Why Is It Required to Have Car Insurance?

In 49 states in the United States, there is some form of compulsory insurance for motor vehicles. Many people ask, “Is car insurance required?” since it may not be immediately apparent if you see yourself as a good driver willing to pay for any potential damages to your car. The answer to “Why is car insurance mandatory?” lies in the type of car insurance. Perhaps you’re looking to why you need car insurance. There are both mandatory and optional coverages to consider.

In this article

Is car insurance mandatory in the U.S.? 

Car insurance isn’t mandatory at the federal level in the United States, though all but one of the 50 states do make some kind of coverage required.

This means that what counts as “state minimum compulsory insurance” in each state will be slightly different. These minimums are what the state considers the minimum you should purchase to cover your liability adequately.

States like Iowa, Ohio, and Wyoming have meager costs. Other states may have high premiums due to the high cost of living in the state, but the minimum coverage is lower, like New Jersey, Michigan and Florida. As a result, the minimum coverage could pay less in a costly accident.

Costs for minimum car insurance are reliant on the amount of compulsory coverage in the state and how common expensive accidents are, and the typical costs of those accidents. States like Michigan have specific laws requiring unlimited personal injury protection coverage that change how much it costs to insure a motorist.

Why do states make car insurance mandatory? 

Mandatory minimum car insurance is liability insurance, making it different from many other kinds of insurance you probably have considered purchasing. If you own a homeowner’s policy, a healthcare insurance policy, or a renter’s insurance policy, those all focus on recouping losses that you experience. You’re buying them to protect yourself or your property.

[ Read: What’s the Average Cost of Car Insurance in the U.S.? ]

However, you don’t drive your house around, potentially harming other people. Car accidents have adverse effects on other people, and liability coverage is mostly focused on the two kinds of harm you can cause if you are at fault in an accident: medical expenses and damage to the other vehicle.

It can be tempting to feel like car insurance should be optional until you consider the results if someone else runs into your car. Suppose you had a big pile of medical bills and a totaled car, all because someone without liability coverage made a careless driving choice. In that case, you probably see why mandatory minimum car insurance gives everyone a base level of protection from other drivers.

New Hampshire, the only state that doesn’t require car insurance, still has it’s own version of liability. You’re allowed to either have the insurance or be willing to pay those costs yourself if you don’t have insurance. It’s not a mandatory insurance policy, but the liability is still there, so most people opt to get coverage.

What happens if I don’t have car insurance? 

Getting pulled over when you do not have car insurance in a state with mandatory minimum car insurance is very costly. Even a first offense of driving without insurance can result in a suspended license, large fines or even having your car impounded in some states. Second offenses are more likely to lead to jail time. All instances of driving without insurance can lead to increases in your insurance premiums in the future when you apply for a policy.

[Read: Caught Driving With No Car Insurance? Here’s What It’ll Cost You ]

If you are caught driving without car insurance because you are involved in an accident, your consequences can become more severe. Rather than a small chance of a warning or a smaller fine, you are much more likely to have your car impounded, and you are likely to have your license suspended. What’s more is that at-fault drivers with no insurance become financially liable for a large variety of costs, especially if the other person in the accident carries none or very little uninsured motorist coverage. You could be forced to pay a large sum or declare bankruptcy.

You may get some reprieve because other motorists carry coverage for underinsured or uninsured motorists. Still, given the high costs of medical bills and car repair, it’s unlikely to cover everything.

How much car insurance is required?

There are a few different aspects of the minimum coverage in each state. Nearly every state will require you to carry some bodily injury liability and property damage liability coverage since those two costs tend to be present in an accident. Most mandated state minimum insurance coverage is abbreviated to a set of three numbers like 25/50/25. The first number is the maximum payout for a single person’s bodily injury in an accident. The second number is the maximum for all individuals harmed per accident. And the third number is the maximum payout for property damage.

Some states structure their minimum coverage to require personal injury protection, where each motorist files with their insurance for damages and medical expenses rather than assigning one motorist as at fault – these states are known as “no-fault states.” Other states have mandatory underinsured or uninsured motorist coverages.

State Minimum Car Insurance Requirement
Alabama 25/50/25
Alaska 50/100/25
Arizona 15/30/10
Arkansas 25/50/25
California 15/30/5
Colorado 25/50/15
Connecticut 25/50/20
Delaware 25/50/10
Florida 10/20/10
Georgia 25/50/25
Hawaii 20/40/10
Idaho  25/50/15
Illinois 25/50/20
Indiana 25/50/25
Iowa 20/40/15
Kansas 25/50/25
Kentucky 25/50/25
Louisiana 15/30/25
Maine 50/100/25
Massachusetts 20/40/5
Michigan 20/40/10
Minnesota 30/60/10
Mississippi 25/50/25
Missouri 25/50/25
Montana 25/50/20
Nebraska 25/50/25
Nevada 25/50/20
New Hampshire 25/50/25, financial responsibility only
New Jersey 15/30/5
New Mexico 25/50/10
New York 25/50/10
North Carolina 30/60/25
North Dakota 25/50/25
Ohio 25/50/25
Oklahoma 25/50/25
Oregon 25/50/20
Pennsylvania 15/30/5
Rhode Island 25/50/25
South Carolina 25/50/25
South Dakota 25/50/25
Tennessee 25/50/15
Texas 30/60/25
Utah 25/65/15
Vermont 25/50/20
Virginia 25/50/20
Washington 25/50/10
Washington D.C.  25/50/10
West Virginia 25/50/25
Wisconsin 25/50/10
Wyoming 25/50/20

Source: Insurance Information Institute

We welcome your feedback on this article. Contact us at inquiries@thesimpledollar.com with comments or questions.

Source: thesimpledollar.com

Can I Get a Car Lease With Bad Credit?

Most people have a gut feeling about their credit – it’s either great, good or bad. But what is a bad credit score really? First, it’s important to understand that there are many different credit scoring models out there and each may use a different scale – or numbers – to convey information.

Still, in the lending world, some assumptions can be made about credit scores that fall into different ranges — and, as such, what score may qualify as “bad.”

For instance, most major credit scoring models follow a 300 to 850 range (the lower the score, the worse for wear, but more on this in a minute), and, while you’re looking at a score measured this way, you can generally assume anything below 600 is a bad credit score.

Here are how the basic credit tiers typically work out:

  • Excellent Credit: 750+
  • Good Credit:700-749
  • Fair Credit:650-699
  • Poor Credit:600-649
  • Bad Credit: below 600

Let’s take a deeper dive into what constitutes a bad credit score.

Who Decides if a Credit Score Is ‘Bad’?

As we mentioned, credit score ranges can vary by model. For example, all FICO scores range between 300 and 850 with 300 being the lowest (or worst) possible score, while 850 is the highest (or best) possible score. The range for VantageScore 2.0 credit scores is between 501 and 990, with the higher number representing the strongest score. But its newer version, VantageScore 3.0, has a range of 300 to 850.

Now, the companies that develop credit scores – FICO and VantageScore, for example – do not decide which credit scores are technically “good” or “bad.” Nor do the credit reporting agencies that supply the credit reports used to create credit scores.

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Instead, it’s up to individual lenders and insurance companies who use these scores to decide which scores demonstrate an acceptable level of risk. They use scores in a variety of ways, too.

These include:

  1. Determining the interest rate they will charge for a loan, or in the case of an insurance company, the discount they may offer on an insurance policy.
  2. Deciding whether to extend credit, how much credit to approve, whether to increase (or lower) a customer’s credit limit or even to close a risky account.

In a way, then, there is no such thing as a “bad credit score,” since the number itself doesn’t mean anything until a lender decides how to use it. In other words, a credit score is only bad when it keeps you from whatever you are trying to accomplish, whether that is to refinance a loan, borrow at a low-interest rate, or get the best deal on your auto insurance.

Moreover, what is considered bad credit by one lender may be perfectly acceptable to another. For example, with many mortgages, the minimum score required may be a 620, while some credit card issuers offering low-rate cards may reject applicants whose scores are lower than say 680.

Find Out Where You Stand

Lots of people are saddled with bad credit scores. According to a 2015 analysis of VantageScore 3.0 data, almost 30% of Americans have poor or bad credit (defined here as a score lower than 601). That 30% amounts to about 68 million of the 220 million score-able people out there, VantageScore says.

Keep in mind; it’s possible to have bad credit and not even know it. That’s why you’ll want to keep a close eye on your credit. You can check your credit score using Credit.com’s free Credit Report Card. Make sure to check your credit at all three of the major credit bureaus.

This completely free tool will break down your credit score into sections and give you a grade for each. You’ll see, for example, how your payment history, debt, and other factors affect your score, and you’ll get recommendations for steps you may want to consider to address problems.

In addition, you’ll also find credit offers from lenders who may be willing to offer you credit. Checking your own credit reports and scores does not affect your credit score in any way.

You can start taking your credit score from “bad” to “good” by disputing errors on your credit report, paying down excessively high debts and limiting new credit inquiries.

Credit Score Factors

If you feel that your credit score is far below where you want it to be and want to see a vast improvement, the following are a few things you should take into consideration when trying to build a good credit score:

Payment History: make sure to pay all your bills on time each month, and you will begin to see a positive impact on your credit score.

Credit Utilization Rate: keep the credit utilization rate below the thirty percent mark. You can improve this ratio by paying down credit card balances.

Credit History: look at the type of debt and type of credit you have and how long you have had them. Make sure you have a good mix of credit rather than just a few credit cards.

Is 620 a Good Credit Score?

As already mentioned, credit scores can be deemed bad, fair, or good directly by the lenders. However, there are still a few things a credit score of 620 might be able to get you even if some lenders consider it “poor.”

  • Can I qualify for any kind of credit card? No
  • Can I get a credit card with no annual fee and 0% financing? Possibly but depends on the lender.
  • Can I get a personal loan with a credit score of 620? Possibly but it depends on the lender.
  • Can I get a store credit card with a credit score of 620? Most likely, you can.
  • Can I find the best and lowest mortgage rates with a 620 score? No.
  • Can I find a credit card with a big sign up bonus? Not likely.

Improving Your 620 Credit Score

If you are not happy with the answers to the above questions, you should consider the different ways you can begin to improve your 620-credit score.

  • Keep your hard inquiries under the mark of three for the past two years
  • Lower your overall credit utilization rate
  • Maintain a 100% on-time payment history
  • Keep a low debt-to-income ratio
  • Have a diverse mix of credit accounts on your credit reports

Side Effects of Bad Credit

When you are saddled with a bad credit score, you will essentially end up paying more in fees and interest and other charges. Remember, the higher the number, the better your credit score will be.

If you do have bad credit, you may find that you are often maxing out your credit cards and you may also find that you are not paying your bills on time. Your payment history accounts for a sizable portion of your credit score and your credit report, and it can have a negative impact on your credit.

With a bad credit score and a score of lower than 620, you will find:

  1. You are getting denied for credit and loan applications. The lenders are looking at you as high risk and will not extend credit to you with a poor credit score.
  2. You will have higher interest rates on any loans you are able to secure. A bad credit score costs you money in the long run.
  3. You may even find it difficult to get approved for an apartment or home. Landlords often check potential tenants credit scores to help them determine if they will pay their rent on time.
  4. You may find that you have to pay higher security deposits on your utility accounts
  5. You may be denied employment in the finance industry or even an upper management position because of your poor credit history. Negative items on your credit report can play a substantial role in your life- especially if there has been a bankruptcy or your debts are in the higher numbers
  6. You may experience higher insurance premiums because some insurance companies link a lower credit score to higher claims being filed

Stuck with No Credit Score and Need a Credit Card?

Scenario—you have no real credit history, so you don’t have much of a credit score or have a bad or fair credit score. But, you also are financially savvy. You just need to build some credit or improve the score you’ve got.
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What do you do? One option is the Petal credit card. It’s a new approach to credit. Petal doesn’t look at your credit score to decide whether to approve you for its card. Instead, it looks at your financial habits and income to approve you. It also offers a higher credit limit than some cards made for those with lower scores. Learn more. [schumerbox api_url=”https://static.ccom-cdn.com/credit/api/creditcard/v2/offer/petal_card-creditcardoffers?af=32806″ button_text=”Apply Now” button_color=”green”]

Bottom Line

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A 620-credit score may be an average score, but many lenders are still considering it on the poor side and with so many credit score ranges, you will find it best to do what you can to get your credit score as high as you can and improve your credit. Don’t settle for minimum credit or average credit.

To combat the effects of poor or bad credit, you should monitor your credit reports, dispute any errors, and find ways to improve your current credit standing. By doing so, you will find that you have much better luck in the future when you try to secure a mortgage loan, auto loan, or any other type of loan or line of credit.

This article was last published October 26, 2018, and has since been updated by another author.

At publishing time, the Petal Visa Credit Card  is offered through Credit.com product pages, and Credit.com is compensated if our users apply and ultimately sign up for this card. However, this relationship does not result in any preferential editorial treatment. This content is not provided by the card issuer(s). Any opinions expressed are those of Credit.com alone, and have not been reviewed, approved or otherwise endorsed by the issuer(s).

Source: credit.com

What Is Term vs. Whole Life Insurance – Types of Life Insurance

According to data collected by the Insurance Information Institute, about 60% of all Americans were covered by some form of life insurance in 2018. About 20% of Americans believe they don’t have enough coverage and are in the market for more.

All life insurance policies take one of two forms:

  • Term life insurance, which charges fixed premiums and pays a set death benefit to a named life insurance beneficiary or beneficiaries during a fixed term.
  • Permanent life insurance, commonly known as whole life insurance, a more expensive product featuring a savings or investment component that grows in value over time and may offer a variable-premium option to control costs.

Life insurance shoppers keen to choose the right type of life insurance must understand the key differences between term and whole life insurance. This guide can help.

Key Features of Term Life Insurance and Whole Life Insurance

Whole or permanent and term life insurance both share a common purpose: to provide a tax-free windfall upon the death of the policyholder. While ensuring this windfall is effectively the sole purpose of term life insurance, the cash value component makes permanent life insurance a useful pre-death investment vehicle for higher-income policyholders as well.

Policy Premiums

Like all forms of insurance, term and permanent life both require policyholders to pay premiums as a condition of coverage. Failure to pay premiums eventually results in the policy’s cancellation and the attendant loss of any benefits or accumulated cash value.

Both types of life insurance charge fixed premiums by default. For term life policyholders, premiums remain “level” — fixed — for the full term, no matter what. (The proper name for term life insurance is “guaranteed level term life insurance.”)

Some permanent life insurance subtypes, such as variable universal life insurance, allow policyholders to pay lower premiums without interrupting coverage, although the death benefit and cash value may decline.

Even when premiums remain fixed for the full policy term, inflation all but assures they grow cheaper over time in real terms.

Term Life Insurance Premiums

A term policy’s premium remains fixed for the full duration of the initial term: 10 years on a 10-year policy, 20 years on a 20-year term, and so on. The premium is a function of term length, with longer terms generating higher premiums due to the policyholder’s greater likelihood of death while the policy is effective. Premiums on 30-year term policies are higher by a factor of two or more than premiums on 10-year policies of equal size.

Many term policies offer the option to extend coverage for a series of consecutive one-year terms after the initial end of the term. Each one-year term’s premium is higher than the last and extending coverage may well prove prohibitively expensive.

However, medical underwriting is generally not required to extend coverage. For policyholders in ill health, extension — rather than applying for a new policy for which approval is unlikely — may be the only option to continue coverage.

Permanent Life Insurance Premium

A permanent life policy’s premiums also remain fixed, or level, by default for the policy’s full duration: until the policyholder dies or reaches the age of 100, whichever occurs first. The premium doesn’t change due to age or health status, although a lapse in coverage that necessitates a fresh application will likely result in a higher premium once the new policy is issued.

Unlike level term policyholders, permanent life policyholders may have the option to pay reduced premiums. This option is available on variable universal life insurance policies, which allow policyholders to use their accrued cash value to pay part or all of their premiums once the cash value reaches a certain threshold.

Variable universal life policyholders can also front-load premium payments to accrue cash value faster, then use the stored balance to reduce out-of-pocket premiums.


Policy Term

A life insurance policy’s term is the length of time it remains effective — assuming timely, in-full premium payments as stipulated by the insurance contract — without requiring action by the policyholder or additional underwriting by the life insurance company.

Term Life Insurance Policy Terms

Term life insurance coverage through a company like Haven Life is designed to be temporary, albeit relatively long in duration. Initial policy terms, during which the premium remains fixed regardless of health or age, typically range from five to 30 years. Some life insurance companies underwrite policies with initial terms as long as 40 years, but these aren’t as common.

Term life policyholders looking to continue coverage for 30 years or longer without paying the premium demanded by a single 30-year policy can instead create a life insurance ladder using multiple smaller policies that steps down the coverage amount over time.

For a 30-year-old applicant looking to replace $2 million in expected income over the subsequent 30 years, a suitable ladder might include:

  • A 10-year policy with a $500,000 death benefit
  • A 20-year policy with a $1 million death benefit
  • A 30-year policy with a $500,000 death benefit

This ladder ensures $2 million in total coverage during the first 10 years, $1.5 million in coverage during the second decade, and $500,000 in coverage during the final decade. This gradual decline in coverage accounts for the policyholder’s likely accumulation of wealth and the corresponding decrease in remaining lifetime income and expenses.

Permanent Life Insurance Policy Terms

A permanent life insurance policy is designed to provide lifetime coverage. That is, the term usually lasts the entire life of the policyholder and ends with the policyholder’s death. Life insurers generally cancel permanent policies, go ahead and pay the death benefit, and return the cash value if the policyholder reaches the age of 100.


Death Benefit

Both term and permanent life insurance policies guarantee death benefits to the named life insurance beneficiary or beneficiaries.

A policy’s death benefit is generally payable upon the insured party’s death, although a portion may be paid out to terminally ill policyholders as part of an accelerated death benefit rider. When the named beneficiary is an individual, death benefits are not subject to income tax.

Term Life Insurance Death Benefit

A term life death benefit remains fixed for the entire policy term. Absent certain rare extenuating circumstances, such as provable fraud during the application process — like failure to disclose a serious medical condition — or suicide during the first two years of the term, the death benefit is paid to named beneficiaries upon the policyholder’s death.

Permanent Life Insurance Death Benefit

The rules governing permanent life insurance death benefits vary by policy subtype:

  • Whole Life Insurance. The death benefit generally remains fixed for the life of the policy, regardless of the policy’s accrued cash value.
  • Universal Life Insurance. Universal life policyholders offer more flexibility around death benefits. Policyholders generally have two options: a level death benefit that remains fixed until death or an increasing death benefit that combines a level death benefit with the steadily increasing cash value component and pays the combined sum at the policyholder’s death. Loans against cash value or withdrawals of cash value may decrease the death benefit, however.
  • Variable Universal Life Insurance. A variable universal policy’s death benefit can increase or decrease, depending on the performance of the investment instruments underlying the policy’s cash value. The risks and potential rewards are greater for policyholders and beneficiaries alike.

Cash Value (Surrender Value)

Cash value, sometimes known as surrender value, is a key distinction between term and permanent life insurance. Permanent policies build cash value over time; term policies don’t.

Term Life Insurance Cash Value

A term life insurance policy has no cash value component. The death benefit is paid in cash, of course, but there’s no value to borrow against or cash out before the policyholder’s death. If the policyholder outlives the initial term and doesn’t renew, the policy expires worthless.

Life insurance companies do offer optional “return of premium” riders to would-be policyholders. In exchange for a higher fixed premium, return of premium riders guarantee the tax-free return of all premiums paid over the life of the policy to policyholders who outlive the term.

However, policyholders can’t withdraw or borrow against premiums paid before the term expires.

Permanent Life Insurance Cash Value

All permanent life insurance policies have a cash value component that exists separately from — but can sometimes be combined with, depending on policy subtype — the death benefit:

  • Whole Life Insurance. Whole life insurance policies offer guaranteed rates of return that increase the cash value by predictable increments over time. These returns typically come as dividends that can be reinvested in the cash value, delivered to the policyholder as income, or used to reduce premiums.
  • Universal Life Insurance. Universal life insurance policies index the cash value component to an underlying benchmark — such as the S&P 500 — that can gain or lose value. Like whole life, universal life pays dividends that can reduce premiums or supply income.
  • Variable Universal Life Insurance. The cash component of variable life is also invested in market instruments. While the upside is usually higher, so are the management fees, and the dividends and returns can vary as a result.

The cash component’s value remains low during the policy’s early years but steadily builds over time and eventually represents a considerable sum available for withdrawal (surrender) or as collateral for a low-interest loan.

During the policy’s first number of years, usually 10 to 15, surrender fees — fees designed to dissuade early withdrawals — keep the surrender value substantially lower than the full cash value. Eventually, surrender fees no longer apply and the full cash value is available for withdrawal.


Medical Exam Requirements

Most term and permanent life insurance policies require applicants to undergo medical exams as a condition of approval. These exams are thorough but not invasive and typically involve checking the applicant’s vital signs, asking a battery of personal health questions, and running basic metabolic labs.

Term Life Insurance Medical Exam Requirements

Virtually any applicant, regardless of age or health status, can qualify for a term life insurance policy without undergoing a medical exam. The catch is that no-exam policies invariably carry higher premiums and lower maximum death benefits than otherwise identical policies that include medical exams.

For older applicants past retirement age, no-exam coverage is limited to a policy subtype known as “guaranteed issue” — a no-questions-asked product with high premiums and a low coverage limit meant to defray final expenses without much left over.

Permanent Life Insurance Medical Exam Requirements

Most permanent life insurance policies require a medical exam as a condition of coverage, but high-premium, low-value guaranteed issue whole life insurance policies do exist.

These are mainly appropriate for older policyholders looking to defray final expenses while building modest cash value over time. However, because they’re less costly overall, guaranteed issue term policies generally offer better value than guaranteed issue permanent policies.


The Verdict: Should You Choose Term Life Insurance or Whole Life Insurance?

Both term and whole life ask applicants to commit to many years — decades, in most cases — of timely premium payments. Given the time spans and dollar values involved, the stakes for choosing the correct type of insurance are high.

You Should Apply for Term Life Insurance If…

A term life policy is a better fit if:

  • You Want to Minimize Premium Payments. Term life insurance premiums are invariably lower as a share of face value than permanent life insurance premiums. If you aim to minimize premium payments over the life of the policy while maximizing the policy’s death benefit, term life insurance is the clear choice.
  • You Don’t Need Coverage Forever. A finite term is not necessarily a drawback. As you age out of obligations like your mortgage and college tuition for your kids, you’ll also build wealth, assuming you’re saving diligently for retirement. This combination of lower future expenses and higher net worth, along with an inexorable decline in your future expected income as you realize an ever-greater share of your lifetime income potential, will reduce and eventually eliminate your need for life insurance coverage.
  • You Want to Customize a Multipolicy “Ladder” That Steps Down Coverage Over Time. Although certain types of permanent life insurance allow policyholders to customize premiums and death benefits, it’s simpler and cleaner to do so with a multipolicy term life insurance ladder, especially for policyholders who expect not to need as much coverage as they approach retirement.
  • Your Family Won’t Rely on Life Insurance to Supplement Savings or Investments Later in Life. A key advantage of permanent life insurance is the promise of guaranteed cash value in perpetuity. If you expect your family to have adequate liquid savings and investments not to need that backstop after your death, whole life likely isn’t worth the significant added cost.
  • You Want to Skip the Medical Exam. Permanent life insurance policies invariably require medical exams, making term life the de facto choice for applicants who’d prefer to avoid that part of the underwriting process.

You Should Apply for Permanent Life Insurance If…

A whole life policy is a better fit if:

  • You Want Your Policy to Last Indefinitely. If you want the peace of mind that comes with ensuring truly long-term, tax-free financial protection for your survivors and don’t want to roll the dice on another round of underwriting when you’re much older, whole life insurance is the clear choice.
  • You Expect to Borrow Against (Or Cash Out) Your Policy’s Cash Value. If you expect to need a ready source of low-cost leverage later in life instead of or in addition to home equity products, permanent life insurance provides it. Term doesn’t.
  • You Need Help Saving for the Future. Even if it’s not used or thought of as such by many policyholders, permanent life insurance effectively forces policyholders to save a portion of their monthly income for the far future. This is a key selling point for policyholders who worry about their capacity or diligence to save consistently for their later years.
  • Your Income Can Support Higher Premiums. Permanent life insurance is not always the superior choice for higher-income policyholders. Indeed, term life insurance is a better fit for many affluent families that don’t need the tax or cash value benefits of permanent life insurance. But whole life is useful for high earners who consistently max out contributions to other tax-deferred savings vehicles, such as employer-sponsored retirement plans, 529 education savings plans, and IRAs.
  • You Want the Option to Vary Your Premiums Over Time. By definition, level term life insurance premiums remain fixed for the duration of the initial term. That’s not the case with certain subtypes of permanent life insurance. Variable universal life insurance, for example, allows policyholders to pay higher or lower premiums as their needs dictate — salving the sting of higher overall policy costs.

Both Are Great If…

Both term and permanent life insurance are excellent options if…

  • You Need to Shield Your Family From Medium- or Long-Term Expenses Resulting From Your Death. Assuming timely and consistent premium payments, both term and permanent life coverage provide tax-free benefits to policyholders’ survivors, mitigating the financial fallout that would otherwise result from their deaths.
  • You Can’t Afford to Cover Expected Future Expenses From Savings Alone. If you expect your future expenses to exceed the capacity of your survivors’ future income and net worth, either type of life insurance provides a valuable and perhaps critical lifeline to maintaining their living standards and providing for dependents left behind.

Final Word

Most American adults have life insurance coverage. Some prefer the low cost and fixed, finite span of term life insurance through an online insurer like Haven Life. Others happily pay more for peace of mind that lasts a lifetime. All agree that life insurance provides an important layer of financial protection for their loved ones.

It’s an important layer, but not the only one. A term or permanent life insurance policy is necessary but not sufficient to protect against the full range of setbacks that can sidetrack a long-range financial plan — or permanently knock it off course.

Other all-but-essential layers of protection include disability insurance, which helps replace income lost to chronic injury or illness, and health insurance, which helps defray the cost of lifesaving medical interventions — a significant cause of bankruptcy in the United States.

So, by all means, celebrate when you finally cross “get life insurance” off your long-term to-do list. Just don’t assume it’s the last insurance application you’ll need to make.

Source: moneycrashers.com

The Average New Car Loan Payment Is $499

This Article was Updated July 5, 2018

When you are looking to buy a vehicle, the first thing you should do is apply for a preapproved loan. The loan process can seem daunting, but it’s easier than you think and getting preapproval prior to going to the car dealer may help alleviate a lot of frustration along the way.

Here are five steps for getting a car loan.

  1. Check Your Credit
  2. Know Your Budget
  3. Determine How Much You Can Afford
  4. Get Preapproved
  5. Go Shopping

1. Check Your Credit

Before you shop for a loan, check your credit report. The better your credit, the cheaper it is to borrow money and secure auto financing. With a higher credit score and a better credit history, you may be entitled to lower loan interest rates, and you may also qualify for lower auto insurance premiums.

Review your credit report to look for unusual activity. Dispute errors such as incorrect balances or late payments on your credit report. If you have a lower credit score and would like to give it a bit of a boost before car shopping, pay off credit card balances or smaller loans.

If your credit score is low, don’t fret. A lower score won’t prevent you from getting a loan. But depending on your score, you may end up paying a higher interest rate. If you have a low credit score and want to shoot for lower interest rates, take some time to improve your credit score before you apply for loans or attempt to secure any other auto financing.

2. Know Your Budget

Having a budget and knowing how much of a car payment you can afford is essential. You want to be sure your car payment fits in line with your other financial goals. Yes, you may be able to cover $400 a month, but that amount may take away from your monthly savings goal.

If you don’t already have a budget, start with your monthly income after taxes and subtract your usual monthly expenses and how much you plan to put in savings each month. For bills that don’t come every month, such as Amazon Prime or Xbox Live, take the yearly charge and divide it by 12. Then add the result to your monthly budget. If you’re worried, you spend too much each month, find simple ways to whittle your budget down.

You’ll also want to plan ahead for new car costs, such as vehicle registration and auto insurance, and regular car maintenance, such as oil changes and basic repairs. By knowing your budget and what to expect, you can easily see how much room you have for a car payment.

3. Determine How Much You Can Afford

Once you understand where you are financially, you can decide on a reasonable monthly car payment. For many, a good rule of thumb is to not spend more than 10% of your take-home income on a vehicle. In other words, if you make $60,000 after taxes a year, you shouldn’t spend more than $500 per month on car payments. But depending on your budget, you may be better off with a lower payment.

With a payment in mind, you can use an auto loan calculator to figure out the largest loan you can afford. Simply enter in the monthly payment you’d like, the interest rate, and the loan period. And remember that making a larger down payment can reduce your monthly payment. You can also use an auto loan calculator to break down a total loan amount into monthly payments.

You’ll also want to think about how long you’d like to pay off your loan. Car loan terms are normally three, four, five, or six years long. With a longer loan period, you’ll have lower monthly payments. But beware—a lengthy car loan term can have a negative effect on your finances. First, you’ll spend more on the total price of the vehicle by paying more interest. Second, you may be upside down on the loan for a larger chunk of time, meaning you owe more than the car is actually worth.

4. Get Preapproved

Before you ever set foot on a car lot, you’ll want to be preapproved for a car loan. Research potential loans and then compare the terms, lengths of time, and interest rates to find the best deal. A great place to shop for a car loan is at your local bank or credit union. But don’t stop there—look online too. The loan with the best terms, interest rate, and loan amount will be the one you want to get preapproved for. Just know that preapproved loans only last for a certain amount of time, so it’s best to get preapproved when you’re nearly ready to shop for a car.

However, when you apply, the lender will run a credit check—which will lower your credit score slightly—so you’ll want to keep all your loan applications within a 14-day period. That way, the many credit checks will only show as one inquiry instead of multiple ones.

Get matched with a personal loan that’s right for you today.

Learn more

When you’re preapproved, the lender decides if you’re eligible and how much you’re eligible for. They’ll also tell you what interest rate you qualify for, so you’ll know what you have to work with before you even walk into a dealership. But keep in mind that preapproved loans aren’t the same as final auto loans. Depending on the car you buy, your final loan could be less than what you were preapproved for.

In most cases, if you secure a pre-approved loan, you shouldn’t have any problems getting a final loan. But being preapproved doesn’t mean you’ll automatically receive a loan when the time comes. Factors such as the info you provided or whether or not the lender agrees on the value of the car can affect the final loan approval. It’s never a deal until it’s a done deal.

If you can’t get preapproved, don’t abandon all hope. You could also try making a larger down payment to reduce the amount you are borrowing, or you could ask someone to cosign on the loan. If you ask someone to cosign, take it seriously. By doing so, you are asking them to put their credit on the line for you and repay the loan if you can’t.

When co-signing a car loan, they do not acquire any rights to the vehicle. They are simply stating that they have agreed to become obligated to repay the total amount of the loan if you were to default or found that you were unable to pay.

Co-signing a car loan is more like an additional form of insurance (or reassurance) for the lender that the debt will be paid no matter what.

Usually, a person with bad credit or less-than-perfect credit may require the assistance of a co-signer for their auto financing and loan.

5. Go Shopping

Now you’re ready to look for a new ride. Put in a little time for research and find cars that are known to be reliable and fit into your budget. You’ll also want to consider size, color, gas mileage, and extra features. Use resources like Consumer Reports to read reviews and get an idea of which cars may be best for you.

Once you have narrowed down the car you are interested in, investigate how much it’s worth, so you aren’t accidentally duped. Sites such as Kelley Blue Book or Edmunds can help you figure out the going rate for your ideal car. After you’re armed with this information, compare prices at different car dealerships in your area. And don’t forget to check dealer incentives and rebates to get the best possible price.

By following these steps, you’ll be ready to make the best financial decision when getting a car loan. Even if you aren’t ready to buy a car right now, it doesn’t hurt to be prepared. Start by acquiring a free copy of your credit summary.

It is always a good idea to pull your credit reports each year, so you can make sure they are as accurate as they should be. If you find any mistakes, be sure to dispute them with the proper credit bureau. Remember, each credit report may differ, so it is best to acquire all three.
If you want to know what your credit is before purchasing a car, you can check your three credit reports for free once a year. To track your credit more regularly, Credit.com’s free Credit Report Card is an easy-to-understand breakdown of your credit report information that uses letter grades—plus you get a free credit score updated every 14 days.

You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.

Image: istock

Source: credit.com

DWIs and Car Insurance Across the States

  • Car Insurance

A DUI conviction can have a major impact on your car insurance premiums, not to mention your finances and your freedom. A single drunk driving offence on your record can, in some states, increase insurance costs threefold, and if you have other blemishes on your record, those rates will be astronomical.

Find your best rate on Car Insurance!

Attention: Still Open During the Financial Crisis…

Tip: Act now to see if you qualify for lower rates!

Compare free personalized quotes from the nation’s top providers.

But it’s not the end of the world. You can still get cheap auto insurance quotes with a DUI on your record; you just need to be extra cautious.

Why Do Insurance Rates Increase After DWI’s and DUI’s?

Insurance is all about risk. The insurers don’t want you to claim, as that’s not how they turn a profit, so they reward you with low rates when you’re less likely to claim and charge high rates when you’re more likely. 

For instance, they know that drivers between the ages of 16 and 19 are significantly more likely to make a claim than drivers in pretty much all other age groups (except for those aged 70+). They also know that new drivers are at risk and that most drivers in this demographic will be climbing behind the wheel for the first time.

To offset the inevitably high claims they will pay, they charge each driver in this category much more than they charge others. 

When you’re convicted of drunk driving, you’re deemed high risk because drivers with these types of convictions are significantly more likely to be involved in costly car accidents and to receive additional traffic violations.

In your eyes, it might have been a harmless mistake, something that you promise to never do again and something that doesn’t reflect your abilities as a driver, but the insurer doesn’t care about any of those things.

Insurers are all about statistics and probabilities, not sentimentality, and if you have a conviction then you’re a high risk, which means you will be charged more.

State Car Insurance Rates with DWIs

How a DUI affects your car insurance quotes depends on a number of different factors, the biggest of which concerns your state of residence. In some states, you’ll pay just $1,500 for full coverage with a DWI; in others, you’ll pay closer to $6,000.

  • Alabama – Full Cover Average Cost = $1,400; Minimum Cover Average Cost = $550; Average Cost of Full Cover with a Single DUI = $2,500
  • Alaska – Full Cover Average Cost = $1,200; Minimum Cover Average Cost = $450; Average Cost of Full Cover with a Single DUI = $2,800
  • Arizona – Full Cover Average Cost = $1,400; Minimum Cover Average Cost = $600; Average Cost of Full Cover with a Single DUI = $1,800
  • Arkansas – Full Cover Average Cost = $1,450; Minimum Cover Average Cost = $550; Average Cost of Full Cover with a Single DUI = $2,400
  • California – Full Cover Average Cost = $1,650; Minimum Cover Average Cost = $650; Average Cost of Full Cover with a Single DUI = $4,000
  • Colorado – Full Cover Average Cost = $1,600; Minimum Cover Average Cost = $650; Average Cost of Full Cover with a Single DUI = $2,400
  • Connecticut – Full Cover Average Cost = $1,700; Minimum Cover Average Cost = $850; Average Cost of Full Cover with a Single DUI = $3,200
  • Delaware – Full Cover Average Cost = $1,550; Minimum Cover Average Cost = $850; Average Cost of Full Cover with a Single DUI = $2,600
  • D.C. – Full Cover Average Cost = $1,550; Minimum Cover Average Cost = $750; Average Cost of Full Cover with a Single DUI = $2,600
  • Florida – Full Cover Average Cost = $2,350; Minimum Cover Average Cost = $1,100; Average Cost of Full Cover with a Single DUI = $3,700
  • Georgia – Full Cover Average Cost = $1,600; Minimum Cover Average Cost = $700; Average Cost of Full Cover with a Single DUI = $3,000
  • Hawaii – Full Cover Average Cost = $1,200; Minimum Cover Average Cost = $500; Average Cost of Full Cover with a Single DUI = $4,200
  • Idaho – Full Cover Average Cost = $950; Minimum Cover Average Cost = $350; Average Cost of Full Cover with a Single DUI = $1,500
  • Illinois – Full Cover Average Cost = $1,150; Minimum Cover Average Cost = $450; Average Cost of Full Cover with a Single DUI = $1,900
  • Indiana – Full Cover Average Cost = $1,000; Minimum Cover Average Cost = $400; Average Cost of Full Cover with a Single DUI = $1,500
  • Iowa – Full Cover Average Cost = $1,000; Minimum Cover Average Cost = $300; Average Cost of Full Cover with a Single DUI = $1,700
  • Kansas – Full Cover Average Cost = $1,300; Minimum Cover Average Cost = $450; Average Cost of Full Cover with a Single DUI = $2,200
  • Kentucky – Full Cover Average Cost = $2,150; Minimum Cover Average Cost = $1,000; Average Cost of Full Cover with a Single DUI = $3,600
  • Louisiana – Full Cover Average Cost = $3,000; Minimum Cover Average Cost = $1,150; Average Cost of Full Cover with a Single DUI = $4,200
  • Maine – Full Cover Average Cost = $900; Minimum Cover Average Cost = $350; Average Cost of Full Cover with a Single DUI = $1,500
  • Maryland – Full Cover Average Cost = $1,600; Minimum Cover Average Cost = $800; Average Cost of Full Cover with a Single DUI = $2,600
  • Massachusetts – Full Cover Average Cost = $1,300; Minimum Cover Average Cost = $550; Average Cost of Full Cover with a Single DUI = $2,350
  • Michigan – Full Cover Average Cost = $2,300; Minimum Cover Average Cost = $1,300; Average Cost of Full Cover with a Single DUI = $5,800
  • Minnesota – Full Cover Average Cost = $1,300; Minimum Cover Average Cost = $550; Average Cost of Full Cover with a Single DUI = $2,350
  • Mississippi – Full Cover Average Cost = $1,400; Minimum Cover Average Cost = $500; Average Cost of Full Cover with a Single DUI = $2,300
  • Missouri – Full Cover Average Cost = $1,300; Minimum Cover Average Cost = $500; Average Cost of Full Cover with a Single DUI = $1,900
  • Montana – Full Cover Average Cost = $1,250; Minimum Cover Average Cost = $400; Average Cost of Full Cover with a Single DUI = $2,100
  • Nebraska – Full Cover Average Cost = $1,200; Minimum Cover Average Cost = $400; Average Cost of Full Cover with a Single DUI = $1,750
  • Nevada – Full Cover Average Cost = $1,900; Minimum Cover Average Cost = $900; Average Cost of Full Cover with a Single DUI = $3,000
  • New Hampshire – Full Cover Average Cost = $1,050; Minimum Cover Average Cost = $400; Average Cost of Full Cover with a Single DUI = $1,850
  • New Jersey – Full Cover Average Cost = $1,800; Minimum Cover Average Cost = $1,000; Average Cost of Full Cover with a Single DUI = $3,000
  • New Mexico – Full Cover Average Cost = $1,250; Minimum Cover Average Cost = $500; Average Cost of Full Cover with a Single DUI = $2,000
  • New York – Full Cover Average Cost = $2,000; Minimum Cover Average Cost = $1,000; Average Cost of Full Cover with a Single DUI = $3,000
  • North Carolina – Full Cover Average Cost = $1,100; Minimum Cover Average Cost = $400; Average Cost of Full Cover with a Single DUI = $4,400
  • North Dakota – Full Cover Average Cost = $1,250; Minimum Cover Average Cost = $400; Average Cost of Full Cover with a Single DUI = $2,200
  • Ohio – Full Cover Average Cost = $1,050; Minimum Cover Average Cost = $450; Average Cost of Full Cover with a Single DUI = $1,700
  • Oklahoma – Full Cover Average Cost = $1,600; Minimum Cover Average Cost = $600; Average Cost of Full Cover with a Single DUI = $2,500
  • Oregon – Full Cover Average Cost = $1,250; Minimum Cover Average Cost = $650; Average Cost of Full Cover with a Single DUI = $1,850
  • Pennsylvania – Full Cover Average Cost = $1,150; Minimum Cover Average Cost = $400; Average Cost of Full Cover with a Single DUI = $1,850
  • Rhode Island – Full Cover Average Cost = $1,700; Minimum Cover Average Cost = $800; Average Cost of Full Cover with a Single DUI = $3,350
  • South Carolina – Full Cover Average Cost = $1,450; Minimum Cover Average Cost = $650; Average Cost of Full Cover with a Single DUI = $2,200
  • South Dakota – Full Cover Average Cost = $1,200; Minimum Cover Average Cost = $300; Average Cost of Full Cover with a Single DUI = $2,200
  • Tennessee – Full Cover Average Cost = $1,200; Minimum Cover Average Cost = $400; Average Cost of Full Cover with a Single DUI = $2,100
  • Texas – Full Cover Average Cost = $1,500; Minimum Cover Average Cost = $650; Average Cost of Full Cover with a Single DUI = $2,300
  • Utah – Full Cover Average Cost = $1,250; Minimum Cover Average Cost = $600; Average Cost of Full Cover with a Single DUI = $1,900
  • Vermont – Full Cover Average Cost = $1,000; Minimum Cover Average Cost = $300; Average Cost of Full Cover with a Single DUI = $2,050
  • Virginia – Full Cover Average Cost = $1,000; Minimum Cover Average Cost = $400; Average Cost of Full Cover with a Single DUI = $1,550
  • Washington – Full Cover Average Cost = $1,250; Minimum Cover Average Cost = $650; Average Cost of Full Cover with a Single DUI = $2,000
  • West Virginia – Full Cover Average Cost = $1,300; Minimum Cover Average Cost = $500; Average Cost of Full Cover with a Single DUI = $2,100
  • Wisconsin – Full Cover Average Cost = $1,000; Minimum Cover Average Cost = $350; Average Cost of Full Cover with a Single DUI = $1,950
  • Wyoming – Full Cover Average Cost = $1,200; Minimum Cover Average Cost = $350; Average Cost of Full Cover with a Single DUI = $2,200

How Much More Will I Pay?

You will always pay more for car insurance if you have a DUI on your record. That rate increase can’t be avoided, at least not entirely.

You can see the statewide average for full coverage insurance policies above and you can expect a similar price increase if you’re opting for minimum coverage, paying between 30% and 50% more on average.

How to Pay Less for DUI Car Insurance

As with any type of insurance and all types of insurance providers, there are ways you can reduce the cost of DUI insurance and save yourself a few dollars every month, including:

Move Quickly

Your insurer may increase your premiums as soon as you receive a drunk driving conviction. They may even drop you entirely, in which case you’re not insured and you’re somewhat in the dark.

It’s important, therefore, to act quickly and to start comparing rates as soon as that conviction lands. That way, if they offer you a new rate, you have something to compare it to and if they drop you completely, you have an alternative option.

Get Several Quotes

There’s nothing stopping you from getting multiple car insurance quotes from multiple car insurance companies. Thanks to online comparison websites and tools, it is easier than ever to get free insurance quotes, so shop around, get as many of these as you can, and don’t settle until you find the cheapest and best option.

Wait and Shop

DUI’s won’t affect your record in the same way forever. After a few years, it will stop having such a major impact on your rates. It’s imperative, therefore, that you shop for new car insurance policies after a few years and see if you can get a better deal elsewhere.

Don’t Forget About Discounts

You may have lost your good driver discount, but there are other discounts available and now that your car insurance rates have soared, they are more important than ever. 

Get all the discounts you can to bring those rates down as much as possible. You can get discounts for going paperless, paying in full, choosing auto-pay, completing driver courses, and being part of certain clubs.

Cheapest Car Insurance Companies When You Have a DUI

If you have a DUI on your record, auto insurance companies will be less keen to throw cheap premiums your way, but they still want your business. We recommend adding the following companies to your comparison search, but don’t stop there, and make sure you include a few members-only insurers and local insurers in your search:

  • Allstate
  • GEICO
  • State Farm
  • Progressive
  • Travelers
  • Safeco

Bottom Line: Getting Car Insurance After a DUI

Once you have a DUI on your record, you may be required to file a form known as an SR-22, which essentially proves that you have the minimum amount of car insurance coverage required. In some states, an FR-44 is required instead, but the idea is basically the same.

Often provided by your insurance company, this form will be sent to the DMV. You can read our FAQ on SR-22 forms to learn more about this process.

Depending on where you live, your DUI may impact your auto insurance rates for three years, five years or even ten years. In any case, it’s important to adopt safe driving habits, keep violations to an absolute minimum, and work hard to reduce your premiums where possible.

That way, when the timeframe is up, you can get a cheap car insurance policy and stop paying those extortionate rates.

If not, and if you get additional violations and DUIs, you could find yourself in serious trouble, with limited driving privileges, an extended license suspension, extensive fines, and even jail time.

Source: pocketyourdollars.com

Mortgage vs. Cash: Which Is the Better Option When Buying a Home?

Last updated on November 21st, 2020

It’s been about eight months since my last mortgage match-up, so let’s give it a whirl again.

Today, the focus will be on taking out a mortgage versus simply using cash when purchasing a home.

Of course, it’s not that simple for the majority of the population to throw a few hundred thousand dollars (or more) down on a property. So for many, this won’t even be an option.

But it’s worth visiting regardless to see how even the very rich often opt for a home loan when they’ve got plenty of cash to spare.

Buying a Home with Cash Has Its Benefits

cash vs mortgage

  • Cash buyers are more attractive to home sellers
  • The home buying process can be a lot faster without a mortgage
  • Don’t need to abide by any mortgage lender’s rules
  • No property restrictions or inspections to worry about
  • Don’t have to pay interest to the bank for several decades

First let’s talk about buying a home with cash. This is almost certainly the favored approach of real estate investors and perhaps the mega-rich, though billionaires like Mark Zuckerberg still take out mortgages.

And investing gurus like Warren Buffett think the low mortgage rates are a great deal…

But for a large swath of the population, this either/or question doesn’t even get any consideration because most of us can’t afford to buy a home (or even a small condo) with cash.

Still, there are some advantages to buying a home with cash as opposed to taking out a mortgage.

The most obvious is that you don’t pay any interest when you buy with cash. That’s right, no mortgage, no interest payments.

Additionally, you don’t have to make any payments to principal either, seeing that you own your home free and clear right off the bat.

However, that doesn’t mean you won’t have recurring costs. You’ll still need to pay homeowner’s insurance (unless you’re really brave), along with property taxes and possibly HOA dues depending upon where the property is located.

The insurance thing becomes optional when you own your property outright. Not so if you have a mortgage because you don’t really own your home. Your lender does, until that loan is actually paid off in full.

Another plus to paying with cash is the negotiating power you gain when making an offer. If you’re going up against some other would-be buyers that need to finance the purchase, you’ll have the upper hand in pretty much every situation.

Sure, you could get outbid by another buyer willing to offer more for the home, but your cash offer should be king if all else is equal. And it may still be king even if you offer less than the competition.

Once your offer gets accepted, you won’t have to worry about dealing with a bank or mortgage lender. That means it doesn’t matter if your credit score is in bad shape, or if you don’t have the necessary income to qualify for a mortgage. Or if you’re a foreign national who might otherwise have difficulty getting a loan.

There is still a process to purchasing the home, but you can cut out the middleman, otherwise known as the lender. And that means you won’t have to pay lender fees, including a costly loan origination fee, or lender’s title insurance, underwriting fees, and so on.

But you might not want to skimp on the appraisal, even though it’s not a requirement. It’ll buy you some time to determine if the house is in good shape and worth what you agreed to pay.

That lack of a mortgage also means you’ll be able to move in sooner, or rent out the property sooner. Speaking of renting it out, you won’t have to worry about occupancy issues, or a higher mortgage rate because it’s an investment property.

Taking Out a Mortgage, Even If You Don’t Have To

  • A lot of very rich people take out mortgage loans
  • Not because they have to, but because they know home loans are cheap
  • Instead of tying up all their money in a single property
  • They put their hard-earned cash to work in other investments that can yield better returns

On the other hand, there’s the traditional approach to buying a home, with the help of a mortgage.

This is kind of the default option more out of necessity than preference. As I alluded to earlier, most of us can’t afford to buy real estate with cash. We need a mortgage to get the deal done.

In fact, many Americans need a sizable mortgage to get the job done, with practically zero-down FHA loans a popular choice for a large number of prospective home buyers.

So like it or not, a mortgage is often just a fact of life.

The number one downside to a mortgage is all that interest. On a $200,000 loan set at 4.5%, the total amount of interest due over 30 years is close to $165,000. Y

eah, you pay nearly double what you agreed to pay for the home. Sounds pretty rough, doesn’t it?

But like I said, this is the price of not having a substantial amount of money to put down. Along with that, you also have to pay a bunch of lender fees, which can certainly add up.

If you put down a very small amount, you’ll also be subject to paying mortgage insurance premiums, possibly for life if you go with an FHA loan and never refinance.

Oh, and you don’t just get a mortgage. You need to qualify for a mortgage, and not everyone qualifies for countless reasons. Having the lender pry into your personal and financial life may also be extremely annoying and frustrating, but if you need hundreds of thousands of dollars, they’ve earned that right.

The good news is that you write off that mortgage interest as long as you itemize deductions and they exceed the standard deduction.  So some of that interest can result in a lower tax bill each April, which lessens the blow pretty significantly.

Additionally, mortgage rates are dirt cheap compared to just about every other type of loan out there. Yes, you pay a lot of interest, but it’s only because the loan amounts are so large.

That means there’s a decent chance you can invest the money that would be locked up in your home (if you paid cash) at a better return elsewhere.

Having a mortgage on your home also means you’ve got more liquidity and less at risk, assuming something goes wrong.

Imagine something devastating happens to your home that isn’t covered by insurance. Would you rather have 20% invested, or 100%?

Also consider the recent housing bust – a lot of homeowners were able to walk away from their homes relatively unscathed because they didn’t have much invested.

Those who purchased all-cash could cut their losses, but they couldn’t walk away without losing a lot of money. There’s also that old saying about putting all your eggs in one basket.

If you don’t have money in other places, it certainly shouldn’t all be tied up in your home.

[Mortgage affordability calculator]

Can You Get the Best of Both Worlds?

  • Most home buyers put down a small amount of cash and take out a mortgage
  • The sweet spot might be a 20% down payment
  • This allows you to avoid costly mortgage insurance and obtain a low mortgage rate
  • You can invest your excess funds elsewhere or prepay the mortgage if that’s your goal

Absolutely. Most people buy homes with cash and a mortgage, not just either or. In other words, when you put 20% down on a house, you’re paying a decent chunk of cash and financing the rest.

As a result, you avoid the requirement for mortgage insurance, you get a lower rate of interest, and you have an equity investment.

Putting down 20% or more should also put you in a pretty good position when it comes to a bidding war, though an all-cash buyer willing to make a good offer will always have the upper hand.

Additionally, you can always pay your mortgage off earlier than planned seeing that most mortgages don’t have prepayment penalties anymore.

Sure, you will subject yourself to the closing costs associated with a mortgage, along with the qualifying process, but you don’t have to pay off your mortgage over 30 years.

If you decide your money isn’t earning as much as you’d like, you can move more of it towards the mortgage balance.

Got plans to retire in 10 or 15 years? Start prepaying the mortgage faster so you’ll be free and clear by the time you’re on a fixed income.  Or go with a 15-year fixed mortgage instead.

Remember, it doesn’t have to be an either/or discussion. You can make adjustments based on your financial standing as time goes on. With cash, you can also pull equity via a cash out refinance. So both options provide flexibility.

Advantages to Buying a Home with Cash

  • No need to qualify for a mortgage
  • No need to shop for a mortgage
  • No mortgage payments (good if you lose your job or are close to retirement)
  • No interest due
  • No lender fees
  • Homeowner’s insurance isn’t required
  • You don’t need to pay for an appraisal
  • More negotiating power when making an offer
  • Lower purchase price possible
  • Faster closing process
  • Could be a better return for your money than a low-yielding CD or bond
  • Set it and forget it investing (don’t have to manage your investments)
  • Can tap home equity if and when needed
  • Can always sell or take out a mortgage
  • Less hassle overall (one less thing to manage)
  • Sense of security because it’s your home!

Disadvantages to Buying a Home with Cash

  • Most of us don’t have the money required to buy a home with cash
  • Mortgage rates are a cheap source of financing
  • Real estate is an illiquid asset (not easy or free to sell)
  • The property could lose substantial value
  • You could lose a lot of money if your home is destroyed and not covered by insurance
  • You miss out on the mortgage interest deduction
  • Your return on investment might be poor relative to other options
  • Poor diversification if a lot of your money is in one single property
  • House rich and cash poor if savings get depleted

Advantages to Buying a Home with a Mortgage

  • Mortgage rates are very low
  • Mortgage interest is tax deductible
  • Inflation should make future monthly payments “cheaper”
  • You only need to bring in a small down payment
  • More cash on hand for anything else
  • Getting a mortgage isn’t really that difficult
  • A mortgage can actually improve your credit score
  • You can prepay your mortgage whenever you want in most cases
  • You can invest your money elsewhere for a better return
  • Your money is more liquid
  • Forced savings each month
  • Less risk if something happens to your home or if values drop

Disadvantages to Buying a Home with a Mortgage

  • Tons of mortgage interest must be paid
  • 30 years of monthly payments (maybe less, but still a long time!)
  • You need to shop for a mortgage
  • You need to get approved for a mortgage
  • You could get declined
  • More (lender) costs associated with a mortgage
  • Closing process more work and more time
  • You may buy more house than you should (get in over your head)
  • Harder to sell the property if little or no equity
  • You can lose your home if you fall behind on payments
  • You don’t actually own your home

Source: thetruthaboutmortgage.com

Mercury Insurance Review

  • Car Insurance

Founded in 1961, Mercury is an insurance provider that has received a wealth of prestigious accolades over the years and is ranked as one of the cheapest providers across the 11 states in which it operates. 

Find your best rate on Car Insurance!

Attention: Still Open During the Financial Crisis…

Tip: Act now to see if you qualify for lower rates!

Compare free personalized quotes from the nation’s top providers.

In this Mercury Insurance Review, we will compare this insurance company’s products, services, and prices to other insurance carriers and see how it stacks up.

Mercury Auto Insurance Coverage: Main Options

Mercury provides varying degrees of coverage. You can opt for the bare minimum requirement in your state or choose an extended coverage plan that will cover you for most eventualities.

To buy insurance from Mercury, you need to go through an agent. You can find details of Mercury insurance agents through the Mercury website or work directly with a local agent you already know.

The insurance coverage options include:

  • Liability Coverage: Bodily injury coverage and property damage coverage are both provided to help you meet the state minimum requirements. They can also be increased if you need a little more cover. Liability insurance is a requirement in most states.
  • Collision Coverage: Liability insurance covers the other driver during an at-fault accident. It does not cover you if you hit a tree or a wall. For that, you need collision coverage, which is provided by Mercury for an additional cost.
  • Comprehensive Coverage: An extensive policy option that will cover you for damage not related to car accidents, such as vandalism and weather/environmental damage. Comprehensive insurance also covers you in the event of a collision with an animal, which, surprisingly is not covered by collision insurance.
  • Personal Injury Protection (PIP): This insurance option covers you for personal damages, as well as lost wages, childcare costs, and other expenses that result from injuries sustained during a car accident. It will also cover you for these injuries if you are a passenger.
  • Medical Payments Coverage: Medical payments coverage is designed to cover your medical bills following an accident. It is required in a couple of states and often provides cover up to a few thousand dollars.
  • Rental Car Coverage: If your car is being repaired or was stolen, rental car coverage will ensure you can stay on the roads by providing you with a replacement vehicle for a fixed period of time.
  • Underinsured/Uninsured Motorist Coverage: A type of insurance that covers you when you are hit by an uninsured driver or an underinsured driver, essentially filling in the gaps that would otherwise have been paid by their insurer. 

Mercury Auto Insurance Coverage: Extra Insurance Options

In addition to the insurance options outlined above, Mercury Insurance also offers policyholders the chance to add the following:

  • Rideshare Insurance: The need for this insurance type has grown exponentially in the last few years, with more Uber and Lyft cars on the roads than ever. With rideshare insurance, you’ll be covered when you have passengers in your vehicle. It’s an important consideration if you drive for these services.
  • Roadside Assistance: If you’re stranded by the side of the road, roadside assistance will help with towing costs, tire changes, fuel deliveries, and other essentials. It’s worth noting, however, that this service is provided elsewhere and if you have a premium credit card or are part of an auto vehicle organization, you may already be covered.
  • Mechanical Breakdown Protection: Will cover the costs associated with a car breakdown and is important if your warranty has expired. A complete breakdown can be costly if you don’t have the necessary warranties, but this coverage option will step in to help.

Mercury Car Insurance Discounts

Mercury offers all the following discounts, allowing policyholders to save big on their insurance premiums:

  • RealDrive: The RealDrive program will track how many miles you drive and could offer you discounts if you’re a low mileage driver. Policyholders can save 5% just by signing up, with further discounts to come once the low mileage begins to register.
  • Good Student Discount: Save up to 10% if you can achieve and maintain a good grade point average as a student driver.
  • Good Credit Discount: Mercury rewards drivers with a good credit score and a clean credit history. In fact, the savings offered here can be as high as 75%, which is more than you find with the majority of other major insurance providers.
  • Good Driver Discount: Maintain a good driving record for a discount of between 15% and 20%.
  • Student Away Discount: Students who live on campus can save up to 10% on their premiums.
  • Anti-Theft Devices: If you have these devices in your car, the risk of theft will be reduced, and Mercury will offer you savings of up to 5%.
  • Multi-Car Discount: By adding a second car to your policy you could save as much as 25%.

Other Types of Insurance Policies Offered by Mercury

​Mercury offers homeowners insurance, renters insurance, condo insurance, business insurance, umbrella insurance, and commercial auto insurance, although many of these are restricted to just a handful of states and may not be available where you live.

If you purchase car insurance with any of the home insurance options outlined above, you can get a multi-policy discount, also known as bundling. The amount that you can save differs from state to state but averages out at around 10%.

Is Mercury Insurance Available Everywhere?

Mercury is offered in all of the following states: 

  • Arizona
  • California
  • Oklahoma
  • Florida
  • Illinois
  • Georgia
  • Nevada
  • New York
  • New Jersey
  • Virginia
  • Texas

It also offers specific services and coverage options that are limited to a handful of states, such as rideshare insurance, which is offered only in California, Nevada, and Arizona, and commercial insurance, which is offered everywhere except for New Jersey and New York.

Mercury Insurance Claims

To make a claim with Mercury, simply phone the claims hotline (1 (800) 503-3724) any time of the day or night. A support rep will take all information from you, so describe the accident and the damage in as much detail as you can. The claim will be recorded, so you won’t need to repeat yourself in the future.

The rep will walk you through the details of your policy and can also arrange for your car to go to a body shop or to be towed. You can also find a body shop yourself by going through the Mercury website.

Customer Satisfaction

The Mercury Insurance Group has a high financial strength rating from AM Best and good ratings from JD Power. It’s a reputable, established, and award-winning company that has been going strong for over 50 years and has insured millions of drivers in that time.

But as promising as all of this is, there is one thing that lets Mercury down, and that’s its customer support. Mercury scores fairly poorly in this department and while the majority of customers are happy with the service provided, there is a disproportionate number of dissatisfied and even angry consumers.

Bottom Line

Mercury may offer the cheapest insurance rates in your state. It may offer the best coverage options and the most dedicated service. At the same time, you could find a better service and much better prices elsewhere.

Many policyholders switch to Mercury from GEICO and Progressive. In fact, these are the two main providers that Mercury customers switch from. But that does not mean Mercury is better than GEICO and Progressive. And even if it did provide better rates and options for one person, that doesn’t mean it will do the same for you.

That’s why it is important to get auto insurance quotes from multiple providers.

Source: pocketyourdollars.com

Wants vs. Needs: How to Make Them Work In Your Budget

Define your wants vs. needs and how to fit them into your budget

Define your wants vs. needs and how to fit them into your budget

When it comes to how you spend money, you basically have two ways you look at it.  Is it a want? Or is it a need?  Ever since my husband and I worked ourselves out from more than $35,000 in debt, we ask ourselves this all of the time.

This is extremely important when it comes to looking at your budget.  Your needs include (not a full list):

  • A place to live, be it rent or a mortgage
  • Food to eat (not including dinners out)
  • Utilities (gas, electric, phone)
  • Health and personal care products
  • Insurance
  • Clothes (just enough – not name brand, over the top wardrobes)

We also always look over our wants as well. These can include:

  • Dining Out
  • More clothes (name brand)
  • Newer electronics or gadgets
  • Larger home
  • Newer vehicle

We always make sure our budget covers our needs first and foremost.  Our budget rarely changes as we have worked hard to tweak it to make it work for us.

Do we have wants in our own budget?  Of course we do! In our own budget we include a category called family spending – for random things we want to do with the kids.  This includes dinners out with the kids.  We even allow for a bit more for our clothes to get a few nicer things (all on sale of course).  And although we have vehicles which are paid in full, we try to save for a newer one, which we know we will need eventually.

MY OWN STRUGGLE

This can be a struggle, to determine if you really need something or if it is a want.  I can completely relate.  We own a 2005 Honda Odyssey.  It is completely paid for and so there is very little cost associated with owning it.

We just pay our insurance premiums and save monthly to cover the annual taxes. Each month, we set a little back for maintenance such as oil changes, and tires.  There is money there should we end up having a large expense. Thankfully, we’ve only had one issue with our vehicle in the ten years we’ve owned it.

The mini van runs perfectly fine.  In fact, it drives like it did the day we purchased it.  It is clean.  I mean, really clean.  I keep it vacuumed and we don’t allow drinks or much food inside.  The only time we might is when we do a road trip (and then, we are careful about what we allow the kids to bring along with them).  I keep it maintained with oil changes and tire rotations.  Everything works.  There is nothing wrong with my van.

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However, I find myself struggling as I have my eye on a different vehicle.  It is actually one of my dream cars – a Buick Enclave. I just love them and I really, really want one.   We don’t want a brand new one, just one that is used will be perfect for us.  We have even considered test driving one.

NOT CAVING TO MY WANT

Why haven’t we gone ahead and done that?  Simple.  I have determined that a new vehicle is an absolute want and not a need.

My van, which is now 12 years old has less than 110,000 miles on it.  There is nothing wrong with it. It is so convenient with 3 kids getting in and out of it as the doors slide open with the touch of a button. Again, there is nothing wrong with my van. I do not need a new car – I want a new car.

This does not mean we can’t afford one.  We have no debts and could pay for it between trade in and our budgeted savings.  However, we won’t.  Not yet, at least.  There is no need for me to get a new vehicle at a cost of more than $25,000 when I do not need to.  No need at all.

WHY IS THIS A WANT

I had to really ask myself why I wanted this van.  I determined that I was just bored with mine.  I wanted the thrill of a new vehicle.  I wanted the excitement you get with something new.   That was all great, but the ultimate question was this:  “Will this new car make me happy?”  I answered that quickly with a “no.”  Not happy in the long term.  I will pay more in insurance premiums. I will pay more in taxes.  My savings will need to be built back up again.  The new will wear off after a short time and I’ll be right back where I am again. Back here with less money in the bank.  Back here wondering if something better is out there.

So, after much soul searching and thinking, I’ve decided not to get a vehicle right now.  I know that there will be at time when I need to do it, and I will get one at that time. I know at that time, it will have moved more from the want to a need and then, it will be the right time.

HOW DO YOU DO THIS

Take a good look at your budget.  If there is plenty of room, then you might be able to make the want work.  But, is it really something you are willing to pay for?  Is the value there and is it really worth it?

Only you can answer these questions.  After a lot of thinking you might consider that want just that – a want.  It may be that you don’t really need it as badly as you think.

Source: pennypinchinmom.com

FHA Will Insure Mortgages in Forbearance, With a Catch

Last updated on June 23rd, 2020

The Federal Housing Administration (FHA) finally announced a new policy, which is temporary, to endorse mortgages where the borrower has requested or obtained COVID-19 forbearance.

Mortgagee Letter 2020-16 temporarily reverses the FHA’s existing policy that doesn’t permit FHA insurance for mortgages in forbearance.

The agency said the policy ensures “the safeguards of the FHA program continue to work for new homeowners facing a financial hardship due to COVID-19.”

Now before mortgage lenders get too excited about this, there is a major hitch. They must sign an indemnification agreement with the FHA that leaves them on the hook for 20% of the original loan amount if it goes bad.

What Are the Requirements for Insuring FHA Loans in Forbearance?

  • Borrower must be experiencing a financial hardship due directly or indirectly to COVID-19
  • Mortgage must have been current at time of request for forbearance
  • Mortgage must satisfy all requirements for FHA insurance at time of closing
  • Mortgagee must execute a two-year partial indemnification agreement

Aside from that pretty significant piece about lenders being liable for 20% of the original loan amount, there are also some general requirements that must be met.

First off, the borrower must be experiencing a financial hardship directly or indirectly related to COVID-19 and in a forbearance plan.

Additionally, they must have been current on the mortgage at the time they requested the forbearance.

In the letter, the FHA says “forbearance provided to borrowers experiencing a financial hardship due, directly or indirectly, to COVID-19 is not considered the provision of funds by a Mortgagee to bring and/or keep the mortgage current or to provide the appearance of an acceptable payment history.”

In other words, the loan won’t be insurable if the borrower was already behind on the mortgage before asking for a break on payments.

Like any other FHA loan, it must satisfy all requirements for FHA insurance at the time of closing.

And as mentioned, the originating lender must execute a two-year partial indemnification agreement for 20% of the original loan amount.

The somewhat good news for lenders is that they’re only on the hook for that 20% if the mortgage goes into foreclosure and results in a claim to the FHA’s Mutual Mortgage Insurance (MMI) Fund.

But it could lead to lender overlays, like higher credit scores or a max number of forborne payments, to limit the likelihood of these loans going sour.

May Have Been an Alternative to Raising Mortgage Insurance Premiums

forbearance rate

HUD Deputy Secretary Brian Montgomery said, “This policy helps address current and future capital issues for all lenders, including those who are not equipped to hold mortgages on their balance sheets for extended lengths of time.”

While maybe true, it doesn’t explain how they’ll pay those claims if lots of homes go into foreclosure in the two-year indemnification period.

However, the FHA did add that it won’t require upfront payments by lenders or an adjustment to FHA mortgage insurance premiums for such loans.

And added that it would “generally result in a reduction of the claim amount FHA would need to pay to the lender for defaulted mortgages.”

Lenders might have time on their side since the housing market is on pretty good footing and mortgage rates are super cheap, meaning housing payments should be more or less affordable.

Foreclosures also take quite a bit of time these days, so depending on when that clock starts ticking, there may not be too many claims.

Of course, I don’t know how comfortable lenders are sitting around and wondering if a home loan will go bad at some point. And it’s a two-year period to sit around and wait.

Earlier this week, the MBA said 11.82% of outstanding Ginnie Mae-backed loans (FHA/USDA/VA) loans were in forbearance, while Black Knight reported today that 12.3% of FHA/VA mortgages are now in forbearance.

But the number of homeowners in forbearance plans decreased for the first time since the crisis began, with 34,000 fewer homeowners in forbearance as of June 2nd thanks to a 43,000 decline among government-backed mortgages.

Read more: Fannie and Freddie Will Buy Loans in Forbearance

About the Author: Colin Robertson

Before creating this blog, Colin worked as an account executive for a wholesale mortgage lender in Los Angeles. He has been writing passionately about mortgages for nearly 15 years.

Source: thetruthaboutmortgage.com

A Quick Guide to How Much Car You Can Really Afford

This Article was Updated July 5, 2018

When you are looking to buy a vehicle, the first thing you should do is apply for a preapproved loan. The loan process can seem daunting, but it’s easier than you think and getting preapproval prior to going to the car dealer may help alleviate a lot of frustration along the way.

Here are five steps for getting a car loan.

  1. Check Your Credit
  2. Know Your Budget
  3. Determine How Much You Can Afford
  4. Get Preapproved
  5. Go Shopping

1. Check Your Credit

Before you shop for a loan, check your credit report. The better your credit, the cheaper it is to borrow money and secure auto financing. With a higher credit score and a better credit history, you may be entitled to lower loan interest rates, and you may also qualify for lower auto insurance premiums.

Review your credit report to look for unusual activity. Dispute errors such as incorrect balances or late payments on your credit report. If you have a lower credit score and would like to give it a bit of a boost before car shopping, pay off credit card balances or smaller loans.

If your credit score is low, don’t fret. A lower score won’t prevent you from getting a loan. But depending on your score, you may end up paying a higher interest rate. If you have a low credit score and want to shoot for lower interest rates, take some time to improve your credit score before you apply for loans or attempt to secure any other auto financing.

2. Know Your Budget

Having a budget and knowing how much of a car payment you can afford is essential. You want to be sure your car payment fits in line with your other financial goals. Yes, you may be able to cover $400 a month, but that amount may take away from your monthly savings goal.

If you don’t already have a budget, start with your monthly income after taxes and subtract your usual monthly expenses and how much you plan to put in savings each month. For bills that don’t come every month, such as Amazon Prime or Xbox Live, take the yearly charge and divide it by 12. Then add the result to your monthly budget. If you’re worried, you spend too much each month, find simple ways to whittle your budget down.

You’ll also want to plan ahead for new car costs, such as vehicle registration and auto insurance, and regular car maintenance, such as oil changes and basic repairs. By knowing your budget and what to expect, you can easily see how much room you have for a car payment.

3. Determine How Much You Can Afford

Once you understand where you are financially, you can decide on a reasonable monthly car payment. For many, a good rule of thumb is to not spend more than 10% of your take-home income on a vehicle. In other words, if you make $60,000 after taxes a year, you shouldn’t spend more than $500 per month on car payments. But depending on your budget, you may be better off with a lower payment.

With a payment in mind, you can use an auto loan calculator to figure out the largest loan you can afford. Simply enter in the monthly payment you’d like, the interest rate, and the loan period. And remember that making a larger down payment can reduce your monthly payment. You can also use an auto loan calculator to break down a total loan amount into monthly payments.

You’ll also want to think about how long you’d like to pay off your loan. Car loan terms are normally three, four, five, or six years long. With a longer loan period, you’ll have lower monthly payments. But beware—a lengthy car loan term can have a negative effect on your finances. First, you’ll spend more on the total price of the vehicle by paying more interest. Second, you may be upside down on the loan for a larger chunk of time, meaning you owe more than the car is actually worth.

4. Get Preapproved

Before you ever set foot on a car lot, you’ll want to be preapproved for a car loan. Research potential loans and then compare the terms, lengths of time, and interest rates to find the best deal. A great place to shop for a car loan is at your local bank or credit union. But don’t stop there—look online too. The loan with the best terms, interest rate, and loan amount will be the one you want to get preapproved for. Just know that preapproved loans only last for a certain amount of time, so it’s best to get preapproved when you’re nearly ready to shop for a car.

However, when you apply, the lender will run a credit check—which will lower your credit score slightly—so you’ll want to keep all your loan applications within a 14-day period. That way, the many credit checks will only show as one inquiry instead of multiple ones.

Get matched with a personal loan that’s right for you today.

Learn more

When you’re preapproved, the lender decides if you’re eligible and how much you’re eligible for. They’ll also tell you what interest rate you qualify for, so you’ll know what you have to work with before you even walk into a dealership. But keep in mind that preapproved loans aren’t the same as final auto loans. Depending on the car you buy, your final loan could be less than what you were preapproved for.

In most cases, if you secure a pre-approved loan, you shouldn’t have any problems getting a final loan. But being preapproved doesn’t mean you’ll automatically receive a loan when the time comes. Factors such as the info you provided or whether or not the lender agrees on the value of the car can affect the final loan approval. It’s never a deal until it’s a done deal.

If you can’t get preapproved, don’t abandon all hope. You could also try making a larger down payment to reduce the amount you are borrowing, or you could ask someone to cosign on the loan. If you ask someone to cosign, take it seriously. By doing so, you are asking them to put their credit on the line for you and repay the loan if you can’t.

When co-signing a car loan, they do not acquire any rights to the vehicle. They are simply stating that they have agreed to become obligated to repay the total amount of the loan if you were to default or found that you were unable to pay.

Co-signing a car loan is more like an additional form of insurance (or reassurance) for the lender that the debt will be paid no matter what.

Usually, a person with bad credit or less-than-perfect credit may require the assistance of a co-signer for their auto financing and loan.

5. Go Shopping

Now you’re ready to look for a new ride. Put in a little time for research and find cars that are known to be reliable and fit into your budget. You’ll also want to consider size, color, gas mileage, and extra features. Use resources like Consumer Reports to read reviews and get an idea of which cars may be best for you.

Once you have narrowed down the car you are interested in, investigate how much it’s worth, so you aren’t accidentally duped. Sites such as Kelley Blue Book or Edmunds can help you figure out the going rate for your ideal car. After you’re armed with this information, compare prices at different car dealerships in your area. And don’t forget to check dealer incentives and rebates to get the best possible price.

By following these steps, you’ll be ready to make the best financial decision when getting a car loan. Even if you aren’t ready to buy a car right now, it doesn’t hurt to be prepared. Start by acquiring a free copy of your credit summary.

It is always a good idea to pull your credit reports each year, so you can make sure they are as accurate as they should be. If you find any mistakes, be sure to dispute them with the proper credit bureau. Remember, each credit report may differ, so it is best to acquire all three.
If you want to know what your credit is before purchasing a car, you can check your three credit reports for free once a year. To track your credit more regularly, Credit.com’s free Credit Report Card is an easy-to-understand breakdown of your credit report information that uses letter grades—plus you get a free credit score updated every 14 days.

You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.

Image: istock

Source: credit.com