet for three years could end up costing you more than if you purchased a used one in the first place.

10. Jewelry

Jasmin Awad / Shutterstock.com

Jewelry is also better bought used than new. Before buying off Craigslist or from a private seller, however, be sure to get an appraisal, particularly if a significant amount of money is involved.

You can also find quality used baubles by shopping for estate jewelry from jewelers or reputable pawn shops.

11. Gift cards

Gift cards
Iryna Tiumentseva / Shutterstock.com

Here’s one you probably haven’t thought about. Some people receive a gift card to a retailer they don’t like. Others use a portion of a gift card, but have no reason or desire to spend down the remaining balance.

You can find unwanted gift cards by going to a site like Raise. Buying “used” gift cards in this fashion can save you a bundle, as we detail in “How Unwanted Gift Cards Save Me Hundreds of Dollars a Year.”

12. Pets

Inna Astakhova / Shutterstock.com

Some of you might disagree, but there really is no reason to spend a lot of money on a brand-new pet from a breeder when plenty of preloved (or not so loved) animals need homes.

My local animal shelter and Humane Society regularly have free or almost-free adoption days, during which you can bring home everything from dogs and cats to bunnies and birds. Your local shelter might offer the same.

Unless you’re planning to show your pet, spending hundreds or even thousands on a purebred animal is probably not money well-spent. The $50 puppy from the pound is just as likely to smother you with wet kisses and stare at you with unbridled adoration.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Source: moneytalksnews.com

What is revolving debt and how does it differ from installment debt? – Lexington Law

The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

Revolving debt is any debt without a set loan amount for a specific amount of time. Revolving accounts have an established credit limit, but you don’t have to follow a payment schedule or pay a fixed minimum amount each month. 

Not all debts are created equal, and it’s important to understand how different types can affect your credit score. Two of the major debt types—revolving debt and installment debt—work in different ways, and learning the nuances of each can help you manage your debt and maintain a higher credit score. 

How revolving debt works

The most common form of revolving debt is a credit card. With revolving credit, you have an established line of credit that you can draw on as often as you need to, so long as you don’t go over your limit. Your credit limit is determined based on your income, assets and credit history. 

Here are the basics of revolving debt:

  • Instead of paying a fixed minimum payment each month, your payments are a percentage of how much you borrowed that month. This means your monthly payment rates can change. 
  • You aren’t obligated to pay off the entire balance each month, but you’ll be charged interest on whatever balance you still owe. Revolving credit—such as credit cards—often have high interest rates. 
  • As you pay down your balance, you can continue to borrow more until you reach your credit limit. For example, if you reach your credit limit of $300, a payment of $100 will immediately allow you to borrow an additional $100. 
Revolving debt doesn't obligate you to pay a set balance each month. Like a revolving door, you can borrow repeatedly until you reach your credit limit.

Types of revolving debt accounts

Some types of revolving debt are backed by your assets, while others are not. The most well-known form of revolving debt is a credit card, which is unsecured. A home equity line of credit is another form of revolving debt, which is secured by your home.

These are the most common examples of revolving debt:

Credit cards

A credit card allows you to use any available funds at any time, as long as you continue to make minimum payments and don’t go over your credit limit. Carrying a balance on a credit card subjects you to accruing interest rates, whereas paying in full by the due date listed on your statement allows you to avoid interest charges. 

Home equity lines of credit (HELOCs) 

HELOC funds are commonly used by homeowners who need to cover a large expense, such as a home remodel. How much you can borrow is based on the equity of your home, which also serves as collateral. You aren’t required to pay a specific balance each month, but making payments replenishes your available credit (similar to a credit card). 

The main difference between HELOCs and credit cards is that you can only access a HELOC during a defined amount of time, known as the “draw period.” It typically lasts around five to 10 years, after which the debt must be paid back during a “repayment” period and funds can no longer be withdrawn. A HELOC usually has far lower interest rates than a credit card, since it’s backed by an asset (your home). 

Personal lines of credit 

Very similar to a credit card, these are funds you can borrow as needed and repay immediately or over time. Personal lines of credit allow you to carry a balance that accrues interest as you continue to borrow. Interest rates are usually variable, so it’s tough to predict how much you’ll end up paying for what you borrow. 

Lines of credit usually allow you to withdraw money in the form of a check or cash. If you need cash, a personal line of credit can be the more affordable option due to the high fees associated with credit card cash withdrawals. It’s also possible to receive a higher credit limit with a personal line. 

Business lines of credit

Business lines of credit operate almost identically to personal lines of credit, except they’re used for business expenses. This type of revolving loan lets you access your funds as needed to finance continuous short-term purchases, such as inventory, equipment repair or filling in a gap in cash flow. 

common types of installment debt

How revolving debt and installment debt impact your credit

Revolving debt and installment debt both impact your credit score. Having a mix of different types of credit accounts is one way to build your credit score. Successfully managing multiple kinds of credit is a good indicator to lenders that you’re a responsible borrower. 

While late credit payments of any kind will always negatively impact your credit score, revolving debt in the form of credit cards can look riskier to lenders. This is because unlike installment credit, there’s no personal asset—like a house or a car—attached to it that can be repossessed if you don’t pay on time. 

How revolving debt affects your credit score 

Credit bureaus consider credit card debt to be one of the most reliable indicators of your risk as a borrower. Since lines of credit are one of the most common forms of revolving debt, it’s important to understand the ramifications it can have on your credit score.

Pay attention to these factors when managing revolving debt:

  • High credit utilization ratio: The higher risk attached to revolving credit is mainly due to its impact on your credit utilization ratio. Credit utilization is the amount you owe versus the amount you have available to borrow. Your credit score can drop if you’ve reached your credit limit on all your credit cards—the FICO® scoring method ranks credit utilization as the number two factor used to measure your credit score (right after your payment history). 
  • Number of open revolving accounts: There is no specific number of credit cards that is considered the right number, but lenders do take it into consideration along with your credit history. 
  • Age of open revolving accounts: The older your revolving credit accounts are, the greater the benefit to your credit score. A longer history of responsible credit management indicates less risk to lenders. 
The higher risk attached to revolving credit is mainly because of how it impacts your credit utilization score

How installment debt affects your credit score 

Installment debt is typically considered less risky than revolving debt since it’s secured by an asset that you wouldn’t want to lose—whether that’s a new home, your car or your college tuition. It’s also considered more stable, so it has lower interest rates and less of an impact on your credit score.

Here are a few ways installment debt impacts your credit: 

  • Credit mix: Since having a mix of different credit types can boost your credit score, adding installment debt into that mix will help you diversify if, for example, you’ve only ever built your credit by using credit cards. 
  • Payment history: If you faithfully pay your installment debt each month for the agreed upon loan term, your credit score can go up substantially. 
  • Credit utilization ratio: You can use installment debt like personal loans to pay off high balances on your credit cards. This can significantly benefit your credit score because by using an installment loan to immediately pay off credit card debt, your credit utilization ratio is instantly lowered. 
  • Hard inquiries: Shopping around for installment loans like mortgages and auto loans triggers hard inquiries that lower your credit score. 

Should I be carrying revolving debt?

While revolving credit can certainly improve your credit score, it requires careful attention in how you use it. If you have a habit of missing payments or using too much available credit, it might harm your score more than it would help it. It’s also possible for lenders to make a mistake and inaccurately report a missed payment on a revolving debt account. 

Here are some helpful questions to ask yourself if you’re thinking about building your credit with revolving debt:

  • Do I need to borrow a large sum of money quickly? While you can use revolving debt to finance a large expense, a key component of using revolving credit responsibly is keeping your credit utilization low. Your credit score can dip if you borrow too much too often, or if you’re close to reaching your maximum borrowing limit. It might make more sense to consider a personal loan with a fixed payment timeline instead. 
  • Will I make my payments on time? Payment history plays a crucial part in how your credit score is determined. If you can’t consistently pay for revolving debt on time every month, it might be best to avoid it for the sake of preserving your credit score. 
  • How is my current credit history? Even if you end up getting approved for a line of revolving credit, lenders could hit you with high interest rates if you don’t have a favorable credit history. 

The credit repair consultants at Lexington Law can help you remove questionable negative items that might be harming your credit score. Since revolving debt can have a significant impact on your score, make sure you address errors on your credit report as soon as possible. 

Source: lexingtonlaw.com

What Do HOA Fees Cover: Homeowners Association Expenses Explained

What is an HOA?

Are you confused about the meaning of an HOA? HOA is short for a homeowners association. Lots of people ask real estate agents how an HOA works and what purpose does it serve. Once they understand the purpose of a homeowners association they ask what the HOA fees cover.

An HOA is a group or organization in a neighborhood that makes and enforces rules and regulations for homes or condos for the benefit of its owners.

Buyers who purchase within an HOA become members and must pay association dues, known as HOA fees.

Before buying into an HOA, it is vital to understand the rules and regulations. You may find that some of the rules are not what you’ve been accustomed to. In fact, if the rules and regulations are overbearing, you could find yourself in the position of not wanting to live within the neighborhood.

On the other hand, you may love the thought of having guidance and uniformity. Some of the biggest advantages of living in an HOA are preserving and upkeep of the homeowners association’s homes and neighborhood.

One of the most common questions home buyers have is what do the HOA fees cover? Let’s take a deep dive into what you need to know about homeowners association expenses.

HOA Fees
How Do HOA Fees Work?

What Are HOA Fees?

Homeowners association fees are paid to maintain the common areas and shared spaces in your home and neighborhood. Being part of a homeowners association makes it a lot simpler to live in than having a home where you are responsible for all the maintenance.

So, if you have an expensive emergency in your house, you have to find the money to fix it. Where in the HOA, expenses are shared amongst everyone in the community.

An elected committee governs the HOA fees in your neighborhood. All of the expenses should be approved by those who reside within the community.

In larger HOAs, there is often a paid office team organizing contractors and paying bills. Other HOAs can be staffed by using outside contractors. Sometimes this can be a problem when work is not completed satisfactorily.

HOA costs depend on the neighborhood and type of project. It is not uncommon for HOA fees to range anywhere from a few hundred dollars up to $1000 in some luxurious settings.

Homeowners association fees are influenced heavily by what kind of perks are offered for living within the community. For example, neighborhoods that offer community pools, gyms, and tennis courts, naturally would cost more to maintain and operate.

However, a lower-cost townhouse without a pool, gym, or other amenities could be far less expensive. Costs can be as low as $100 per month in some locations around the country.

HOA expenses in a high-end city center may include concierge, spa, and gym, making them much more expensive to live in. You could potentially see fees as high as $3-$4 thousand per month. Think of the rich and famous.

How Are HOA Expenses Distributed?

If you live in an HOA within a condo or townhome complex, you may have underground parking, with a car space allocated to every apartment in the building. Part of the maintenance with this living style is security, as we all feel safer in a secure building.

Rubbish collection is another cost, as rubbish has to be taken down to the basement and removed from the building. Companies are often hired to fill this role.

The pool must be maintained, the ground manicured, plants pruned, and the gym equipment is cleaned. While these perks are probably the reasons you bought in, the cost can be a bit high for some retirees. Perks such as these are often standard in retirement communities. It is often a significant reason seniors downsize into a neighborhood that has an HOA.

Do Homeowners HOA Fees Go Up?

Of course, everything rises with inflation, and there will always be new projects or remedial work to be carried out on the homes and neighborhood.

Some HOAs schedule increments annually, so if you are preparing a five-year budget, you may want to factor in the cost. Doing so will be helpful to work out what your expenses will be projected at in the future.

It will be vital before buying to take a look at the homeowners association bylaws, rules, and regs, along with the latest financial state. You should make sure to have a contingency for document review in your offer.

What If You Can’t Pay The HOA Fees?

You can be fined or taken to court, and a lien could be placed on your property. It can also be embarrassing not to pay because, in committee meetings, they often have nonpaying homes as agenda items and discuss strategies to recover the funds.

HOA expenses are very much worth paying, as in most cases, you do get your money’s worth. Because there is power in numbers, you often get better value for money with more people paying to get the best deal for your HOA.

Before you move into a condo, townhouse, or home, check how your HOA fees will be apportioned, and make sure no special assessments are pending.

Special assessments would mean that you will have to come up with an extra lump sum to fix an unexpected expense. Nobody likes financial surprises, so it is essential to research any significant expenditures on the horizon.

How Do I Choose The Right HOA Neighborhood?

Form a working relationship with a high-profile local agent. Once they know what you are looking for, they will help you to find your perfect HOA.

The best buyer’s agents will know most communities in the town or area. Real Estate agents have their ears to the ground and often hear positive or negative things about a particular neighborhood and the accompanying homeowners association.

Moving into an HOA is a terrific idea when it is a well-oiled machine. Living within a homeowners association can make your life more simple, especially from a maintenance standpoint. If you’re the kind of person, who travels a lot, it really makes a lot of sense.

First-time home buyers who do business travel could find living in an HOA to be the perfect situation.

Final Thoughts on HOAs

In the area you are planning to live in, there hopefully will be a wide range of suitable HOAs to choose from. As long as you pick an HOA neighborhood that does not have strange bylaws or overbearing rules, you’ll probably enjoy the living situation.

The key is doing the proper due diligence. Without that, you could make a bad mistake that you’ll regret. Take the time and do the proper research. Hopefully, you have found this guide to HOAs to be useful. You should now know a bit more about what HOA fees cover.

Source: realtybiznews.com

The Pros and Cons of Working in Retirement

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Not long ago, the phrase “working in retirement” was an oxymoron, much like “bittersweet” or “act naturally.” After all, if you’re working, you’re by definition not retired.

But that was then. These days, working at least part-time while retired is increasingly common. According to one survey, 27% of pre-retirees said they planned to work part-time in retirement and among recent retirees, 19% work part-time.

Why so much working during retirement? More likely than not, because of money. As we explain in articles like “8 Reasons Your Parents Had an Easier Retirement Than You Will,” pensions are rapidly disappearing, replaced by much less reliable accounts like IRAs and 401(k)s. And as retiree income is falling, costs are rising.

On the plus side, however, while more retirees may be forced back into the workplace to make ends meet, there are more ways than ever to bring in a bit of extra bacon.

In short, in my parent’s generation, retirement meant not working at all. But for us boomers, retirement is morphing into something different. It’s not about doing nothing. Hopefully, it’s about being productive and making money, but by doing what you want to do, rather than what you have to do.

What kind of work will today’s (or tomorrow’s) retiree look forward to doing? Will it be easy to find pleasant, lucrative work? Should we start long before we retire?

In this week’s “Money” podcast, we’re going to find answers to these questions, as well as many more. Our guest is author and super-popular podcaster Paula Pant from Afford Anything. She’s smart, funny and knowledgeable — you’ll have a good time listening to her.

As usual, my co-host will be financial journalist Miranda Marquit, and we’re joined by our producer and sound effects guy, Aaron Freeman.

Sit back, relax and listen to this week’s “Money” podcast!

Not familiar with podcasts?

A podcast is basically a radio show you can listen to anytime, either by downloading it to your smartphone or other device, or by listening online.

They’re totally free. They can be any length (ours are typically about a half-hour), feature any number of people and cover any topic you can possibly think of. You can listen at home, in the car, while jogging or, if you’re like me, when riding your bike.

You can listen to our latest podcasts here or download them to your phone from any number of places, including Apple, Spotify, RadioPublic, Stitcher and RSS.

If you haven’t listened to a podcast yet, give it a try, then subscribe to ours. You’ll be glad you did!

Show notes

Want more information? Check out these resources:

About me

I founded Money Talks News in 1991. I’m a CPA, and have also earned licenses in stocks, commodities, options principal, mutual funds, life insurance, securities supervisor and real estate.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Source: moneytalksnews.com

Could You Give Up These 7 Expenses to Save Thousands of Dollars a Year?

A happy woman who struck it rich throws cash around
ViDI Studio / Shutterstock.com

If you’ve looked over your budget and think you can’t cut it down anymore, maybe you need to look a little harder.

There are probably some expenses you still could reduce — or drop altogether — to save thousands of dollars a year.

We found some examples of these costs. Here’s how to slash them if you are really determined. If you eliminated all of these expenses, you’d save a whopping amount — around $31,665 per year, based on averages.

But even by shaving off just 10% of these expenditures, you’d be around $3,167 richer by this time next year.

1. Rent

Nikodash / Shutterstock.com

The national average rent was $1,392 per month as of January, according to real estate research company Yardi Matrix. That’s $16,704 per year.

If you were to move somewhere the cost of living is lower, or bring in a roommate, you could cut your housing costs significantly.

And if you moved in with accommodating family members, you might be able to go rent-free, at least for a time.

If your home has an extra room, another option to offset housing costs is to rent that room to travelers. Try listing your spare space — or the entire home — on a vacation rental website like Airbnb, Homestay or Vrbo (short for “Vacation Rentals by Owner”). Read more in “Do This a Few Days Each Month and Watch Your Mortgage Disappear.”

Total annual savings if you could:

  • Give up the expense: $16,704 (based on the national average rent)
  • Reduce the expense by 10%: $1,670

2. Car payment

szefei / Shutterstock.com

The average monthly new-car loan payment was $568 as of last year, according to Edmunds. That’s $6,816 per year.

If you can, don’t buy a new car. Instead, opt for used vehicles. Cars are one of the first things cited in “You Should Never Buy These 12 Things New.”

Ideally, you would save enough money to buy a car outright instead of financing it, to avoid paying interest on the loan. If that’s not possible, at least try making a bigger down payment to lower your monthly car payment.

Getting rid of a personal vehicle and taking public transportation, walking or biking instead would be a major money-saving shift.

Or, depending on how much you drive, a ride-share service like Lyft or Uber might help you save money. You’d stand to also save on a car payment, insurance, gas and on the biggest auto expense of all, depreciation.

Total annual savings if you could:

  • Give up the expense: $6,816 (based on the average new-car loan payment)
  • Reduce the expense by 10%: $682

3. Cellphone

Man stares at cellphone
chainarong06 / Shutterstock.com

American households spent an average of $1,218 per year on cellular phone services as of 2019, the latest calendar year for which the Bureau of Labor Statistics has released consumer expenditure data.

You could cut costs by adding a few friends or family members to your plan, or by changing your plan.

Also see what you can save by comparison shopping among carriers using Money Talks News’ cellphone plan comparison tool.

If you don’t use your mobile phone a lot or are home enough to justify a landline, consider ditching your mobile service, or get a prepaid plan.

Total annual savings if you could:

  • Give up the expense: $1,218 (based on average household spending)
  • Reduce the expense by 10%: $122

4. Dining out

grocery shopper
mavo / Shutterstock.com

Sometimes you don’t feel like cooking, and that’s allowed. But let it be a habit, and it can cost a couple hundred bucks a month.

The average household in the U.S. spends $3,526 per year dining out, according to the Bureau of Labor Statistics. Cooking at home is much cheaper.

Reducing your restaurant spending can make a noticeable difference to your budget. Here are tips and tricks to help you shave costs: “12 Ways to Slice Your Next Restaurant Check in Half.”

Total annual savings if you could:

  • Give up the expense: $3,526 (based on average household spending)
  • Reduce the expense by 10%: $353

5. Cable

Minerva Studio / Shutterstock.com

If you haven’t cut the cord yet, you might want to consider it. The average household cable package costs about $217 per month as of 2020, according to DecisionData.org. That’s $2,604 per year.

Cutting the cord could cut that cost dramatically, with the many free and affordable alternatives to cable and satellite TV. “The 8 Best Money-Saving Cable Alternatives” gives pricing for some of the best TV alternatives.

Lowering your costs is great. Free is even better. For no-cost options, read about “15 Free Streaming Services to Watch While Stuck at Home.”

Total annual savings if you could:

  • Give up the expense: $2,604 (based on the average cable package)
  • Reduce the expense by 10%: $260

6. Gym membership

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If you’re a committed gym rat who gets your money’s worth from a monthly gym membership, more power to you.

But many of us sign gym contracts in a burst of enthusiasm and quit after a few months. The gym membership contract, however, can keep you making monthly payments, whether you use the facility or not.

While membership programs and costs vary, Healthline says memberships average $58 per month, or $696 per year.

Maybe the COVID-19 pandemic already has got you exercising on your own for free. If not, give it a try. Running or walking regularly and doing a strength-training program at home, for example, lets you eliminate gym fees entirely.

We have other ways to trim costs in “8 Smart Ways to Save on a Gym Membership.”

Total annual savings if you could:

  • Give up the expense: $696 (based on the average monthly gym fee)
  • Reduce the expense by 10%: $70

7. Movie tickets

Multiethnic movie happy audience clapping
Dean Drobot / Shutterstock.com

The cost of a movie ticket averaged $9.16 in 2019, according to the latest data from the National Association of Theater Owners. Prices have been creeping steadily up at least since 1969, when a movie ticket cost $1.42, on average.

Hoping to treat the family when the pandemic has passed? Ka-ching.

If you won’t give up the movie theater entirely, there are cheaper options. For example:

  • Attend matinees.
  • Take advantage of senior discounts.
  • Look into independent cinemas that charge less for films that were released earlier in the year.

Total annual savings if you could:

  • Give up the expense: $109.92 (based on the average movie ticket cost and assuming you’re seeing one movie in theaters per month)
  • Reduce the expense by 10%: $11

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Source: moneytalksnews.com