It’s a common misconception that all debt is bad. Some forms of debt—such as student loans, mortgages, and auto loans—can help you improve your professional and personal life. But while debt can be useful, overspending while already in debt can lead to an unmanageable situation.
To find tips to ensure you aren’t adding unnecessarily to your debt or falling behind on payments, we asked Bob G. Wood—a professor of finance at the University of South Alabama’s Mitchell College of Business—to share his top debt-crushing strategies. These tips and ideas can help you gain lasting financial freedom.
Keep reading to learn how to get out of debt and stay there.
1. Avoid increasing what you owe on your credit cards
One of the first steps to getting out of debt is to stop adding to it. While credit cards are a helpful payment option (especially for unplanned expenses), continually building up a card balance that you can’t pay off every month can negatively impact your debt load and your credit score.
“A debt-averse individual pays the total balance on each credit card before the payment due date to avoid interest charges and late fees,” Wood explains. “This approach helps people avoid using the cards to buy things they cannot afford.”
2. Put some investments on hold
If you’re struggling to figure out how to pay off debt, you may want to put discretionary investments on hold until you’re debt-free. (Think: that $100 in crypto your buddy suggests you buy, or the IPO you’ve been reading about.) In some cases, paying off your debt faster will save you more money than your investments can earn. According to Wood, the exception to this rule is investing as a part of your retirement savings strategy, such as in a 401(k).
“I recommend continuing to fund retirement account investments, especially for those individuals with employer-provided accounts,” Wood says. “Many of these accounts provide a match for individual investments into the account, and that provides a 100% return on the individual’s contribution. Also, delaying retirement investment contributions can drastically reduce the future value of the account.”
3. Commit to a plan
While putting extra cash toward debt payments can help you make progress, having a steady plan is necessary to tackle debt efficiently. Wood shared the following steps consumers need to take when they’re budgeting to pay off debt:
Step 1. Differentiate between your needs and wants, and review your current expenses. “Be honest—upgrading to the latest cell phone model or adding items to an already full closet are more than likely wants rather than needs,” Wood says.
Step 2. Develop a realistic budget. Not sure how to budget to pay off debt? Be thoughtful when you create a budget to help keep your spending in check. This new budget should include a fixed monthly amount for debt repayment, beyond any monthly payments for student, auto, or home loans.
4. Choose the ‘snowball’ or the ‘avalanche’ style of debt reduction
When creating a plan to tackle your debt, you may consider the popular “debt snowball method,” which targets the smallest debt first. As soon as this first debt is satisfied, you focus on the next-lowest balance.
While seeing a debt of any size reduced to zero can be incredibly motivating, this approach may come with a cost. “Unfortunately, the strategy often results in more interest paid by the borrower,” Wood explains.
“As an alternative, the ‘debt avalanche method’ targets the highest interest debt first,” Wood explains. “By paying off the debt with the highest interest first, the borrower reduces the total amount of interest paid. Although this approach is more financially sound, it requires the borrower to focus on the long-term result and remain diligent in their payment plan.”
Note that with either of these approaches, staying current on all debt payments is important, meaning that you should pay at least the minimum amount due, while dedicating any extra contributions to the targeted debt.
5. Try to renegotiate your debt
One of the ways to pay off debt is to renegotiate it. While there are no guarantees that a lender will agree to negotiate the terms of your debt, you may have more luck if you’re a long-term customer with a history of on-time payments. In this case, a lender may be willing to waive fees, shift due dates, or even lower the interest rate. And these actions should not affect the individual’s credit rating, Wood notes.
Before committing to an arrangement, you should seek guidance from a professional about your specific situation, needs, and goals.
6. (Carefully) consider a balance transfer vs. debt consolidation loan
Transferring credit card debt to a new account has advantages, as many transfer offers may have an introductory period with an interest rate of 0%. A balance transfer can also reduce multiple payments to one, with a single payment date.
But keep an eye on your calendar so you’re aware of when the introductory period ends and the new interest rate begins.
He explains that debt consolidation is similar in concept, but these balances are typically rolled over into a personal loan for debt consolidation, a home equity loan, or a credit card with a lower interest rate (and concurrent lower payment).
7. Consider a rewards checking account
Looking to make the most of the cash you aren’t spending but still need access to? This is where a rewards checking account such as the Discover® Cashback Debit account can be handy when considering how to budget to pay off debt.
Earn cash back with your debit card
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A rewards checking account can assist consumers in managing their debt by offering perks such as cash back or interest rewards on certain transactions. Consumers can then take those earnings and put them toward debt payments as needed.
8. Make it a family affair
Borrowing money from a trusted family member can help you save a lot on interest, making it easier to get out of debt faster. Let’s say that loved ones lend you the money you need to pay off your high-interest debts in full. You can then focus on paying them back at a lower interest rate or with no interest at all—whatever you agree on.
Just ensure you and your loved ones are on the same page about what this repayment agreement will look like so you don’t strain any relationships.
9. Know when to seek professional help
There may come a point when you need to hire a professional to help with get out of debt planning. “An individual should seek debt counseling when the anxiety associated with the debt interferes with the person’s personal and professional life or when the minimum debt payments are not possible without sacrificing necessities,” Wood says.
“There are both for-profit firms and nonprofit counseling agencies available to help an individual through the process.” The Consumer Financial Protection Bureau offers advice and resources on how to select a reputable counselor.
Consider what strategies might work best for you
There are many different approaches you can implement to help you get debt-free faster. Take some time to devise a realistic plan to tackle your debt so you can pay it off for good and start making your money work for you.
When you’re paying off debt, every boost of extra cash can help. A Discover Cashback Debit Account can help you earn cash rewards on debit card purchases1 with no account fees.
Articles may contain information from third parties. The inclusion of such information does not imply an affiliation with the bank or bank sponsorship, endorsement, or verification regarding the third party or information.
1 On up to $3,000 in debit card purchases each month. See Deposit Account Agreement for details on transaction eligibility, limitations and terms.
Borrowing money for home repairs and other projects this spring can be very expensive. For example, if you take on debt via a 24-month personal loan, you can expect to pay an average interest rate of 12.49%, according to the Federal Reserve. Credit cards charge even higher rates at an average of 21.47% currently.
One way to borrow money at a typically lower rate than credit cards or personal loans is to tap into your home equity with a home equity loan or home equity line of credit (HELOC). However, there are pros and cons to borrowing against your home equity to finance spring repairs, and you might find that certain situations make this financing more feasible than others.
Learn more about the best home equity loan rates you could qualify for here.
When to use home equity for spring repairs, according to experts
Tapping into your home equity can provide several benefits, like saving money on interest charges in the long run and improving your home. Some specific situations to consider using home equity for spring repairs include:
Lowering your taxes
If you can find a way to borrow against your home equity in a way that lowers your total tax liability more than the cost of borrowing, that could be worth it. Through 2025, interest on home equity loans and HELOCs may be deductible if used for making substantial improvements to your home, provided that you meet other stipulations.
“Whether you’re boosting potential resale value or enhancing your home, using home equity for repairs is a great choice, capitalizing on lower interest rates in comparison to unsecured consumer loans, and potential tax deductions,” says Kelly Miskunas, head of capital markets at Better.
That said, tax considerations are not one-size-fits-all.
“Remember to seek personalized tax advice tailored to your financial circumstances,” says Miskunas.
Compare today’s best home equity borrowing options online now.
Improving energy efficiency
Home equity funds could also be beneficial when put toward making energy-efficient upgrades to your home. Doing so could help you lower monthly utility bills, says Karl Jacob, CEO at LoanSnap.
Also, energy efficiency upgrades like adding solar panels and batteries “have substantial tax rebates,” says Jacob. “It’s definitely worth checking the federal and state rules on this.”
Doing important maintenance
Your home equity can also be useful for affording maintenance issues that save you money or boost your home’s value overall.
“Ignoring items that need repair can turn a small repair into a major, costly project,” says Michael Micheletti, chief communications officer at Unlock Technologies.
Home equity financing can also help you afford the required maintenance.
“Taking care of needed repairs also is part of most homeowners’ association regulations; many will impose fees if repairs are not attended to in a timely manner,” says Michaeletti.
When to not use home equity for spring repairs, according to experts
While using home equity for spring repairs is often helpful, not every homeowner benefits from this borrowing. Consider alternatives when:
You don’t have a clear repayment plan
Tapping into your home equity might help you afford the upfront cost of home renovations, but if you don’t have a clear repayment plan, you’re risking a lot.
“When you get a home equity loan or HELOC, it’s important to remember that the loan you’re obtaining is secured by your home as collateral. That means if you do not make timely payments on your loan, the lender has the right to foreclose,” says Miskunas.
So, make sure you know what you’re getting into ahead of time.
“If you don’t have a plan to repay the loan, don’t take the loan,” says Jacob.
You have significant high-interest debt
If you have a lot of existing high-interest debt, you might be better off taking care of that first, before making repairs or upgrades to your home. Rather, you might use home equity financing for debt consolidation instead, which could lower your monthly payments.
“If you have a lot of high-interest debt, like credit cards, use the loan to pay those off before you consider home improvements. We generally advise that you first reduce your debt payments as much as possible since you can then use the extra cash to make the improvements and save money for the long run,” says Jacob.
You’re planning to move soon
If you’re not going to keep your home for a while, it might not be worth going through the cost and effort of taking out a home equity loan and living through home improvement projects. Instead, you might let the next buyer deal with repairs.
“For most repairs, the price can be negotiated into the sale of the home,” notes Micheletti.
The bottom line
Tapping into your home equity can be a great way for many homeowners to afford home improvements this spring, and there are several ways to go about this borrowing. While home equity loans and HELOCs are popular options, some homeowners find that a cash-out refinance works best, such as if you have the ability to lower your overall mortgage rate. Also, some seniors might prefer taking out a reverse mortgage instead so they don’t have to pay back the loan while living in the home.
That said, borrowing against your home equity isn’t without risk. You want to make sure you can afford repayments or understand that it can affect your proceeds if selling your home — or if you move out, in the case of reverse mortgages.
There’s a reason so many people have been struggling to purchase a home this year. Not only are housing prices elevated as a result of low inventory, but mortgages are expensive to sign.
As of this writing, the average mortgage rate on a 30-year loan is 6.82%, according to Freddie Mac. But rates have fluctuated a bit since the start of the year, and they’ll likely continue to do so based on general market conditions.
Meanwhile, most mortgage experts expect rates to cool later in the year. But how low will they go? That’s the big question.
Federal Reserve actions could lower borrowing costs for home buyers
The Federal Reserve raised interest rates 11 times between 2022 and 2023 to help slow the pace of inflation. While the Fed’s actions don’t always completely correlate to movement in mortgage rates, they have the potential to influence them. As such, it’s not a big surprise that mortgages are currently expensive to sign.
There’s some good news, though. Despite the fact that inflation remains stubbornly elevated at over 3%, which is above the 2% level the Fed is targeting, it’s cooled nicely since 2022. As such, the Fed still thinks it can move forward with three interest rate cuts in 2024, the first of which could come within months.
What this means is that mortgage rates could fall quite a bit between now and the end of the year. But it’s tough to get a handle on how low they’ll go.
More: Check out our picks for the best mortgage lenders
Is it conceivable that mortgage rates will drop to about 6%? Yes. Whether they’ll go lower is the big question, and that’s a hard one to answer right now.
In January, the National Association of Realtors projected that mortgage rates would fall to 6.3% by the fourth quarter of the year. But if rates fall to 6.3% at the start of that quarter, they may be closer to the 6% mark by the end of it.
How to lock in the most competitive mortgage rate you can
It’s hard to know exactly how low mortgage rates will go in 2024. So instead of fixating on that, try to focus on steps you can take to set yourself up for a more attractive mortgage rate.
For one thing, try boosting your credit score. You can do so by paying bills on time and shedding some credit card debt. Checking your credit report for errors is also a great idea.
Also, try to work on reducing your debt-to-income ratio. That measures the percentage of your income that’s allocated toward existing debt payments. Paying off some credit card debt could help in this regard, too.
Finally, be prepared to shop around. You never know when one lender might have a better rate to offer you than another.
It’s fair to assume that mortgages will be less expensive to sign by the time 2024 gets close to wrapping up. But how much less expensive is a question that remains tough to answer.
Inside: Learn how to save money quickly, even on a tight budget. Get practical tips for how to save money fast on a low income. Simple savings ideas to implement today.
Saving money on a tight budget can feel like a high mountain to conquer, especially when you’re trying to do it fast.
Many people earn just enough to cover their essential costs, leaving little room for savings. However, with the right strategies, saving money fast on a low income doesn’t have to be a pipe dream.
This is something I started when we decided to pay off debt. Then, we choose to continue saving that money and investing it.
By understanding the flow of your money – where it’s coming from and where it’s going – you can make informed decisions that maximize your savings potential.
By prioritizing your spending and forecasting future expenses, budgeting can reduce the stress of financial uncertainty and introduce a sense of control and confidence in your money management skills. Thus, leading to you starting to save.
What is the best way to save money on a low income?
On a low income, the best way to save money is to thoroughly understand your expenses and prioritize your needs over wants.
In addition, by planning and tracking your finances meticulously, you can identify where each penny is going. Thus, allowing you to analyze your expenses. Once you have a clear picture of these, start looking for areas to trim down.
Remember, saving money is about being proactive and consistent. These small but steady steps can build up over time to help you save money fast, even on a low income.
How to Save Money on A Fast Income
1. Start with Clear Priorities
Before you can decide where to cut costs or how to allocate your funds, you need to know what’s most important to you.
What is your why for doing what you need to do? Is it building an emergency fund, saving for a down payment on a home, or maybe preparing for retirement?
Whatever your goals, outline them clearly. This is how you will save money.
2. Budgeting effectively to manage finances
To budget effectively on a low income, it all starts with a cold, hard look at your numbers.
Begin by listing all sources of income – that’s your foundation.
From each paycheck or income stream, subtract your non-negotiable expenses such as rent, utilities, transportation, and debt payments. What you have left is your discretionary income.
Then, it’s time to categorize and prioritize. Group your expenses into necessities and nice-to-haves. If your essentials consume most of your income, you’ll need to scrutinize the nice-to-haves list.
Every dollar saved from unnecessary splurges is a dollar that can be put towards your savings.
Use budgeting apps or tools to keep a real-time record of your spending. These can help you stay disciplined and provide a visual reminder of your progress.
3. Track and Slash Unnecessary Expenses
Now, you must meticulously and ruthlessly cut out the non-essentials.
Identify patterns and spot the recurrent, unnecessary expenses that are draining your funds.
Do you subscribe to multiple streaming platforms?
Are you forking out cash for a gym membership you barely use?
Are those daily specialty coffee drinks adding up?
It’s time to slash these expenditures.
Cutting these expenses is like giving yourself a raise.
4. Lower Housing Expenses Without Compromising Comfort
Living in smaller, more affordable housing to decrease rent or mortgage might be exactly what you need.
Opting for a smaller, more affordable space is a practical approach to significantly lower your rent or mortgage payments. When you choose to live in a compact setting, not only do you reduce the square footage costs, but often, utility and maintenance expenses decrease as well due to the reduced size of the living area.
If you are renting, try to negotiate your rent or lease terms with your landlord – they might be willing to offer a discount to keep a reliable tenant, or you may be able to agree on lower rent for a longer lease commitment.
If you’re a homeowner, explore the possibility of refinancing your mortgage to take advantage of lower interest rates. Alternatively, consider renting out a room or a portion of your living space, as the additional income can offset your mortgage or maintenance costs.
5. Save Money on Utilities with Simple Home Adjustments
Saving money on utilities might sound challenging, but you can often achieve substantial savings with a few strategic home adjustments. Let’s explore some cost-effective strategies and modifications you can make to your living space that could help reduce your bills.
Energy Efficient Appliances: Swapping out older appliances for Energy Star-rated ones leads to significant reductions in electricity use and water consumption.
Smart Thermostats: Installing a smart thermostat allows you to programmatically control your heating and cooling based on your schedule and preferences, potentially saving you a bundle on your energy bills.
LED Lighting: Switch to LED bulbs, which are more energy-efficient than traditional incandescent ones and have a longer lifespan, saving you on replacement costs as well as your electric bill.
Insulation Upgrades: Proper insulation keeps your home warm in the winter and cool in the summer, reducing the need for excessive heating or air conditioning.
Water-Saving Fixtures: Low-flow showerheads and faucet aerators reduce water usage, preserving this precious resource and lowering your water bill.
Not only do these simple home adjustments lead to savings on your utility bills, but they also contribute to a more environmentally friendly lifestyle.
6. Cooking at home instead of eating out
Cooking at home instead of dining out is an excellent way to save money, especially on a low income. When you eat at a restaurant, you’re not just paying for the food; you’re also covering the cost of service, ambiance, and the establishment’s overhead.
Plan a balance between meal prepped home-cooked meals and the occasional dinner out to keep your budget in check while still enjoying life’s little pleasures. Here are some frugal meals to get you started.
Remember, you don’t have to eliminate eating out entirely.
7. Canceling unused subscriptions and memberships
Stop draining money on services you don’t actively use. It’s surprisingly easy to forget about these auto-renewing expenses, so taking the time to audit your subscriptions can reveal opportunities for savings.
Recently, we tracked over $100 a month in my mother-in-law’s unused subscriptions and membership!
As such, it’s important to periodically evaluate your subscriptions and memberships to ensure they are still serving your interests and goals. If not, give yourself permission to cancel and save that money for something that offers tangible benefits in return.
8. Buying quality items that last longer
Investing in quality items that last longer is a strategic way to save money over time. While the initial cost may be higher, durable products can prevent the cycle of frequent replacements, ultimately contributing to long-term savings and less waste.
Remember, not every purchase necessitates the highest quality option. Examine which items you frequently use and can benefit from in the long run. For instance, driving a Toyota or buying higher quality shoes.
Once you’ve identified these, invest in quality for those and enjoy the satisfaction of a purchase that lasts.
9. Optimize Grocery Shopping
To optimize grocery shopping and manage your food budget effectively, start by thoroughly checking your current pantry supplies and making a precise shopping list to deter impulse purchases.
Utilize coupons and enroll in local store loyalty programs for exclusive discounts.
Embrace meal planning to avoid unnecessary spending.
Consider incorporating meatless meals, as this can contribute to consistent savings over time due to the typically higher cost of meat compared to vegetables and other plant-based options.
Plan meals around these cheap foods when you are broke.
By shopping smartly, you have the power to drastically lower your monthly food bill. Just remember, the key is preparation and discipline.
10. Repairing items instead of replacing them
Repairing items instead of replacing them can be a significant money-saving tactic, especially when budgets are tight. It’s often more cost-effective to fix a piece of furniture, mend a garment, or troubleshoot an appliance than it is to buy new one.
Consider the condition and value of each item before deciding to repair it. If the cost of repair approaches the price of a new item, or if it’s beyond your skill set, researching community resources or seeking professional help may be a wise choice.
11. Practicing the 30-day rule for non-essential purchases
Putting the brakes on impulsive buying can significantly boost your savings, and practicing the 30-day rule is a tried-and-true method to control those urges.
Before you make any non-essential purchase, wait 30 days.
If after a month you still feel the purchase is necessary or meaningful, then consider buying it.
Remember that the goal isn’t to deny yourself enjoyment but to ensure that each purchase is considered and valued. This conscious approach can lead to more satisfaction with the items you do choose to buy and a healthier bank balance.
12. Skip the Car Loan
Opting out of a car loan and finding alternative modes of transportation, such as cycling, walking, or using public transportation, can lead to significant financial savings.
Without a car payment, individuals can redirect the funds that would have gone towards monthly installments, insurance, and maintenance into their savings account.
This strategy can be particularly impactful for those with a goal in mind or working with a low income, as every dollar saved moves them closer to financial stability. Furthermore, the elimination of auto loan interest charges and potential debt can provide a more secure financial footing and peace of mind.
13. Using public transportation or carpooling to reduce fuel costs
Utilizing public transportation or carpooling can be significant in reducing fuel costs, particularly when you’re committed to saving money on a low income. These alternatives to solo driving not only save on fuel but also on parking fees, and wear and tear on your vehicle.
Another option is embracing car-sharing services, especially if you find that you don’t require a car on a daily basis. Services like Turo and Getaround offer the flexibility of having a car when you need one without the constant financial responsibility associated with ownership.
Remember, it’s all about what suits your lifestyle and frequency of need. By assessing how often you need a vehicle and comparing it with the total costs of ownership, car-sharing could be an excellent way to save money.
14. Selling unused or unwanted items for extra cash
Selling unused or unwanted items is a fantastic way to declutter your space and earn extra cash. You might be surprised how much money you can make by letting go of things you no longer use or need. From clothes you’ve outgrown to homeware that’s gathering dust, each item sold can inch you closer to your savings goal.
Take advantage of this opportunity; a thorough home audit could reveal a treasure trove of sellable items right under your nose. Not only does this increase your income, but it also helps you consider future purchases more carefully.
15. Taking advantage of free entertainment and community events
Leveraging free entertainment and community events is a delightfully frugal way to enjoy yourself without breaking the bank. From concerts and exhibitions to workshops and meet-ups, there’s often a wealth of activities that won’t cost you a penny.
In fact, here at Money Bliss, I have the most popular list of things to do with no money.
With a little creativity and resourcefulness, you can uncover a variety of enjoyable and inexpensive things to do.
16. Automating savings to ensure consistent contributions
Automating your savings is a hassle-free way to ensure you consistently contribute to your financial goals.
By setting up an automatic transfer from your checking account to a savings account, you’re essentially paying your future self first.
This ‘set and forget’ approach helps grow your wealth with minimal effort.
17. Negotiating bills and asking for better rates
Many service providers are open to negotiating prices if it means retaining a customer. Whether it’s your cable package, insurance, or even a credit card interest rate, it’s worth having the conversation.
Remember, the worst they can say is no. But often, companies will offer helpful options when they realize you are considering alternatives due to cost concerns.
One phone call could save you $1000 a year – just like when I decreased my cable bill!
18. Evaluating insurance policies for potential savings
When evaluating insurance policies, it’s critical to regularly assess your coverage needs and shop around for the best rates. Comparing policies from different providers annually can reveal opportunities for lowering premiums or finding more suitable coverage.
Utilize online tools and independent insurance agents to ensure a comprehensive review of available options.
Remember to inquire about bundling policies, as this can often lead to significant savings while consolidating your insurance needs effectively.
19. Meal Planning and Prep: Strategies to Reduce Food Waste
By allocating some time each week to plan your meals, you can ensure that you only buy what you need, thereby minimizing waste and cost.
Learning to meal plan starts with looking at a calendar and a local sales flyer to find the low cost deals.
By creating a weekly plan and incorporating budget-friendly recipes, you can not only eat healthier but also avoid the costlier option of dining out.
20. Forgo single use items
By choosing reusable items over single-use ones, you cut down on waste and habitual spending on disposables. This is also known as frugal green.
For instance, investing in a reusable water bottle, rather than buying single use water bottles.
By integrating sustainable products into your life, you also promote a culture of conservation and mindfulness, inspiring others to make eco-friendly choices.
21. Shopping for groceries with a list to avoid impulse buys
This is key! Especially when shopping with kids or a significant other!
Shopping for groceries with a list is a golden rule to avoid impulse buys, which can quickly derail your budget. By planning your purchases beforehand, you stick to the essentials and resist the temptation of sale items that aren’t on your list or don’t fit your meal plan.
Bonus Tip: Remember to always shop on a full stomach – hitting the grocery store hungry is a surefire way to end up with impulse purchases that aren’t on your list!
22. Buying generic brands instead of name brands
Opting for generic brands rather than name brands is a straightforward and effective way to save money on everything from groceries to over-the-counter medications. These products are often of similar quality and effectiveness but come at a significantly lower cost.
By making the switch to generics, especially for regularly used items, the aggregate savings can be substantial over time.
23. Making bulk purchases for commonly used items to save on cost-per-unit
When you buy in larger quantities, the cost per unit typically decreases, leading to savings that add up over time. Bulk buying works best for non-perishable goods or products you use consistently.
Make a point of buying non-perishable items or products with a long shelf life in bulk to avoid waste and ensure that you truly save money with each bulk purchase.
Just make sure you are going to use it!
24. Cutting costs on personal care by DIY methods
DIY methods for personal care are not just a trend – they’re a practical and often healthier alternative to store-bought products. By creating your own beauty and personal care items, you can significantly trim costs and take control of what goes on and into your body.
Even if you’re not the crafty type, consider starting small with something like a DIY sugar scrub or homemade toothpaste. This is something I did over ten years ago. You might discover a new hobby that enhances both your well-being and your budget.
25. Regular maintenance of vehicles and appliances to prevent costly repairs
Keeping on top of maintenance schedules helps prevent major breakdowns that can lead to expensive repairs down the line.
By making regular maintenance a non-negotiable part of your routine, you protect your investments and save yourself from future financial headaches.
I keep a list in my digital to do list, so I never lose track.
26. Shopping at thrift stores, garage sales, or second-hand websites
Shopping at thrift stores, garage sales, or second-hand websites is an excellent way to acquire items at a fraction of the retail cost. Not only are you being financially savvy, but you’re also participating in the circular economy, reducing waste, and often supporting charitable causes.
Shopping second-hand first is not just about saving money—it’s a lifestyle choice. With patience and persistence, it’s amazing what quality items you can find without impacting your wallet heavily.
27. Learning basic sewing to repair clothes
Mastering the basics of sewing to mend your clothes is a skill that pays off in multiple ways. You save money by extending the life of your garments, reducing waste, and developing a practical capability that can come in handy in various situations.
Honestly, sewing a piece of clothes is a very simple thing. Something that must be learned by the younger generations.
Consider setting aside some time to learn sewing basics via online tutorials, community classes, or even from a friend or family member—it’s a practical step toward financial savings and sustainable living.
28. Utilizing coupons and discounts for shopping
Using coupons and discounts strategically can lead to significant savings on your shopping bills. With a little planning and some savvy shopping techniques, you can ensure you never pay full price for essentials and other purchases.
Remember to only use coupons for items you were already planning to purchase; otherwise, you’re not saving money, you’re just spending less on something extra.
29. Consolidating debt to reduce interest rates
Debt consolidation can be a strategic financial move to lower your overall interest rates and simplify your monthly payments. By combining your debts into one loan with a lower interest rate, you can streamline your bills and potentially save significant amounts of money over time.
Make sure to shop around for the best debt consolidation options and read the fine print. The goal is to find a consolidation plan that truly puts you on a faster track to being debt-free without any hidden costs.
30. Tackle High-Interest Debts First to Free Up More Cash
Addressing high-interest debts is paramount in optimizing your financial strategy. Such debts, often from credit cards or payday loans, can spiral out of control if not managed promptly due to their compound interest rates, which can quickly exceed the original amounts borrowed.
This is known as the debt avalanche.
By zeroing in on high-cost debts, you ensure your income is spent more effectively and not wasted on steep interest fees, accelerating your path to financial freedom.
31. Choose the Right High-Yield Savings Account for Your Emergency Fund
Selecting the right high-yield savings account for your emergency fund is an essential move for growing your savings. High-yield accounts offer interest rates significantly higher than standard accounts, ensuring your emergency fund doesn’t stagnate and keeps pace with inflation as much as possible.
This is one of the bank accounts you need.
32. Implement The Envelope System
The Envelope System is a budgeting method that involves physically dividing your cash into envelopes for different spending categories.
Utilizing the cash envelope system promotes disciplined spending by providing a tangible limit on various expense categories, ensuring you stay within your pre-determined budget and facilitating more intentional money management.
This method also offers immediate visual feedback on spending patterns, which can lead to better financial habits and incremental savings as any leftover cash from each envelope can be added directly to a savings fund, making the act of saving more rewarding and motivating.
33. Using cash -back envelopes to track spending
The use of cash-back envelopes takes the traditional envelope budgeting system a step further by rewarding yourself with savings.
Whenever you spend less than the allocated amount in a budget category, you place the cash difference into a “cash-back” envelope, which can be used for saving or investing.
Adopting the cash-back envelope strategy can provide a rewarding twist to budgeting, making it a fun challenge to spend less and save more.
Boost Your Income: Creative Side Hustles and Opportunities
Boosting your income can provide substantial financial relief, particularly when you’ve maximized your ability to cut costs and still find your expenses stretching your budget thin.
Generating extra income, be it through a side hustle or achieving a raise enhances your ability to save and invest.
With additional streams of revenue, you gain more financial flexibility to achieve goals like paying off debt faster, saving for a significant purchase, or building an emergency fund.
Finding a side hustle or part-time job for additional income
Exploring a side hustle or part-time job is a proven way to supplement your income. In today’s gig economy, there are numerous opportunities for flexible work that can be customized to fit your skills and schedule.
A side hustle can not only pad your wallet but also provide an outlet for creativity and passion, possibly even offering a new career trajectory down the line.
Explore Gig Work and Passive Income Streams
Exploring gig work and passive income streams can accelerate your savings efforts, especially when your regular income isn’t enough to reach your financial goals. These alternative income ideas often provide the flexibility to work on your terms and build up earnings over time.
These revenue channels provide a proactive approach to increasing your disposable income. Researching and choosing the best options for your skills and financial situation can help you build a sound extra income strategy.
Take Advantage of Bank Bonuses and Credit Card Bonuses
Banks often offer attractive incentives to new customers, and high-interest savings accounts can grow your deposits at a faster rate than traditional accounts. The same is true for credit card issuers offering big bonuses.
Taking time to research the best offers and account terms can net you a nice bonus and put your money to work earning more money.
Learn How to Invest Your Money
Learning how to invest your money is paramount to building wealth over time. While it can seem intimidating at first, understanding the basics of investing can enable you to take advantage of compounding interest and market growth to increase your savings exponentially.
Start small, stay disciplined, and continually educate yourself as you grow your investment portfolio. Over time, your investments can become a significant source of wealth and financial security.
Learn how to invest in stocks for beginners.
FAQs: Navigating the Path to Low-Income Savings Success
Saving money when your income barely covers your fixed expenses requires a strategic approach. Begin by scrutinizing your budget to cut any non-essential costs.
Look for ways to reduce your fixed monthly expenses, like negotiating bills or refinancing loans.
Every small change can contribute to your savings, so focus on making incremental adjustments that together can enhance your financial situation.
Even when funds are tight, saving money is possible by making small but impactful changes.
Prioritize reviewing your expenses and identifying areas to cut back, such as non-essential subscriptions or eating out.
Round up loose change or small amounts from your daily transactions into savings.
Seek free entertainment options and consider generating additional income through side hustles or selling items you no longer need.
Each penny saved is a step towards your financial cushion.
Setting Realistic Savings Goals and Celebrating Milestones
Setting realistic savings goals is a key to financial success, particularly when managing a low income.
Determine what you can feasibly save without overstretching your budget. Whether it’s $5 or $50 per week, every bit helps.
Celebrating your achievements, no matter how small, can inspire continued discipline and dedication towards your financial objectives.
Being realistic and flexible with your budget will help you manage your finances more efficiently, ensuring that you set aside money for future growth, even when funds are tight.
This is a great step towards habits of financially stable people!
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Managing debt can be a daunting task, but with the right strategies, you can make it easier to pay off and keep your finances in check.
Whether you’re trying to pay off credit card debt, student loans, or other types of debt, there are several strategies you can use to make the process easier.
Benefits of Effective Debt Management
Managing debt effectively is important for several reasons. First, carrying high levels of debt can be a financial burden and may prevent you from achieving their financial goals.
It can also have a negative impact on credit scores. This can make it more difficult and expensive to borrow money in the future.
Finally, failing to manage debt effectively can lead to financial distress and potentially even bankruptcy. By taking steps to pay off debt and reduce the amount of debt that is owed, you can improve their financial stability and well-being.
What is debt management?
Debt management is the practice of organizing and paying off debts through financial planning and budgeting. The goal is to lower and eventually eliminate debt. You can create your own debt management plan or hire a credit counselor to make one for you.
The advantage of doing it yourself is that it’s free, but it takes time and effort. Credit counseling can take stress off your shoulders, but is an added expense. There are many methods for debt management that you can implement on your own.
Assessing Your Debt
Gathering Debt Information
To effectively manage your debt, you first need to identify all debts and gather relevant information about each one. This includes the creditor, balance, and interest rate for each debt.
If you don’t already have a list of all your debts, you can review most of them on your credit reports. Regularly reviewing your credit report is an important financial habit to get into. You can request a free credit report from each of the three consumer credit bureaus at least once per year.
It can be helpful to create a spreadsheet or use a budgeting tool to keep track of all your debts, including the creditor, balance, and interest rate for each one.
Calculating Total Debt
Once all debts have been listed, it is helpful to calculate the total amount of unsecured debt that is owed. This can give you a better understanding of your overall financial situation and the work that needs to be done to pay off your debts.
Identifying High-Interest Debts
After calculating total debt, you should identify which debts have the highest interest rates. These debts may be a higher priority to pay off, as the interest will continue to accrue and potentially increase the total amount owed.
By focusing on paying off high-interest debts first, you can save money in the long run and make progress in paying off their debts more quickly.
Develop a Plan to Pay Off Debt
Developing a plan to pay off debt is crucial for financial stability and well-being. By identifying a strategy for paying off debts and sticking to it, you can make progress in reducing their debt and improving their financial situation.
Reduce Interest Rates
You may be able to reduce the interest rates on your debts by negotiating with creditors or transferring balances to a credit card with a lower interest rate. It is worth considering these options as they can save money on interest and make it easier to pay off debts.
Create a Budget
Creating a budget can help you identify areas where you can cut expenses and redirect those funds towards paying off debt. This may involve reducing discretionary spending, such as dining out or entertainment. You should also find ways to reduce fixed expenses, such as by shopping around for the best rates on utilities or insurance.
Humans are creatures of habit, and even when we’re in debt, the last thing we want to do is change our lifestyle. But any good debt management plan has to at least consider where your expenses could potentially be reduced. The more you can cut back on other expenses, the quicker you can get yourself out of debt.
It doesn’t have to be a long term change. Even reducing expenses for a few months can help.
Here are some examples of expenses you may be able to reduce:
Minimize entertainment subscriptions, or see if you can save by switching plans.
Minimize dining out and take your lunch to work.
Cancel your gym membership and work out at home.
Knowing your own finances in detail will help you find ways to reduce your expenses. Even if you work with a credit counseling organization, nobody is better placed to figure out how to reduce your costs than you are.
Consolidate Your Debts
One option for paying off debt is to consolidate multiple debts into one loan with a lower interest rate. This can make it easier to manage multiple debts and potentially save money on interest.
Debt consolidation options include taking out a personal loan or using a home equity loan or line of credit. Another option is transferring balances to a credit card with a lower interest rate.
Be sure to carefully review the terms and fees associated with consolidation options and ensure that they are a suitable fit for your financial situation.
Set Goals and Track Progress
To stay on track with paying off debt, it can be helpful to set specific goals and track progress towards achieving them. This may involve setting a target for the amount of debt to pay off each month or quarter.
It could also involve setting a goal for the total amount of debt to pay off by a certain date. Tracking progress can help you stay motivated and see the progress that they are making in reducing their debt.
More Tips on Managing Your Debt
Here are some additional tips for managing your debt that can help you effectively pay off what you owe and improve your financial situation:
Pay More Than the Minimum Payment
Making more than the minimum credit card payment can help you pay off your debts more quickly and save money on interest. Credit card companies typically set a minimum payment that is calculated as a percentage of the balance owed.
Making the minimum payment may be sufficient to avoid late fees and negative marks on your credit history. However, it may not make a significant dent in the overall balance. By paying more than the minimum each month, you can reduce the total amount of interest that you pay over time and make progress in paying off your debts.
Avoid Taking on New Debt
While you’re working on paying off your existing debt, try to avoid taking on new debt. This will make it easier to focus on paying off what you already owe.
Consider Setting up Automatic Payments
There are several benefits to setting up automatic payments for your bills:
Convenience: Automatic payments take the hassle out of remembering to pay your bills on time. You can set them up once and forget about it, knowing that your bills will be paid automatically each month.
Avoid late fees: If you forget to pay a bill, you may be charged a late fee. By setting up automatic payments, you can avoid these fees and save money.
Improve credit score: Paying your bills on time is a key factor in determining your credit score. By setting up automatic payments, you can ensure that your bills are paid on time and improve your credit score.
Simplify budgeting: When you know exactly when your bills will be paid each month, it can be easier to budget and manage your money.
Contact a Reputable Credit Counseling Agency
If your debt has gotten out of control, contact the National Foundation for Credit Counseling (NFCC) for detailed, personalized financial counseling and education. They can help you explore different ways to pay down debt.
A credit counselor can provide advice and assistance with developing a personalized plan for paying off debt and improving financial health. Credit counselors can also help you negotiate with creditors and create a debt management plan.
Seeking professional help can be especially beneficial if you are experiencing financial distress or are at risk of falling behind on monthly payments.
Bottom Line
In modern America, completely avoiding debt is difficult and potentially harmful. However, incurring debt without managing it effectively can be even worse. Follow the tips above, and you’re sure to get a solid handle on debt and use it skillfully.
Frequently Asked Questions
Should I pay off my debt with the highest interest rate first?
It can be a good idea to pay off your debts with the highest interest rates first, as these debts will cost you more in the long run. This is known as the “debt avalanche” method. Alternatively, you can also consider the “debt snowball” method, where you focus on paying off your smallest debts first to build momentum.
See also: Debt Snowball vs. Debt Avalanche
How can I create a budget to help me pay off my debt?
To create a budget, start by listing all of your income sources and all of your expenses, including your debt payments. Then, try to find ways to cut back on your expenses and redirect that money towards paying off your debt. You can also consider increasing your income by taking on a part-time job or negotiating for a raise at work.
What is debt consolidation?
Debt consolidation is the process of rolling multiple debts into a single new loan product with one monthly payment. This brings your payment schedule into a more manageable place.
Ideally, consolidated loans will come with lower interest rates and more manageable payment terms. Personal loans and 0% interest balance-transfer credit cards are among some of the most common debt consolidation options.
What is debt settlement?
Debt settlement is the process of negotiating with a creditor to reduce the level of your outstanding balance. This is one of the last resorts for those who have trouble paying their debts in full.
The process involves working with a debt settlement company to negotiate with creditors on your behalf. Generally speaking, creditors will only entertain debt settlement for debt that isn’t current.
It’s important to note that debt settlement requires you to stop making payments, which will harm your credit score. Debt settlement companies will also take their cut on top of any fees charged for successfully negotiating.
If you choose to take this route, make sure you find a reputable debt relief company to work with.
How can I rebuild my credit after paying off my debt?
After paying off your debt, you can rebuild your credit by making all of your payments on time. You should also try to keep your credit utilization low and diversify your credit mix. Other options include applying for a secured credit card or becoming an authorized user on someone else’s credit card to help establish a positive credit history.
A lower credit score doesn’t necessarily mean a lender will deny you a home equity loan. It does mean the loan will be more expensive, as you won’t get the lowest interest rate.
It’s possible to get a home equity loan with a fair credit score — as low as 620 — as long as other requirements around debt, equity and income are met.
Strategies for getting a loan despite your bad credit include taking on a co-signer, applying to a place where you currently bank, and writing a letter of explanation to the lender.
Alternatives to a home equity loan include personal loans, cash-out refinances, reverse mortgages and shared equity agreements.
Can you get a home equity loan with bad credit?
Yes, you can. A lower credit score doesn’t necessarily mean a lender will deny you a home equity loan. Some home equity lenders allow for FICO scores in the “fair” range (the lower 600s) as long as you meet other requirements around debt, equity and income.
That’s not to say it’ll be easy: Lenders tend to be stringent, even more so than they are with mortgages. Still, it’s not impossible. Here’s how to get a home equity loan (even) with bad credit.
Requirements for home equity loans
Not all home equity lenders have the exact same borrowing criteria, of course. Still, general guidelines do exist. Typical requirements for home equity loan applicants include:
A minimum credit score of 620
At least 15 percent to 20 percent equity in your home
A maximum debt-to-income (DTI) ratio of 43 percent, or up to 50 percent in some cases
On-time mortgage payment history
Stable employment and income
To learn the requirements for a home equity loan with a specific lender, you’ll need to do some research online or contact a loan officer directly. If you aren’t ready to apply for the loan just yet, ask for a no-credit check prequalification to avoid having the loan inquiry affect your credit score.
What are “good” and “bad” scores for home equity loans?
First, let’s define our terms. Here’s how FICO — the most popular credit scoring model — categorizes different scores:
Score
Classification
Source: MyFico.com
300-579
Poor
580-669
Fair
670-739
Good
740-799
Very Good
800-850
Excellent
When it comes to home equity loans, lenders set a high bar for creditworthiness — higher, even, than mortgages. That’s because they are considered riskier than mortgages: You, the applicant, are already carrying a big debt load. Should you default and your home get seized, the home equity loan — as a “second lien” — only gets paid after the primary (the original) mortgage.
Furthermore, home equity loans don’t have government backing, like some mortgages do. The lender bears all the risk.
So home equity lenders set stricter criteria, demanding scores squarely in the “fair” range. A score in the 500s – good enough for an FHA mortgage — will have a tough time qualifying for a home equity loan. Some lenders have loosened their standards of late and are approving applicants with scores as low as 620. But a “good” score, preferably above 700, remains the threshold for many institutions. It can vary even within one lender, depending on factors like the loan amount or other loan terms.
And of course — as with any loan — the lower your credit score, the less likely you will qualify for the best interest rates.
How to apply for a bad credit home equity loan
Before applying for a home equity loan, remember that it’s not just a question of getting the financing, but also how you can overcome a lower credit score to get the best possible rate. Here are some steps to take:
1. Check your credit report
While it’s possible to get a home equity loan with bad credit, it’s still wise to do all you can to improve your score before you apply (more on that below). A better credit score gets you a better rate. It can also help you get a bigger loan (up to the tappable amount of your equity, of course).
Check your credit reports at AnnualCreditReport.com to get a sense of where you stand. If there are any errors, like incorrect contact information, contact the credit bureau — Equifax, Experian or TransUnion — to get it updated as soon as possible.
2. Determine your equity level
To qualify for a home equity loan, lenders typically require at least 15 percent or 20 percent equity. The amount of equity you have, your home’s appraised value and combined loan-to-value (CLTV) ratio help determine how much you can borrow.
Home Equity
Bankrate’s home equity loan calculator can quickly estimate your potential home equity loan amount.
To estimate your home’s equity, take the value of your home and subtract the balance left on your mortgage. While lenders will only consider the official appraised value of your home when determining how much you can borrow, you can get an idea of your home’s value through Bankrate or a real estate listing portal or brokerage. Let’s say your home is worth $420,000 and you have $250,000 to pay on your mortgage:
$420,000 – $250,000 = $170,000
In this example, you’d have $170,000 in home equity. That doesn’t mean you can borrow $170,000, however. If the lender requires you to maintain at least 20 percent equity, you’d need to preserve $84,000 ($420,000 * 0.20). That leaves you with a home equity loan of up to $86,000 ($170,000 – $84,000).
Say you want to add a $60,000 home equity loan to the mix. That would increase your total mortgage debt — for both your first mortgage and the home equity loan — from $250,000 to $310,000.
That 20 percent equity requirement also means you’d need a CLTV ratio of 80 percent or lower. To calculate your CLTV ratio, divide the total mortgage debt ($310,000) by the value of your home ($420,000):
($250,000 + $60,000) / $420,000 = 73.8%
In this example, you’d be under the lender’s 80 percent CLTV requirement.
3. Find out your DTI ratio
The DTI ratio is a measure lenders use to determine whether you can reasonably afford to take on more debt. To calculate your DTI ratio, simply divide your monthly debt payments by your gross monthly income. For example, say you bring in $6,000 a month in income and have a $2,200 monthly mortgage payment and a $110 monthly student loan payment:
$2,310 / $6,000 x 100 = 38.5%
To make things even easier, you can use Bankrate’s DTI calculator.
For a home equity loan, most lenders look for a DTI ratio of no more than 43 percent.
4. Consider a co-signer
If your credit disqualifies you for a home equity loan, a co-signer with better credit might be able to help, in some cases.
“A co-signer can help with credit and income issues for an applicant who has a lower credit score, but ultimately the main applicant or primary borrower will have to have at least the bare minimum credit score that is required based on the bank’s underwriting guidelines,” says Ralph DiBugnara, president of Home Qualified, a real estate platform for buyers, sellers and investors.
A co-signer is just as responsible for repaying the loan as the primary borrower, even if they don’t actually intend to make payments. If you fall behind on loan payments, their credit suffers along with yours.
5. Try a lender you already work with
If your bank, credit union or mortgage lender offers home equity products, it might be able to extend some flexibility, or at least help with your application, since you’re an existing customer.
“A loan officer familiar with the details of an applicant’s situation can help them present it to an underwriter in the best possible way,” says DiBugnara.
6. Write a letter to the lender
Write a letter of explanation describing why your credit score is low, especially if it has taken a recent hit. This letter should matter-of-factly explain credit issues — avoid catastrophizing — and include any relevant paperwork, like bankruptcy documentation. If your credit score was impacted by late payments due to job loss, for example, but you’re employed now, your lender can take this context into consideration.
Lenders that offer home equity loans with bad credit
There are home equity lenders that offer loans to borrowers with lower credit scores. Here are some to consider, along with requirements:
Lender
Bankrate Score (scale of 1-5)
Loan types
Credit score minimum
Maximum CLTV
Maximum DTI
Figure
4.37
HELOC
640
75%-90%
Undisclosed
Guaranteed Rate
3.3
HELOC
620
90%-95%
50%
Spring EQ
2.7
Home equity loan, HELOC
620 for home equity loans, 680 for HELOCs
Up to 97.5%
43%
TD Bank
4.0
Home equity loan, HELOC
660
Undisclosed
Undisclosed
Connexus Credit Union
3.5
Home equity loan, HELOC
640
90%
Undisclosed
Discover
4.4
Home equity loan
660
90%
43%
Pros and cons of getting a home equity loan with bad credit
Getting a home equity loan with bad credit has its benefits and drawbacks. You can tap your equity to help with expenses, but it’s also risky.
Pros
You’ll pay a fixed rate: Home equity loans are for a fixed sum at a fixed interest rate, so you’ll know exactly how much your payment is each month. This can help you budget for and reliably pay down debt, which can help boost your credit score.
You could get out of costlier debt: If you have high-interest debt — like credit card debt — you could pay it off with a lower-rate home equity loan, then repay that loan, with one payment, for less.
Cons
You’re taking on more debt: If you’ve had trouble managing money in the past, it might not be wise to take on more debt with a home equity loan, even if you qualify.
It’ll be more expensive: A lower credit score won’t qualify you for the best home equity loan rates, meaning you’ll pay more in interest.
You could lose your home: If you fall behind on loan payments, you’ll further damage your credit. Even worse: If you’re eventually unable to pay back the loan, your home could go into foreclosure.
What to do if your home equity loan application is denied
If your application for a home equity loan is rejected, don’t despair. First, ask the lender for specific reasons why your application was denied. The answer can help you address any issues before applying in the future.
If your credit was one of the deciding factors, you can improve your score by making on-time payments and paying down any outstanding debt. If you don’t have enough equity in your home, wait until you’ve built a bigger stake (mainly by making your monthly mortgage payments) before submitting a new application.
Both these approaches may take a half-year to a year to make a significant difference in your credit profile. If you’re in more of a hurry, consider applying to other lenders, as their criteria may differ. Just bear in mind that more lenient terms often mean higher interest rates or fees.
And of course, you can consider other forms of financing.
Home equity loan alternatives if you have bad credit
If you need cash but have bad credit, a home equity loan is just one option. Here are some alternatives:
Personal loans
Personal loans can be easier to qualify for than a home equity product, and they aren’t tied to your home. This means that if you fail to repay the loan, the lender can’t go after your house. Personal loans have higher interest rates, however, and shorter repayment terms. This translates to a more expensive monthly payment compared to what you might get with a home equity loan.
Cash-out refinance
In a cash-out refinance, you take out a brand-new mortgage for more than what you owe on your existing mortgage, pay off the existing loan and take the difference in cash. Most lenders require you to maintain at least 20 percent equity in your home in order to cash out.
A caveat, however: A cash-out refi makes the most sense when you can qualify for a lower rate than what you have on your current mortgage, and if you can afford the closing costs. With bad credit, getting that lower rate might not be possible.
Reverse mortgage
Reverse mortgages allow homeowners over the age of 62 to tap their home’s equity as a source of tax-free income. These types of loans need to be repaid upon your death or when you move out or sell the home. You can use reverse mortgages for anything from medical expenses to home renovations, but you must meet some requirements to qualify.
Shared equity agreement
Home equity investment companies might work with you even if you have a lower credit score, often lower than what traditional lenders would accept. These companies offer shared equity agreements in which you receive a lump sum in exchange for an ownership percentage in your home and/or its appreciation.
Unlike with home equity lines of credit (HELOCs) or home equity loans, you don’t make monthly repayments in a shared equity arrangement. Some companies wait until you sell your home, then collect what they’re owed; others have multi-year agreements in which you’ll pay the balance in full at the end of a stated period.
Make sure you understand all the terms of this complex arrangement. Technically, you’re not borrowing money, you’re selling a stake in your home — to a financial professional who naturally wants to see a return on their investment.
How to get a HELOC with bad credit
Applying for a HELOC is pretty much the same as applying for a home equity loan, but if you have bad credit, a loan might have a slight edge over the line of credit. That’s because home equity loans have fixed interest rates and fixed payments, so you’ll know exactly what you need to repay each month. This predictability could help you better manage your budget and keep up with payments.
A HELOC, on the other hand, has a variable rate, which can cause unexpected increases in your monthly payments. For this reason, lenders often have higher credit score criteria for HELOCs than home equity loans.
Tips for improving your credit before getting a home equity loan
To increase your chances of getting approved for a home equity loan, work on improving your credit score well before applying — at least several months. Here are three tips to help you improve your score:
Pay bills on time every month. At the very least, make the minimum payment, but try to pay the balance off completely, if possible — and don’t miss that due date.
Don’t close credit cards after you pay them off. Either leave them open or charge just enough to have a small, recurring payment every month. That’s because closing a card reduces your credit utilization ratio, which can decrease your score. The recommended utilization ratio: no more than 30 percent.
Be cautious with new credit. Getting a higher credit limit on a card or getting a new card can lower your credit utilization ratio — but not if you immediately max things out or blow through the bigger balance. Treat the newly available funds as sacred savings.
FAQ on getting a home equity loan with bad credit
In general, it’s better to get a home equity loan with bad credit. A home equity loan often has a lower credit score requirement compared to a HELOC, and it comes with a fixed interest rate, so your payment will be the same every month, making it easier to plan for.
Yes — in fact, this is the rule for any type of loan, including a home equity product. The higher your credit score, the lower your interest rate.
Deciding on a streaming service can be a difficult choice when there are so many companies and plans to choose from. Many households subscribe to popular platforms like Netflix and Prime Video, but there are a multitude of other options including Sling TV, which had about 2 million subscribers as of the fourth quarter of 2023.
Sling TV is a streaming platform owned by Dish Network that has live TV, including sports, and on-demand shows and movies. There are no contracts and you can cancel at any time.
You can stream for free or pay for upgraded services with a subscription. Read on to find out the features each plan offers.
How much is Sling Freestream per month?
As the name implies, Sling Freestream is free. You don’t even need an account to access it, though creating one will give you a more personalized experience like being able to create a favorite watch list.
While shows include ads, Freestream has over 500 live TV channels and a library of 40,000 on-demand shows and movies.
If you’re looking for a no-cost solution for streaming and you don’t mind watching ads, Freestream could be a good choice. If you want the most current live program selections, Sling TV’s paid subscriptions provide that.
How much is Sling TV per month?
Sling TV has several paid subscriptions for live TV: Sling Orange, Sling Blue and Sling Orange + Blue. All of the plans are ad-supported, but include 50 hours of DVR storage so you could record shows and fast-forward through commercials.
Prices vary based on location, and first-month price promotions are common. Input your ZIP code on Sling’s website to see pricing and features available for each plan in your area.
Sling Orange
Sling Orange typically costs $40 per month and comes with 32 channels, including seven sports and family channels like ESPN and Disney that can’t be found on Sling Blue’s plan. You’ll be able to stream on just one device at a time with the Orange plan.
Sling Blue
Sling Blue varies from $40 to $45 per month depending on your location. With Sling Blue, you won’t get the family and sports channels available on Sling Orange, but you will get other channels that Orange doesn’t have like Bravo and FX. You can stream on up to three devices at one time on this plan.
Sling Orange + Blue
Deciding between Sling Orange and Blue may not be a straightforward choice as each includes popular channels that the other doesn’t. Determining which one to go with comes down to what your viewing preferences are and the channels you want.
If you want access to all channels, you can get Sling Orange + Blue for $55 to $60 per month. This plan combines the Orange and Blue channel packages into one subscription. While you’ll pay a little extra for this plan, you won’t have to worry about missing a game on ESPN or not catching the latest reality shows on Bravo because you’ll have access to the full channel lineup.
Sling TV extras
One of the unique features of Sling TV is the ability to create your own add-ons, or Extras as Sling refers to them, to customize your viewing experience. Extras are mini-channel collections that can be added to your subscription.
There are specific offerings available for Orange and Blue plans so you’ll want to check Sling’s website to see which channel collections are available for your subscription type.
Extras range from $6 to $11 per month and include the following categories:
Entertainment Extra: $6 per month for extra entertainment channels such as Paramount Network and MTV.
Heartland Extra: $6 per month for outdoor sporting channels like Sportsman Channel.
Hollywood Extra: $6 per month for movie-focused channels like Sundance TV and TCM.
Kids Extra: $6 per month for children’s channels like Disney Junior and NickToons.
Lifestyle Extra: $6 per month for lifestyle content such as Hallmark Channel and Cooking Channel.
News Extra: $6 per month for national and world news channels like BBC World News and News Nation.
Sports Extra: $11 per month for sports channels like NHL Network and MLB Network.
You also have an option to buy more than one Extra for a small cost savings. For instance, for $13 per month, you can get a bundle that includes four Extras, which is a savings of about $10 per month compared with buying each Extra without the grouped pricing.
For subscribers seeking premium channels, like Showtime or Starz, those can be added for an additional monthly fee. There are currently about 35 premium Extras to choose from, depending on where you live; they range in monthly price from $1.99 to $10.
How Sling TV might fit into your budget
A helpful budgeting method is the 50/30/20 budget, where you allocate 50% of your income to needs and minimum debt payments, 30% to wants, and 20% to savings and debt repayment beyond those minimums.
A streaming service like Sling TV usually falls into the 30% wants category, meaning it would be nice to have but isn’t essential to your survival in the same way that needs are.
With hundreds of streaming services to choose from, knowing how much you can spend in your wants category — and what streaming features you value most — is a good starting point in making a selection.
You could look for ways to save money by reviewing Sling TV’s offerings to see if there are any deals you can score.
For instance, if you don’t want to commit to a paid subscription but Freestream doesn’t quite fit your needs, you could explore purchasing standalone channels. You don’t need a Sling base service to add Extras like Showtime or Starz. Standalone channels start at $3 per month.
You can also take advantage of Sling TV’s promotions, which we’ve seen with $10 to $25 off the first month.
If you need a streaming device, Sling TV currently gives new subscribers an AirTV Mini — a device optimized specifically for Sling — for free when you prepay two months.
The main types of mortgages are conventional loans, government-backed loans, jumbo loans, fixed-rate loans and adjustable-rate loans.
There are other types of mortgages for various purposes, such as building or renovating a home or investing in property.
The right mortgage for you depends on the strength of your credit score and finances along with your goals.
Most of us need a mortgage to buy a home, but this type of loan isn’t one-size-fits-all. To help you find the right home loan for your needs, here’s our guide to the five main types of mortgages.
Types of home loans
There are five main kinds of mortgages, each with their own benefits and features.
Conventional loan: Best for borrowers with good credit scores
Jumbo loan: Best for borrowers with good credit looking to buy a more expensive home
Government-backed loan: Best for borrowers with lower credit scores and minimal cash for a down payment
Fixed-rate mortgage: Best for borrowers who’d prefer a predictable, set monthly payment for the duration of the loan
Adjustable-rate mortgage: Best for borrowers who aren’t planning to stay in the home for an extended period, prefer lower payments in the short term or are comfortable with possibly having to pay more in the future
1. Conventional loan
Conventional loans, the most popular type of mortgage, come in two flavors: conforming and non-conforming.
Conforming loans: A conforming loan “conforms” to a set of Federal Housing Finance Agency (FHFA) standards, including guidelines around credit, debt and loan size. When a conventional loan meets these standards, it’s eligible to be purchased by Fannie Mae and Freddie Mac, the two government-sponsored enterprises (GSEs) that back much of the mortgage market.
Non-conforming loans: These loans do not meet one or more of the FHFA’s standards. One of the most common types of non-conforming loan is a jumbo loan, a mortgage in an amount that exceeds the conforming loan limit. Non-conforming loans can’t be purchased by the GSEs, so they’re considered a riskier prospect for lenders.
Pros of conventional loans
Available from the majority of lenders
Can be used to finance primary residences, second or vacation homes and investment or rental properties
Can put down as little as 3% for a conforming, fixed-rate loan
Cons of conventional loans
Need a credit score of at least 620 to qualify
Lower debt-to-income (DTI) ratio threshold compared to other types of mortgages
Need to pay private mortgage insurance (PMI) premiums if putting less than 20% down
Who are conventional loans best for?
If you have a strong credit score and can afford to make a sizable down payment, a conventional mortgage is the best pick. The 30-year, fixed-rate option is the most popular choice for homebuyers. Compare conventional loan rates.
2. Jumbo loan
Jumbo mortgages are home loans in an amount that surpasses FHFA’s conforming loan limits. In 2024, that means any loan over $766,550, or $1,149,825 in higher-cost areas. Because these are bigger loans ineligible to be purchased by the GSEs, they can present more risk.
Pros of jumbo loans
Can finance a more expensive home
Competitive interest rates, nowadays on par with those on conforming loans
Often the only option in areas with high home values
Cons of jumbo loans
Not available with every lender
Higher credit score requirement, often a minimum of 700
Higher down payment requirement, often 10% to 20%
Who are jumbo loans best for?
If you’re looking to finance a home with a purchase price exceeding the latest conforming loan limits, a jumbo loan is the best route. Compare jumbo loan rates.
3. Government-backed loan
The U.S. government isn’t a mortgage lender, but it does play a role in making homeownership accessible to more Americans by backing three main types of mortgages:
FHA loans: Insured by the Federal Housing Administration (FHA), FHA loans can be had with a credit score as low as 580 and a 3.5 percent down payment, or a score as low as 500 with 10 percent down. FHA loans also require you to pay mortgage insurance premiums, adding to your costs. These premiums help the FHA insure lenders against borrowers who default. In addition, you can’t borrow as much money with an FHA loan; its ceiling is much lower than those on conventional conforming loans.
VA loans: Guaranteed by the U.S. Department of Veterans Affairs (VA), VA loans are for eligible members of the U.S. military (active duty, veterans, National Guard and Reservists) as well as surviving spouses. There’s no minimum down payment, mortgage insurance or credit score requirement, but you’ll need to pay a funding fee ranging from 1.25 percent to 3.3 percent at closing.
USDA loans: Guaranteed by the U.S. Department of Agriculture (USDA) loans help moderate- to low-income borrowers buy homes in rural, USDA-eligible areas. These loans don’t have a credit score or down payment requirement, but do charge guarantee fees.
Pros of government-backed loans
Much more flexible credit and down payment guidelines
Help borrowers who wouldn’t otherwise qualify
Cons of government-backed loans
Additional cost for FHA mortgage insurance, VA funding fee and USDA guarantee fees
Limited to borrowers buying a home priced within FHA loan limits or in a rural area, or servicemembers
Who are government-backed loans best for?
If your credit or down payment prevents you from qualifying for a conventional loan, an FHA loan can be an attractive alternative. Likewise, if you’re buying a home in a rural area or are eligible for a VA loan, these options might be easier to qualify for. Compare FHA loan rates and VA loan rates.
4. Fixed-rate mortgage
Fixed-rate mortgages maintain the same interest rate over the life of your loan, which means your monthly mortgage payment (the loan principal and interest) always stays the same. Fixed loans typically come in terms of 15 years or 30 years, although some lenders offer flexible term lengths.
Pros of fixed-rate mortgages
Fixed monthly mortgage payment
Easier to budget for
Cons of fixed-rate mortgages
Interest rates usually higher than introductory rates on adjustable-rate loans
Need to refinance to get a lower rate
Who are fixed-rate mortgages best for?
If you’re planning to stay in your home for some time and looking for the stability of a monthly payment that doesn’t change (notwithstanding homeowners insurance premium and property tax increases), a fixed-rate mortgage is right for you. Compare current mortgage rates.
5. Adjustable-rate mortgage (ARM)
In contrast to fixed-rate loans, adjustable-rate mortgages (ARMs) come with interest rates that change over time. Typically with an ARM, you’ll get a lower, fixed introductory rate for a set period. After this period, the rate changes, either up or down, at predetermined intervals for the remainder of the loan term. A 5/6 ARM, for example, has a fixed rate for the first five years; the rate then increases or decreases based on economic conditions every six months until you pay it off. When your rate goes up, your monthly mortgage payment does as well, and vice versa.
Pros of ARMs
Lower introductory rates
Could pay less over time if prevailing interest rates fall
Cons of ARMs
Ongoing risk of higher monthly payments
Tougher to plan your budget as rate changes
Who are adjustable-rate mortgages best for?
If you don’t plan to stay in your home beyond a few years, an ARM could help you save on interest payments. However, it’s important to be comfortable with a certain level of risk that your payments might increase if you’re still in the home. Compare ARM loan rates.
Other types of home loans
In addition to these common kinds of mortgages, there are other types you might encounter when shopping around for a loan:
Construction loans
If you want to build a home, a construction loan can be a good financing choice — especially a construction-to-permanent loan, which converts to a traditional mortgage once you move into the residence. These short-term loans are best for those who can make a higher down payment.
Interest-only mortgages
With an interest-only mortgage, the borrower makes interest-only payments for a set period – usually five or seven years — followed by payments for both principal and interest. You won’t build equity as quickly with this loan since you’re initially only paying back interest. These loans are best for those who know they can sell or refinance, or reasonably expect to afford the higher monthly payment later.
Piggyback loans
A piggyback loan, also referred to as an 80/10/10 loan, involves two loans: one for 80 percent of the home price and another for 10 percent. You’ll make a down payment for the remaining 10 percent. These loan products are designed to help the borrower avoid paying for mortgage insurance, but also require two sets of closing costs. You’ll also accrue interest on two loans, making this unconventional arrangement best for those who’ll actually save money using it.
Balloon mortgages
A balloon mortgage requires a large payment at the end of the loan term. Generally, you’ll make payments based on a 30-year term, but only for a short time, such as seven years. When the loan term ends, you’ll make a large payment on the outstanding balance, which can be unmanageable if you’re not prepared. These loans are best for those who have the stable financial resources needed to make a large balloon payment once the loan term ends.
Portfolio loans
While most lenders sell the loans they make to investors (more on that here), some choose to keep them in their portfolio, or “on the books.” Because the lender holds onto these loans, they don’t have to adhere to FHFA or other standards. As such, they might have more lenient qualifying requirements.
Renovation mortgages
If you want to purchase a home that needs major work, you could use a renovation loan. These loans combine the costs of purchasing and renovation into one mortgage.
Physician loans
Because doctors often have large amounts of medical school debt, qualifying for a traditional mortgage can be hard, even with a good-paying job. Enter physician loans, which help doctors, nurses and other health professionals buy a home.
Non-qualifying loans
Non-qualifying mortgages or non-QM loans don’t meet certain standards set by the Consumer Financial Protection Bureau, so they offer more lenient credit and income requirements. This might appeal to a borrower with unique circumstances, such as an inconsistent income. Some non-QM loans, however, come with higher down payments and interest rates.
How to choose the right type of mortgage loan for you
Depending on your credit and finances, more than one type of mortgage could make sense for you. Likewise, you might be able to strike some loan types off your list immediately. You can’t get a VA loan, for example, if you or your spouse haven’t served in the military.
As you think about which type of mortgage to get, consider:
Your credit score – Which loan types do you qualify for from a credit standpoint?
Your anticipated down payment – Do you need a low- or no-down payment loan? What about down payment assistance? Will you be using gift funds from family or friends?
Your debt and income – After debt payments, is your monthly income sufficient to cover a mortgage?
Your appetite for risk – Do you need a stable monthly payment? Do you expect to earn more money in the future?
Your future plans – Do you plan to move in the short term? Do you want to pay off your mortgage sooner than 30 years?
Once you’ve weighed these questions, compare mortgage lenders and talk to a loan officer. They can help you pinpoint the best fit. Here’s more on how to get a mortgage.
Building equity is one of the biggest advantages of owning a home. With a home equity loan or home equity line of credit (HELOC), you can take advantage of that equity to finance home improvements, consolidate debt or pay for other big expenses.
While getting home equity financing is a fairly simple process, it’s important to review the details before applying. Lenders have standard criteria that homeowners must follow to qualify for either loan, as well as their own specific requirements. Make sure to compare different lenders and take a look at the requirements before applying.
Below, we’ll cover the general criteria for home equity loans and HELOCs as well as more on how to choose the right financing option for you.
How do home equity loans and HELOCs work?
Home equity loans and HELOCs are secured loans that act as second mortgages. Both use your property as collateral for the debt.
With a home equity loan, you get access to a lump sum of cash upfront and pay it back over a period of five to 30 years at a fixed interest rate.
A HELOC is an ongoing line of credit from which you can withdraw funds as needed. With a HELOC, you have the draw period and the repayment period. During the draw period (typically 10 years), you can borrow money on a revolving basis, up to a limit, and you’ll typically pay interest only on what you’ve borrowed. During the repayment period (often 20 years), you’ll pay back both the principal and interest on the loan.
Both are good options for homeowners in need of access to cash, but there’s always a risk when you borrow against your home. If you default on your payments, you run the risk of losing your property.
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Requirements to borrow home equity
The requirements to qualify for either a home equity loan or HELOC are similar. Although each lender has its own qualifications, the following checklist provides general criteria to help you get started.
1. Have at least 15% to 20% equity in your home
Home equity refers to the ownership stake in your home. Your equity is calculated by the amount of your down payment together with all the mortgage payments you’ve already made. With each mortgage payment you make, the less you owe on your home and the more equity you have. If an appraisal increase the value of the home, that will also yield more equity.
Most lenders require you to have at least 15% to 20% equity in your home to take out a home equity loan or HELOC. If you made a 20% down payment when you purchased your property, you’ll have already met the requirement to borrow against your equity.
2. Your loan-to-value ratio shouldn’t exceed 80%
Your loan-to-value ratio, or LTV, is another factor lenders consider when deciding whether to approve you for a home equity loan or HELOC. Your LTV is determined by dividing your current mortgage balance by the home’s appraised value. Having a lower LTV means less risk for mortgage lenders.
If your home is worth $300,000 and your loan balance is $200,000, here’s how you’d calculate your LTV:
$200,000 / $300,000 = 0.67
Your LTV is expressed as a percentage. In this example, your LTV is 67%, meaning you have 33% equity in your home.
While requirements can vary across lenders, the rule of thumb is that your LTV shouldn’t exceed 80%. Making a higher down payment and paying down your mortgage are two ways to lower your LTV.
3. Have a credit score in the mid-600s or higher
Most lenders want to see a minimum credit score of 620 in order to qualify for a home equity loan or HELOC.
Lenders use your credit score to determine the likelihood that you’ll repay the loan on time, so a better score will improve your chances of getting approved for a loan with better terms. A higher credit score of 700 or more will make you eligible for a loan at a lower interest rate, which will save you a substantial amount of money over the life of the loan.
4. Your debt level shouldn’t exceed 43%
Your debt level is determined by your debt-to-income ratio, which is your monthly debt payments divided by your gross monthly income. Your DTI ratio helps lenders determine if you’re capable of paying back your loan on time and of making consistent monthly payments.
To calculate DTI, lenders tally the total monthly payment for the house — mortgage principal, interest, taxes, homeowners insurance, direct liens and homeowner association dues — and any other outstanding debt. That total debt is then divided by your monthly gross income to get your DTI ratio.
Some lenders prefer that your monthly debts don’t exceed 36% of your gross monthly income, but many others are willing to go as high as 43%. If your DTI ratio is higher than 43%, consider paying down your debts first to lower your DTI.
5. Have sufficient income
Lenders want to make sure that you can pay back the loan, so they’ll lend only to those who can prove sufficient income. If you don’t have traditional employment or a stable source of income, you may have trouble qualifying for a home equity loan or HELOC.
How much can you borrow with a home equity loan or HELOC?
The more equity you have in your home, the more you’re eligible to borrow. In general, you can borrow around 80% to 85% of the equity in your home, minus your current mortgage balance.
You can determine how much money you’ll be able to obtain from a home equity loan by starting with the current value of the home. If, for example, your home is worth $300,000 and a bank lender allows you to borrow up to 80% of the value of your home, you simply multiply the two values to get the maximum amount you can borrow, which is $240,000.
$300,000 x 0.8 = $240,000
But if you have a balance on your mortgage of $200,000, you need to subtract it from the $240,000 maximum the bank will let you borrow.
$240,000 – $200,000 = $40,000
That means you can borrow $40,000 for a home equity loan or HELOC.
Should you get a home equity loan or a HELOC?
Home equity loans and HELOCs can be used for similar purposes, but they have some important differences. Neither product is better than the other, so consider your own expenses and goals.
If you need to fund a single project with a set cost, a home equity loan may be the better option, especially if the predictability of a fixed interest rate and monthly payment appeals to you. A HELOC may make more sense if you want flexible access to funds over a long period of time rather than an upfront sum of cash.
You should get a HELOC if:
You need access to credit for an extended period of time. HELOCs have a draw period that typically last five to 10 years.
You need more time to repay the loan amount. The repayment period for HELOCs ranges from 10 to 20 years.
You aren’t sure how much money you’ll need. HELOCs give you the flexibility to withdraw money in installments and not all at once. During the draw period, you can borrow up to a limit as many times as you like, and only pay interest on what you borrow. This makes HELOCs a good option for managing variable or unpredictable costs.
You should get a home equity loan if:
Your want a predictable monthly repayment schedule. Unlike variable-rate HELOCs, home equity loans have fixed interest rates, making it relatively easy to factor into your monthly budget.
You have a specific expense in mind. You receive 100% of the funds from a home equity loan upfront, which can be useful if you need a set amount of cash to cover a home improvement project, pay off high-interest debt or another need.
Alternatives to home equity loans and HELOCs
A home equity loan or HELOC can be a good way to fund large expenses, but there are other financing options that may be a better fit for your situation. Some alternatives you may want to consider include:
A cash-out refinance. With a cash-out refinance, you are cashing out the equity you’ve built in your home over the years. You replace your existing mortgage with a new, larger one and pocket the difference as cash. The money you borrow is rolled into your new mortgage, so you’ll have only one monthly payment. A cash-out refinance is a good option if you can get a better rate than the one on your existing mortgage.
A personal loan. If you need to borrow only a small amount of money, a personal loan might be a better fit than a home equity loan or HELOC. The interest rate will typically be higher and the loan term shorter, but it’s less risky because it’s an unsecured loan. Plus, you won’t have to go through a home appraisal or pay closing costs.
A balance transfer credit card. If the main reason you’re looking to take out a loan is to consolidate other high-interest debt, balance transfer credit cards let you combine your debts into one card that has a long 0% APR introductory period. If you can pay off the debt before the 0% introductory period ends, you’ll get rid of your debt faster. Just be sure to plan ahead carefully: If you’re still carrying a balance by the end of the introductory period, you’ll be charged the regular credit card APR, which can be high.
The bottom line
A home equity loan and HELOC are two ways you can tap into the equity of your home. To qualify for either loan with reasonable terms, you should have at least 15% to 20% equity in your home, a LTV ratio of 80% or lower, a credit score of at least 620 (the higher, the better) and a DTI ratio no higher than 43%.
Though specific qualifications vary between lenders, make sure you have a reliable payment history and source of income to be eligible for a home equity loan or HELOC.
FAQs
Some lenders will provide a home equity loan or HELOC if you don’t have a job or are retired, but instead have regular income from a retirement account such as a pension. The income can also come from a spouse or partner’s employer, government assistance or alimony.
Lenders are typically seeking at least 15% to 20% equity in your home in order to qualify for a home equity loan or HELOC. However, some lenders will allow you to borrow with less equity.
Minimum credit scores vary from lender to lender, but most require you to have at least a 620 credit score. You’ll have a better chance of qualifying and getting access to lower interest rates if your credit score is 700 or above.
You can improve your credit score before you apply for a home equity loan by making payments on time, paying down the amount that’s owed on credit cards and avoiding taking out any new loans or making any major purchases.
You likely agree that saving money is a good idea. Putting extra cash aside every month can help you reach your financial goals, whether that’s building an emergency fund, going on vacation, or putting a down payment on a car or home.
But wanting to save money and actually doing it are two very different things. It’s easy to get caught up in day-to-day needs (and wants), and never gain any traction on savings. But don’t give up. We’ve got 33 tricks and tips that can make saving simple and pain-free. The best part — you can get started as soon as today.
Saving Money Doesn’t Have to Be Overwhelming
While spending less and saving more admittedly sounds painful, it doesn’t have to be that hard. You don’t have to go to the extremes like never shopping or having fun. Just making a few small changes in your day-to-day spending habits can actually add up to a big difference in how much you save each month.
Getting better with money is like any type of behavior modification — the key to lasting change is to make small, incremental changes that stick.
💡 Quick Tip: Help your money earn more money! Opening a bank account online often gets you higher-than-average rates.
33 Easy Ways to Save Money
What follows are 33 simple money-saving tips you can start working on right now.
1. Tracking Your Spending
One of the best ways to spend less and save more is to take a close look at where your money is currently going. You can track your spending by scanning your checking account and credit card statements over the last few months. But a simpler way is to use a budgeting app that syncs with your accounts and keeps track of what you spend in different categories in real time.
Once you have a big-picture idea of your cash flow, you can make adjustments. Spending a lot more on takeout than you thought? Commit to cooking one or two more nights per week. Is keeping up with fashion killing your budget? You may want to focus on spending less on clothing.
2. Selling Items You Never Use
An simple way to earn some extra cash is to periodically sell gently used items you no longer want or need. You might organize a yard sale or resell your items piecemeal via online marketplaces like OfferUp, Facebook Marketplace, or eBay. If you have extra clothes, shoes, or accessories in good condition, consider listing them on Poshmark or thredUP. Selling your unwanted stuff is essentially getting paid for clearing out clutter.
3. Limiting Time Spent on Social Media
Watching influencers take luxury vacations and promote their favorite products can prompt you to spend more and live beyond your means. In fact, recent research finds that social media can significantly impact your finances — and not in a good way.
Putting a time limit on daily phone scrolling, on the other hand, can automatically lead to less spending and more saving. It also frees up time for activities that can truly enhance your life, like reading, exercising, seeing (real) friends, even taking up side hustle (and earning more money).
4. Setting Goals for Saving
When we do things with focus, intention, and a clear goal in mind, we usually have an easier time making it happen. Instead of saving for the sake of saving, consider setting specific savings goals with target dates and amounts. For instance, maybe you want to save $5,000 for a summer vacation or $2,000 for a new computer.
By setting a target date, you can work backward and figure out exactly how much you need to set aside regularly. For example, if you want a new laptop in eight months, and it will cost you about $2,000, you’ll need to save $250 a month or about $60 a week.
5. Buying Generic Brands
Generic brands typically have the same ingredients and offer comparable quality to name brands but for a fraction of the price. For example, generic drugs usually cost 80% to 85% less than their brand-name counterparts. During your next supermarket or drugstore visit, try to go generic whenever it’s offered. Chances are, the only difference you’ll notice is less money draining out of your checking account.
6. Comparison Shopping
Spending a bit of extra time comparison shopping can help you scoop up the best deals and avoid paying full price. You can do it on your phone while you shop in-store. For online shopping, consider installing a browser extension that helps you find the lowest prices and automatically applies coupons and cash-back options at checkout. Many of these tools will also alert you when the price of an item you intend to purchase drops.
7. Automating Your Savings
Rather than transfer money to your savings account whenever you think of it, consider putting your savings on autopilot. Simply set up a recurring transfer from your checking account to your savings account for the same day each month (perhaps right after you get paid). It’s fine to start small. Even $50 can add up to a sizable sum over time, since the transfer happens every month without fail.
8. Making Monthly Debt Payments
While it’s not directly putting money into your bank account, making on-time, consistent payments on your debt means you’ll pay it off quicker. Once your debt is paid off, the money you are currently spending on principal/interest can go towards savings. In addition to your monthly minimum payments, try to put extra payments towards high-interest debt each month. You’ll whittle those balances down faster and save on interest.
9. Delaying Gratification
If you see something you want to buy but don’t actually need, consider putting off the purchase for at least one week (or ideally 30 days). Tell yourself that if you still want the item and can afford it after the waiting period, you can go ahead and buy it. Chances are good that once that waiting period is over, you’ll no longer have a burning need to purchase the item and simply move on.
10. Meal Planning
If it’s 6pm, you’re tired from a full day of work, and have no food in the house, you’ll probably seek out the path of least resistance — getting takeout or eating out. Your best defense against overspending on food is to sit down every Sunday to scan recipes and come up with a meal plan for the week (including breakfast, lunch, dinner, and snacks). You can then make a shopping list and hit the store.
Recommended: Examining the Price of Eating at Home Versus Eating Out
11. Avoiding the Daily Coffee
While it’s fine to occasionally splurge on a fancy coffee, getting your daily coffee out can add up, especially if you sometimes throw in a tempting pastry at the last minute. Even cutting back your coffee shop visits to just two or three times a week and brewing at home the other days can help you save a lot on coffee.
12. Making Repairs Instead of Buying New
While it is easier to replace items than fix them, the latter approach is better for both your wallet and the environment. Depending on the item, a repair could end up costing significantly less expensive than a replacement. Call around for quotes or ask for help from a tech-savvy or handy friend. Also see if there are “repair cafes” in your community. These are volunteer-run events where you can get items mended or fixed for free.
13. Using Cash Instead of Credit Cards
While credit cards are convenient, they make it all too easy to spend money. When you tap or swipe to make a purchase, you don’t really have a sense that you are giving up physical money. Switching to cash-only, even for just a month or so, can help you become more mindful about your spending. You might even try the envelope system. This involves labeling envelopes for each spending category, dividing your available cash for the month into the envelopes, and then only spending what’s in each envelope.
14. Switch to a New Cell Phone Carrier
When it comes to cell service, you don’t have to stick with the big names. Mobile virtual network operators (such as Mint Mobile, Consumer Cellular or Republic Wireless) typically offer the same quality of service at a much lower price tag. It’s also a good idea to look at your last cell phone bill to see how much data you actually use. You may be able to get a smaller plan to save even more.
15. Doing it Yourself Instead of Hiring Someone
Before you hire someone for a home repair or improvement job, like painting a room, re-caulking your tub or shower, or installing a water filter under your sink, consider whether or not you could do it yourself. Often, the cost of materials and a simple YouTube search will lead to significant savings.
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16. Stacking Coupons
There are two major types of coupons: Store coupons, which are issued by a specific retailer and can only be used at those locations (you can find these in the paper and through a retailer’s app or mailer); and manufacturer’s coupons, which are found on manufacturer’s and coupon sites. By stacking them, you get an even deeper discount. Stacking coupons for an item that is on sale is a triple whammy that can bring you back to pre-inflation prices.
17. Canceling Some Subscriptions
Dropping subscriptions that you hardly use or are redundant is a simple money-saving move with a potentially big payoff, since these debits occur monthly. It’s worth scanning your checking account and credit card statements for recurring charges to see if there are any items you can cut. If you primarily watch one streaming service but pay for four, for example, canceling three can save you significant cash.
18. Using a Refillable Water Bottle
While keeping bottled water (and seltzers or sodas) on hand is convenient, the cost can add up, especially if you have a family. A simple way to spend less at the grocery store each week is to give each person in your household their own reusable water bottle. You can then take bottled drinks off your shopping list. This will not only save money but also reduce plastic waste.
19. Taking Advantage of Free Resources
You might be surprised at how many things you can actually get for free. For example, your library can grant you access to movies, books, activities, and in some cases, passes to state parks and other nearby attractions. You might also join a Buy Nothing group. These are hyper-local virtual communities where neighbors can give and receive essentially anything for free.
20. Canceling Your Gym Membership
If you’re becoming a stranger to your gym, consider canceling your membership. Even if you got a great deal, gyms debit money out of your bank account every month, whether you go or not. You might look for alternative, low-cost ways to get physically fit, such as walking/jogging/biking around your neighborhood, lifting free weights at home, and taking hikes.
21. Saving Change
A nickel here and a quarter there might not seem like much, but if you start dropping all your spare change into a jar every day, you’ll be surprised at how much you’ll accumulate. If you rarely carry or pay in cash, consider collecting digital change. Many money-saving apps automatically round up your purchase to the nearest dollar, then transfer the difference into your savings account.
💡 Quick Tip: Want a simple way to save more everyday? When you turn on Roundups, all of your debit card purchases are automatically rounded up to the next dollar and deposited into your online savings account.
22. Skipping Alcohol at Restaurants
Ordering a cocktail or a glass of wine (or three) when out to dinner can significantly inflate your bill. Consider getting water or a non-alcoholic beverage instead, then perhaps having a glass of wine when you get home. If you must drink, local beer, “house wine” options, and happy hour cocktails are usually the cheapest options.
23. Finding Free Family Entertainment
Taking the family to concerts, movies, and immersive art exhibits can add up quickly. Instead, look for free or low-cost community activities. These offerings typically spike during the summer months and around holidays. To stay abreast of upcoming goings-on, you can sign up for newsletters or follow social media accounts of your local community, recreation centers, and libraries.
24. Doing a No-Spend Challenge
A simple way to save (potentially hundreds) is to do a no-spend month. This involves spending money only on essentials for 30 days. Before you begin, it’s a good idea to set parameters for what you will and won’t spend money on and then commit to the plan. It’s only a month! By the end of the challenge, you may realize there were certain things you didn’t really miss and rethink your approach to spending.
25. Reducing Your Energy Use
You may be able to significantly lower your utility bills with just a few tweaks to your habits and home. Try taking shorter showers, fixing any drippy faucets or constantly running toilets, turning off lights whenever you leave a room, and washing your clothes in cold water. Once you see a difference in your monthly bills, you’ll be encouraged to carry on and find more ways to cut energy use.
26. Adjusting Your Tax Withholdings.
If you typically get a refund after doing your taxes, you’re essentially giving the government an interest-free loan. That’s money that could be working for you by earning interest in a high-yield savings account. Revisit your withholdings and put that extra money into your own bank account.
27. Taking a Staycation Instead of a Vacation
It may sound boring, but you’d be surprised how much a staycation can feel like a fun and luxurious getaway. The key is to take a complete break from your daily routine, change up the scenery, and spend time doing things you truly enjoy. This can provide the respite you’ve been longing for — minus the headaches of travel — and for a fraction of the price.
28. Finding Cheap Ways to Reward Yourself
If you focus too hard on saving and never on fun, you might end up feeling deprived and give up on the whole project. Instead, allow yourself to celebrate small money wins and life events on the cheap. For instance, for every X amount you’ve put away into your emergency fund, you might reward yourself with a fancy coffee, a $5 “spree” at the dollar store, or getting a treat at your favorite ice cream shop.
29. Avoiding Bank Fees
Overdraft fees, ATM fees, and monthly maintenance fees can make your bank account balance move in the wrong direction — down instead of up. To ditch costly overdraft fees, keep regular tabs on your checking account to make sure you have enough to cover your debits and checks. To eliminate other fees, you may want to look for a bank account that doesn’t charge monthly maintenance fees and ATM fees.
30. Haggling
Negotiating prices isn’t just for buying cars or houses. You can haggle for just about any product or service — your cable and cell phone bills, things you buy in stores, and even your rent. The key to success is to come to the negotiation prepared (do all the research you may need in advance), speak with confidence, and start off the conversation with the question, “What flexibility do you have?”
Recommended: 15 Creative Ways to Save Money
31. Saving Your Windfalls
It can be tempting to go hog wild and spend your windfalls. But next time you get a work bonus, cash gift, or tax refund (which you actually want to avoid, see tip #26), consider spending a small percentage of it on something frivolous and fun, then putting the rest into your savings account. This can help you reach your savings goals significantly faster.
Recommended: The Fastest Ways to Get a Tax Refund
32. Timing Your Purchases Right
If you want to buy something that you don’t need right away, it’s worth researching the best times of the year for deals and sales. For example, you can often find great deals on cars in May, October, November and December; clothes are typically cheapest at the end of any season; and the end and the very beginning of the year are generally the best times to buy appliances.
33. Switching to a High-Yield Savings Account
If your extra cash is sitting in a traditional savings account, you’re missing out on a free source of extra cash. A high-yield savings account is a type of savings that you can open at many banks and credit unions. But it differs from a traditional savings account in that it offers an annual percentage yield (APY) that’s 10 to 20 times higher. If, for example, you put $25,000 into a savings account with a 4.60% APY, you’ll earn an extra $177.78 by the end of the year — just for letting the money sit in the bank.
Saving Money with SoFi
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.
FAQ
Why is saving money important?
Saving money enables you to build an emergency fund that protects you against the unexpected. It also allows you to work towards — and achieve — future goals, such as buying a car or home, sending your kids to college, and being able to one day retire.
How can I find the motivation to save money?
To find the motivation to save money, it helps to set specific goals. Think about the things you want to buy or do in the next year or two and how much these things will cost. You can then determine how much you need to set aside each month to reach your goals. Watching your savings account balance go up can also help keep you motivated.
What are the consequences of not saving money?
When you don’t have a cushion of savings, any bump in the road (such as a car or home repair, trip to the ER, or loss of income) can force you to run up credit card debt. This can lead to a debt spiral that can take months, if not years, to recover from. Not saving also means you won’t make any progress towards your financial goals and simply continue living paycheck to paycheck.
Photo credit: iStock/Chaninan Boongate
SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.
SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.
SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.
SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.
Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.
Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
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