Save more, spend smarter, and make your money go further
We recently hosted a Twitter chat as part of our #RealTalkSeries. And let’s just say, things definitely got real. Many of you joined us to discuss “taboo” and cringe-worthy money questions such as how to improve a bad credit score, who can you borrow money from when you’re broke, and whether college is actually worth the cost.
If you missed it, no worries. We know that life gets busy. So, we captured a few of our favorite tips and chat highlights to help you manage your cash flow and budget in 2016 and beyond. You can also see the entire chat by searching for #RealTalkSeries on Twitter.
#RealTalkSeries Twitter Chat Highlights:
Q: My credit score sucks. How can I improve it? #RealTalkSeries
Q: I’m thinking about opening another credit card. Is there REALLY such a thing as too many credit cards? #RealTalkSeries
Q:SO many people are drowning in student debt. Is college worth the cost anymore?
Q: Love is free, but my wallet says otherwise. How do I talk about $$ with my s/o before it gets out of hand? #RealTalkSeries
Q: I’m broke & I’ve got bills! Who can I borrow money from? #RealTalkSeries
The struggle is real! Ideas: Cash advance from your ?, sell off unused items, ask for a cash advance from your job #RealTalkSeries – @GOBankingRates
I’m a fan of the Bank of Mom & Dad – if it’s open and solvent. Great rates/easy approval process #RealTalkSeries – @LaurenYoung
Q: Saving for retirement is important, but many people can barely pay rent. Any tips? #RealTalkSeries
Q: And our last Q. It’s a new year and time to take control of my money. What’s your BEST piece of financial advice? #RealTalkSeries
Thanks to everyone who joined including our esteemed panelists for sharing their great personal finance tips and tricks. Get your free soft credit check and take the above tips to heart to start getting into the best financial shape of your life.
Holly Perez – @hperez
Sharon Epperson – @SharonEpperson
Cameron Huddleston – @CHLebedinsky
Lauren Young – @LaurenYoung
Casey Bond – @Go_Casey
Chelsea Krost – @ChelseaKrost
J Money – @BudgetsAreSexy
Millennial Money Man – @GenYMoneyMan
GOBankingRates – @GOBankingRates
Daily Worth – @DailyWorth
The Simple Dollar – @TheSimpleDollar
Wise Bread – @WiseBread
Refinery 29 – @Refinery29
Money Under 30 – @MoneyUnder30
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Knowing that you have life insurance protection can provide you and those you love peace of mind. While nobody wants to dwell on the unimaginable, life insurance can help to ensure that your dependents will have additional funds that they may require for paying off debts and / or continuing to pay their ongoing living expenses.
When you are searching for the best life insurance policy, it is important that you obtain the proper type and amount of coverage. That way, your loved ones won’t be left with too little to serve their needs.
It is also key to make sure that the insurance carrier that you purchase your life insurance coverage through is strong and stable financially – and that it has a good, positive reputation for paying out its policy holders’ claims. One company that meets these criteria is Phoenix Life Insurance Company.
The History of Phoenix Life Insurance Company
Phoenix Life Insurance Company has more than a century and a half in the business of providing coverage to its customers. Initially founded in 1851 as the Phoenix Companies, Inc., the company has grown and expanded throughout the years.
This insurer has a primary focus on helping those who are considered to be in the middle income market, as well as those who are more affluent, with securing the property life insurance protection for their needs.
Phoenix Life Insurance Company Review
Phoenix Life focuses on offering a variety of life insurance plans, as well as retirement annuities. These are offered via financial advisors throughout the U.S. The company also has a distribution subsidiary, Saybrus Partners, which provides insurance coverage to clients.
While Phoenix Life Insurance Company is considered by many to be a somewhat small insurance carrier – with roughly 600 home office employees – its products and services rate among the best. Phoenix Life is headquartered in Hartford, Connecticut.
Insurer Ratings and Better Business Bureau (BBB) Grade
Due in part to recent financial issues, Phoenix Life Insurance Company’s ratings are not currently among the best from the insurer ratings agencies. These ratings include a B+ (Credit Watch) from Standard and Poor’s (which is a rating of 14 out of 21 possible ratings), and a B (Stable) from A.M. Best Company (which is seventh out of a possible sixteen total ratings.
Even though the company’s ratings are not on par with where they could ideally be, Phoenix Life Insurance Company has been satisfying the financial obligations that it has to its current policy holders.
While Phoenix Life is not an accredited company through the Better Business Bureau (BBB), it has still been provided with a grade of A+, which is on an overall grading scale by the BBB of A+ through F). Over the past three years, Phoenix Life Insurance Company / The Phoenix Companies, Inc. has not had to close out any customer complaints through the Better Business Bureau.
Life Insurance Products Offered by Phoenix Life Insurance Company
With its key focus on life insurance and annuities, Phoenix Life Insurance Company provides a wide range of products for customers to choose from. This can be quite beneficial, as coverage can change along with the client, as his or her needs change over time.
The company provides several types of permanent life insurance, along with final expense coverage. With permanent life insurance, there is both a death benefit component, and a cash value component. Typically, once an insured has been approved for coverage, the amount of the death benefit protection is locked in, as is the premium amount – which means that the premium that is charged will not go up, even as the insured’s age increases, and if he or she contracts an adverse health condition.
The cash that is inside of the cash value component is allowed to grow and compound over time on a tax deferred basis. This means that there are no taxes due on the growth of these funds unless or until they are withdrawn.
Policy holders who have permanent life insurance protection are allowed to withdraw or borrow cash from the policy’s cash component for any need that they see fit – including to pay off debts, to supplement retirement income later in life, or even to take a nice vacation.
One type of permanent life insurance coverage that is offered through Phoenix Life Insurance Company is whole life. The Phoenix Remembrance Life policy is a simplified issue whole life insurance policy, which also offers supplemental benefits that are designed for protecting the insured’s loved ones and for leaving a legacy.
Because the Remembrance Life plan is a simplified issue policy, it will not require the applicant for insurance to undergo a medical examination, or to answer a long list of medical related questions. Because of this, these policies will oftentimes be approved within just days – or sometimes even sooner. So, if an individual is in need of life insurance protection quickly, this could be a viable option.
Another form of permanent life insurance coverage that is offered by Phoenix Life Insurance Company is universal life. With a universal life insurance policy, there are some similarities to whole life in that there is death benefit protection, along with a cash value component. However, in many ways, universal life insurance is considered to be much more flexible than whole life, as the policy holder is allowed – within certain guidelines – to change the due date of the premium, as well as to allocate how much of his or her premium will go towards the death benefit, and how much will go into the cash component.
Phoenix Life offers the Phoenix Accumulator UL universal life insurance policy. With this plan, policy holders may obtain a higher cash value crediting rate than they can with whole life insurance. There is also an interest bonus feature with this policy.
For those who are seeking both death benefit protection, along with a potentially higher amount of cash value build up over time (in a tax-advantaged manner), the Phoenix Accumulator UL policy may be a good fit.
Another type of universal life insurance that is offered through Phoenix Life Insurance Company is indexed universal life. Here, there is also a death benefit and a cash value component within the policy. However, instead of having the cash grow based on a certain rate of interest, the growth is based on the performance of an underlying market index (or indexes) such as the S&P 500.
With an indexed universal life insurance policy (IUL), if the underlying index or indexes perform well within a certain time period, then the cash value will be credited positively – typically up to a certain “cap.” If, however, the underlying index performs poorly – or even in extreme negative territory – then the cash value will not lose value. Rather, it will just simply be credited with a 0 percent for that time period.
Because of this, indexed universal life insurance is used by many policy holders who are seeking higher potential growth (than that of whole life, or even CDs and money markets), yet with protection of principal.
Phoenix Life Insurance Company offers the Phoenix Simplicity Index Life policy. With this plan, the policy holder may choose from several different cash value accumulation options. There is also a death benefit included in the policy, with the option to allocate policy value in a fixed account and / or to two indexed accounts.
As with the whole life insurance policy that is offered via Phoenix Life, this indexed universal life product will not require a medical examination by the applicant for coverage. There is also no need to fill out a large amount of paperwork. Therefore, those who may have certain health issues could still qualify for this policy – and it could be a viable option if someone is looking for guaranteed death benefit protection, along with protection of cash value and possible higher growth.
Other Products and Services
While Phoenix Life Insurance Company is known for its offerings of life insurance coverage, the company also offers some options for retirement annuities. Today, because many baby boomers are reaching retirement age, there is worry about whether or not retirement income will be able to last through the remainder of their lifetimes. This is particularly the case as life expectancy has increased.
With an annuity, a guaranteed, set income can be received – and, if the annuity holder opts for the lifetime income option, they can literally receive an income stream that will last for the remainder of their lifetime, regardless of how long that may be. Do your research and make sure you’re getting the best annuity rates.
All of the annuity products that are offered via Phoenix Life Insurance Company are designed for flexibility – depending on what it is that a client needs. These annuity products include the following:
The Phoenix Personal Retirement Choice – The Phoenix Personal Retirement Choice is a deferred annuity that provides its holder with the ability to build up long-term savings over time on a tax deferred basis. Deposits can be made into the annuity over time, prior to converting the annuity to an income stream. This annuity has several different income options to choose from as well.
The Phoenix Personal Income Annuity – The Phoenix Personal Income Annuity is a fixed indexed annuity, so it allows the opportunity to grow cash over time, based on the performance of an underlying index – but if the index should perform negatively in a given time period, there are no losses of principal.
The Phoenix Personal Protection Choice – With the Phoenix Personal Protection Choice annuity, the client can deposit a single premium up front. Because this annuity is a fixed indexed annuity, the cash will be protected from market downturns, while at the same time having the opportunity to grow, based on an underlying market index. There are also several options that are available when it comes time to convert this annuity to an income stream.
How to Get the Best Premium Rates on Life Insurance Coverage
If you are looking for the best premium rates on life insurance coverage on plans from Phoenix Life Insurance Company – or from any life insurance carrier – then it is typically recommended that you work in conjunction with an independent life insurance brokerage or agency.
In doing so, you will be much better able to shop and compare – in an unbiased manner – from numerous life insurance policies and carriers, and from there, you can choose the plan and premium quote that works the best for you and your specific needs.
If you are ready to take a look at the life insurance coverage that may be available to you, we can help. We are an independent life insurance brokerage, and we work with many of the top insurance carriers in the market place today. We can get you the details that you need quickly, easily, and conveniently – all from your own computer – and without you having to meet in person with an insurance agent. Whenever you are ready to begin the process, all you need to do is just simply take a moment to fill out the quote form on this page.
We understand that the purchase of life insurance coverage is a big decision. There are many different variables that you need to be aware of – and you want to be sure that you are obtaining the property type and amount of protection for your needs. The good news is that this process can be made so much easier when you have an ally on your side. So, contact us today – we’re here to help.
Government officials can’t predict exactly when inflation will go down, but representatives of the International Monetary Fund expect the U.S. inflation rate to reach its 2 percent target by the end of 2023.
The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.
Consumers around the world are currently grappling with rising costs, making many people wonder how long this high rate of inflation is going to last. Although the U.S. inflation rate has nearly quadrupled since 2020, inflation is even worse in other countries. In Israel, for example, the inflation rate has increased by 25 times in the last two years.
When inflation is high, consumers have less purchasing power, making it more difficult to afford housing, food, utilities and other necessities. Some consumers have even changed their spending habits to account for rising costs. So, how long will inflation last? No one knows for sure, but it’s possible to make an educated guess based on what the Federal Reserve is currently doing to reduce spending.
What is inflation, and how does it work?
The Federal Reserve defines inflation as an increase in the overall price level of an economy’s products and services. This refers to a general increase in prices, not an increase in a single product or service category. For example, it’s possible for the cost of dairy products to increase without the rate of inflation increasing.
When inflation is high, many consumers have less purchasing power. This is because their income doesn’t buy as many products and services as it did when inflation was low. Inflation also has a negative impact on banks that loan money at fixed interest rates. If a bank makes a loan at 6 percent interest, an inflation rate of 7 percent would reduce its real income, or the amount of money it earns after taking inflation into account.
In the United States, the Consumer Price Index (CPI) helps estimate inflation by tracking the average change of prices over time. This index doesn’t include the price of every good or service. Instead, it uses a market basket of goods and services typically purchased by consumers in urban and metropolitan areas. In July 2022, the U.S. Bureau of Labor Statistics reported that the CPI rose by 1.3 percent in June, bringing the total increase for the last 12 months to 9.1 percent.
Why is inflation so high right now?
Although many Americans are feeling the pinch of higher prices, inflation is a global problem. In response to the COVID-19 pandemic, government officials around the world implemented mandatory lockdowns to prevent the spread of the disease. With so many businesses closed, the demand for goods and services declined.
Once businesses started reopening, demand soared. With the unemployment rate falling to 3.5 percent in July 2022, job seekers have more bargaining power, driving up wages and giving many consumers more money to spend on goods and services. Consumers also saved more money than usual in 2021 due to concerns over how the ongoing pandemic would affect their finances.
Although demand has increased, many companies are unable to fill orders due to manufacturing and shipping backlogs associated with the pandemic. When demand exceeds supply, firms increase their prices, contributing to higher rates of inflation.
Finally, many consumers are spending more on services than goods, increasing demand in the service sector. As a result, it now costs more to rent an apartment, dine at a restaurant or hire someone to perform housekeeping or landscaping services.
The government’s response to inflation
The Federal Reserve is currently implementing contractionary monetary policy to reduce demand and give the economy a chance to cool off. This involves raising interest rates to decrease consumer spending and business-related investment spending.
The Biden-Harris administration is also focused on lowering costs for low-income and middle-class families. President Biden signed the Inflation Reduction Act of 2022 into law on August 16, 2022, and this act aims to reduce energy costs and make healthcare more affordable for Americans.
Because the current inflation rate is associated with high levels of demand, there isn’t much more the federal government can do to bring prices down. The plan is to continue raising rates until the inflation rate returns to 2 percent.
When will inflation go down?
Government officials can’t predict exactly when inflation will go down, but representatives of the International Monetary Fund expect the U.S. inflation rate to reach its 2 percent target by the end of 2023. To reach this target, analysts believe the Federal Reserve will need to raise rates by another 2 to 2.5 percent before then.
Are we in a recession?
Although government officials, consumers and business owners are concerned about the prospect of a recession, the United States hasn’t entered a true recession yet. A recession is characterized by rising levels of unemployment, lower retail sales and negative growth of the gross domestic product (GDP), among other factors.
In July 2022, the Bureau of Economic Analysis reported that the U.S. GDP declined by 1.6 percent in the first quarter of the year and 0.9 percent in the second quarter. Although GDP declined, retail sales increased by 1 percent between May and June 2022. The unemployment rate also fell from 5.4 percent in July 2021 to 3.5 percent in 2022. Therefore, the United States doesn’t yet meet all the criteria for an economic recession.
Where is inflation the worst in the United States?
In the United States, cities tend to have higher inflation rates than suburbs and rural areas, due in part to their higher housing costs. On July 13, 2022, Bloomberg reported that several American cities had crossed the 10 percent mark. Urban Alaska is at 12.4 percent, the Phoenix-Mesa-Scottsdale metro area in Arizona is at 12.3 percent and the Atlanta-Sandy Springs-Roswell metro area in Georgia is at 11.5 percent. Baltimore, Seattle, Houston and Miami also have inflation rates above 10 percent.
Inflation isn’t quite as bad in the New York-Newark-Jersey City metropolitan area, which had a 6.7 percent inflation rate in June 2022. Overall, inflation tends to be higher in the South and Midwest regions than it is in the Northeast region of the United States.
How will inflation affect my 2022 and 2023 taxes?
Take a look at the top ways your upcoming taxes might be affected by inflation.
Taxable income
Federal tax brackets are adjusted for inflation, which means you may drop to a lower tax bracket in 2022 even if your income doesn’t decrease. If high rates of inflation persist, you may get the same tax benefit when you file your 2023 return.
The standard deduction is also adjusted for inflation, so high inflation rates may help you reduce your taxable income even more than in previous years. In 2021, the standard deduction for a single filer was $12,550; for the 2022 tax year, it’s $12,950. If the economy doesn’t cool down quickly, the standard deduction may be even higher in 2023.
Health savings accounts
The annual HSA contribution limit is adjusted for inflation, so high rates of inflation allow you to put aside more money for medical expenses each year. The limits have already been increased for 2022, allowing individuals to contribute $3,650 per year and families to contribute $7,300 per year. In 2023, the limits will increase even more, to $3,850 for individuals and $7,750 for families.
HSA contributions are deducted on a pre-tax basis, so higher contribution limits may leave you with less taxable income, reducing your tax burden.
Retirement contributions
High levels of inflation can even help you save a little more money for your retirement. The contribution limits for 401(k) accounts and individual retirement arrangements (IRAs) are adjusted for inflation, so you can typically save more when inflation is high. For 2022, the 401(k) contribution limit is $20,500, an increase from the $19,500 limit for 2021. The IRA contribution limit didn’t increase for 2022, but it may go up in 2023 if the inflation rate continues to be high.
Although you can’t save more in your IRA this year, the income limit for 2022 was increased to keep up with inflation. As a result, you can now participate in a Roth IRA if your income doesn’t exceed $144,000 ($214,000 for married couples filing jointly).
Social Security
If you have combined income of more than $25,000 in a year as a single filer, your Social Security benefits are subject to federal income taxes; the limit increases to $32,000 for married couples filing jointly. Combined income includes half your Social Security benefits, your adjusted gross income and your tax-exempt interest income. These income limits aren’t adjusted for inflation, but Social Security benefits are.
For 2022, the federal government implemented a 5.9 percent cost-of-living increase for Social Security beneficiaries, and the 2023 adjustment could be as high as 10 percent, or even slightly more—we’ll know for sure in October 2022. This increase could push your combined income above the $25,000/$32,000 limit, making your Social Security benefits taxable for the first time.
Capital gains taxes
When you sell certain assets, you must pay capital gains tax on your profit. If you sell when inflation is high, you could end up with a profit on paper even if the sale results in a real loss. This typically happens when high rates of inflation erode your purchasing power over time.
If you made a $100,000 investment in 1980 and sold it for $200,000 today, it would look like you made a profit of $100,000. The truth is that $100,000 in 1980 dollars is equivalent to about $359,600 today. Although you made a profit on paper, you really lost a significant amount of purchasing power. Unless you qualified for some type of exemption, you’d have to pay capital gains tax since the purchase price of assets isn’t adjusted for inflation.
How can I save money while inflation is high?
You can’t control the national economy, but there are a few things you can do to strengthen your financial position while inflation is high.
Eat more meatless meals. Meat, poultry and eggs are among the food products with the highest price increases in 2022. To lessen the effects of rising costs on your budget, try adding a few meatless meals to your weekly menu.
Track your spending. If you don’t keep track of your spending, it’s easy to spend much more than you realize. Keep a record of how much you spend on necessities as well as extras like streaming subscriptions and movie tickets.
Start meal planning. If you spot a good deal at the grocery store, you can take advantage by planning several meals around that ingredient. For example, if a store is advertising chicken for $2.49 per pound, you may want to plan on eating chicken salad sandwiches for lunch each day that week.
Cancel unused subscriptions: In June 2022, Sarah O’Brien of CNBC reported that more than 40 percent of consumers were paying for at least one subscription they didn’t use. Unused subscriptions leave you with less money in your pocket, so canceling them can help you weather this period of high inflation.
Maintain a high credit score. When you have good credit, you typically qualify for lower interest rates and other favorable loan terms. If you have to borrow money while inflation is high, maintaining a healthy score can help you save money.
Keep the faith
Inflation makes it a little tougher to meet your financial goals, but that doesn’t mean you should give up on managing your finances responsibly. You can save money by tracking your spending, canceling unused subscriptions and planning your meals according to what foods are on sale each week.
Maintaining good credit can help you save money in the long run if you have to take out a loan or otherwise buy on credit. If your credit is lower than you’d like it to be, work with the credit repair consultants at Lexington Law to identify inaccurate negative items on your credit reports and make sure outdated information isn’t being held against you.
Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.
Reviewed By
Brittany Sifontes
Attorney
Prior to joining Lexington, Brittany practiced a mix of criminal law and family law.
Brittany began her legal career at the Maricopa County Public Defender’s Office, and then moved into private practice. Brittany represented clients with charges ranging from drug sales, to sexual related offenses, to homicides. Brittany appeared in several hundred criminal court hearings, including felony and misdemeanor trials, evidentiary hearings, and pretrial hearings. In addition to criminal cases, Brittany also represented persons and families in a variety of family court matters including dissolution of marriage, legal separation, child support, paternity, parenting time, legal decision-making (formerly “custody”), spousal maintenance, modifications and enforcement of existing orders, relocation, and orders of protection. As a result, Brittany has extensive courtroom experience. Brittany attended the University of Colorado at Boulder for her undergraduate degree and attended Arizona Summit Law School for her law degree. At Arizona Summit Law school, Brittany graduated Summa Cum Laude and ranked 11th in her graduating class.
Save more, spend smarter, and make your money go further
In an ideal world, your monthly cash flow would cover all your expenses — both expected and unexpected — and enable you to reach your financial goals. But financial situations are rarely ever that simple and straightforward.
What happens if something comes up in your life and your monthly budget nor your cash savings can handle the expense? There’s always the option to borrow, and while being in debt isn’t ideal, there are situations where it may make sense.
Before you take out your credit card and rack up a balance, look into other options. A personal loan might be a better financial bet.
What Is a Personal Loan (and Why Get One)?
A personal loan is a type of unsecured loan. “Unsecured” means you don’t put up collateral against the loan. When you take out a personal loan, you’ll typically receive the amount borrowed in a lump sum with fixed payment terms and a set interest rate.
Personal loans may be better options than credit cards because they offer better interest rates. Costing you less can be the biggest benefit, but a personal loan is also a different kind of credit account than a credit card. Managing various types of credit is one small action you can take to improve your credit score.
Keep in mind this is only true if you manage accounts and loans wisely. Here’s how to do so.
How to Manage Your Personal Loan Responsibly
Again, in an ideal world, you wouldn’t need to borrow money or wait a very long period of time to save up to buy what you want. But in real life, things happen and timelines shift. Taking out a personal loan can be an option. You just need to plan and act responsibly with the sum you borrow.
Don’t request more than you can reasonably afford to repay — and don’t take out a loan for a greater amount that what you truly need the money for. Not only do you need to pay that money back, but you’ll need to pay loan origination fees and whatever the interest rate on, making this option more expensive in the long run than simply using cash.
Create a repayment plan and stick to it. Know how much you need to allocate toward repaying your personal loan each month, and make it a priority in your budget. You may need to cut back on some discretionary spending, like meals out and shopping trips, in order to knock that loan out on time.
And before you take out any loan, make sure you fully understand the terms. Understand all the fees associated with the loan, and ask the lender if there are penalties for repaying the loan early.
What About Consolidating Debt with a Personal Loan?
Remember how it may make sense to take a personal loan over racking up credit card debt, thanks to a potentially lower interest rate? If you already have credit card debt across multiple cards and a high debt-to-income ratio, it may make sense to consolidate that debt with a personal loan.
This might be beneficial if you can get a lower interest rate on the personal loan than what you’re paying on your credit cards, and if you could afford the monthly repayment on the personal loan.
Like most other financial products, personal loans can be useful tools — but only if you wield them wisely and responsibly. Before applying for a personal loan, consider your overall financial health with a free credit score and report and consider if this is the right move for you.
Kali Hawlk is a freelance writer and the co-founder of Off The Rails, a free mentorship platform for creative women. She’s passionate about helping others do more with their money, their work, and their lives. Get in touch by tweeting @KaliHawlk.
From the Mint team: Everyone has different needs and desires as it relates to their financial situation. Mint’s new Loan Center has select personal loan and student refinancing options that may suit your needs (and have passed our sniff test!).
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Typically, margin investing works based on margin loans. These are loans that your brokerage extends so that you can purchase with a combination of your own funds and borrower money, giving you the liquidity to make larger purchases. They are secured by the assets in your portfolio and if you fail to repay the loan your brokerage will take those assets as payment. We’ll go over in full detail how it works.
A financial advisor can answer your questions, while also helping you build a financial plan for the future.
What Is Margin Trading?
Margin trading refers to when you borrow money to purchase securities. Most of the time, investors use this to buy or short stocks, since equities tend to pay their returns more quickly than most other assets.
You typically borrow the money directly from your brokerage, although occasionally investors may borrow from a third party structured as a margin loan. (For ease of use, in this piece we will refer to borrowing money directly from your brokerage.)
A margin loan is the money that your brokerage lends you to make a margin trade.
The loan is secured by assets in your portfolio. This creates two main types of margin loans: specific and general. Specific margin loans are more common. In this case, you take out the loan to make a specific trade and the loan is secured by those assets.
General margin loans are less common. Here, you don’t borrow to make a specific trade. Instead, you borrow against other assets in your portfolio to make an unrelated investment.
With general margin loans, you must own your collateral outright. You cannot use securities held on a margin as collateral against new borrowing.
Interest on Margin Loans
When you take out a margin loan, you establish a secured debt in your portfolio. This creates two ongoing obligations.
First, you assume interest. The terms on a margin loan will differ based on your specific institution and the loan itself. Almost all brokers will charge their interest on an annual rate which accrues monthly.
And it is uncommon for brokers to require regular payments. Instead, you can pay your interest along with the principal on the loan in one lump sum when you close out your position.
Interest is one of the major reasons that most margin trading is done with equities and similarly short-term assets. Since the costs will accumulate on any account, investors generally don’t want to hold their position open for too long. They want a shorter-term investment that they can cash out of more quickly.
Margin Calls
With a margin loan, the debt is secured by the value of assets in your portfolio. The more valuable your assets, the more borrowing power you have. The less valuable your assets are, the less borrowing power you have.
The result of this is that, when you take out a margin loan, your collateral will fluctuate based on its price on any given day. A basket of stocks worth $1,000, when you take out the loan, may decline to $900 in value, reducing the value of those stocks as collateral.
To address this, all brokers require you to maintain a certain percentage of value (known as “equity”) relative to the loan. Equity is the minimum value that your collateral can have relative to your loan.
Most lenders set this at around 30%. This means that the value of the assets you used to secure your margin loan cannot dip lower than 30% of the value of the loan itself (or whichever equity level your broker has set).
If your equity does fall too low, the broker will execute what is known as a “margin call.” In a call, you must bring your account back within the minimum equity. You can do this either by adding new cash or securities as collateral, or by paying off a section of your loan.
If you fail to meet your margin call, your broker can take collection actions. This means that they can liquidate the securities you used as collateral, and can insist that you repay the remainder of your loan after this sale.
Risks vs. Rewards of a Margin Loan
The advantage of a margin loan is purchasing power.
By investing with a margin loan, you can buy more assets than you could on your own. With the standard limit of 50%, for example, you can literally double your underlying investment. If you have $1,000 to invest, by using a margin loan you can purchase $2,000 worth of assets and collect the commensurate returns.
The disadvantage to a margin loan is a potentially staggering amount of risk.
The key to understanding risks in a margin loan is the idea of passive losses vs. active losses. With passive losses, your exposure is limited to the money you invest upfront. You know how much you have at stake and nobody will come along asking for more. Your worst outcome is zero.
A standard investment has a passive loss profile. If you invest $1,000 to buy a stock, you can lose up to that entire initial investment but you can’t lose more than your original $1,000.
Active losses are different. With active losses you can potentially lose more than your initial investment, leaving you further in debt after closing out the position.
Margin trading has an active loss profile. If you borrow $1,000 to buy a stock and it doesn’t pan out, you both lose your investment money and need to repay that $1,000. You can end up on the hook for debt payments even beyond your market losses.
Bottom Line
Margin loans are the money that a brokerage lends you to purchase stocks or other securities. This loan is secured by assets in your portfolio, and you generally plan on repaying it with the gains from your investment.
Investing and Retirement Planning Tips
Financial advisors often specialize in investing and planning for retirement. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
A great way to plan for retirement is to calculate how much you’ll need after you retire. Think about the things you’d like to do after your retirement. Do you want to travel? Also, think about where you want to live and what kind of lifestyle you want. For example, you’ll need to save more if you want to retire in a place with a high cost of living. SmartAsset’s retirement calculator can tell you how much you should save each month in order to reach your goals.
A 401(k) is very useful for building retirement savings. Small, regular contributions can easily add up to plenty of savings later in life. You should especially contribute to a 401(k) if your employer offers a match. If your employer doesn’t offer a 401(k), you can always invest in an individual retirement account (IRA). These work similarly to 401(k)s in that you don’t pay taxes initially on your contributions.
Eric Reed
Eric Reed is a freelance journalist who specializes in economics, policy and global issues, with substantial coverage of finance and personal finance. He has contributed to outlets including The Street, CNBC, Glassdoor and Consumer Reports. Eric’s work focuses on the human impact of abstract issues, emphasizing analytical journalism that helps readers more fully understand their world and their money. He has reported from more than a dozen countries, with datelines that include Sao Paolo, Brazil; Phnom Penh, Cambodia; and Athens, Greece. A former attorney, before becoming a journalist Eric worked in securities litigation and white collar criminal defense with a pro bono specialty in human trafficking issues. He graduated from the University of Michigan Law School and can be found any given Saturday in the fall cheering on his Wolverines.
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As we ring in the New Year, financial resolutions top our to-do lists, from saving more to finding a new, better-paying job and getting out of debt once and for all.
As you map out your next money move, take heed of some of these top market and economic predictions for added guidance.
Higher Borrowing Costs
Looking to open a new credit card or apply for a mortgage this year? It may be wise to act sooner than later.
With the broader economy improving since the financial crisis (e.g. the national unemployment rate is hovering at 5%, down from nearly 10% in 2009), economists, including Janet Yellen, chairwoman of the Federal Reserve, believe it’s time for a tightening of monetary policy (translation: boost interest rates to curb inflation.)
Fortune Magazine’s “Crystal Ball,” says we can expect a three-quarter-point increase by next Thanksgiving to 1.25%.
When the Fed raises the overnight bank-lending rate (aka the Fed Funds rate) that typically has a domino effect on interest rates for other mainly short-term financial products like credit cards and car loans.
What this means for us? If you’re in the market to borrow money, I recommend reviewing your credit ahead of any applications to see what improvements (if any) are necessary. The higher your credit score, the better chances you have of achieving the lowest interest rates on the market.
If you’re seeking to refinance or buy a home this year, also aim to lock in a rate as soon as possible. While an increase in the Fed Funds rate isn’t necessarily a precursor to higher mortgage rates, we’re already seeing an uptick on 30-year home loans to above 4%. And Fannie Mae’s National Housing Survey shows that more than 50% of consumers think mortgage rates will continue to elevate over the next year.
Finally, for those of us with adjustable rate loans (e.g. some student loans and mortgages) we may want to pay off our debt more aggressively or refinance to a fixed-rate loan to put a lid on rising monthly payments down the road.
Less Sticker Shock in Housing
With home loan rates expected to track north, home values may see some cooling in 2017. That’s because when mortgage rates jump, demand for housing tends to slowdown, placing pressure on sale prices.
Not to mention, after riding a hot streak in recent years with prices across the country hitting near pre-recession levels, real estate experts at Zillow.com now predict a “normalizing” market with more moderate price growth of 3.6% across the country in 2017, compared to 4.8% last year.
Prepare for more affordability in areas that have experienced the steepest gains. In Los Angeles, for example, home prices have trended considerably higher in recent times (up 7.3% over the past year, alone). In 2017, though, the city can expect a tempering of home values to a growth of just 1.7%, according to real estate website Zillow.com.
As for rentals, after double-digit surges, rents in many large metro areas will also see slower growth in 2017, per Zillow. Rents across the country are expected to rise approximately 1.7 percent this year to about $1,429 per month, down from a 6% appreciation reported last year.
Partly to blame for the cool down in rent is a glut in inventory. Builders were very busy over the last few years, but the demand for new units in some hot neighborhoods like Brooklyn, N.Y. is failing short of supply.
As a result, some landlords at higher end luxury apartment buildings in that borough have been striking sweet deals with renters since last summer, The New York Times reports. For example, at 7 DeKalb, a new high rise in Brooklyn, “the landlord is offering two months of free rent with a 14-month lease, and use of the building’s fitness center and other amenities for a year without charge.”
That’s a good reminder to prospective renters everywhere that it can never hurt to negotiate, especially this year!
Have a question for Farnoosh? You can submit your questions via Twitter @Farnoosh, Facebook or email at [email protected] (please note “Mint Blog” in the subject line).
Farnoosh Torabi is America’s leading personal finance authority hooked on helping Americans live their richest, happiest lives. From her early days reporting for Money Magazine to now hosting a primetime series on CNBC and writing monthly for O, The Oprah Magazine, she’s become our favorite go-to money expert and friend.
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Margin is debt. You borrow capital from your broker to buy more assets, in most cases stocks.
This gives you leverage. You are making a bet that your returns on the investments you buy on margin are going to be greater than the interest rate you pay your broker for the privilege, net of commissions.
If they are, you pocket the difference. If not, then you have to make your broker whole.
Since the broker uses the assets you already own in your account as collateral to satisfy your margin, investing on a margin is very similar to buying a house on mortgage.
The only difference being that when you invest, you do not have to make monthly margin payments and the broker is generally not too worried if you ever make any effort to reduce your margin as long as there is sufficient value in your investments to cover for it.
The similarity does not end here. Taking on a mortgage to buy a house can be good, or bad. It depends a lot on who, how, why, and the level of financial savvy of the borrower. Investing on margin is the same way.
If you understand how it works, use it judiciously, and can manage your risk well, it can help you generate nicer returns. On the other hand, if you are not disciplined enough, or misuse it or get carried away chasing a hot stock, it can drain your account dry.
When to Not Use Margin?
In this case, I think it makes better sense to eliminate the situations where margin should not be used before we talk about the situations where it makes sense to use it. Sure, there are always exceptions, but these principles hold true for most common investing scenarios.
Principle #1: Do not use margin to buy interest-bearing assets that yield lower than your margin interest
Yes, you can buy bonds of all varieties, treasuries and many other assets that throw out reliable yield. Most of the time, because of the perceived safety of these instruments, the brokers will allow you to lever up more than 1x, which means that $1 of your collateral might allow you to buy $3 of municipal bonds (as an example).
Theoretically, if the yield on this muni is more than 1/3rd of the interest rate on your margin, you could possibly make a few basis points of supposedly “risk free” income.
The problem arises if the interest rates move and the slim window of profit can quickly flip into a cash flow drain. Besides, anything that complicates your investing so much for returns so small is not worth doing.
Principle #2: Do not use margin to buy stock in a utility company, REIT, MLP or other type of Trusts
Similar principle as above. Any stock that is mostly used to generate a current income in form of dividends is not a candidate to buy using margin. In most cases, the yield will be lower than your interest rate, and capital appreciation may not be enough to make up for it.
If you are buying stocks for income, you are likely a conservative investor and margin just adds more risk that you should not carry. Dividend investing is not a bad thing; just not recommended on margin.
Principle #3: Do not use margin to make a down payment on a car, boat, or a house
Just because you can borrow money from your broker to make a down payment does not mean you should do it. In this case, you are borrowing money which will become a basis for more debt (car loan, mortgage, etc).
If you have to do it, that means you are not financially strong enough to buy or invest in these assets. Multiple levels of leverage are financial insanity and can come back to bite you much sooner than you think.
But using margin is not all bad if you know how.
When and How to Use Margin
Too much debt kills, but a little debt can go a long way towards giving you financial flexibility. However, it is important to use margin as a tool only when you have a good investment that you are not able to get in otherwise. Let’s take a few examples
Example #1: A great investment opportunity arises and you are temporarily short of capital
It often happens that your next contribution to your investment account is a few days or perhaps a week away, and it can easily cover the amount you are going to invest in this opportunity. Assuming this is not a hot tip stock, and you have satisfied yourself of the merit of the investment, go ahead and use margin to start your position. In a few days you will send in more cash and your margin will be covered.
Example #2: Using margin as an emergency fund
If you have a need for cash that cannot wait – for example, an unexpectedly large tax bill, where the consequences of not paying full taxes on time are greater than the interest on the margin, it is okay to go ahead and borrow on margin. In many cases, you may need time to figure out which investments to sell to cover the margin, or perhaps you can do it over time with your income.
Example #3: Year-end tax planning
Let’s say you have a few investments you want to sell so you can redeploy capital in other more attractive investments. If your current investments have significant capital gains, you may want to wait for the new year to sell them so as to not incur additional taxes in the current year.
However, due to traditional tax selling by investors and funds, many investments become quite attractive towards the year-end, which you may want to take advantage of.
Proper use of margin will allow you to bridge the temporary capital gap. For a disciplined investor, margin should always be used in moderation and only when necessary.
When possible, try not to use more than 10% of your asset value as a margin and draw a line at 30%. It is also a great idea to use brokers like TD Ameritrade that have cheap margin interest rates. Remember, the margin interest compounds as long as you keep the margin open.
About the Author: Shailesh Kumar writes about stocks and value investing at Value Stock Guide, where he offers individual stock picks and ideas to registered members. Subscribe to his free stock newsletter for investment ideas that you can use to research further.
No matter the type or amount of investment GoodFinancialCents.com is here to help. Whether it be investing $20,000 or how to invest $500000, we want to help you make the most of your investments!
How Does an Inheritance Advance Work? – SmartAsset
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Taking an inheritance advance is something you might consider if you expect to receive money from an estate, but don’t want to wait for probate to conclude. An inheritance advance, also called a probate advance or probate cash advance, allows you to receive a lump sum of money upfront.
In exchange, you agree to allow the advance company to purchase part of the inheritance. An inheritance advance can put money in your hands quickly, but there are some drawbacks to keep in mind. We will go over the details.
Talking to your financial advisor can help you create a plan for managing an inheritance.
Understanding Inheritance Advances
An inheritance advance is an advance against assets you stand to inherit. It’s similar to a payday advance loan in that you’re getting access to money now that you would otherwise have to wait until later to receive.
An inheritance advance is not a loan since you don’t pay anything back to the lender directly. Instead, you’re allowing the advance company to make a claim against part of the inherited assets you expect to receive. Once probate ends, the estate can pay out the agreed-upon amount to the advance company and forward any remaining assets to you.
Here’s an example of how an inheritance advance might work. Let’s say that your parents leave you $100,000 in their will when they pass away. After probate fees and expenses are paid, you expect to inherit $90,000. But you need $25,000 right now to pay for your child’s college tuition expenses.
You decide to work with an inheritance advance company that requests to purchase 30% of the inheritance or $27,000. In the meantime, the company agrees to pay the $25,000 you need to you in a lump sum. Once probate ends, the advance company collects the $27,000 it purchased and the $25,000 that was advanced to you from the estate, along with its fee. The remaining inheritance money would then be paid out to you.
Benefits of Inheritance Advances
There are several advantages associated with inheritance advances, starting with fast and convenient access to cash. While a probate loan may take several days or weeks to get approved and funded, it may be possible to get an inheritance advance in as little as 24 hours after approval.
Inheritance advances typically don’t require any credit checks, which could make them a good option for borrowers with poor credit. You won’t pay interest on an advance, though again, the lender can charge a flat fee.
An inheritance advance is a flexible way to borrow since you can use the money to cover just about any type of expense. You don’t have to offer any collateral for the advance.
And you don’t have to worry about making payments either since the advance company collects the amount owed to it directly from the estate.
Drawbacks of Inheritance Advances
Taking an advance against an inheritance can have some downsides. And they may not be right for everyone. The obvious drawback is you’re sacrificing part of your inheritance for the convenience of being able to get cash today.
Going back to the previous example, you’d have to consider carefully whether handing over $27,000 plus fees to the advance company is worth getting the $25,000 you need now to pay for education expenses. You might find that another funding option may be preferable.
For instance, taking out a Parent PLUS loan or even a private student loan might be a better alternative. Or you might decide to get a home equity loan instead if you’re comfortable using your home as collateral.
When to Consider an Inheritance Advance
The best time to consider an inheritance advance is when you need money and you’re certain that an inheritance is coming your way. Inheritance advance companies may not advance money to you if there are any doubts about how much you’ll receive or whether you’ll inherit from someone at all.
You might get an advance against your inheritance if you need money urgently and you’ve considered all other borrowing options. Other possibilities for borrowing can include home equity loans, a home equity line of credit or a personal loan. For smaller expenses, you might consider a credit card instead.
If you’re considering an inheritance advance, it can be helpful to estimate how much money you’ll need. You can then shop around to compare inheritance advance companies to see what you might be able to get upfront. Talking to a financial advisor can help you weigh the pros and cons if you’re on the fence about whether an advance is the right move.
How to Get an Inheritance Advance
To get an inheritance advance, you’ll first need to find a company that offers them. You can search online for inheritance advance companies, as this type of funding usually isn’t available at banks or credit unions.
Next, you can look at the advance company’s requirements to see if you’re eligible for an advance. If you’re not sure whether you qualify, you can contact the company for a consultation. If you are eligible, you’ll need to share some details about the inheritance and provide certain documents, including:
Copy of the death certificate
Copy of the will if one is available to you
Probate petition and letters of administration
Valid ID
You’ll also need to give the advance company the name of the executor or trustee who’s handling the estate settlement. You won’t need to provide information about your income or credit scores.
Once the inheritance advance company has everything it needs, it will review your case and make an advance offer. If you accept the offer, the inheritance advance company will pay the money to you, sometimes as quickly as 24 hours later.
Choosing the Right Inheritance Advance Company
An internet search will turn up a number of results for inheritance advance companies, like inheritancefunding.com for example. But it’s important to find the right one to work with. When comparing inheritance advance options, it’s helpful to consider:
How much you can get from an advance
What percentage the advance company purchases
Any fees you might pay and when those are due
Funding speed
It’s also important to look at the company’s overall reputation. Reading customer testimonials and online reviews can give you a better idea of how easy an inheritance advance company is to work with and how satisfied its customers are.
Bottom Line
An inheritance advance can provide financial relief if you expect to inherit money. But time is of the essence. Taking an advance against inherited money does come at a cost, which is important to remember. Looking at all of the pros and cons, and considering other funding options, can help you decide whether an advance makes sense for you.
Estate Planning Tips
Planning out your entire estate can seem overwhelming and difficult. But a financial advisor who specializes in estate planning can help. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
If you have a sizable estate, estate taxes on either the state or federal level could be hefty. However, you can easily plan ahead for taxes to maximize your loved ones’ inheritances. For example, you can gift portions of your estate in advance to heirs, or even set up a trust.
Rebecca Lake, CEPF®
Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She’s worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
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Teenagers tend to have few financial obligations. They may need to work a part-time job to earn spending money, but generally, no one is expecting them to put food on the table or manage important assets. It’s usually understood that high schoolers don’t yet have the life experience or maturity for those kinds of responsibilities.
And yet, we allow them to take out tens and even hundreds of thousands in student loan debt before they turn 18. That’s a financial obligation on par with buying a home, entrusted to kids who can’t even rent a car. Unfortunately, it’s a reality for most young people looking to get a degree.
That’s why every student needs to be prepared for the harsh reality of borrowing so much money. The more prepared you are to pay back those loans as soon as possible, the less likely you’ll be struggling financially in your adult years. A strong repayment approach can mean the difference between a debt-free life in your 20s and a lingering debt burden in your 30s – and thousands in owed interest. Using a loan calculator with amortization schedule will show you how much your payments need to be in order to pay down the loan in a given time frame.
If you’re about to take out student loans or already have them, here’s what you need to know.
Know What Kind of Loans You Have
Student loans often get lumped into one group, but they can vary widely. The two main types are private loans and federal loans. Like their namesake, federal loans are offered by the federal government. A private loan is a loan offered by a private bank or credit union. Most students have federal loans or a mix of both federal and private.
Federal loans are considered a better option than private loans because they have more repayment and forgiveness options. They also tend to have lower interest rates.
Private loans often require a cosigner, someone who will take on the responsibility of paying off the loan if you default or can’t make payments. Most students have their parents act as the cosigner.
Write down what kind of loan you have, the account number, the interest rate and the amount you originally borrowed.
Know How Much You’re Borrowing
Many students sign up for student loans assuming they’ll be able to pay them off easily after graduation. Most don’t realize how much they’re borrowing until they’ve graduated and the loan comes due.
The best thing you can do for your future self is to look at how much you’ve borrowed so far, how much you’re taking out currently and how much you’ll need for the duration of your time in school.
In 2012, Indiana University started sending out letters to current students explaining how much they owed and how much they would have to pay each month after graduating. Those letters proved to be very effective, reducing how much students borrowed by more than 10%. Three years later, the Indiana General Assembly passed a bill mandating that all state schools release similar letters to their students.
Knowing how much you’ve borrowed will make you more aware of your financial reality, and motivate you to find alternate ways of paying for school. You may try to take more classes per semester and graduate early or apply for more scholarships and grants. Even working a few hours a week in the student library or behind the front desk at your dorm can make a significant difference.
Most students borrow the maximum amount they’re allowed, but that’s not always necessary. Do a projection of how much your expenses will be this semester, including rent, groceries, transportation, utilities, parking, books and other fees. If you end up needing less than you anticipated, tell your loan provider that you’d like to take out less. If you need the same, then stick with that amount.
Looking at your loans on a semester-by-semester basis can help you borrow more or less depending on your circumstances. Create a budget each semester and stick to it, so you can be confident in the amount you’ve chosen to borrow.
Know Your Interest Rate
Every loan has its own interest rate which depends on the kind of loan, when you borrowed and other factors. Interest rates for federal student loans are determined by the government, but private lenders are allowed to charge as much as they want. Currently, federal interest rates for undergraduate loans are 5.05% and graduate degree loans are 6.6%. In 2017, the average variable interest rate for a private student loan was 7.81% and the fixed-rate average was 9.66%.
Know You Can Pay Back Your Loans Early
If you have federal loans, you can start repaying them while still in college. If you borrow too much or find a lucrative part-time job, you can use some of your income to pay back your loans. Doing that now will mean lower payments after you graduate.
If you have private student loans that don’t allow early payments, you can still save money in a savings account and put that toward your loans once they become eligible for repayment.
Know If Your Parents Took Out Student Loans for You
It’s not uncommon for parents to take out loans either from the federal government or a private lender. Some parents do so without telling their kids, because they want to help fund their education. Even if your parents don’t expect repayment, it’s always good to have an idea of how much they’ve sacrificed to get you there.
Other parents take out student loans and expect their children to repay them, as well as any individual bonds they borrowed. As a student you won’t have access to your parents’ loan information, so you have to ask them for the specifics. If you know you’ll eventually be on the hook for any debt your parents took out, you need as much information about the loans as possible.
Ask Your Parents if Any of Their Financial Information Will Change
How much grant and scholarship money you’re eligible for is often dependent on your financial need. Your parents’ income is the single most important factor in determining that eligibility.
If your parents’ income doesn’t fluctuate, you’ll generally receive the same amount every year. If your parents get divorced or your single parent remarries, then your FAFSA could look quite different for the coming year. When my friend’s dad lost his job, she immediately qualified for more need-based grants the following semester.
Know When Your Loans are Due
Even if you’re a freshman in college, it’s important to know when your student loans will come due. Federal loans give you a six-month grace period after graduation, so you don’t have to start repayment until the fall if you graduate in the spring. Private loans have their own system determining when the first payment is due, which varies from lender to lender.
If you’re a senior in college and plan to graduate this year, it’s not a bad idea to look up when your first bill is due. You don’t want to graduate May 15 and find out you owe $500 on June 1. Knowing when that first payment will hit can save you months of worry, and help you create a repayment plan in anticipation.
Know That Student Loan Debt is Real Money
When you first take out student loans, it’s easy to feel like the amount you borrow is just a number. You won’t be forced to deal with it for years, so that $50,000 total doesn’t actually feel like $50,000 dollars. For a teen used to making minimum wage at a coffee shop, that amount is hard to wrap your head around.
But make no mistake, that money is very real – and you will have to pay it back eventually. Acknowledging the reality of your situation can help inform the decisions you make about applying for grants and scholarships, working a side job and managing expenses throughout the year.
Talk to a friend or family member who graduated college with student debt and ask them about their experience. They may be able to shed some light on the reality of living with debt after graduation.
Where to Find Help
The financial aid office at your university can help you suss out where your loans are coming from, how much you’ve borrowed and how to contact your lenders. Once you know who your lenders are, you can reach out to them for more specific information.
You can find a list of the loans you’ve taken out by checking your credit report, which you can do via AnnualCreditReport.com. There are three credit bureaus that publish credit histories, so you’ll want to check all three if it’s your first time looking at your report.
Some lenders may fail to report student loans on your credit, so don’t rely on that exclusively. However, if your credit report shows student loans or other loans that don’t look familiar, contact that lender. It’s possible for lenders to report student loans to the wrong person if you have a similar name or social security number.
If you know you’ve taken out student loans and don’t see them on your credit report, that doesn’t absolve you of the debt. Mistakes made by the lender will still affect you, so be vigilant.
The views and opinions expressed in this content are those of the author and do not necessarily reflect the opinion or view of Intuit Inc, Mint or any affiliated organization. This blog post does not constitute, and should not be considered a substitute for legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.
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If you’re expecting an inheritance, you may be wondering how long it will take to receive it. You might consider a probate loan if you need funds sooner rather than later. A probate loan, also referred to as an estate loan, allows you to borrow money against a future inheritance. Probate loans can allow you to access money that may be coming to you following the death of a loved one sooner, but there are some potential disadvantages to keep in mind.
You can also talk to a financial advisor about how to handle an inheritance.
Probate Loans Basics
A probate loan is a loan against an inheritance that’s due to you. You’re borrowing money today against assets that you expect to inherit tomorrow. Like other loans, probate loans must be repaid to the lender with interest, and you’ll typically make payments while the estate is still in probate.
Why do probate loans exist? Simply because probate — the legal process by which someone’s estate is settled after death — can take months to complete. In some cases, probate can take years if the deceased person’s heirs bring challenges against the will or otherwise dispute the distribution of assets.
Probate loans allow heirs to benefit from an anticipated inheritance without the lengthy wait. That may be appealing to heirs who need money to pay for medical bills, unexpected expenses or day-to-day living costs.
How Does a Probate Loan Work?
A probate loan is similar in structure to other loans, in that you borrow a lump sum and repay the money in installments. The lender can charge interest on the loan, along with fees. In most cases, the lender will expect the loan to be repaid in full once the borrower receives their inheritance.
The difference between probate loans and other types of loans lies in what’s needed for approval. While a probate loan lender might check an applicant’s credit score or income, the primary concern is the inheritance itself.
Lenders need to be able to verify that the applicant will receive an inheritance and the amount. Once that’s established, the lender can shape the loan terms, including the loan amount, interest rate and repayment schedule.
Loan amounts are usually a percentage of the inheritance. For example, you might be able to borrow up to 75% of what you expect to inherit. The interest rate on a probate loan can vary by lender but it may be typical of what you’d get with a traditional personal loan.
Probate Loan Advantages
The main benefit or advantage of getting a probate loan is that it allows you to tap into any inherited funds you expect to receive early. You don’t have to spend months or even years waiting for probate to conclude to start putting your inheritance to work.
Probate loans can be used to cover virtually any expense you choose, which could make them a good option if you need to pay for things like:
Home repairs or improvements
Higher education expenses
Medical bills
Emergency expenses
You might prefer a probate loan to other loan options, such as a home equity loan or personal loan. While home equity loans can put a lot of cash in your hands, depending on how much equity you have, they require you to use your home as collateral. Personal loans also allow for flexibility, but you might not be able to borrow as much as you could with a probate loan.
Probate Loan Disadvantages
Probate loans can offer convenience, but they can also be problematic for certain borrowers. For instance, having to make monthly payments toward the loan while you’re waiting for probate to wrap up could place an additional strain on your budget.
A probate loan can be an expensive way to borrow if the lender charges a higher interest rate or tacks on steep fees. A general lack of regulation around these loan products means that borrowers must tread carefully and do thorough research in order to find a reputable lender.
Taking out a loan against your inheritance can also be less than ideal if the estate you’ll inherit from is in dispute. For instance, say your parents pass away, leaving everything to you and your two siblings. Your parents had a will that specified you should get 60% of their assets, since you acted as their caretaker in their final years, while your siblings should get 20% each.
Your siblings decide to contest the terms of the will because they believe that your share of the inheritance is unfair. In that case, attempting to take out a probate loan could stoke the fire if the will contest created conflict between the three of you. You can ask a financial advisor about whether they think a probate loan is a good idea.
Probate Loan vs. Probate Advance
When discussing probate loans, you might also hear the term “probate advance” or “probate cash advance”. While they might sound the same, they’re actually two very different ways to borrow against an inheritance.
With a probate loan, you get a lump sum of money from your inheritance. You then make payments back to the lender in installments with interest, with the remaining amount due paid in full once the inheritance is paid out to you. Any leftover inheritance proceeds remaining after the loan is paid are yours to keep.
A probate advance is an agreement in which the lender purchases part of your inheritance. For instance, say you stand to inherit $100,000 from your parents after probate fees and other expenses are paid. You might enter into an advance agreement that allows the lender to purchase 40% of the inheritance.
You get $30,000 now and when probate ends, the advance company collects the $40,000 it purchased, plus the original advance amount and its fee. Any remaining inheritance funds are paid to you. If your inheritance turns out to be less than expected, you wouldn’t have to pay anything back to the advance company.
How to Get a Probate Loan
If you’re interested in getting a probate loan, you can start by searching for lenders that offer them. You typically won’t find probate loans at a bank or credit union. These loans are usually offered by companies that specialize in inheritance financing.
As you’re shopping around for a lender, it’s important to consider:
Loan amounts and how much you might be able to borrow
Repayment terms
Loan interest rates and fees
The lender’s overall reputation
Once you find the right lender, you’ll need to provide them with some information about you and the inheritance. The lender will verify the inheritance amount in order to determine if they can help you. If so, you’ll need to fill out an application for the probate loan.
Assuming that you’re approved, you should have a chance to review the loan terms and details. If you agree to the loan terms, the lender will provide you with funding, which you can start using right away. In the meantime, you’ll need to make payments to the lender as specified by the loan agreement.
The Bottom Line
Probate loans can be an attractive way to borrow against an inheritance, but it’s important to consider the pros and cons. You may appreciate being able to get money today if you need it, but there may be trade-offs you’re making in the long term. If you’re considering a probate loan, it’s a good idea to compare lenders to see what kind of loan terms you might qualify for. It’s also wise to be clear on whether you’re getting a probate loan or a probate advance, as they don’t work the same way.
Estate Planning Tips
Inheriting money can raise questions about how to make the most of those assets. It can be helpful to talk to a financial advisor about the best ways to use an inheritance, which might include paying off debt, funding an early retirement or covering college expenses for your children. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Have you started planning your own estate yet? If not, there’s no time like the present. The most basic element of any estate plan is a last will and testament. If you don’t have a will, you can create one using an online will-making software program. You may want to talk to an estate planning attorney if you have a more complex financial situation or if you think you might need to create a trust along with a will.
Rebecca Lake, CEPF®
Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She’s worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.