The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.
The debt snowball method is a repayment plan that involves paying off debts in order of lowest to highest principal sums. As you pay off small loans, you gain the confidence and money needed to repay larger ones.
Paying multiple debts is a juggling act. On one hand, paying all debts at once is tempting but expensive. On the other hand, paying one at a time is more affordable, but that takes long-term financial management. Thankfully, you can use the debt snowball method to simplify your debt payoff plan..
The debt snowball method is a debt repayment plan in which you quickly pay off small debts to focus on larger ones. Even though it’s simple in concept, you may have questions about the execution. To help you out, we’ll explain the method in detail, walk you through its steps and share a few best practices.
Table of contents:
What is the debt snowball method?
How to snowball debt in 4 steps
Snowball method example
Best practices for the snowball method of paying off debt
The snowball method vs. avalanche method of debt consolidation
Pay off debt and improve your credit with Lexington Law Firm
What is the debt snowball method?
The snowball method is a debt repayment approach where you pay off debts in order of smallest to largest principal sums. After making the minimum payment on all debts, spenders invest all they can into debts with the smallest principal. Once you pay off these small debts, you can roll funds over to the next highest.
Unlike other debt consolidation and payoff strategies, the snowball method doesn’t factor in interest rates. Instead, this approach focuses on principal payments. With each debt repaid, you should feel better equipped to tackle the next in line.
Who should use the snowball method?
Anyone juggling multiple debts should consider the snowball method. It provides a simple strategy for organizing your debts. As you knock out small debts, the snowball effect offers the momentum and confidence you need to get out of debt.
Pros of the snowball method
The snowball method of debt repayment offers distinct benefits over other approaches. The main advantages include:
Actionability: Small changes to your budgeting make this approach actionable. It doesn’t come with any prerequisite or additional charges. As a result, jumping in is fast and straightforward.
Empowerment: If you can’t pay your bills or keep up with debt, the snowball method mentally and financially empowers you. With every small debt cleared, you see progress and stay motivated as you pay off greater debts.
Simplicity: The snowball method is easy to wrap your head around. It also breaks large chunks of debt into smaller, approachable pieces.
Cons of the snowball method
Despite its strengths, the snowball method comes with a few downsides, including:
Interest accrual: If your larger loans have a higher interest rate, the snowball method may not work as well. According to these credit facts, if you follow the strategy, higher interest rates may cost you more over time.
Emphasis on small debts: This approach works best when knocking out small debts back to back. You won’t see the same immediate results if you’re juggling a few large loans.
Inflexibility: The snowball method doesn’t leave much room for customization. You may want to consider another option if you want a malleable strategy you can modify.
How to snowball debt in 4 steps
Thanks to its simplicity, you can implement the snowball method in only four steps. This is the process in detail:
Step 1: Take a debt inventory
The first step of the debt snowball method is to list all your debts from smallest to largest. While you can keep interest in mind, focus on the principal balance. If two debts share a similar principal, you can place the one with a higher interest rate first.
Step 2: Make minimum payments on all debts
Make the minimum payment on each of your debts every month. This step is crucial because you don’t want to incur any fees or penalties for not making payments on other debts even as you focus on one in particular.
Step 3: Pay down your smallest debt
On top of the minimum payment, invest as much as you can into your lowest principal balance. While you want to pay it off quickly, don’t forget to set money aside for:
Savings
Groceries, laundry and other household costs
Day-to-day expenses like eating out or investing in your hobbies
Step 4: Repeat until debt-free
As you pay off each debt, you can roll more money into larger ones. When you aren’t juggling as many debts, you’ll have the resources to focus on paying down the highest sums. Eventually, most or all of your debts should get paid off.
Snowball method example
To help explain the snowball method, here is an example of how you budget for it. Assume you make $2,500 a month and have to manage these expenses:
Rent: $700/month
Utilities: $150/month
Student debt: Minimum payment of $120/month (total principal: $21,000)
Medical debt: Minimum payment of $60/month (total principal: $4,500)
Auto debt: Minimum payment of $40/month (total principal: $1,800)
Credit card debt: Minimum payment of $15/month (total principal: $900)
You would implement the snowball method of paying off debt like this:
Pay necessary expenses like rent and utilities. This brings you down to $1,650.
Pay the minimum balance on all debts. Your spending money drops to $1,415.
Pay down your lowest debt. In this case, it’s the credit card debt. Let’s say you pay $500 and bring that principal down to $400. Your remaining balance comes out to $915.
Spend the remainder of your money on day-to-day expenses. Remember to save as much as you can. It never hurts to have an emergency fund ready.
Once you pay off the credit card debt, move on to the next lowest principal sum. So, you would pay off auto, medical and student loans in that order.
Best practices for the snowball method of paying off debt
To see the best returns on the snowball method, follow these tips:
Don’t base repayment order on interest: Anyone trying the snowball method should focus on principal balances. This approach relies on small wins to build up to bigger debts. Large, high-interest loans get in the way of that.
Mitigate high interest with lower rates: While focusing on small loans, try to reduce interest on larger ones. Negotiating a lower interest rate will help save money in the long run.
Track spending over time: You should avoid wasting money that could go toward paying off debt. Additionally, track the amount you spend on debt repayment. That way, you can stay on track as weeks or months pass.
Don’t fall behind on bills: Falling behind on bills or loans can lead to fees or a higher interest rate. In the long run, this will slow down your repayment.
Set aside emergency funds: You shouldn’t invest every cent in settling your debts. An emergency fund can help you avoid more debts after home repairs or health issues.
The snowball vs. avalanche method
The avalanche method is another way of paying off debt that determines payment order by interest rate. In both the avalanche and snowball approaches, you make minimum payments on all debt each month. From here, they diverge:
The avalanche method has spenders pay off the debt with the highest interest rate first. Once customers pay off this loan, they move to the one with the next highest interest rate.
The snowball method ignores interest rates to focus on principal payments.
While the snowball method quickly pays off small debts, the avalanche approach is slow and steady. It may take you longer to pay off your debts, but you will accrue less interest. So, depending on your interest rate and principal sum, you may pay less overall, which could make this option more appealing.
Which method is right for you?
The avalanche and snowball methods can both help with debt repayment. The right approach for you depends on personal preference and your financial situation. To find the right strategy, ask yourself:
Do you need help staying motivated to pay off debts? If so, the snowball method offers more small wins to keep you going.
Is your financial management style analytical and patient? Then the avalanche method will complement a slow and steady approach.
Do you have several small loans or a few high-interest loans? The snowball method suits the first situation, and the avalanche method fits the second.
Work to improve your finances and your credit with Lexington Law Firm
Whether you need to rebuild your credit or get out of debt quickly, the debt snowball method can help. Unlike other strategies, the snowball approach is easy to jump into. While paying off debts can take time, this method gives you the confidence and direction to pay down debts one by one. While using any debt repayment plan, you don’t want to forget about maintaining or even improving your credit. Stay current on all your bills, create a budget and track your spending. If you’re working on repairing your credit, Lexington Law Firm could help you on your journey with our credit repair services.
Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.
Reviewed By
Brittany Sifontes
Attorney
Prior to joining Lexington, Brittany practiced a mix of criminal law and family law.
Brittany began her legal career at the Maricopa County Public Defender’s Office, and then moved into private practice. Brittany represented clients with charges ranging from drug sales, to sexual related offenses, to homicides. Brittany appeared in several hundred criminal court hearings, including felony and misdemeanor trials, evidentiary hearings, and pretrial hearings. In addition to criminal cases, Brittany also represented persons and families in a variety of family court matters including dissolution of marriage, legal separation, child support, paternity, parenting time, legal decision-making (formerly “custody”), spousal maintenance, modifications and enforcement of existing orders, relocation, and orders of protection. As a result, Brittany has extensive courtroom experience. Brittany attended the University of Colorado at Boulder for her undergraduate degree and attended Arizona Summit Law School for her law degree. At Arizona Summit Law school, Brittany graduated Summa Cum Laude and ranked 11th in her graduating class.
Inside: Are you struggling to keep up with your variable expenses? Whether it’s groceries, gas, or rent, managing these costs can be daunting. This guide will teach you how to budget for variable expenses and reduce the strain they put on your wallet.
Understanding and effectively managing your variable expenses is a crucial aspect of maintaining financial health.
These are expenses that fluctuate on a monthly basis, such as groceries, fuel, and entertainment. Their inconsistency can make budgeting a challenging task.
For many people, this is where they give up on budgeting because variable costs can sway too much for the average budgeter to know what to do.
Around here at Money Bliss, we know those who efficiently manage their variable expenses tend to fare better in achieving their financial goals. Furthermore, it empowers you to anticipate, plan and manage costs better, and avoid unnecessary financial stress.
Our focus here will be on explaining how variable expenses can make notable changes to your personal budget and offer strategies to manage them effectively.
This post may contain affiliate links, which helps us to continue providing relevant content and we receive a small commission at no cost to you. As an Amazon Associate, I earn from qualifying purchases. Please read the full disclosure here.
What is a Variable Expense?
A variable expense is a cost that changes from month to month.
Unlike fixed costs that are paid at regular intervals and may endure only slight fluctuations, variable expenses undergo a higher degree of fluctuation depending on consumption or quantity used. These expenses can comprise costs such as groceries, entertainment, and fuel for your car.
What primarily distinguishes a variable expense is its potential to vary from one period to the next, making it an important calculation in accounting for a comprehensive monthly budget.
Knowing the intervals of these variable costs can enhance the accuracy of your budgeting, turning this challenging aspect into an opportunity to reduce costs.
What is an Example of a Variable Expense?
Variable expenses typically entail a high degree of personal discretion and vary substantially between individuals. While one person may see dining out as a variable expense, for another, it may be a rare treat. Either way, it is still an example of variable expenses.
Here are a few typical examples:
Groceries: You decide what food to buy, and it depends on your food preference, the number of people at home, and special dietary needs.
Gasoline: This expense is dependent on how much and how far you drive.
Utilities: Electric, water, and gas bills fluctuate based on usage.
Clothing: The cost can vary each month depending on how often and how much you choose to buy, such as seasonal shopping, special occasions, or replacing worn-out items.
Gifts: Costs can fluctuate depending on the occasion, person, and your personal budget for the period, making them unpredictable and potentially impacting your monthly budget plans. Especially for Christmas gifts.
Entertainment: Costs such as movie tickets, concerts, or amusement parks may vary depending on your social life.
Repairs: Costs for home and car repairs are unpredictable and can markedly vary. Essentially, any expense that is not fixed (like rent or car payment) can be considered a variable expense.
Taxes: Yes, even your taxes are variable based on your income.
Don’t forget to use a savings account with one of the popular money saving challenges.
Difference between Fixed and Variable Expenses
Understanding this difference is a significant step toward setting realistic savings goals
Fixed expenses are constant costs that remain the same each month, like rent, insurance premiums, car payments, or childcare. They’re predictable, making them easier to incorporate into your budget without unexpected surprises.
On the contrary, variable expenses fluctuate month-to-month and include items like groceries, utilities, gas for your car, or entertainment. The unpredictability of these costs can cause potential challenges in budgeting and limit the consistency of your financial output.
Nevertheless, variable expenses often present more opportunities for saving.
You have greater control over these costs, giving you a chance to limit expenditure and prioritize savings.
How to Budget for Variable Expenses
Personal budgeting is an essential tool. Despite variable expense’s unpredictability, it is possible to plan for these expenditures by applying practical tactics and strategies.
From using budget apps to examining previous spending patterns, this type of budgeting enables you to maintain control over your finances and make adjustments as necessary.
50/30/20 Budget: An Effective Approach
The 50/30/20 budgeting approach is a simple yet effective method that can help you manage both fixed and variable expenses.
This method suggests you divide your after-tax income into three categories: 50% on necessities, 30% on wants, and 20% on savings or debt repayment.
By categorizing this way, you ensure your most critical outlays (the necessities ) first. You then allocate your income towards discretionary spending (your wants), and finally squirrel away a portion for savings (hopefully 20%) or paying off debts. This budget calculator strategy can serve as a foundation to guide your spending, helping you to stay on top of your finances.
Quicken
Personal finance and money management software allows you to manage spending, create monthly budgets, track investments, retirement and more.
I have used this platform for over 20 years now.
Pros:
Birds-eye view of your complete financial picture.
Conveniently download your spending activities, and automatically categorize them (Quicken connects to over 14,000 financial institutions).
Track investments with it’s features like portfolio analytics, retirement goals, and market comparison.
Cons:
Little complex to use at first, the learning curve is moderate.
Yearly subscription-based model to use the platform.
Zero-Based Budget
A zero-based budget is a technique where you make a budget from scratch or “zero” and allocate every dollar of income towards different categories of expenses until they sum up to zero at the end of the month.
This budgeting strategy, very popular due to the budgeting app, YNAB, can be a rewarding technique that solicits justifying every expense’s worth as you give every dollar a job.
Distributing money toward fixed costs is usually shoo-in, but budgeting for variable costs can be tricky because you won’t know how much you’ll spend on them. The solution is to estimate as closely as possible.
The beauty of a zero-based budget is that it ensures your money is purposefully allocated, leaving no room for unexplained spending especially when used with sinking funds.
YNAB
Enjoy guilt-free spending and effortless saving with a friendly, flexible method for managing your finances.
Pros:
Comprehensive approach to budgeting, helping you plan monthly budgets based on your income.
Offers expert advice, making it suitable for those who require an in-depth, forward-thinking budgeting strategy.
Superior synchronization skills make it the winner in this area.
YNAB has extra features like goal setting for budgeting, shared budgeting tools for partners.
Option to manually add and upload transactions from accounts each month.
YNAB prioritizes user privacy.
Envelope Budgeting System
The envelope budgeting system is a successful method for managing variable expenses. By dividing your income into envelopes assigned to different categories like entertainment, groceries, or transportation, control over fluctuating costs is established.
With each paycheck, you determine a specific amount for each category and stuff that envelope with cash. By strictly adhering to this limit, you thereby avoid overspending.
This hands-on approach provides an exact idea of available cash and creates a stronger sense of financial accountability. In fact, recent data indicates that the envelope system has successfully helped many people stay within their budget, primarily by making expenditures more tangible and easier to track.1
What is most likely the reason variable expenses should be planned after fixed expenses?
When preparing a budget, it’s typically suggested to plan for fixed expenses first before variable expenses.
The primary reason is that fixed expenses are generally non-negotiable costs that are essential to your daily life and take up much of your budget. These costs are predictable and regular, making them easier to budget for.
Variable expenses, on the other hand, tend to fluctuate and often include discretionary spending like dining out, shopping, or entertainment. This category, despite its variability, carries a certain upside as you possess more control over these expenses than your fixed ones.
By planning for fixed expenses first, you ensure to cover your essential needs before budgeting for lifestyle choices and discretionary spending, which can flex more easily around your remaining income.
Tiller Money
Your financial life in a spreadsheet, automatically updated each day.
Tiller is the fastest, easiest way to manage your money with the unlimited flexibility of a spreadsheet.
Update your finances in one place, so you can take control of spending, optimize cash flow, and confidently plan your financial future.
Pros:
Tiller automatically updates Google Sheets and Microsoft Excel with your latest spending, balances, and transactions each day.
No more tedious data entry, CSV files, or logging into multiple accounts.
You can customize everything and finally track your money, your way.
Tips to Control Variable Expenditures
Managing and controlling variable spending is an essential aspect of sound financial planning.
Honestly, the more proactive you are in monitoring the continuous changes in variable expenses and introducing strategies to suppress any unnecessary hikes, the faster you will reach your goals.
This section will provide insights into various effective methods to control variable spending, as well as the behavioral adjustments needed for successful implementation.
Tip #1 – Save on fixed and variable costs
Everyone wants to save money and here are a few tips on reducing both fixed and variable costs:
Fixed costs: Considering these costs are more constant, savings can usually only be achieved by longer-term changes. This could be refinancing your mortgage for a lower rate, negotiating a lower car insurance premium, or switching to a cheaper phone plan.
Variable costs: Changes in habits can lead to significant savings. For instance, cooking at home instead of dining out, carpooling or using public transport to save on gas, or unplugging electronics when not in use to save on utilities.
By scrutinizing both types of costs, you can identify opportunities to cut back and increase your savings over time. Being frugal green is a huge topic! Remember, the little things can add up!
Tip #2 – Set expense limits and find ways to save
Budgeting requires discipline, and setting limits on your variable expenses is a big part of that. You can do this in three ways:
Start by reviewing your spending patterns: examine your transaction history to identify areas of overspending. Once you’re aware of these, set spending limits that align with your financial goals. Drawing from my experience, I can assure you that awareness of overspending areas, followed by setting spending limits, can significantly align with your financial goals.
Consider taking part in a no spend challenge. Personally, that is when I realized I spent a lot of money on things that didn’t matter to me in the end.
Adopt practical money-saving habits like adopting DIY approaches (e.g., home repairs, sewing, cooking), utilizing coupons and cash backs, shopping secondhand, or carpooling.
Remember, you have control over your variable expenses, and setting restrictions doesn’t mean depriving yourself. It just means making informed decisions and prioritizing your spending according to your financial goals.
Tip #3 – Use Sinking Funds
A sinking fund is an effective money management strategy that can help handle variable costs. It’s a fund where you regularly set aside a certain amount of money for a specific expense. For instance, you might establish a sinking fund to cover property taxes or unexpected costs (but they will happen) like car maintenance, vet bills, or holiday gifts.
When the time comes for these expenses, you won’t have to scramble to find the money because you’ve already collected a fund over time.
This approach can ease financial stress and prevent unplanned debts, making sinking funds an excellent remedy to unexpected variable expenses. For us, this is when we maximize the placement of our hard-earned money across multiple bank accounts.
FAQs about Variable Costs and Budgeting
While all expenses matter, we generally advise budgeting for fixed expenses first. These are critical costs that typically stay constant month-to-month, like rent or mortgage payments, insurance, and fixed utilities.
Allocating money toward these essential costs first ensures that you’re covering your necessities. Once you’ve accounted for these, you can then budget for variable expenses which are discretionary and fluctuate based on personal usage.
Thus, it helps you realize your spending habits and identify areas where you can cut back if needed.
Yes, entertainment is typically considered a variable expense. These costs vary month-to-month based on your discretionary spending habits.
For instance, your spending on concerts, movies, dining out, or subscriptions can fluctuate based on your lifestyle, events, or personal choices. Remember, since entertainment costs are discretionary, they can often be trimmed when looking to make budget adjustments.
Ready to Master your Variable Budgets?
Understanding the ins and outs of variable expenses and strategizing accordingly can empower you to manage your money more effectively.
By distinguishing between your fixed and variable expenses, budgeting effectively, and identifying potential savings, you’re setting yourself up for financial success.
Whether you’re using the 50/30/20 budget approach, a zero-based budget, or sinking funds, the goal is to ensure your money is being used wisely. It’s all about creating a balance that nurtures a comfortable lifestyle while paving the way toward your future financial goals.
So review your inconsistent costs, implement new financial strategies, and take control of your variable expenses.
The key takeaways is a well-planned budget is not just beneficial for controlling spending, but also integral to your financial freedom.
Source
Ramsey Solutions. “How to Budget With the Cash Envelope System.” https://www.ramseysolutions.com/budgeting/envelope-system-explained. Accessed November 28, 2023.
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Long-term personal loans can be an attractive option if you’re facing large expenses like medical bills or home repairs. By spreading out repayment over a longer period of time, long-term loans may allow for lower monthly payment amounts that can make major costs more affordable.
However, long-term loans can have drawbacks, too. They may have higher cumulative interest than short-term loans and can be difficult to qualify for since they’re often unsecured.
Here’s what you need to know if you’re deciding whether or not a long-term, unsecured personal loan is right for you:
What Is a Long-Term Loan?
As its name suggests, a long-term loan is one whose repayment period, or term, is fairly lengthy. Generally, long-term personal loans carry terms between 60 and 84 months, or five to seven years.
Mortgages and student loans are also examples of long-term loans. Mortgages, for instance, are frequently repaid over as many as 30 years.
For the purposes of this article, we’re talking about long-term, unsecured personal loans, which borrowers can use for a variety of things. These loans can allow consumers to make big purchases or pay expensive bills by paying the total off over several years’ time. 💡 Quick Tip: A low-interest personal loan from SoFi can help you consolidate your debts, lower your monthly payments, and get you out of debt sooner.
Benefits of Long-Term Personal Loans
There are plenty of reasons why a long-term loan might be a worthy consideration for large expenses.
Large Loan Amounts
While short-term loans and credit cards may cap out at a few thousand dollars, long-term, unsecured personal loans are available at much higher amounts — up to as much as $100,000.
So depending on what you need the money for, a long-term personal loan might give you more leverage than other types of funding.
Affordable Monthly Payments
Since long-term personal loans are paid off over many months, the monthly payments are often lower than they would be with a shorter-term loan.
However, that doesn’t mean a long-term loan is less expensive in the long run.
Flexibility
Unlike secured loans, which are tied to a physical piece of collateral or the need to be used for a specified purpose, unsecured personal loans can be taken out for a wide range of intended purposes. Common reasons borrowers take out personal loans include:
• Home renovations or repairs.
• Medical expenses.
• Wedding loans or funeral expenses.
• Debt consolidation.
Affordable Monthly Payments
Since long-term personal loans are paid off over many months, the monthly payments are often lower than they would be with a shorter-term loan.
However, that doesn’t mean a long-term loan is less expensive in the long run.
Drawbacks of Long-Term Personal Loans
There are also some drawbacks worth considering before you apply for an unsecured personal loan.
Potentially Higher Interest Rates
Although long-term, unsecured personal loans may have smaller monthly payments, they may carry higher interest rates than shorter-term, unsecured personal loans. And even at the same interest rate, they cost more over time.
Personal loan interest rates can range from as little as 6.99% to as much as 35.99% APR.
For example, imagine you take out a $10,000 loan at an interest rate of 10%. To repay the loan in a single year, you’d have to pay a whopping $879 per month, but you’d only pay a total of $550 in interest over the lifetime of the loan.
To repay the loan in seven years, you’d pay only $166 per month, but you’d also pay $3,945 in interest along the way.
So while long-term, unsecured personal loans can make large purchases feasible, factoring in the total cost over the lifetime of the loan before you sign those papers is also important.
Long-Term Debt
Along with higher interest rates, long-term loans do, obviously, mean going into debt for a longer period of time — unless you plan to pay off your loan early. A thorough review of the loan agreement will disclose prepayment penalties or other fees that can be costly in their own right.
Furthermore, the future is unpredictable. Five to seven years down the line, that promotion you were counting on might fall through or another life circumstance might supersede your repayment plans.
If you find yourself in a situation where you need to borrow more cash, it can be difficult to increase your personal loan amount.
Although unsecured personal loans can be helpful when life throws big expenses your way, they’re still a form of consumer debt, and, ideally, minimizing debt is a smart thing to do.
Qualification Difficulties
Long-term, unsecured personal loans may have more stringent qualification requirements than other types of credit. That’s because, from the lender’s perspective, they’re riskier than loans for smaller amounts or those that come attached to physical collateral.
Along with your credit score and history, a potential lender might also require proof of income and employment or a certain debt-to-income ratio. Depending on the stability of your financial situation, you may or may not qualify for the best interest rates and terms or be considered eligible to take out the loan at all, at least without a cosigner or co-borrower. 💡 Quick Tip: Generally, the larger the personal loan, the bigger the risk for the lender — and the higher the interest rate. So one way to lower your interest rate is to try downsizing your loan amount.
Alternatives to Long-Term Loans
Ideally, the best way to pay for a large purchase is to save up the cash and pay for it without going into debt at all. Of course, this may not always be possible or realistic.
If you’re not sure about taking out a long-term, unsecured personal loan, there are other alternatives to consider. However, each of these comes with its own risk-to-reward ratio as well.
You might consider borrowing money from friends and family, but those important relationships can suffer if your repayment doesn’t go as planned. A written repayment agreement can go a long way toward making the transaction as transparent as possible, with expectations of both parties clearly outlined.
Another option might be saving part of the money you need and applying for a short-term, unsecured personal loan for the remainder. This means delaying a purchase until savings can accumulate, and might not work if the money is needed sooner rather than later.
The Takeaway
Long-term loans are those whose repayment periods generally span between five and seven years, which can help borrowers fund expensive purchases while making affordable monthly payments.
However, the longer-term can also mean more interest charges over time, making these unsecured personal loans more expensive relative to shorter-term lending options. And like any form of consumer debt, they carry risk.
Your credit score and/or personal financial situation can suffer if you find yourself unable to repay the loan.
That said, when used responsibly, long-term, unsecured personal loans can be a smart financial choice, particularly if you shop around for a lender who offers affordable, fixed interest rates, low fees, and great customer service to ensure you’ll always be in the know and in control.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.
SoFi’s Personal Loan was named NerdWallet’s 2023 winner for Best Online Personal Loan overall.
Photo credit: iStock/Melpomenem
SoFi Loan Products SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Many people consider homeownership a rite of passage, a part of the American Dream, and a key way to build wealth. But recently, as home prices and mortgage interest rates have risen, some may wonder, “Is buying a home a good investment, no matter what?”
It can be challenging to gather enough funds for a down payment, qualify for a mortgage, and then afford all of the costs that go along with homeownership, such as property taxes, maintenance expenditures, and utilities. But to live in a place you love while building equity can be a win-win.
So if you’re wondering “Is buying a house a good investment?” vs. say, investing your money, you’ll have to take a closer look at how homeownership relates to your personal financial situation. Read on to learn how to evaluate what will be the right decision for you, starting with important questions to contemplate.
Is It a Good Investment to Buy a House?
In order to determine if buying a home is a good investment for you, you’ll need to estimate the amount of time you plan to own the house and the real estate marketplace dynamics.
• If you don’t plan to own the house for at least five years, you may not break even when you sell the home. When you buy a home, you pay for more than just the house and those costs can add up. You’re often paying for appraisals, mortgage application fees, inspections, movers, real estate agent fees, and that can add up to thousands of dollars.
In order to recoup all those fees, conventional wisdom says you need to wait at least five years for your home to appreciate before selling it. If you plan to live somewhere for less than five years, it could make the most financial sense just to rent property.
• You may also want to consider other aspects of whether it’s a good time to buy a house. For example, is it a hot or cool market? Are you likely to wind up in a bidding war (and possibly overpay) because there isn’t enough supply to meet demand? Are interest rates likely to fall over the next year? These dynamics can impact whether now is the right time to jump into the housing market.
💡 Quick Tip: With SoFi, it takes just minutes to view your rate for a home loan online.
Do You Have Sufficient Savings to Buy a House?
In order to buy a home, you’ll generally have to take out a mortgage to finance your home purchase. Before that’s not the only expense. These costs must also be covered:
• Before you even get to the mortgage stage, you’ll have to save for a down payment (which is often anywhere between 3% and 20% of the property’s purchase price) and closing costs, which are typically 3% to 6% of the loan amount. This can mean a significant chunk of change.
• There are continuing costs you’ll have to account for, such as home insurance, property taxes, general maintenance, and emergency home repairs.
When you are renting, if the kitchen sink springs a leak, your landlord will take care of it. But when you own a home, those repairs will be entirely your responsibility. Having an emergency fund saved up will help you deal with unexpected costs associated with homeownership.
Also, if you are purchasing a house as an investment vs. using it as a primary residence, can you afford to buy a house while still renting? That is a situation in which you will want to map out your cash flow and make sure you are prepared if you can’t flip or rent the property as quickly as anticipated. An emergency fund could also be invaluable in that scenario.
Are You Confident in the Housing Market?
The housing market rises and falls; take a close look to evaluate current trends. Home prices skyrocketed during the Covid pandemic and have continued to rise recently. This can make it difficult for first-time homebuyers to find a suitable home that is in their price range. It’s important to be prepared as you start to look at homes. Understand your budget and make sure you have saved enough money to make a down payment on the property.
Also be sure that you understand how mortgage rates can impact the affordability of housing and what your home shopping budget looks like. 💡 Quick Tip: If you refinance your mortgage and shorten your loan term, you could save a substantial amount in interest over the lifetime of the loan.
Are You Ready for the Responsibility?
When you own your own home, you have a lot of freedom to make the space completely your own. With all of this flexibility comes a lot of responsibility. If the house has a yard, you’ll be responsible for regular maintenance and upkeep.
Will you need to pay for a new roof soon? Buy a lawn mower? If you live in an area with harsh winters, will you need to get a snow blower or hire someone to clear the driveway after each snow storm? These costs can add up.
So make sure you are ready for the financial responsibility that comes with owning a home before you make the purchase. You’ll have to account for repairs, improvements, general upkeep, insurance, and taxes. Not only does all of this cost money, it will take your time and attention as well, which isn’t necessarily the case when you rent. If you’re not ready to always be “on call” for your property’s needs, it could be a homebuying mistake to purchase.
Recommended: Should I Sell My House?
Are You Willing to Live with a Long-Term Loan?
Buying a home can mean you’re taking on a loan for perhaps 15 or 30 years. That’s a major undertaking. Part of the process of learning how to buy a house is educating yourself on how mortgages work and the different types available. Generally, there are two types: fixed rate and adjustable-rate mortgages.
• A fixed-rate mortgage keeps your payment level over time, typically 15 or 30 years, because the interest rate remains stable.
• The interest rate on an adjustable-rate mortgage loan fluctuates over time. They usually start out lower than a fixed-rate loan but often rise in later years.
To see what a mortgage could mean for your finances, take a look at an online mortgage calculator to compare different types of loans and see what your costs might look like. If a loan could be part of your life for three decades, you want to make sure you’re comfortable with it.
Remember that while it may seem daunting to take on a 30-year obligation, a mortgage helps you build equity in an asset that generally increases in value as time passes. Is a house a good investment? Historically, yes, if you take the long view.
Over the years, homeowners build up equity in the house as they methodically pay off more and more principal with less monthly payments on each loan payment. Many smart borrowers pay extra each month toward the principal to pay off the mortgage sooner.
Recommended: Quiz: Should You Buy or Rent a Home?
Pros and Cons of Buying a Home as an Investment
Before a major financial move, it’s important to consider the benefits and downsides. You’ll want to know what are the pros and cons of buying a starter home or a subsequent property. Consider these points.
Pros of Buying a House
Here are some of the upsides of buying and owning a home:
• You will build equity in your home over time, which can help you grow your wealth. Your home value may appreciate as well.
• There may be tax advantages to homeownership, such as deducting mortgage interest.
• Paying your mortgage payments on time can help build your credit.
• You can renovate the property as you see fit, unlike the case with rental units.
• You likely have a good idea of your monthly housing costs for the long term. If you are renting, you could face significant fluctuations.
• There’s a feeling of security for many people when they know they own their home.
Cons of Buying a House
Next, it’s wise to consider the disadvantages of buying a home:
• You typically need to pay for the down payment and closing costs, which can be a significant financial hurdle.
• You are likely locking into long-term debt, and it can take a while to build equity.
• There is no guarantee that your home’s value will grow over time.
• The costs related to owning a home can be significant. This includes expenses like property taxes and insurance, as well as home repairs.
• You will have less flexibility if you need to move for a job, say, or want to relocate to be closer to friends and family. Selling a house can involve time, energy, and money.
Ready to Buy? Consider a SoFi Mortgage
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% – 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It’s online, with access to one-on-one help.
SoFi Mortgages: simple, smart, and so affordable.
FAQ
Is it wise to buy a house as an investment?
Whether it’s wise to buy a house as an investment will depend on many factors, such as your personal finances and current economic and real estate trends, as well as whether the property is a place that’s a good home for you to live in for at least several years.
Is buying a house worth it in 2023?
Buying a house in 2023 can be challenging because home prices and mortgage rates have been rising. However, if you can afford the monthly mortgage payments, plus the down payment and ongoing costs of homeownership, it may still be the right move for you.
Is owning a home an asset?
In general, a home is considered an asset. Yes, you typically have a mortgage, which is a liability, but on the plus side, you are building equity while having a place you enjoy living.
*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
SoFi Loan Products SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
SoFi Mortgages Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
The average American net worth varies due to many factors, with some people making far more than others. If you’re behind the national average, it may seem difficult to catch up, but whether you have bad credit or a lot of debt, you can still begin building your net worth by learning how to generate passive income.
Passive income is a great way to generate more income, pay down your debt, and start saving and investing for your future. Here you’ll learn what passive income is, as well as different ways to make passive income online and offline. With 25 passive income ideas, there is something for everyone.
25 Passive Income Ideas:
Write an E-Book
Start a YouTube Channel
Try Affiliate Marketing
Create a Blog
Sell Stock Photos and Videos
Create an Online Course
Make Sponsored Content
Invest in Dividend Stocks
Invest in REITs
Invest in Index Funds and ETFs
Try Peer-to-Peer Lending
Stake Cryptocurrency
Utilize High-Yield Savings Accounts
Buy Government Bonds
Invest in Art
Buy Property to Rent
Rent Out a Room in Your Home
Buy Domain Names
License Your Music
Design Custom Products
Rent Out Your Vehicle
Use Your Vehicle as Ad Space
Create an App
Flip Unique Items
Rent Out Your Parking Space
What Is Passive Income?
Passive income is a type of income that comes from sources other than your regular employment, and involves a more hands-off approach. Passive income isn’t a “get rich quick” scheme, though some companies make big claims about generating passive income without any work. Passive income does take work to set up, but the goal is that you can make money without managing it on a day-to-day basis.
You’ll generally do most of the work by setting up your source of passive income. While it may require some upkeep every now and then, like updating a product or maintaining a rental property, you’ll earn the majority of your income while pursuing other endeavors.
Like other sources of additional income, passive income is taxable, but when done correctly, you can make enough passive income to surpass your tax bill.
1. Write an E-Book
Whether you’re a writer or not, an e-book can be a fantastic way to generate passive income. We no longer live in a world where publishers are the gatekeepers of books, so you can self-publish a book that can generate passive income. Various websites let you self-publish books, like Amazon’s Kindle Direct Publishing, Apple Books, and Barnes & Noble. Some of these sites also offer print-on-demand services for customers who want physical copies.
You can write a nonfiction book if you’re knowledgeable about a certain subject, or you can write fiction if you have an interesting story idea. Although this can generate passive income, self-publishing can require a bit of an investment. You’ll need to pay for an editor and book cover designer, and you may also want to pay for advertisements. But if you can do the cover art and marketing on your own, you may be able to save some money.
2. Start a YouTube Channel
There are many ways to make money using social media, but YouTube is one of the best ways to make passive income. YouTube pays content creators to run ads on their videos. In order to qualify for the YouTube Partner Program, you’ll need at least 500 subscribers, three new videos within the last 90 days, and 3,000 watch hours within the last year. Previously, you needed 1,000 subscribers and 4,000 watch hours, but the policy was updated in June 2023 with lower requirements.
Like other sources of passive income, making money from YouTube will require an up-front investment of time and money. You need a stable internet connection, camera, microphone, computer, and editing software. You also need to make consistent videos to qualify for the partner program. You can eventually generate passive income by making evergreen videos, because people will watch old videos that bring in revenue—and the more videos you have on your channel, the more money you can make.
3. Try Affiliate Marketing
Affiliate marketing is when you share a link to a product or service, and the company gives you a percentage of any sales made through that link. You can share these links on your social media pages, blog, newsletter, or anywhere else that allows you to post a link. Affiliate marketing is one of the best online passive income opportunities, and you can combine it with any other online method we mention in this article.
One of the most popular affiliate link programs is Amazon Associates. Let’s say you have a YouTube channel where you review electronics, and you make a video reviewing a new TV or laptop. If you link to that product on Amazon with your affiliate link, you’ll receive a percentage of the sale each time someone uses your link.
This isn’t only limited to Amazon, either. Many companies offer affiliate links, so it can be advantageous to reach out to companies for products and services you use regularly to see if they have an affiliate program.
4. Create a Blog
There are a variety of ways to make money from writing a blog. Like YouTube, old blog posts can generate passive income even if people read the post months or years after you wrote it. If you create your own website to host your blog, you can integrate Google Ads and use affiliate links to make money online.
Platforms like Substack combine blogs and newsletters, so every time you write a new post, subscribers receive an email. You can have paid subscriptions on Substack, so users pay a monthly fee to read your posts, and you can have free posts that go out to non-paying subscribers as well.
5. Sell Stock Photos and Videos
If you’re a photographer or videographer, you can earn money for your photos and videos. There are many different websites that buy stock photos and videos, like Shutterstock, iStock, and Getty Images. One thing to consider is that the website gets exclusive rights to your images or videos, but on some sites you can make between 15% and 45% in royalties.
6. Create an Online Course
Many people have expertise in a certain area, and utilizing your knowledge and skills to create an online course is a great way to make passive income online. For example, you can create a course for how to knit, how to take amazing photos, or how to program an app. Websites like Kajabi and Teachable allow you to host and sell your courses.
You may need to invest some time and possibly money in marketing your course to ensure you find the right audience. Some course-hosting platforms like Skillshare also categorize courses by topic for better discoverability.
If you start gaining a following on social media platforms or through a blog, you may get the opportunity to do sponsored content. Companies want to ensure they target the right audience, so if you have followers who may buy their product or service, they’re more likely to sponsor a piece of content. This typically means you discuss their product in a video or write about it in a caption.
In order to generate passive income from a sponsored opportunity, the company will give you an affiliate link. This allows you to make money up front for the sponsored content as well as passive income from anyone who uses your link to buy the product or service.
This route for passive income may take some time because companies typically want people to have a decent following before sponsoring content.
8. Invest in Dividend Stocks
Stocks can be a great way to make money while also investing in your future. When you buy a stock, you buy a small portion of a company. If the stock price rises and you sell it at a higher price, you make a profit, but the stock can also drop in price and lose you money. Some, but not all, stocks offer dividends, which pay investors a dividend per share if the company has a profitable quarter.
When the stock pays out dividends, you can receive the payment directly from your brokerage or reinvest the dividends by buying more of the stock. Like other investments, this can compound and turn into a lot of money over time if the company continues to profit. As you invest in dividend stocks, keep in mind the companies can raise or lower the dividend percentage at any time.
Use MarketBeat’s dividend calculator to look up specific stocks and estimate dividend returns.
9. Invest in REITs
Real estate investment trusts (REITs) are another investment opportunity. Rather than investing directly in a property, you can invest in a REIT, which is a company that owns and manages real estate.
Similar to other investments, there is risk that comes along with investing in REITs. For example, there’s a possibility your REIT investments will lose money if there’s a drop in the housing market.
10. Invest in Index Funds and ETFs
Index funds and exchange-traded funds (ETFs) are some of the safest investments because they offer diversification. Rather than investing in one company, index funds and ETFs allow you to invest in multiple companies simultaneously.
Legendary investor and founder of Vanguard John Bogle was a major advocate for index fund investing. More specifically, he advised people to invest in the S&P 500, an index of the 500 largest companies in the United States. ETFs are slightly different because there are higher fees, but they allow you to invest in a group of stocks for a specific industry. For example, ARKK is an ETF that holds shares for companies that work on innovative technology.
There is still a risk when investing in index funds and ETFs, but they are often lower risk than other forms of stock investing.
11. Try Peer-to-Peer Lending
Another way to make passive income is to become your own type of “bank” by doing peer-to-peer lending, sometimes called P2P lending. Banks make money on loans by charging interest to customers, and P2P lending allows you to do the same thing. Websites like Prosper and Funding Circle allow everyday people to lend and borrow money with various interest rates.
12. Stake Cryptocurrency
Cryptocurrency investing is a highly volatile form of investing, making it especially high risk. Some cryptocurrency platforms allow you to “stake” your crypto, which is when you allow the platform to hold your crypto and lend it to other people. Similar to P2P lending, you make money off the interest.
Cryptocurrency lending and trading is also high risk because there is little to no regulation. Crypto platforms like Voyager have been known to offer extremely high returns and then go bankrupt, preventing them from paying back their users. In extreme cases, there are stories of fraudulent activity from crypto platforms. But if you have a high risk tolerance, this form of investing can be incredibly lucrative.
13. Utilize High-Yield Savings Accounts
A safer way to make passive income is to open up a high-yield savings account, which allows you to make money simply by holding it in your account. Banks use customer funds to lend out money, but unlike crypto staking, bank funds are backed by the U.S. government via the FDIC. This means that if, for some reason the bank doesn’t have the money when you want your funds, the government would provide the bank with the money to pay you up to $250,000.
Many banks and financial institutions offer high-yield savings accounts, with some offering an annual percentage yield (APY) of over 4%. So if you opened an account with a 4.5% APY and deposited $1,000, you would have $1,045 after a year.
People maximize their passive income by not touching this money because it compounds each year. So using that same example, in the second year, you would then earn 4.5% of the $1,045 rather than the original $1,000. And if you add to the savings account each month, you can make quite a bit of money over time.
14. Buy Government Bonds
Perhaps the safest way to earn passive income from investing is to buy government bonds. A government bond is basically a loan to the federal government that pays you back the original amount with interest over a certain period. The reason government bonds are so safe is because the government backs them. When buying a stock, it’s possible to lose your money if the company goes out of business. Bonds are safer because as long as the government exists, you’ll make your money back.
Although government bonds are very low risk, they also offer low returns. Depending on various factors, government bonds may offer a 3–5% return over two to 30 years. To put that into perspective, S&P 500 index fund investing offers an average return rate of over 7.5%[1] .
15. Invest in Art
Similar to stocks, you can also invest in artwork. One way to do this is to buy works of art that you believe will increase in value later. If you’re knowledgeable about art and can find pieces selling for below their value that you can sell later for a profit, you can make a bit of money. Websites like Masterworks allow you to buy shares of artwork with other investors so you take on less risk.
16. Buy Property to Rent
Many people generate passive income by purchasing properties to rent. If you can afford the initial investment of buying a single-family home or condo, you can then rent them out to tenants for a profit. For example, if you buy a house and your mortgage is only $1,000, you can make a profit by charging any amount over your mortgage cost.
In order to take advantage of the passive income aspect of renting, you may benefit from hiring an individual or company to manage the property. Property managers collect the monthly rent and take care of maintenance issues for a fee. Should you decide to invest in rental properties, it’s helpful to factor in the cost of potential home repairs before, during, and after tenants live there.
17. Rent Out a Room in Your Home
If you don’t have the money for a down payment or don’t want to take on the risk of purchasing a rental home, you can always make some extra income by renting out a room. If you have a spare room in your home, you can rent it out for a monthly fee. This is a great option for families whose children recently moved out.
You can use websites like Airbnb and VRBO to connect you with renters. Although many people use Airbnb for short-term rentals during vacations, you can also offer long-term rentals through the website. These sites also let you vet renters before they move in, so you have control over who rents the room.
18. Buy Domain Names
Buying domain names is a sort of investing, so it does come with some risk. People and businesses buy domain names to host their websites, so you can purchase a variety of inexpensive domain names in hopes of people buying them from you later for more. You can typically buy domain names for less than $10 through websites like GoDaddy, but if they don’t sell, you’ll need to pay the annual cost to keep the name.
While this may be a risky investment, people have made a lot of money flipping domain names. It was a big money-maker during the “dot com boom” in the 1990s, Help.com sold for $3 million and NFTs.com sold for $15 million in 2023. Many domains don’t sell for millions, but you may still be able to make a decent profit off domain names in high demand.
19. License Your Music
If you’re a musician, you can license your music in a similar way to selling stock photos and videos. Some websites like Music Vine pay musicians 30% for nonexclusive deals or more for an exclusive license. There are also websites like Epidemic Sound that market to YouTubers and filmmakers by offering a subscription service for royalty-free music.
20. Design Custom Products
For those who are artistically inclined, you can make money creating designs and selling them on websites that sell custom products. Websites like Redbubble, Teespring, and Society6 offer print-on-demand services for your artwork. These websites sell a wide range of products like T-shirts, coffee mugs, phone cases, and more. You get a percentage of the sale every time a customer goes to the website and chooses your design for any of these products
If you have old artwork you created in the past or simply feel like creating in your spare time, you can generate passive income as long as your art is hosted on these types of websites.
21. Rent Out Your Vehicle
Services like Uber and Lyft are popular side hustles, but you can make passive income by renting out your vehicle instead. When people are traveling or have their car in the repair shop, they often need a vehicle to get around. Rather than going to a rental car company, they can rent a vehicle through other websites like Turo or Getaround.
22. Use Your Vehicle as Ad Space
In addition to renting out your vehicle, you can make passive income by using your vehicle as ad space.
Websites like Wrapify connect businesses and drivers, and depending on how much of your car you’re willing to cover with ads, Wrapify will pay you between $181 and $452 per month. There are also sites like FreeCarMedia.com that pay you for wrapping your vehicle or simply advertising on your rear window.
23. Create an App
If you’re a programmer who can create an app, this may be the best way for you to make passive income. Whether it’s a fun game or an app that provides value and convenience, use your creativity and skills to generate income. Apple and Google allow developers to submit their apps, giving you a percentage of the sale each time someone buys the app.
24. Flip Unique Items
One of the oldest ways to generate passive income is to buy unique items, hold them, and sell them at a later date for a profit. If you’re knowledgeable about a certain type of item or are willing to learn, you can make a decent amount of money by buying and holding items.
This is ideal for people who like shopping at thrift stores or going to garage sales. You may find antique toys, memorabilia, sports trading cards, comic books, or other items for a low price that are either worth a lot of money now or will be in the future.
To sell the items or see how much items are selling for, you can use websites like eBay, OfferUp, Craigslist, or Facebook Marketplace.
25. Rent Out Your Parking Space
Some people are willing to pay for a good parking spot. If you have a space you’re not using or don’t mind giving up, you can make money renting it out—especially if you live in an urban area. Websites like SpotHero allow you to list your space.
What’s the Best Source of Passive Income?
The best source of passive income is unique to each individual. There are many options on this list, and some allow you to capitalize on different skill sets. For example, if you have expertise in certain subjects, the best sources of passive income may be online courses and e-books. If you have knowledge about stocks or are willing to learn, investing may be the best option.
When deciding which passive income sources are right for you, it may be beneficial to weigh out the pros, cons, and risks of each one. Remember that many of these options require an initial investment of money and time to get started. Consider your own risk tolerance and financial situation before going all in on any of these methods.
Do You Need Money to Make Passive Income?
While you’ll need money to get started with many passive income ideas, this isn’t the case for every method. For example, if you own a vehicle or have an extra room in your home, you can start renting them out. If you have a computer and internet connection, you have even more options.
Many people who make passive income succeed because they are willing to learn and can invest time into researching these topics. There’s a wealth of information online where you can learn how to excel at specific passive income opportunities like writing an e-book, succeeding as a YouTuber, or using affiliate links.
The Benefits of Multiple Streams of Income
Depending on your specific situation, you may want more than one source of passive income. Whether you’re already in a healthy financial situation or are trying to build your personal wealth and credit score, more income streams means more financial freedom.
The primary benefit of passive income is that you can make money with minimal effort. This means once you get one source of passive income rolling, you can begin adding others so you have multiple income streams that don’t require too much time or attention.
How Passive Income Can Help Improve Your Credit Score
A poor credit score can lead to many challenges—like making it difficult to get approved for new lines of credit, loans, and rental applications—and cost you a lot of money in interest in the long run. Passive income can help you fix your credit by allowing you to pay off your debts. Lenders also look at your total income, so making additional income can help with approvals for new lines of credit, which can also help improve your score. It’s important to know the current state of your credit health. You can get a free credit report card on Credit.com which breaks down your credit score factors and assigns a letter grade for each area, or sign up for our ExtraCredit® subscription for additional credit tools.
Many people think purchasing their first home is financially out of reach. But in many cases, that’s not true. Today’s aspiring homebuyers have numerous options to make homeownership a reality. From government-sponsored homebuyer assistance programs to state initiatives, there are many ways to obtain down payment assistance, closing cost aid, lower interest rates and more.
Homebuyer Assistance Program Options
Here’s an overview of some of the homebuyer assistance programs available. Explore the criteria and see if you qualify.
Freddie Mac and Fannie Mae Support
Fannie Mae and Freddie Mac are government-sponsored entities (GSEs) that help to make mortgage loans more affordable for borrowers. They offer a variety of money-saving programs for homebuyers, including the following popular options.
Freddie Mac BorrowSmart®
The Freddie Mac BorrowSmart® program provides assistance up to $1,500 for income-qualified borrowers to cover their down payment or closing costs. Down payment funds can be used on eligible programs that offer minimum down payments as low as 3%. Buyers must complete pre-purchase counseling with the Homeownership Preservation Foundation (HPF).*
Who is the Freddie Mac BorrowSmart® program best for?
Low-income borrowers whose income falls within 50.01% to 80% of the area median income
Homebuyers seeking manufactured homes and who have a moderate income between 80.1% and 100% of the area median income
First-time homebuyers or repeat homebuyers who meet qualifying criteria
Fannie Mae HomeReady®
Fannie Mae HomeReady® offers financing up to 97% loan-to-value (LTV) for a primary residence. This mortgage program is not restricted to first-time buyers and offers flexibility around income sources, down payments and mortgage insurance requirements. Homeownership education is a requirement of the HomeReady mortgage program.
Who is the HomeReady program best for?
Very low and low income borrowers whose income does not exceed 80% of area median income
Borrowers with limited cash to make a down payment
Homebuyers who may have supplemental income from boarders or renters
Freddie Mac Home Possible®
Freddie Home Possible® offers qualified borrowers a 3% down payment financing option. The program also lowers mortgage rates for eligible homebuyers. First-time homebuyers must complete a homeownership education class.
Who is the Home Possible program best for?
First-time homebuyers and low- and moderate-income borrowers whose annual income does not exceed 100% of the area median income or a higher percentage in designated high-cost areas
Current homeowners looking to downsize
Low- to moderate-income borrowers purchasing or refinancing a single-family residence, 2-4 unit property, condominium, co-op, manufactured housing (with certain restrictions) or a planned unit development property
Fannie Mae 97% Loan-to-Value (LTV)
The Fannie Mae 97% LTV financing option allows borrowers to purchase or refinance a home with a down payment as low as 3%.
Who is the Fannie Mae 97% LTV financing option best for?
Homebuyers who exceed the HomeReady Mortgage income limit but still want a low down payment – at least one borrower on the loan must be a first-time homebuyer.
Current Fannie Mae loan holders who wish to do a limited cash-out refinance that allows borrowers to cash out up to 2% of the new loan amount or $2,000, whichever is less – this type of refinance is designed to help borrowers who need a small amount of cash for unexpected expenses, such as home repairs or medical bills.
Freddie Mac HomeOne®
The Freddie Mac HomeOne® mortgage is a low down payment program available to qualified first-time homebuyers, no cash-out refinance borrowers and other homebuyers, regardless of income level or geographic location.
Who is the Freddie Mac HomeOne® mortgage best for?
First-time homebuyers who have a 3% down payment but earn over the median income requirements set for the Fannie Mae HomeReady® or Freddie Mac Home Possible® programs. Only one borrower on the loan has to be a first-time homebuyer.
Homeowners who wish to do a no cash-out refinance. Also known as a rate-and-term refinance, this may allow a borrower to lower their interest rate and payment and potentially eliminate mortgage insurance.
RefiNow™
RefiNow™ is a program for homeowners who want to decrease their monthly payments by refinancing to a fixed-rate mortgage at a lower rate.
Who is the RefiNow™ program best for?
Homeowners with a Fannie Mae-owned mortgage
Borrowers at or below 100% of the area median income
Homeowners with a mortgage LTV ratio up to 97% and a debt-to-income (DTI) ratio up to 65%
Government Support
Government-backed loans make homeownership more attainable for first-time borrowers, even those with lower credit scores. The loans feature lower interest rates and require low or no down payments.
Federal Housing Administration (FHA) Loans
FHA loans are backed by the government. These popular loans typically have lower and more flexible down payment requirements than conventional ones, and they can be a good option for borrowers with lower credit scores.
Who are FHA loans best for?
First-time homebuyers purchasing a primary residence
Low-income buyers who don’t qualify for a traditional loan or need a lower down payment option
Department of Veterans Affairs (VA) Loans
VA loans are available to eligible veterans and active-duty service members. VA loans have no down payment requirement** on home purchase loans, lower closing cost limits, lower interest rates and more relaxed credit requirements.
Who are VA loans best for?
Eligible service members and veterans
The Benefits of Homebuyer Assistance Programs
Homebuyer assistance programs make it more affordable for first-time homebuyers, as well as other homebuyers, to make purchasing a home a reality. Some of their main benefits include the following:
Lower down payment. One of the most significant perks of homebuyer assistance programs is they often allow you to buy a home with little or no money down.
Lower interest rates. Depending on the program you select, you may qualify for a low-interest loan.
Closing cost assistance. Some homebuyer assistance programs help with the fees and payments associated with finalizing your loan.
Education and counseling. To qualify for assistance, some programs require that you attend a homeownership education class, which can help you make informed decisions.
Things to Consider
Homebuyer assistance programs can be a great solution for helping qualified individuals purchase a home. But it’s important to consider the following when comparing your options:
Program eligibility. Do they limit assistance to certain groups, such as first-time homebuyers or veterans? Can you take advantage of the program if you’re purchasing a multi-family home? What are the income requirements?
Your down payment. How much can you or do you want to put down on the home? For most programs, you will still need to have some sort of down payment.
Your credit score. While homebuyer assistance programs often have broader credit guidelines, credit is a key factor in obtaining a mortgage.
Terms, conditions and the expiration date. Every type of assistance program will have its own terms and conditions, so be sure you understand all the fine print — including any deadlines or expiration dates.
See Which Affordable Lending Products You Qualify For
If you’re ready to buy a home, talk to a Pennymac Loan Expert today. We’ll guide you through the process, review your possible affordable lending options, answer all your questions and find the right fit for you.
*Must meet the requirements of Freddie Mac Home Possible®, standard conforming Freddie Mac, or Pennymac Manufactured Home requirements in addition to Freddie Mac BorrowSmart® requirements. Primary residence purchase only. All occupant borrowers must complete pre-purchase counseling with the Homeownership Preservation Foundation (HPF). An upfront, non-refundable, $99 homebuyer counseling fee is required to be paid by the borrower to HPF at the time of the required counseling.
**As long as the sales price does not exceed the appraised home value.
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With an installment loan, you receive a lump sum of money up front and then pay it back (plus interest) in a series of fixed payments over the term of the loan. The repayment period can be several months to many years.
There are many types of installment loans, including personal loans, mortgages, and auto loans. Read on to learn exactly how these loans work, their pros and cons, and how they compare to revolving loans.
What Is an Installment Loan?
Simply defined, an installment loan is a type of loan that allows you to receive the full borrowing amount (loan principal) all at once and then repay it in fixed monthly installments over a set period (the loan’s term). Each installment consists of both principal and interest, and the loan term can range from a few months to several years.
Common examples of installment loans include car loans, mortgages, personal loans, and student loans.
Installment loans are also known as closed-ended loans (or closed-ended credit accounts). They differ from revolving loans, like credit cards, which are open-ended accounts. With an open-ended account, you can use and repay funds repeatedly for as long as the account remains open and in good standing.
How Do Installment Loans Work?
When you take out an installment loan, you immediately receive the principal. You then start paying it off — typically with interest — in regularly scheduled payments for a set number of weeks, months, or years. Once the loan is paid back in full, the account is closed.
To better understand how installment loans work, let’s consider an example:
Let’s say you need to borrow $10,000 to cover home repairs. You apply for a personal installment loan with a 5% annual percentage rate (APR) and a loan term of 3 years. If approved, you’ll receive the full $10,000 upfront. Over the next 36 months, you’ll make fixed monthly payments, including principal and interest, until the loan is fully repaid.
Pros and Cons of Installment Loans
To better understand if a personal installment loan is the right fit, let’s look at some pros and cons associated with this type of lending product.
Pros
Cons
Provides funds for a large purchase
Interest and fees add to your costs
Fixed payments help with budgeting
May have long repayment period
May have lower interest rates than other loan products
May need good credit to qualify
Pros
• Helps you cover a large expense Installment loans can give you quick access to the money you need for bigger purchases, such as a house, car, or home renovation.
• Predictable payments Interest rates are typically fixed and each loan payment is the same throughout the loan term, making budgeting easier.
• Structured repayment Installment loans have fixed repayment schedules, ensuring you know exactly when the loan will be paid off.
• Access to larger amounts Installment loans often allow for borrowing larger sums compared to other types of loans.
• Potential lower interest rates Depending on your creditworthiness, installment loans may offer lower interest rates than credit cards or payday loans.
Cons
• Interest costs Typically, borrowers need to pay interest on the loan amount, which adds to the total cost.
• Credit requirements Qualifying for installment loans may require a good credit score, making them less accessible for individuals with poor credit.
• Potential fees Some lenders may charge origination fees or prepayment penalties, so it’s essential to review the terms and conditions.
• Not open-ended It’s unlikely you’ll be able to add to your loan amount if you find you need more.
• Potentially long commitment Some installment loans come with long repayment terms, which means you must commit to making regular payments over a long period of time.
Installment Loans vs Revolving Credit
Installment loans work differently than revolving credit. With revolving credit, you don’t receive a lump sum of money up front and then pay it back (plus interest) on a set schedule. Instead, you get approved for a certain credit limit, then borrow what you need (up to your approved limit) as you need it. You only pay interest on what you borrow and, once you repay what you’ve borrowed, that money becomes available to borrow again.
Here’s a closer look at how installment loans compare to revolving credit.
Installment Loans
Revolving Credit
Payment structure
Fixed monthly payments
Minimum payment due varies monthly
Loan term
Predetermined
No fixed term
Interest charges
Interest applied to entire balance
Interest applied to outstanding balance
Credit limit
Borrow a lump sum up front
Pre-approved credit limit/td>
Interest rates
Tend to be lower
Tend to be higher
Types of Installment Loans
Installment loans are available for various purposes. Here are some common types.
Auto Loans
Car loans are a common type of installment loan. Typically, you make a down payment on a car, then take out an auto loan to cover the purchase price balance. You then make monthly fixed payments to the lender for the term of the loan, which can range anywhere from 24 to 84 months.
Mortgages
Mortgages are long-term installment loans used to finance the purchase of a home. You typically make a downpayment (say 20% of the home’s purchase price) and get a loan for the balance at an agreed-upon interest rate. Common mortgage loan terms are 15 or 30 years.
Personal Loans
Personal loans are typically unsecured installment loans that can be used for various purposes, such as debt consolidation, paying for a wedding, or making home improvements. You receive the funds in a lump sum and once you get the cash, you must make payments until the debt has been fully repaid. Terms can be anywhere from one to seven years.
Student Loans
Student loans are a type of installment loan that pay for college and related expenses (including tuition, fees, books, and living expenses). There are two types of student loans — federal and private student loans. Which type you get will determine how your interest rate is calculated and your repayment options.
Buy Now, Pay Later Loans
Buy now, pay later loans allow you to make purchases and pay them off over time, typically interest-free if repaid within a specific period, which is generally a few weeks. If you don’t repay the loan within the set term, however, you can end up paying high interest rates and fees.
Installment Loans and Credit Scores
The typical credit requirements to qualify for an installment loan vary among lenders. Generally, a higher credit score increases your chances of approval and may lead to more favorable loan terms, such as lower interest rates. Lenders may also consider factors like income, employment history, and debt-to-income ratio when evaluating your application.
The Takeaway
Installment loans can provide a helpful financing solution for various needs, offering predictable repayment schedules and the ability to borrow larger sums. However, it’s essential to carefully consider the pros and cons, compare different types of loans, and review credit requirements before applying.
Taking the time to understand installment loans will help you make informed decisions and choose the best financing option for your specific circumstances.
If you are thinking about using a personal installment loan to cover a large expense, you may want to consider a SoFi personal loan. SoFi personal loans offer competitive, fixed rates and a variety of terms. Checking your rate won’t affect your credit score, and it takes just one minute.
See if a personal installment loan from SoFi is right for you.
FAQ
Is there a difference between personal loans and installment loans?
Yes. Personal loans are a specific type of installment loan, but not all installment loans are personal loans. Installment loans, in general, refer to loans that are repaid in fixed monthly installments over a specific period. Personal loans, on the other hand, are installment loans that can be used for various purposes, such as debt consolidation or unexpected expenses.
Which consumer loans are installment loans?
Several types of consumer loans are considered installment loans. Some common examples include:
• Auto loans
• Mortgages
• Personal loans
• Student loans
• Buy now pay later loans
These loans are repaid in regular installments over a predetermined period.
Can installment loans hurt your credit score?
Installment loans can potentially impact your credit score. If you make timely payments and manage the loan responsibly, it can have a positive effect on your credit by demonstrating your ability to handle debt. If, on the other hand, you miss payments or default on the loan, it could negatively impact your credit. It’s important to pay each installment in full and on time to maintain a good credit score.
Photo credit: iStock/Delmaine Donson
SoFi Loan Products SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
There are two basic types of credit: installment and revolving. An installment loan is a form of installment credit that is closed-ended and is repaid in fixed payments over a regular repayment schedule.
Some common types of installment loans are mortgages, auto loans, student loans, and personal loans. If you’re considering borrowing money, you may be wondering what an installment loan is and how it works. We’ll provide some insight that may help.
What Is an Installment Loan?
An installment loan is a lump sum of money borrowed and paid back over time. Each payment is referred to as an installment, hence the term installment loan.
In contrast, revolving credit like credit cards can be borrowed, repaid, and borrowed again up to the approved credit limit.
Installment loans can be secured with collateral or they can be unsecured. Some loans may have fees and penalties. The interest rate may fluctuate, depending on whether you choose a fixed or variable rate loan.
Recommended: 11 Types of Personal Loans & Their Differences
What Is an Example of an Installment Loan?
Installment loans can have multiple uses. These include auto loans, personal loans, mortgages, and student loans.
Auto Loans
Borrowers can take out auto loans for new and used vehicles. Monthly installments average around 72 months, but shorter loans may be available.
Loans with longer terms tend to have higher interest rates. It may seem like you’re paying less because the monthly payments may be lower, but you could end up paying more over the life of the loan.
Mortgages
Mortgages, or home loans, typically have terms ranging from 10 to 30 years with installments paid back monthly. Depending on your mortgage, you’ll either pay a fixed interest rate — it won’t change throughout your loan — or variable, which can fluctuate after a certain period of time.
Personal Loans
Personal loans are more flexible types of loans in that borrowers can use them for most purposes — examples include home repairs or debt consolidation. Many personal loans are unsecured, and interest rates will depend on your credit history and other factors. 💡 Quick Tip: A low-interest personal loan from SoFi can help you consolidate your debts, lower your monthly payments, and get you out of debt sooner.
Student Loans
Student loans help borrowers pay for their post-secondary education such as undergraduate and graduate tuition costs. They’re either federal or private, and terms and rates will depend on a variety of factors.
Some student loans have a grace period, a period after graduation during which you aren’t required to make payments. Depending on how the loan is structured, interest may not accrue. Not all student loans have a grace period, however, so it’s important to verify your repayment schedule before you finalize the loan.
Pros and Cons of Installment Loans
An installment loan may or may not be the best fit for your borrowing needs. Consider the advantages and disadvantages, so you understand what you’re agreeing to.
Pros of Installment Loans
Cons of Installment Loans
Can cover small or large expenses
Interest charges on entire loan amount
Predictable payments
Can’t add to loan amount once it’s been finalized
Can refinance to lower rate
Can come with long repayment terms
Pros of Installment Loans
Expense
Most installment loans allow borrowers to take out large amounts, helping them to cover large expenses. For instance, many borrowers can’t afford to buy a house with cash, so mortgages can provide a path to homeownership.
Regular Repayments
Installment loans tend to come with predictable payment schedules. If you take out a fixed-rate loan, your payment amount should be the same each month. Having that knowledge of when and how much you need to pay can make it easier to budget.
Plus, installment loans have a payment end date. As long as you keep making on-time payments, your loan will be paid off in a certain amount of time.
Taking a careful look at your budget to make sure you can afford the monthly payments is an important consideration.
Refinancing
You may be able to refinance your loan to a lower rate if you’ve improved your credit or if interest rates go down. Refinancing may shorten your loan repayment schedule or lower your monthly payments.
There are typically fees associated with refinancing a loan, which is another thing to consider when thinking about this option.
Cons of Installment Loans
Not Open-ended
Once you finalize the loan and receive the proceeds, you can’t borrow more money without taking out another loan. Revolving credit like credit cards allow borrowers to use funds continually — borrowing and repaying up to their credit limit.
Commitment
When you take out a loan, being committed to paying it down is essential. Since some installment loans can come with longer terms — think mortgages — it’s important to make sure your budget can handle the regular payment.
Charged Interest
Like other types of loans, you’ll need to pay interest on installment loans. The interest rate you’re approved for is dependent on factors such as your credit history, credit score, and others. Applicants who have a deep credit history and a credit score at the higher end of the range will most likely qualify for the most competitive rates. If you’re stuck with a higher rate because of your less-than-stellar credit, you could be making larger payments and paying more in interest.
Aside from interest, you may have to pay fees to take out an installment loan. There may also be prepayment penalties if you want to pay off your loan early.
Installment Loans and Credit Scores
How you use an installment loan can affect your credit score. If a lender reports your activity related to the loan, it could affect your score in two ways:
• Applying for a loan: A lender may want to check your credit report when you apply for a loan, which may trigger a hard credit inquiry. Doing so could temporarily lower your credit score.
• Paying back a loan: Lenders generally report your activity to the three major credit bureaus. If you make regular, on-time payments, this positive mark on your credit report could raise your credit score. The opposite can happen if you’re behind on or miss payments.
Getting an Installment Loan
Since taking out an installment loan is a big financial commitment, you may want to consider the following best practices:
• Shopping around: Getting quotes from multiple lenders is a good way to compare personal loans to find one that offers the best rates and terms for your financial profile.
• Pre-qualifying for loans: Getting pre-qualified allows you to see what rates and terms you may qualify for without it affecting your credit score.*
• Enhancing your borrowing profile: Check your credit report for any errors or discrepancies. Making corrections could have a positive effect on your credit score.
• Adding a cosigner: If you can’t qualify for an installment loan on the merits of your own credit, you may consider asking someone you trust and who has good credit to be a cosigner.
💡 Quick Tip: In a climate where interest rates are rising, you’re likely better off with a fixed interest rate than a variable rate, even though the variable rate is initially lower. On the flip side, if rates are falling, you may be better off with a variable interest rate.
Alternatives to Installment Loans
Here are a few alternatives to consider:
• Using a credit card: If you don’t need a large sum of money or don’t know how much you’ll need to borrow, a credit card can be a smart choice. Paying the entire balance by the due date means you won’t have to pay interest. Paying at least the minimum amount due each month will keep you from incurring a late fee, but you’ll still pay interest on any outstanding balance.
• Borrowing from your next paycheck: Some apps let you receive an advance on your next paycheck, if you meet qualifications. You agree to pay the advance back when your next paycheck is deposited into your bank account.
• Borrowing from friends or family: Asking to borrow money can be an uncomfortable conversation to have. However, it may be an option if you can’t qualify for or would rather not take out a bank loan. Having a written agreement outlining each party’s expectations and responsibilities is a good way to minimize miscommunication and hurt feelings.
Recommended: Family Loans: Guide to Borrowing & Lending Money to Family
The Takeaway
If you’re looking for a loan, an installment loan might fit your needs. Shopping around for an installment loan is a good way to find the best rates and terms for your unique financial situation and needs.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.
SoFi’s Personal Loan was named NerdWallet’s 2023 winner for Best Online Personal Loan overall.
FAQ
What is the meaning of installment loan?
An installment loan is a type of loan where borrowers take out a lump sum of money and pay it back in installments. Loan amounts can range from hundreds to thousands of dollars, and terms range from a few months to a few years.
What is an example of an installment loan?
Examples of installment loans include auto loans, personal loans, mortgages, and student loans.
Are installment loans bad for credit?
Making your scheduled monthly payments on time could improve your credit score. On the flip side, late or missed payments can hurt your credit score.
What is the difference between a personal loan and an installment loan?
Personal loans are types of installment loans. Other types include student loans, mortgages, and auto loans.
Photo credit: iStock/Ridofranz
SoFi Loan Products SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Inside: Do you want to know the legit ways on how to make 200 dollars fast? This guide will show you how to start working on fast money ideas. With tips on side hustles, online trading, and more, you’ll be able to build up a healthy bank account in no time.
Do you want to know the different ways to make 200 dollars in your leisure time? I bet you do! We all would like extra money in our pockets.
In an era of digitization, earning an extra $200 in your spare time has become more accessible.
Various online platforms offer numerous possibilities to gain this amount swiftly without any major investments or specialized skills. Utilizing these platforms can not only help you reach your financial goal but also provide you with an enjoyable experience.
Let’s delve into the uncomplicated and quick ways to make 200 dollars fast.
This post may contain affiliate links, which helps us to continue providing relevant content and we receive a small commission at no cost to you. As an Amazon Associate, I earn from qualifying purchases. Please read the full disclosure here.
Best Ways to Make Money 200 Dollars Fast
Discover the best ways to earn 200 dollars quickly by enlisting and acquiring the necessary skills.
You don’t even need to start a business or learn new skills virtually if you need the following legit ways to make $200 fast.
Just to note, you will find many of these ideas to be similar to how to make 300 dollars fast.
1. Sell Things You No Longer Need
Want to declutter and make some quick cash, to the tune of 200 dollars?
Start selling your no-longer-needed items and hit your goal. This method perfectly fits for minimalists looking to clear out space, or parents whose kids frequently outgrow their clothes and toys.
For instance, selling gently used toys or clothes could net you $200 in no time. Who knew making money could be as easy as cleaning up?
Even better turn this into a money-making business by flipping items for a living.
2. Sell gift cards
Struggling to add cash to your wallet? Turn those neglected gift cards lounging in your drawers into quick money.
Convert idle (Gift Cards) money to tangible cash by listing and selling on sites like CardCash at a discounted rate.
Another option is to trade your gift cards (you won’t use them) into something you want (like Apple or Amazon). So, weigh your options wisely.
In fact, you can read my CardCash review on my personal experience trading in gift cards.
3. Take on freelance jobs
Let’s start harnessing our skills and take on freelancing jobs online. Freelancing offers a flexible and income-generating platform, perfect for anyone looking to make a quick buck.
It is an effective income hustle, proven by data-driven facts. Best yet, it’s not exclusive to professionals alone. As a beginner, freelance gigs can offer an excellent starting point.
To get started, build a solid profile on a freelance platform that best suits your skills. Offer your virtual skills by getting jobs done in freelancing and experience good compensation for your comfort zone through this job.
4. Get Paid to Travel by Housesitting
Immerse yourself in a world of four-legged friends, greenery, and cozy, well-furnished homes while your wallet gets a welcomed cash addition.
Housesitting is not just about watching homes; it includes pet sitting and dog walking. All you need to do is join such platforms at no cost, set your rates and hours, and voila, you’re earning money while sleeping.
Essentially make money in your leisure time while enjoying the companionship of adorable pets. Who knew earning extra money could indeed entail wagging tails and furry hugs by signing up with Trusted Housesitters?
5. Rent Out Your Spare Space
Do you have spare space gathering dust? Turn it into a $200 goldmine!
Rent your unused closet, driveway, or extra room and have a quick injection of cash. Websites like Neighbor and VRBO are ideal platforms where you can list and rent out these spaces.
Start by exploring the listings in your area, identify the market range, and list your space accordingly. The extra income is just a few clicks away.
Best suited for property owners with underutilized spaces, this idea can serve as a consistent source of income and isn’t just a one-time fix.
6. Participate in Focus Groups
Get ready to voice your opinion and earn 200 dollars instantly!
Focus groups can be your golden ticket to making a quick $200. From my personal experience, they are organized discussions run by companies eager to pay for consumer insights.
Follow these steps and you could be cashing in:
Start by signing up and participating in a focus group that typically involves finding a suitable event in your area.
Involve yourself with popular websites like Bestmark.
Once you start searching for focus groups, you are likely to be targeted with sponsored ads on Facebook that match up to your opportunities.
By participating in discussions, I have earned a range from $50 to over $200.
7. Babysitting is Great Money
Looking for a quick way to pad your wallet? Babysitting is the golden ticket.
This gig is ideal for teenagers, college students, or anyone with some free evenings or weekends who enjoys hanging out with kids and can tolerate the occasional tantrum.
Start marketing your talent by creating a profile on care portals like Sittercity. Having a certificate in CPR can increase your profile and give assurance to the parent looking for a babysitter.
Remember to start with your personal network. Friends, family, and neighbors are a great way to kickstart your babysitting journey. With a bit of effort, you could be earning in less than 24 hours.
8. Make Videos
Are you passionate about making your own video or editing someone’s video to earn an incredible 200-dollar quickly? Jumpstart your day by hitting each click on your computer and adding sound effects on various kinds of videos on any social media.
You can also monetize your own videos by becoming a YouTube vlogger content creator and signing up for the YouTube Partner Program.
With an incredible shift to a remote life, you can now instantly earn from making your own videos through ad sponsorship, brand affiliation, and paid subscription on any application.
9. Get a Side Hustle
Engage yourself in a side gig, a savvy way to rake in cash promptly. Side hustles harmonize best with go-getters seeking financial flexibility or pursuing dreams outside the 9-to-5 grind.
Kickstart your hustle journey with free webinars or training. These platforms provide insights into key strategies and the nitty-gritty of the field.
Get cracking now to transform your monetizing dreams into reality!
Very popular are these side hustles for men. Or especially these side hustles for college students!
10. Online trading with Stocks and Options
Trading stocks and options emerge as a financial adrenaline rush, providing a swift track to earning money. You can convert spare moments into potential cash gains with just a few clicks.
Expert tips include starting with research, practicing with a simulation trading account, and diversifying your portfolio to mitigate risks.
The journey to online trading success begins with educating yourself. You must participate in a free investing webinar to undergo training to grasp trading basics, understand market trends, and form your strategy.
Check out how I learned to trade stocks and options with this Trade and Travel review.
Trade & Travel
Learn to trade stocks with confidence.
Whether you want to:
Retire in peace without financial anxiety
Pay your bills without taking on a side hustle
Quit your 9-5 and do what you love
Or just make more than your current income….
Making $1,000 every.single.day is NOT a pie-in-the-sky goal.
It’s been done over and over again, and the 30,000 students that Teri has helped to be financially independent and fulfill their financial dreams are my witnesses…
11. Take Up a Part-Time Job
Eager to fill your pockets a bit more, huh? Part-time jobs are your key to fast cash without compromising your ‘me-time’.
A part-time job supplements your primary income, leaving your piggy bank a bit heavier. Where you get to choose the timing that fits around your primary commitments.
Honestly, some of the best part-time jobs are actually low-stress jobs after retirement. You don’t need to wait for extra money. So, go get that financial freedom and earn more than just the minimum.
12. Yard Sale
Hosting a yard sale is a nonchalant trick to amass cash swiftly. It’s your winning lottery ticket staring at you from your cluttered garage floor.
Kick-off by hosting it on Friday or Saturday, when shopping spirits fly high! If your neighborhood or city has a date set for a community garage sale or jackpot, you’ll be swimming in extra traffic.
Don’t hesitate to unleash your inner salesperson, but remember, no rule binds you to wait for an event to rake in cash.
Remember, yard sales are your fast lane to quick money, and with these tips, you’re ready to speed!
13. Make Money with Your Collectibles
Turn your old favorite collection of Pokemon cards or Beanie Babies into a treasure chest waiting to be unlocked.
This money-making method is perfect for those who have carefully amassed certain collectibles over time. Sign up for eBay now and enlist your collectibles, antiques, and merch items to earn from it.
Want to kickstart your financial journey with collectibles? Find the most popular items to flip as well as insights on what to look for.
14. Collect and sell items from the trash
It’s time to transform your everyday trash into a hefty stash of cash! Collecting recyclable trash can be turned into a worthwhile moneymaker.
Start by saving cans, bottles, or scrap metal that you’d usually throw away. Then, locate a local recycling center that’s willing to pay for these items – the prices may surprise you!
This method is great for anyone willing to invest a little time and energy, particularly those who are environmentally conscious and eager to declutter. Perfect job for those who are frugal green.
Think about it, that old toaster might just be your next treasure trove! You may even find some highly valuable items in the trash to flip!
15. Sell Used Clothing
Selling used clothing is a clever and straightforward way to turn spare time into real cash.
Remember, a vibrant description for your clothes will attract buyers, so play up any unique or high-quality aspects of your garments.
Fashion enthusiasts want to earn a quick buck on the side. Begin by taking a charming picture of your clothes and posting it to Facebook Marketplace and ThredUp.
16. Do Social Media Marketing
Welcome to the era of making money by simply being social media savvy. Transform your digital skills into quick cash through Social Media Marketing.
Explore the digital world that awaits with all of the social media platforms. You can create engaging content while responding to the readers.
Take your skills to the next level, consider enriching your knowledge via a free webinar or online training.
This is an easy job that pays more than $25 an hour.
17. Sell Printables on Etsy
Do you love making creative paintings and printable designs? Imagine, your beautifully designed chore chart or a fascinating word puzzle bringing joy to scores of customers.
You can dive into this free training to jumpstart your side hustle. This method is a sure-shot hit for you.
Find out which digital products to sell on Etsy.
18. Invest in Cryptocurrencies
Do you have extra money in savings in your account and don’t know where to invest it?
Since 2008, cryptocurrency has taken the world by storm. Known for its decentralizing nature and secured by cryptography, it’s no regular dough.
Turn the tides in your favor and download an investment app to make your $200 grow faster. Consider taking a free webinar or training for a crash course.
You see, investing in cryptocurrencies is not a heavy-duty task. With the right smarts and patience, you can ride the next crypto wave!
19. Get Paid to Click
Among the numerous ways to earn an extra $200, getting paid to click is a simple and fun method.
Websites provide users with the opportunity to earn money through ‘pay to click’ surveys or rewarding viewers for ad consumption. Additionally, apps such as Survey Junkie and Swagbucks allow you to earn money by taking surveys, participating in focus groups, or simply navigating the web.
Each user generally earns from a few cents to a dollar per click. With patience and consistent effort, you can gradually accumulate your earnings to reach your $200 target.
Here are the top legit survey platforms:
20. Check Out Cashback Apps
Earn a cashback every time you shop at your favorite retail store or online.
Start off by signing up for apps like Dosh, Fetch, Rakuten, and Ibotta which offer bonuses just for signing up.
Lastly, apps like Acorns or CoinOut provide cash back on everyday shopping, even rounding up your purchases to add a bit more to your savings.
21. Do Odd Jobs as a TaskRabbit
Wanna earn cash quickly? Sign up and do freelance labor with TaskRabbit.
This user-friendly job marketplace connects people in need of task assistance with capable individuals willing to complete the tasks for a fee. It offers a diverse array of tasks, from assembling furniture and helping with moves to painting, yard work, and minor home repairs.
Just by performing various tasks, such as events staffing, running errands, or crafting. With the average TaskRabbit making double the minimum wage, this might be the gig for you.
TaskRabbit
Find local jobs that fit your skills and schedule.
With TaskRabbit, you have the freedom and support to be your own boss.
Plus set your own rates!
Get Started
22. Earn Money with Your Knowledge
Using your personal set of skills is a major advantage in freelancing platforms such as Fiverr, Upwork, and Freelancer.com.
Be it graphic design, content creation, SEO mastery, or even web development, you can monetize these proficiencies directly from your home. Data shows a significant growth in the gig economy over the past decade, suggesting a flourishing potential for remote work and online income generation.
Remember, your vast knowledge pool is your strength here. So, focus on what you’re best at, and let the money flow in.
Indeed, by effectively marketing your skills, pulling in a sum over $200 within a few hours is achievable. Remember to value your work appropriately and not devalue your aptitude just to land a job.
23. Tutoring
Online tutoring provides plenty of diverse opportunities in various subjects beyond just English. You can choose to specialize in specific topics and decide to tutor students of different age groups – from young children to college students.
Platforms like VIPKID and Magic Ears allow qualified tutors to offer virtual classes, specifically in the English curriculum for kids aged 4-12 years.
Tutors are usually compensated with payments ranging from $7 – $9 per class or up to $25 or more per hour. Also, you can increase your rate once you gain experience and build a reputation as a tutor. With in-person tutoring, you can expect to earn $20 an hour or more.
24. Petsitting
Looking for a quick way to make $200 fast? If you’re an animal lover, offering pet-sitting services isn’t just enjoyable, but also quite profitable.
Simply sign up with platforms like Rover, you can possibly get paid two days after service completion and you can always set your own rates. Just by walking the dog from house sitting.
Fun fact: Dog sitters often earn up to $50 a day. This is flexible and enjoyable work that could definitely help you reach your $200 target quicker than you’d imagine!
Rover
Get paid to play with pets!
Rover makes it easy and promotes you to the nation’s largest network of pet owners.
Earn money doing something you love.
Become a Sitter
25. Collect Scrap Metals and Junk
One man’s trash is indeed another man’s treasure.
Thinking of ways to earn quick cash? Consider collecting scrap metals and junk. This simple but profitable task can be done by anyone, with no particular set of skills necessary. All you need are keen eyes, a truck, and, admittedly, a little bit of strength to do the following:
Identify Metals: Start by identifying the most valuable metals – brass, copper, and aluminum.
Collect: Gather your metals, either from your home or by browsing local dumps. Remember, one man’s trash can be another man’s treasure.
Sell: Locate a local scrapyard and sell your haul at a fair price.
Keep in mind that patience is key; you might start with just $100 a day, but with experience, this can increase to a lucrative $500 a day!
26. Cash Out Your Coins
Are you sitting on a pile of coins? Maybe it’s time to cash them out. Here’s how:
Gather all your change together. Check under the sofa cushions, in car cup holders, and even in the bottom of your bag.
Take your coins to a coin-counting machine. These can be found at many grocery and department stores as well as your local bank.
Deposit these coins in a savings bank.
Expert Tip: Many banks provide free coin-counting services to their customers. Save on the counting machine charges by using these instead.
27. Run A Dropshipping Business
Dropshipping is a retail fulfillment method where you sell products without ever handling the inventory. This side hustle could potentially make you a quick $200 if executed strategically. Ready to dive in?
To level up, consider enrolling in free webinars on sites like Skillshare or free dropshipping training programs like Oberlo 101. This method is most suitable for those game to learn the ins and outs of online retail business and are ready to deal with customer interactions.
Remember, selling high-demand items will turn a quicker profit!
28. Do Micro Tasks
Looking to make cash fast? Turn your spare time into cash by capitalizing on microtask websites and get paid for completing simple jobs!
This method is particularly effective for those with meticulous attention to detail and those who can afford to spend some time on basic tasks such as data entry, data verification, information sorting, and transcription.
Microtasking might not be a golden goose, but it sure can help you accrue $200 surprisingly fast. The beauty of this hustle is in its simplicity, making easy money with minimal to no investment.
29. Find Sign-Up Bonuses
Did you know that many banks and credit companies offer sign-up bonuses as a strategy for attracting new clients?
For instance, some banking promotions in the United States can offer bonuses of up to $300 in total value when you sign up for a new account or credit card. Also, there are several credit cards that provide bonuses ranging from $500 to $800 or more, simply for registering and spending a defined amount within a specific timeframe.
Some cards, such as Chase Sapphire Preferred, offer lucrative rewards like a $1,000 bonus after a spend of $4,000 in the first 3 months.
It’s definitely rewarding to explore these possibilities to supplement your income, but it’s crucial to maintain a good credit score and commit to paying off your balance monthly to avoid any interest charges.
30. Cash Advances
Cash advances offer a rapid solution, but it’s essential to use them wisely.
Basically, a Cash advance is an advance on your next paycheck, and yes, it’s a viable way to get your hands on some quick cash. Also, some budget apps like Chime offer this service automatically.
Keep in mind, though, it’s an advance and not additional income. So, plan your expenses wisely and make it count!
FAQ
If you’re on a quest to make $200 as fast as possible, we’ve got your back. From selling items you own to completing quick gigs online, there is a plethora of opportunities out there for everyone.
For example, suppose you’re handy at a skill – be it haircuts, car repairs, pet sitting, or painting. You can start by offering your services to people in your neighborhood.
Or, if you’re the digital savvy type, consider selling items you no longer need on online platforms such as Facebook Marketplace or Craigslist. You’d be surprised at how quickly you can make money from items collecting dust in your home.
Ultimately, make sure you choose a fast money-making plan that aligns with your skills, interests, and resources. Go forth and rake in that cash.
If you need to make $200 today, you have a range of options at your disposal.
You can try different online strategies, including participating in online surveys, offering your skills on freelance platforms, or even reselling items online. While many people will sell the idea of a blog to make money, that is not a way to make money today.
Remember, the key is to zone in on tasks that require minimal effort but offer swift returns; these could include grandma sitting, dog walking, or even participating in online offers and promotions.
To kick-start your financial venture, locate valuable items in your home that you no longer need. Your dusty old guitar or that once-loved designer handbag could do the trick. Sell these items on widely used platforms such as Craigslist or Facebook Marketplace for instant cash.
Also, in the digital age, skills are an asset. Offering your skills on platforms like Fiverrcan turn your talents into quick cash. Don’t underestimate the power of quick gigs!
Tapping into the world of free sign-up bonuses can also fill your wallet quickly. Or even participating in a paid focus group!
If you need to make $200 quickly, there are several tried and tested methods. You could start by driving for Uber or Lyft for the evening during a concert.
My preferred method is trading options in the stock market. While this one is a skill, I developed over time. It has proved to be a tried and true method for me to make $200 in a few hours.
Time to Get 200 Dollars Instantly
By reading this article, you have learned and discovered the most effective ways to earn $200 quickly.
In order to have quick success, here are tips to help you out:
Sign up for a complimentary training or webinar that focuses on effective and proven methods of earning money swiftly.
Learning from other’s experiences can certainly save you some trial and error.
Ensure these training modules offer you practical skills and insights rather than just theory. Real-world applications of these strategies are what will help you rake in some quick cash.
Remember, your motivation and dedication are as important as the information and tools you acquire.
If you are looking to make a little bit more, check out how to make 500 dollars fast. Or even how to make 2000 fast!
Know someone else that needs this, too? Then, please share!!
From 2022 to 2023, the size of the average personal loan taken out in the previous 12 months by those who got one from a financial institution rose 25%, from $5,046 to $6,299, according to a new NerdWallet survey. The increase was driven by a jump in average loan size among millennials, ages 27-42, (up 78%, from $3,305 to $5,891) and Gen Xers, ages 43-58, (up 45%, from $5,276 to $7,668).
Younger generations were more likely to have borrowed using a personal loan, with millennials topping the list at almost 1 in 2 (48%) taking out a loan in the previous 12 months, followed by Gen Zers, ages 18-26, (39%), Gen Xers (38%) and baby boomers, ages 59-77, (13%).
The 2023 survey, conducted online by The Harris Poll over the period Sept. 7-11, 2023, among over 2,000 U.S. adults ages 18 and older, also found divisions in how generational cohorts view borrowing for nonessentials as well as how they perceive the role of personal loans in their financial plans.
Key takeaways
Many borrowers take out a personal loan just to make ends meet. A third (33%) of recent borrowers (i.e., those who took out a personal loan in the past 12 months) say they took out a loan to cover basic expenses, like food and utilities.
Younger Americans have a more favorable view of “buy now, pay later” (BNPL) loans. More than half of both Gen Zers (56%) and millennials (59%) agree that BNPL loans are, in general, a smart way to make purchases. Agreement drops to 40% of Gen Xers and 24% of boomers.
Americans are divided on borrowing for nonessential purchases. Two-thirds (67%) of Americans say borrowing for nonessentials (things other than food, shelter, etc.) is irresponsible. Revealing an age gap, just 55% of Gen Zers agree, though 74% of boomers do.
Personal loans used for survival — and splurging
Borrowers took out personal loans for a variety of reasons, but covering basic expenses topped the list. Around 1 in 3 Americans (33%) who took a loan out in the last 12 months say they did so in part to cover things like utilities, food and clothing.
Vehicle repairs (27%), home repairs or improvements (25%) and debt consolidation (20%) rounded out the top four reasons for taking out a loan. Debt consolidation was the second most popular option for older cohorts, with Gen Xers (27%) and boomers (21%) both ranking it just behind everyday expenses.
On the other end of the spectrum, younger borrowers were more likely to say they’ve borrowed for nonessential purchases like vacations and items they wanted but couldn’t afford. They are also more likely to borrow to pay for nonmedical emergencies and for purchases related to their work.
Rounding things out, about 1 in 5 borrowers (18%) say they took out their loan to pay for medical costs not covered by their insurance. Around 1 in 6 (16%) took out the loan to pay for health and wellness services (like gym memberships or therapy) and 15% took out the loan to finance the purchase of a vehicle.
Making smart borrowing decisions
Choosing the right way to borrow can make a huge impact on how much you ultimately pay and whether you’re able to keep up with your debt. Companies that offer buy now, pay later for smaller purchases often don’t charge interest, which can help keep payments lower than if using a credit card. Consolidating high-interest credit cards into a lower-rate personal loan can save hundreds of dollars over the life of the loan.
“The key with a debt consolidation loan is to get a lower rate than you’re currently paying,” says NerdWallet personal loans writer Annie Millerbernd. “By doing that, you’re reducing the total interest cost on your debt.”
You can also make sure your budget accounts for repaying any borrowing you’ve already done. That can help you balance your monthly spending and make more informed choices when you’re shopping for those nonessentials.
Americans’ borrowing beliefs vary by age group
We found generational divides to be fairly common in attitudes toward borrowing. Generally, younger generations are more open to the use of loans for nonessential purchases and see loans as an important part of their financial plans.
Asked if they agree with the statement, “Personal loans are an important part of my financial planning,” 45% of Gen Zers and 51% of millennials agree. Around 3 in 10 Gen Xers (29%) and just about 1 in 7 boomers (14%) agree.
There was a similar divide surrounding buy now, pay later loans. Just over half of Gen Zers (56%) and a similar portion (59%) of millennials say BNPL loans are, in general, a smart way to make purchases. Agreement falls to 2 in 5 Gen Xers (40%) and just 24% of boomers.
When we asked Americans how they feel about borrowing for nonessentials, two-thirds (67%) say borrowing for nonessentials is irresponsible. That’s a sentiment most common among boomers, with around three-quarters (74%) agreeing. Boomers were also the least likely (1%) to say they took out a loan to make a purchase they wanted but couldn’t afford (Gen Z, 23%; millennials, 25%; and Gen X, 8%).
That division in attitude was mirrored when we asked specifically about using loans to pay for vacations or health and wellness services. Around 2 in 5 Gen Zers (38%) and millennials (44%) agree that loans are a good way to pay for vacations. A quarter (27%) of Gen Xers felt the same way, along with just 16% of boomers.
Paying for health and wellness services (like gyms and spirituality classes) with a loan seems worth it to around 3 in 5 Gen Zers (60%) and millennials (58%). That falls to around 2 in 5 Gen Xers (38%) and just 29% of boomers.
How to be a responsible borrower
Responsibility and familiarity with financial products can affect what options are the right fit for a borrower. A loan presented to a 24-year-old with a part-time job and little borrowing experience may be a poor fit, but that same offer may be just right for a 22-year-old working full time.
When considering a loan, a good first step is to assess your existing budget and whether there’s room for monthly loan payments. It can also pay to check your credit and do what you can to elevate your score. Borrowers with strong credit receive the lowest rates on personal loans.
Compare multiple options for borrowing, whether it’s a personal loan from an online lender or a shorter-term buy now, pay later loan.
Finally, it’s important to understand how much you’ll ultimately be repaying and over what period that payment will need to be made. By comparing types of loans and their costs, borrowers can be sure they’re selecting the best possible loan for their financial situations.
“Research is your best friend when you’re about to borrow money,” Millerbernd says. “Ask yourself whether you’ll have enough money when the payment comes due to make it on time and whether you can get a more affordable loan elsewhere.”
Loans spur a mix of emotions, from high to low
Borrowing comes with a range of emotions, from the elation of getting a mortgage to buy a first home to the fear of paying off a large hospital bill on credit.
About 2 in 5 borrowers (41%) say they’re planning to repay their loan earlier than they’re required to. Conversely, 14% of borrowers say they’re not sure how they’ll be able to repay their loans. That’s a worry more common with Gen Z borrowers. Close to a quarter (23%) say they’re not sure how they’ll be able to pay back their loan.
Around 1 in 4 borrowers (28%) say taking out their loan was a last resort. That’s a sentiment common across generations (27% of Gen Zers, 26% of millennials and 29% of Gen Xers).
Shame showed up more for younger borrowers. Around 1 in 4 Gen Z borrowers (26%) say they felt ashamed to have to take out their loan, compared to 19% of millennials and 12% of Gen X borrowers.
Younger consumers were also more likely to say they felt their lender charged them a higher interest rate for their loan because they were desperate borrowers. About 1 in 5 Gen Z borrowers (21%) and millennial borrowers (22%) expressed that feeling, while just 1 in 10 Gen X borrowers (9%) say the same thing.
Around 1 in 4 borrowers (23%) say their loan allowed them to buy something that made them happy, which they wouldn’t have been able to purchase without a loan. Younger generations were more likely to agree with that sentiment (Gen Z, 28%; and millennials, 27%).
Where to find help
Financial advisors (55%) topped the list of sources when we asked who Americans would trust to give them advice on personal loans. Friends and family came next (46%), and Gen Z Americans put it at the top of their list with 3 in 5 (60%) saying they trusted those in that group.
About 2 in 5 Americans (39%) say bank representatives were a trustworthy source, though just about a quarter (26%) trusted bank websites and personal finance websites/apps (25%). Business partners (12%), media personalities who hand out financial advice (8%) and coworkers (8%) filled in most of the back half.
The very bottom of the trust barrel belongs to social media influencers (7%), though there’s a generational divide. Gen Zers (17%) and millennials (14%) were more likely than either Gen Xers (3%) or boomers (1%) to trust such influencers.
Finding trusted help
Personal loans are just that — personal. Depending on your comfort with borrowing and the amount you need, there are many different options available to you. Just because you may have taken out your last loan from your primary bank doesn’t mean it’ll be the best spot for your next loan.
Consumers with low credit scores may need to do additional digging to find reputable lending sources and avoid predatory lending that takes advantage of those in tight spots.
“Many lenders let you pre-qualify to check your rate with no hard credit check, which is a huge advantage for borrowers, because if you don’t like one lender’s offer, there are plenty more to try out before you apply,” Millerbernd says.
Methodology
This survey was conducted online within the United States by The Harris Poll on behalf of NerdWallet from Sept. 7-11, 2023, among 2,049 U.S. adults ages 18 and older, among whom 588 have taken out a personal loan in the past 12 months. The sampling precision of Harris online polls is measured using a Bayesian credible interval. For this study, the sample data is accurate to within +/- 2.7 percentage points using a 95% confidence level. For complete survey methodology, including weighting variables and subgroup sample sizes, please contact [email protected].