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November 15, 2021

Tips for Becoming Financially Independent

Few things may sound as appealing as the idea of becoming financially independent. Though financial independence can mean different things to different people, it typically refers to being able to live comfortably off one’s savings and investments with no debt whatsoever.

In some cases, it may also mean the ability to retire early, though financial independence doesn’t necessarily have to mean leaving a career you love. It’s about working because you want to, not because you have to.

Sound appealing? Achieving financial freedom could be easier than you think. The process of getting there often comes down to a relatively simple principle: Spending less and saving more.

Below, we take a look at what it means to become financially independent and explore some practical strategies for achieving it.

What Does Financial Independence Look Like?

While there is no set definition for financial independence, the term often means getting to a point where you don’t have to work to pay your living expenses. Usually, financial independence is achieved by relying on savings, investments, and other forms of passive income to pay the bills.

Though financial independence doesn’t have to mean leaving behind a job or career path, it can. In fact, the term is often used as a synonym for early retirement, and the two phrases are commonly strung together in the popular acronym FIRE, which stands for “financially independent, retire early.”

Benefits of Financial Independence

There are myriad benefits to becoming financially independent. One of the biggest perks is the ability to have choices. You can choose to keep working if you enjoy it, or you can kick back and relax. You can save money to pass on to future generations or you can splurge on a trip around the world.

Becoming financially independent can also enable you to enjoy work more. If you’re no longer doing it for the money, you can structure your job responsibilities so you’re only doing the things you want to do.

It can also benefit your mental and physical health. Having the ability to work less allows you to exercise more and get more sleep. Financial independence may also allow you to spend more time with a partner, kids, family, and friends. Having stronger relationships can lead to increased happiness in life.

How to Be Financially Independent

Becoming financially independent typically requires having a clear plan in place and being willing to roll up your sleeves and get to work. Here are some key steps that can help you get there.

Setting Realistic Goals

Being financially independent can look different for everyone, so a good place to start can be to define what being financially independent means to you. What do you visualize? Maybe you want to be debt-free by 40, or you’d like to retire at 50. Or, perhaps you’d love to relocate to some place warm and sunny in ten years.

As you develop your goals, you may want to give them a reality test by consulting with a financial advisor or chatting with a trusted financial mentor. You may find that you need to re-jigger your vision based on your financial situation and how much time you have to achieve your dream.

Once you’ve honed in on some specific, achievable long-term goals, you can begin to figure out what you’ll need to do to make them a reality — whether that’s cutting your spending, boosting your income, and/or saving and investing more than you currently are each month.

Understanding That Income Isn’t Everything

Many people have a tendency to fixate on how much money they are making. And while income is an important part of your financial big picture, it isn’t everything. Yes, it’s easier to amass assets if you have more monthly income, but one key to increasing your net worth is to spend less than you make.

For example, if you are making a comfortable salary but haven’t gotten into the habit of saving and investing, then you may not be leveraging your income to its full potential. Becoming financially independent often requires an understanding that the amount of money you make is just one piece of the puzzle.

The path to financial independence may become a little less daunting once you realize that a high income alone is not necessarily going to lead to sustainable wealth. There are several other factors that play a role in how much you are able to grow your finances, such as how much interest your investments are making and the rate at which you are able to save.

More than a high salary, financial independence typically requires foresight, long-term thinking, and a holistic understanding of how your income overlaps with your expenses, lifestyle, and future goals.

Recommended: How Much of Your Paycheck Should You Save?

Building a Budget

No matter what your income level, one of the keys to getting ahead and achieving financial freedom is to spend less — and potentially a lot less — than you are earning. And, doing that typically requires coming up with a budget.

Budgeting is the process of measuring income, subtracting expenses, and deciding how to divert the difference toward reaching your goals. It’s often considered the essential first task in achieving financial independence.

You can set up a monthly budget by first assessing what you are currently earning (after taxes) each month. Next, you can tally up your actual spending by looking at the last three to 12 months of bank and credit card statements and recording your expenses on a spreadsheet.

Seeing it all laid out in black and white can help you identify unnecessary expenses you might be able to cut out. You can then put the difference towards your long-term goals instead. One rule of thumb is to try to put 20 percent of your monthly take-home income into savings or investments. Working couples might try to bank a substantial part of one salary if possible.

Recommended: How Much Money Should I Save a Month?

Establishing A Safety Net

Achieving financial independence also means thinking about financial security. Having a dedicated emergency fund that can help you weather a health emergency or another large, unforeseen expense means you may not have to run up credit card debt or dip into your investment or other savings account in order to cover these costs.

If you haven’t already started an emergency savings account, consider whether or not you would be able to afford a sudden car repair or if you could handle paying out of pocket for an unexpected dental procedure.

Experts often recommend having at least three- to six-months worth of living expenses set aside in an account that earns interest but can be easily accessed when you need it.

The more effective you are at dealing with financial emergencies, generally the faster your savings and investments can grow.

Putting a Debt Pay-Off Plan Into Action

Taking care of your debt is another important step to achieving financial independence. Today, debt can take many forms — whether it’s student loan debt, a home mortgage, a car loan, or credit card debt.

If you currently have debt, consider incorporating a debt reduction plan into the budget you create and calculate how you would need to tweak your current spending habits in order to prioritize becoming debt-free.

It can be wise to start with the debt that has the highest interest first, since borrowing from those creditors is costing you the most money.

If you have multiple credit card balances, you may want to target them one at a time. You can do this by paying more than the minimum each month on one balance (paying just the minimum on the others) until that balance is wiped out, then move on to the next.

Recommended: Three Ways to Help Pay Off Debt Faster

Being a Smart And Savvy Investor

Becoming a smart investor is another key step you can take on your journey to financial independence. The world of investment can be confusing and carries risk, but it also has the potential to be lucrative. Because you earn interest not only on your contributions, but also on accumulated interest, small amounts can grow over time.

You may want to first focus on tax-advantaged accounts. If you have an employer-sponsored plan, such as a 401(k), it can be a good idea to contribute some of each paycheck, especially if your employer offers to match your contributions. Depending on your situation, you may be able to open a traditional IRA, Roth IRA, or SEP IRA, as well.

If you have children, you may also want to start a 529 plan to help you invest for their college educations.

If you’re able to invest additional funds, you can choose a financial firm you want to work with and then open a standard brokerage account. From there, you can put your money in a mutual fund or an exchange-traded fund (which bundle different types of investments together), or, if you’re prepared to do a fair amount of research, pick and choose your own stocks and bonds.

If you’re new to investing, you may want to consider opening an investment account through a robo-advisor, an investment management service that uses computer algorithms to build and look after your investment portfolio, and typically charges relatively low fees.

Recommended: How Much Should You Have Saved for Retirement by 40?

The Takeaway

Not everyone inherits a fortune or makes a huge salary. But even if you don’t have those advantages, it doesn’t mean you can’t achieve financial independence. Getting there, however, can take work and spending discipline.

Some steps that can help you get there include: creating a budget, trimming expenses, building an emergency fund, paying off debt, and setting up a smart saving and investing strategy that factors in your timeline and tolerance for risk.

Once you set up a plan to work towards financial independence, it can also be a good idea to check-in regularly on how well the plan is working, and to make adjustments when necessary.

Whether you decide to schedule quarterly meetings with a financial advisor, monthly money talks with your significant other, or use apps that help you track your expenses and investments, consider creating habits that help you stay on top of your goals.

With a SoFi Money® cash management account, you can track your weekly spending (and make sure you’re staying within your budget) right in the dashboard of the SoFi app. You can also use SoFi Money’s “vaults” feature to separate your spending from your savings, while earning competitive interest on all your money.

Learn how SoFi Money can help you work towards your financial goals today.

SoFi Money®
SoFi Money is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member FINRA / SIPC . Neither SoFi nor its affiliates is a bank. SoFi Money Debit Card issued by The Bancorp Bank.
SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.
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.
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.
SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
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Source: sofi.com

November 10, 2021

The Pros and Cons of No Interest Credit Cards

Using a no-interest credit card can be a smart financial move if it’s judiciously used for brief periods of time.

Paying the account balance in full before the zero-percent interest period ends is paramount to making the most of an offer like this. Interest, which can be quite high even at the low end of most ranges, will typically start accruing on any remaining balance after the promotional period ends.

There are some ways a 0% APR credit card can be useful in the short term, but there are also downsides to watch out for — some of them significant. There are also other strategies to fund purchases or pay off debt that might work better for your financial plan.

Pros of No-Interest Credit Cards

There are certain situations in which using 0% APR credit cards can create some breathing room within a budget.

Making the Most of the Promotional Period

Making a planned purchase — perhaps an expensive one — with a no-interest credit card can be a good use of a card like this.

One scenario is that you’ve saved the money to pay for this expensive item in a high interest savings account and you’d like to continue earning interest on that money for as long as you can. Putting the expensive purchase on a credit card without having to pay interest right away could allow you to earn a bit more interest on your money.

Making sure the credit card balance is paid in full before the promotional period ends is a good way to earn additional interest on your savings while taking full advantage of the 0% APR period.

Transferring a High-Interest Balance

If you have high-interest credit card debt and are looking for a way to decrease the amount you pay in interest charges, transferring those balances to a credit card with a 0% APR could be one way to go.

Having a plan to pay off the debt within the promotional period while no interest is accruing on the transferred amount is important. But with a plan in place, you may be able to put yourself in a better financial situation. That, in turn, can be helpful in getting affordable financing for other purchases in the future.

Doubling the Incentive

Some credit cards with 0% APR introductory rates on purchases and/or balance transfers also have additional rewards bonus programs. With a planned purchase, as in the example above, taking advantage of a rewards card could potentially mean earning money on the purchase.

For example, you want to purchase a new chair that costs $500. After some research, you find a credit card offering an introductory rate of 0% APR for 15 months and a $200 rewards bonus after you spend $500 on purchases within the first three months of opening the account. You decide this will work for your financial situation, so you apply and are approved. After buying the furniture — paying for it with the new credit card — you pay the balance in full before the promotional period ends.

With this example, not only would you have paid nothing in interest, you would also have netted $200 in rewards cash.

Cons of No-Interest Credit Cards

Some might look at no-interest credit cards as too good to be true. That’s not necessarily the case, but there can be some drawbacks to them. Paying attention to the small print is important.

Temporary Promotional Rate

Credit card issuers that offer promotional rates put an end date on the rate — they don’t last forever.

If you’ve paid for a relatively expensive purchase with a no-interest credit card, you might intend to pay the card’s balance in full with money you expect to receive in the future, such as a work bonus. But what if you don’t receive as generous a bonus as you expected? Or the bonus isn’t deposited into your bank account when you thought it might be?

No-interest credit cards charge no interest only during an introductory period, which averages anywhere from 12 to 20 months. If you cannot pay the account balance in full before the 0% APR promotional rate ends, the interest rate on the remaining balance will revert to the card’s regular rate. It’s a natural inclination to see the “0%” part of the deal and not think about what the regular rate would be after the promotional period ends, especially if you had a plan in place to pay off the balance during the no-interest period.

Fees for Balance Transfers

There will likely be fees for balance transfers on cards with 0% APR introductory rates. Balance transfer fees are commonly charged by many credit card issuers, not only on promotional-rate cards, but the percent range can vary from card to card. Some cards charge a 3% to 5% transfer fee, while others may charge more. The lower the percent charged on the amount you’re transferring to a new card, the less you’ll have to repay overall.

Interest May Apply Retroactively

Similar to a no-interest credit card, a deferred-interest credit offer is one that’s commonly used by individual retail stores. If you’ve been asked if you’d like to apply for a store’s credit card when you’re making a purchase, it might be one that comes with a deferred interest promotion.

Like no-interest credit cards, a deferred-interest card doesn’t charge interest as long as the balance is paid in full within a certain time period. The biggest difference between the two, though, is that if the balance is not paid in full before the promotional period ends, interest on the entire purchase — not just the remaining balance. And APRs on deferred interest cards can be even higher than APRs charged by regular credit card issuers.

Can Credit Scores Be Affected by No-Interest Credit Cards?

If you get caught in a cycle of balance transfers, going from one zero-interest credit card to another, that has the potential to negatively impact your credit score. And if your plan is to close the high interest credit card you just paid off, that could also have a negative impact. Keeping a credit card for several years signals stability to the credit bureaus, especially if you’ve at least made minimum payments on time.

The Takeaway

No-interest credit cards aren’t the only option for paying off debt. You may also be able to pay off high-interest credit cards with a personal loan. A personal loan calculator can give you an idea of what your potential savings might be.

SoFi Personal Loans have no origination fees or prepayment penalties, and have fixed interest rates so there’s no uncertainty about your interest rate going up. And one low, fixed-rate personal loan can be easier to manage than monthly payments on multiple credit cards.

It takes just one minute to check your rate.

Source: sofi.com

November 5, 2021

As Student Loan Servicers Leave, Hereâs What Borrowers Need to Know

Federal student loans have a standard repayment plan of 10 years.
Many websites allow you to compare rates across companies to refinance your loan, assuming you have a steady income and good credit. Some servicers will also reduce your interest by 0.25% if you set up an automatic payment.
The pause on payments that started in March 2020, known as student loan forbearance, is coming to an end on January 31, 2022. That means 43 million borrowers are due to start paying on their loans again early next year.

In July, FedLoan said it didn’t plan to renew its contract with the government, which ends in December. More than 8 million borrowers will be affected and transitioning to a new servicer.
Granite State Management & Resources services loans for 1.3 million borrowers and also will not be renewing its contract with the Department of Education at the end of 2021.
And, in September, Navient – one of the largest servicers in the country – will transition its 6 million student loan accounts to another servicer, Maximus.

The best way to pay off debt? Make more money!
If you’re struggling to make those payments, you have several payment plan options that include an Income-Based Repayment Plan, Income-Contingent Repayment Plan, Pay-As-You-Earn Plan, and a Revised Pay-As-You-Earn Plan.
Here’s a quick breakdown:

What Does This Mean for Borrowers?

“Some servicers have decided to exit the program rather than contend with these new realities. Others have caught the spirit of what we are intending and have embraced a new normal of putting borrowers first.”
Ready to stop worrying about money?
With a zero based budget, you’re in charge of how much you spend on debt every month, unlike percentage-based budgeting. If you’re attacking that student loan debt, you can change the percentages based on your other monthly expenses.
Yes, that’s no fun. But if you really want to get out of student loan debt, and you want to do it faster, some other stuff has to go.

How to Tackle Student Loan Repayments

In theory, they’ll just be making payments to a new loan servicer. No big deal, right? The problem, though, is the short transition time. The timing isn’t ideal.

1. Build an Emergency Fund.

“We can expect that many, many borrowers will not be eager to return to repayment when they have been led to believe, or even to hope, that was never going to happen,” he said. “Getting over that psychological hurdle with millions of Americans may be a much harder job than we know.”
Source: thepennyhoarder.com

2. Determine Your Eligibility for Income-Driven Repayment Plans.

A zero-based budget is built to pay off debt fast.
Here are a few actions we suggest to pay down your loans.

3. Lower Your Interest Rates.

Privacy Policy
Richard Cordray, COO of Federal Student Aid, recently gave a policy speech to the Education Finance Council. His remarks were given to Politico.
If you have a private loan, it never hurts to call your servicer, explain your situation, and ask for a new, lower rate.

4. Choose a Debt Payoff Method

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One month you can use a quarter of your monthly income, and the next month you might go wild and use half. It’s up to you. Plus, any money leftover you can also put toward that debt.
A ,000 rainy day fund will help you pay cash for those everyday emergencies that could really slow down paying off your loans. When it comes to student loans and their accompanying interest, every matters.

5. Make Sure You Have a Budget.

Sometimes just making a simple, concrete plan helps with motivation. You can see exactly what your payment future looks like, and you know exactly what you need to do to get out of debt.
He said in the speech that part of renegotiating with the loan servicers will be new performance and accountability metrics. According to Cordray, that didn’t sit well with some servicers, so they split.
Lowering the percentage you pay in interest always helps, no matter how small of a decrease. Federal loans are typically lower interest than private loans, but you can still look into lowering those rates.
“I need to pay something off, and you’re telling me to save?” Yes!

6. Find a Side Gig.

Whether it’s tutoring, freelancing, working odd jobs, teaching ESL, online transcribing, and even renting your friendship, there are myriad ways to make some extra money. In fact, we have 50 unique ideas to get you started.
The debt avalanche is one such plan. You start with your highest interest loan, then focus on putting as many extra payments/cash toward that loan. Once it’s paid, you move onto the next highest interest loan. The avalanche continues until you’re out of debt.

7. Cut Expenses.

The student loan servicing industry has had better days. The exodus of student loan servicers is just one of many that have plagued the student loan industry in recent years. Our best advice? Do everything you can to get out of student loan debt as quickly as possible and eliminate this ongoing financial headache from your life.
Another plan is the debt snowball method. With this plan, you start with the lowest balance first. Put everything toward paying it off, then move onto the next lowest balance. So an and so forth and you’re eventually out of debt. <!–

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Cordray said the payment pause is “an unprecedented challenge” because of the complications of restarting tens of millions of payments at the same time. He said that the political debate over student loan forgiveness hasn’t helped when it comes to borrowers’ expectations.

November 3, 2021

Why did my credit score drop after paying off debt?

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

Paying off debt is wise and satisfying, so you may be surprised to find your credit score dropped after making a payment. Because credit scores are calculated using a variety of factors, the drop could have occurred for several reasons. The most common reasons credit scores drop after paying off debt are a decrease in the average age of your accounts, a change in the types of credit you have, or an increase in your overall utilization.

It’s important to note, however, that credit score drops from paying off debt are usually temporary. In general, the benefits of paying off debt outweigh the downsides of a reduced credit score. If your debt has a high interest rate, the amount you owe will continue to grow over time, so reducing the balance or paying it off entirely could save you a significant amount of money.

Still, you can make strong financial decisions by understanding why paying off debt can reduce your credit score in the short term—and you can work toward a higher credit score over time.

Your credit score is calculated using several factors: payment history, credit utilization, credit age, number of inquiries and types of credit. Paying off debt could affect one or more of these factors, which could explain the drop in your score.

Read on to learn why your credit score may have dropped after you pay off debt, other reasons your credit score may be lower, and a few ideas for improving your credit score.

How paying off debt could affect your credit score

Your average account age may have decreased

One ranking factor for your credit score is the length of your credit history, which includes the average age of your accounts.

If you pay off your oldest account and close it, the average age of your accounts will drop, which could lead to a decrease in your score.

While closed accounts will stay on your credit report for seven to ten years after you close them, they are viewed differently than open accounts.

Over time, your length of credit history and average account age will increase, so the drop that comes from paying off debt is likely temporary.

You may now have fewer types of credit

Another ranking factor for your credit score is the types of accounts you have on your report. In general, the credit bureaus who report your credit history want to see that you’re responsibly using several different types of credit.

For example, your credit report may list a few credit cards and an auto loan. If you pay off and close the auto loan, your credit mix now has less variety since it only contains credit cards. This could lead to a temporary drop in your credit score.

That said, it’s not necessary to go out of your way to take on as many different types of credit as possible. Instead, use different types of credit when you need them, making sure to pay on time. Over time, your credit score will recover with responsible use of credit.

Your credit utilization may have increased

An additional factor that affects your credit score is utilization, which is simply the amount of credit available to you that you’re actually using. For example, if your only account is a credit card with a $1,000 limit and you have a balance of $200, you’re using 20 percent of your available credit.

In general, lenders want to see that you’re using 30 percent or less of your available credit, as this signals that you’re able to manage your finances without leaning too heavily on credit.

If you pay off a credit card debt and close the account, the total amount of credit available to you decreases. As a result, your overall utilization may go up, leading to a drop in your credit score.

As a rule of thumb, it’s often helpful to keep older accounts open even if you don’t use them often, unless they involve an annual fee or there’s another good reason to close them.

Other reasons your credit score could drop after paying off debt

Although the most common reasons for a score drop after paying off debt are listed above, there are a few other possibilities.

Other reasons your score may drop after paying off debt

Here are some things to keep in mind if you notice a change in your score after paying off debt:

You paid off an older collections account: In some cases, making payments on an old collections account can lead to the collection agency changing the date of the debt. Since the debt resurfaces as a newer account on your credit report, it may make a larger impact on your score.
Not enough time has passed since paying off the debt: The credit bureaus may not get information about your debt payment for 30 days or more, so you’ll want to check your credit report to see whether the account is marked as paid off.
Your score drop is unrelated to paying off debt: Although your credit score may drop after paying off debt, that may not be the reason your score dropped. Credit scores are a complicated calculation, and there could be many other reasons for a change in your score. For example, you may have applied for a new line of credit, have a missed payment on a different account, or have inaccurate information on your credit report.

In any case, if you notice a credit score drop, you’ll want to make sure to get a copy of your credit report. After looking at your report for each of the three credit bureaus—TransUnion^®, Experian^® and Equifax^®—you’ll have a better idea of the information they’re reporting about you.

In addition to seeing whether your debt is shown as paid off, you’ll also want to pay close attention to any negative items or inaccurate information listed on your credit report. Unfair negative items can have a damaging effect on your credit score, and federal law allows you to dispute any items on your credit report that you can prove are inaccurate.

Filing a dispute to challenge false information is an important part of the process of repairing your credit and improving your score. For support in looking over your report and disputing inaccurate information, consider working with a credit repair consultant at Lexington Law Firm, who can assist with every step of the process. Having an accurate and fair credit report is an important first step in working toward your credit score goals.

Reviewed by Alexis Peacock, Supervising Attorney at Lexington Law Firm. Written by Lexington Law.

Alexis Peacock was born in Santa Cruz, California and raised in Scottsdale, Arizona. In 2013, she earned her Bachelor of Science in Criminal Justice and Criminology, graduating cum laude from Arizona State University. Ms. Peacock received her Juris Doctor from Arizona Summit Law School and graduated in 2016. Prior to joining Lexington Law Firm, Ms. Peacock worked in Criminal Defense as both a paralegal and practicing attorney. Ms. Peacock represented clients in criminal matters varying from minor traffic infractions to serious felony cases. Alexis is licensed to practice law in Arizona. She is located in the Phoenix office.

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.

Source: lexingtonlaw.com

October 29, 2021

Should I Save for a Down Payment on a House or Pay Off Debt?

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You need cash for a down payment to buy a house. But your existing monthly debt payments and credit also affect your ability to borrow, your interest rate, and the lender fees you’ll pay. Which says nothing of financial upsides and downsides to buying versus renting a while longer.

So how do you choose between paying off your debts and savings for a down payment?

It depends on your personal finances, so consider the following factors while you decide how to prioritize your savings.

How Debt Affects Your Mortgage Application

Before getting into the other factors that go into your decision, you first need to understand how lenders review your loan application.

When you apply for a mortgage, the bank or broker looks at your income, your debts, your assets, and your credit history. They use this information to calculate how much to lend you, at what interest rate and points, and with what down payment.

Debt Ratios

Mortgage lenders calculate two debt-to-income ratios when you apply: a “front-end” and “back end” ratio.

Your front-end debt ratio is based solely on your housing expenses if you were to borrow money to buy a house. Lenders typically cap borrowers’ housing expenses at 28% of their gross monthly income. So, if you earn $5,000 per month, lenders limit your monthly loan payment to $1,400. Housing expenses include your mortgage principal and interest, property taxes, homeowners insurance, and any homeowners’ or condo association fees.

Where it gets slightly more complicated is your back-end ratio, which includes all your monthly debt payments. Lenders usually cap borrowers’ back-end debt ratio at 36% of their gross monthly income. That includes not just your prospective mortgage payment, but all your other monthly debt payments including auto loans, personal loans, student loans, credit card minimum payments, child support, alimony, and any other obligatory payments.

Continuing the example above, say you earn $5,000 per month, but you owe $500 each month on a car loan, $400 toward student loans, and $100 toward credit card balances. Since most mortgage lenders cap you at a 36% back-end ratio, that means a maximum of $1,800 each month going to all your debt payments combined. Since you already have $1,000 going toward other debts, lenders would only approve you for a mortgage with an $800 payment — including principal, interest, property taxes, homeowners insurance, and association fees.

By paying off one or more of those outstanding debts, you can qualify for a much higher mortgage loan.

Credit

Your credit score and history determine your interest rate, lender fees, and down payment. While you can buy a home with bad credit, it costs far more, both in down payment and monthly loan payments.

If you have bad credit, consider improving your credit score before you buy a home. Which you can start by paying off your other debts.

That kills multiple birds with one proverbial stone: you eliminate debts, which increases the loan amount you qualify for, and boosts your credit score, which helps you qualify for a cheaper loan with a lower down payment. Wins all around.

Down Payments & PMI

If you put down less than 20% when you buy a home, the lender requires you to pay for mortgage insurance. Among conventional loans, it’s called private mortgage insurance (PMI); among FHA loans, it’s called mortgage insurance premium (MIP). It can add $100 or more to your monthly payment.

The distinction matters, because conventional loans allow you to remove PMI once you pay the balance down below 80% of your home’s value. However FHA loans no longer allow that — they require you to keep paying MIP for the entire life of your loan. That means you should avoid FHA loans if possible, and the better your credit score, the better your odds of getting a conventional loan.

When you take out a conventional loan, you ideally want to put down 20% to avoid PMI entirely. It adds another wrinkle to the decision of whether to put more money toward a down payment or toward paying off debts. But even if you borrow more than 80% of the home price, at least you can remove PMI once you pay down your loan balance.

Non-Mortgage Factors Affecting Your Decision

Your mortgage approval and loan terms aren’t the only factors that go into your decision.

Consider the following as well, as you decide what makes most sense for you.

Cost of Renting vs. Owning in Your Market

In some markets, it costs far more to own a home than to rent an equivalent one. And vice versa in other markets.

Look no further than San Francisco. People love to complain about rents in San Francisco, but they’re a steal compared to home prices.

The median rent for a three-bedroom home in San Francisco is $4,567 per RentData.org, while the median home price is $1,504,311 per Zillow. At a 4% mortgage rate for a 30-year loan, principal and interest comes to $7,182 per month. At a property tax rate of 1.1801%, property taxes on a median home come to $1,479 per month. Add another $200 for homeowners insurance and you have a monthly housing payment of $8,861 — nearly twice the cost to rent. And that says nothing of home maintenance and repairs, which renters delegate to their landlord.

In markets where it costs more to own than rent, there’s little rush to become a homeowner. Prioritize paying off debts over saving for a down payment.

How Long You Plan to Stay

American culture has built a mythology around homeownership. But as demonstrated above, it doesn’t always make sense.

Nor are market rent and home pricing the only reason to rent. Renting allows flexibility: you only commit to one year at a time, if that. When you buy a home, it takes years to build enough equity to cover both your initial purchase closing costs and your subsequent selling costs.

If you don’t know how long you want to live in your next home, rent rather than buy. Take the time to pay down debts and improve your credit score.

That goes doubly if you’re thinking about buying a home with a partner, but you’re not 100% confident in your long-term future together.

The Interest Rate on Your Other Debts

The interest rates on your other debts matter. The higher they are, the more urgently you should pay them off. A 5% interest rate on a car loan comes with far less urgency than a 50% rate on a loan from the mob, to use an extreme example.

While you may not owe the mob, many Americans do carry credit card debts with interest rates ranging from 15% to 30%. Consider any loan with an interest rate in the double digits “urgent.”

Bear in mind that it often makes sense to pay off one debt but not another before saving money to buy a home. For instance, if you have credit card debt at 25% interest and a car loan at 5%, consider paying off the credit card balance but leaving your car loan in place.

Your Ability to Suspend or Reduce Other Debt Payments

Since the bank uses your minimum required payments to calculate how much loan you can afford, decreasing minimum payments may increase your loan amount without you having to pay off any debt. It works best with loans you want to keep, such as those with low interest rates.

For example, many student loans permit you to suspend or alter your payment plan for a year or two. That makes it easier to qualify for a larger loan without having to pay off any of the low-interest student debt.

With credit card debt, you can consider a balance transfer to a credit card with a lower APR rate or a promotional period free of any interest. Don’t open a new card just before you apply for your mortgage however, as this can temporarily ding your credit score.

Your Appetite for House Hacking

I don’t have a housing payment, and it makes a huge impact on my savings rate.

Consider getting creative and exploring ways to house hack. In the traditional model, you buy a multifamily property and move into one unit, while renting out the others. Your neighboring tenants ideally pay enough in rent to cover your monthly mortgage payments and some of your maintenance costs.

Alternative house hacking models include bringing in housemates, renting out a basement or garage apartment, renting part of the home on Airbnb, or any number of other house hacking tactics.

I’ve known renters who found ways to house hack. But you have more options when you own your own home.

If the idea appeals to you, and you’re willing to do some research on how to make it happen, buying a home sooner rather than later often makes sense.

Access to Other Funding Sources for Your Down Payment

Some people have family members who might help them out with a down payment — but would never give them money to pay off credit card debt that they racked up through their own financial mismanagement.

In those cases, you can put your own savings toward paying off debts, and accept loans or gifts from family members to help with your down payment. Keep in mind that conventional mortgage loans don’t technically allow you to borrow the down payment, but they do allow gifts.

You can also pull money from your retirement accounts to cover your down payment, tax- and penalty-free. Each retirement account comes with its own rules and limitations for withdrawing funds for a down payment, so do your homework.

Research other creative ways to come up with a down payment. You might find that you can put your own savings toward paying off your debts, even as you raise your down payment elsewhere.

Tax Implications

I hesitated to even include this, because too many people overemphasize the importance of the mortgage interest deduction. But Uncle Sam does play favorites with homeowners and allows them to deduct the interest paid on their home mortgage each year, along with their property tax bill.

That only helps you if you itemize your deductions, of course. If you take the standard deduction — as many more Americans now do, after it was raised by the Tax Cuts and Jobs Act of 2017 — the mortgage interest deduction doesn’t impact your taxes at all. The law also put a $10,000 cap on state and local tax deductions on your federal income tax return, limiting your ability to write off property taxes in high-tax cities.

A Framework for Deciding Whether to Pay Down Debts or Save a Down Payment

First and foremost, reevaluate whether you should buy a home right now at all. Research rents versus homeownership costs in your area, and try this nifty rent vs. buy calculator from Realtor.com. Ask yourself how long you plan to stay in your next home, and if you don’t know or if it could be less than three years, continue renting for now while you become debt-free.

If you decide that you definitely want to buy, calculate your back-end debt ratio, and how much money it leaves for a mortgage payment. Don’t forget property taxes, insurance, and homeowners’ association fees. If a 36% cap doesn’t leave you with much room for a housing payment, consider paying off debts. Use the free mortgage limit calculator from Chase to help you run the numbers.

If you’re paying more than 8% to 10% on some of your debts, consider paying them off before saving for a home. Try the debt avalanche method to knock out your highest-interest debts quickly.

In contrast, if you plan to house hack, or if you can raise your down payment from money other than your own savings, consider prioritizing your down payment. Buying a home helps you even more if you itemize your deductions, but don’t base your decision on that factor alone.

Don’t forget to leave yourself an emergency fund, so you don’t find yourself panicking when a $3,000 repair bill comes due 30 days after you settle on your new home.

Final Word

As you run the numbers in the calculators above, be careful to avoid framing your future housing payment in terms of the most you can possibly afford. It’s a recipe for overspending on housing, and leaving no money for groceries, entertainment, or travel.

Instead, ask yourself “What’s the least I can spend on housing and still be satisfied with my home?” By reframing the question, you’ll look for homes that meet your requirements rather than looking at homes that stretch your housing budget to their absolute limits.

Better yet, skip that game entirely and either house hack or find a job that provides free housing. The suburban American dream of the white picket fence is overrated anyway.

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G. Brian Davis is a real estate investor, personal finance writer, and travel addict mildly obsessed with FIRE. He spends nine months of the year in Abu Dhabi, and splits the rest of the year between his hometown of Baltimore and traveling the world.

Source: moneycrashers.com

October 28, 2021

7 Great Tools to Help You Get Out of Debt

Worried couple looking at bills in the morning at home with laptop and coffee — WAYHOME studio / Shutterstock.com

We’ve borrowed a lot. Collectively, we Americans owe $14.96 trillion, says the Fed.

Our mortgage balances make up the lion’s share — $10.44 trillion — but we also owe trillions in student loans, auto loans, credit card debt and other revolving credit accounts.

Are you among the millions of folks feeling the weight of that debt?

We’ve written tons of articles that can help you destroy debt, like “How to Pay Off $10,000 in Debt Without Breaking a Sweat” and “10 Ways to Lose Weight and Pay Down Debt — at the Same Time.” (Do a search for “Debt” at the top of this page, and you’ll find lots more.)

But there’s also help in the form of free or cheap apps and websites. Here are several of our favorites:

1. Tally

Credit card debt can be hard to shake. That’s where Tally comes in. This app automates debt management and makes it easy to save money, manage your credit cards and pay down balances faster.

Download the free app and add in your credit cards. If you qualify through a painless credit check — you’ll usually need a credit score of 580 or above — the app will offer you a low-interest line of credit. The interest rate, lower than the rates on your credit cards, will enable you to pay down your debt faster and through one simple payment.

“We are effectively buying [money to lend you] in bulk on behalf of our users and passing the majority of those savings to them,” says Jason Brown, company co-founder.

Tally then takes over the task of paying your cards with the line of credit. You just pay Tally.

Tally also has a debt calculator that can help figure out your “debt-payoff roadmap.”

2. Self

Build credit while you save with Self (formerly Self Lender).

Technically, you take out a loan, but you don’t get the money until you pay it off. No credit score is needed, and Self says it won’t do a “hard pull” credit check.

Here’s how Self works: You choose the free app’s plan that meets your budget, starting at $25 a month, with either a 12- or 24-month term. Your payment goes toward money held in your name as a certificate of deposit.

Each monthly payment is reported to all three credit bureaus. At the end, you’ve paid your loan and get the money from the CD and have built a better credit score. You can use that money to pay down debt.

“I wanted a simple way so that I could help my future self build credit and save money,” James Garvey, CEO and co-founder of the company, told American Banker.

3. Acorns

Invest your spare change with Acorns and save for retirement.

For $3 or $5 per month, you get either a personal or family plan. Both can be used to invest your rounded-up payments on purchases in exchange-traded funds (ETFs), growing your money over time. The family plan has the additional feature of an investment account for your kids.

4. Qoins

Like Acorns, Qoins rounds up your credit card spending to the nearest dollar and applies the money from the difference toward your outstanding debt, or sets it aside for saving, depending on your wishes.

You can choose to apply it to debts such as student loans, credit cards and mortgages.

Qoins users will pay off debt two to seven years early and on average save thousands of dollars on interest payments, its developers say.

Your cost is $2.99 or $4.99 a month, depending on whether you want one or more types of goals, and the amount is deducted from payments it sends you.

5. Debt Free

You can manage your debt with Debt Free, an app that helps you to organize, monitor and pay off your debts using what’s known as a “snowball plan,” in which you aggressively eliminate one debt at a time.

You can choose to first go after debts with the lowest balances, highest interest rates or just in whatever order you choose.

Debt Free also will calculate your overall debt-free date and payoff date for each debt as well as calculate interest and time savings with extra payments.

It will also send you notifications for payment due dates.

The 99-cent app (iOS only) includes three built-in calculators:

Payoff date calculator
Loan calculator
Mortgage calculator

6. Unbury.me

Unbury.me is a free online tool that allows you to create an account, list all of your debts and map out a payment plan to suit your needs.

You can choose from two methods:

Avalanche: Attack your debt with the highest interest rate first, then move to the second-highest and so on. This may save you the most money in the long run.
Snowball: Focus on your lowest balance first, then the second-lowest and so on. This is the right choice if short-term victories motivate you better to direct more money to your payment goal.

The tool also shows you how much faster you’ll pay off a debt by paying more than the minimum each month instead of just sticking to the minimum.

For example, a $5,000 balance with a $100 minimum monthly payment at 15.9% interest, it showed, would take seven years to pay off, and you’d pay about $3,250 in interest; at $200 a month, you’d be debt-free in just three years and pay only around $1,120 in interest.

7. MTN Solutions Center

Last but not least, if you are struggling with credit card debt and you need help, go to our Solutions Center, where our partner Debt.com can match you with the services you need. It can also help kill off tax or student loan debts, restore your credit, deal with debt collectors and more.

It looks for ways to get you out of high-interest debt and save money. You can request a free evaluation from a certified credit counselor to identify the best credit card debt solution for your situation. Solutions may include credit card balance transfers, debt consolidation loans, debt management programs, settlement programs or consolidated credit programs. If you’d prefer, you can also give Debt.com a call at 888-739-9616.

The site also offers free calculators, free expert advice and other free tools.

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

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Source: moneytalksnews.com

October 26, 2021

Using Your 401K to Pay Down Debt

You have debt. But you’ve also got a stash of cash in your 401(k).

If you’re feeling overwhelmed by high-interest credit card balances, a student loan, and/or an auto loan, you might think taking money out of your 401(k) is a good way to pay down that debt and get it under control.

But is withdrawing money from your 401(k) to pay off debt a good idea? How would you go about doing it — and then paying it back?

What Are Some Options for Taking Money out of a 401(k)?

There are two basic options for taking money out of a 401(k): withdrawals and loans.

401(k) Withdrawal

A withdrawal removes money from your account permanently. You don’t pay the money back — but you can typically expect to pay taxes on the amount you withdraw. And, depending on your age, you may have to pay an early withdrawal penalty as well.

401(k) Loan

A loan lets you borrow money from your account and then pay it back to yourself over time. You’ll pay interest, but the interest and payments you make will go back into your retirement account.

There are pros and cons for each of these options. And the rules can vary depending on your age and what your employer’s plan allows. Here are some things to consider.

What Are the Rules for 401(k) Withdrawal?

Tax-deferred retirement accounts like 401(k)s, 403(b)s, and others were designed to encourage workers to save for retirement, so the rules aren’t super friendly for those who want to make a withdrawal before age 59½.

But depending on your financial situation, you may be able to request what the IRS calls a hardship distribution .

Employer retirement plans aren’t required to provide hardship distribution options to employees, but many do, so it may be worth checking with your HR department or plan administrator for details on what your plan allows.

According to the IRS, to qualify as a hardship, a 401(k) distribution must be made because of an “immediate and heavy financial need,” and the amount must be only what is necessary to satisfy this financial need. Expenses the IRS will automatically accept include:

• Certain medical costs.

• Costs related to buying a principal residence.

• Tuition and related educational fees and expenses.

• Payments necessary to avoid eviction or foreclosure.

• Burial or funeral expenses.

• Certain expenses to repair casualty losses to a principal residence (such as losses from a fire, earthquake, or flood).

You still may not qualify for a hardship withdrawal, however, if you have other assets you could draw on or some kind of insurance that will cover your needs. And your employer may require documentation to back up your request.

You probably noticed that credit card and auto loan payments aren’t included on the IRS list. And even the tuition expense requirements can be a little tricky. You can ask for a hardship distribution to pay for tuition, related educational fees, and room and board expenses “for up to the next 12 months of post-secondary education” for yourself, your spouse, your children, or your dependents. But you can’t expect to use a hardship distribution to repay a student loan from when you already attended college.

Are 401(k) Withdrawals Subject to Taxes and Penalties?

Even if you can qualify for a hardship distribution, it’s a good idea to plan to pay taxes on the distribution (which is generally treated as ordinary income). And, unless you meet specific criteria to qualify for a waiver , you’ll also pay a 10% early withdrawal penalty if you’re younger than 59½.

So, let’s say you’re 33 years old, and you have enough in your 401(k) to withdraw the $20,000 you need. Right off the top, unless you qualify for a waiver, you can expect to pay a $2,000 early withdrawal penalty. Then, when you file your income tax return, that 401(k) distribution will most likely be counted as ordinary income, so it will cost you even more. And if that added income bumps you into another tax bracket, you could end up paying even more.

But taxes and penalties aren’t the only costs to consider when you’re deciding whether to go the distribution route.

Since compound interest creates the potential for your initial investment to grow significantly over time, every dollar you take out now could mean several dollars less in retirement. Essentially, withdrawing from your 401(k) now is like borrowing money from your future self, because you’re losing long-term growth.

What Are the Costs Associated With 401(k) Loans?

You may be able to avoid paying an early withdrawal penalty and taxes if you borrow from your 401(k) instead of taking the money as a distribution. But 401(k) loans have their own set of rules and costs, so you should be sure you know what you’re getting into.

There are some appealing advantages to borrowing from a 401(k). For starters, if your plan offers loans (not all do), you might qualify based only on your participation in the plan. There won’t be a credit check or any impact to your credit score — even if you miss a payment. And borrowers generally have five years to pay back a 401(k) loan.

Another plus: though you’ll have to pay interest (usually one or two points above the prime rate ), the interest will go back into your own 401(k) account — not to a lender as it would with a typical loan.

You may have to pay an application fee and/or maintenance fee, however, which will reduce your account balance.

Of course, a potentially more impactful cost to consider is how borrowing a large sum from your 401(k) now could affect your lifestyle in retirement. Even though your outstanding balance will be earning interest, you’ll be the one paying that interest. Until you pay the money back, you’ll lose out on any market gains you might have had — and you’ll miss out on increasing your savings with the power of compound interest. If you reduce your 401(k) contributions while you’re making loan payments, you’ll further diminish your account’s potential growth.

Another risk to consider is that you might decide to leave your job before the loan is repaid. According to IRS regulations, you must repay whatever you still owe on your 401(k) loan within 60 days of leaving your employer. If you fail to pay off the outstanding balance in that time, it will be considered a distribution from your plan. And when tax time rolls around, you’ll have to include that amount on your federal and state tax returns, where, typically, it will be considered ordinary income.

If you’re under age 59½ and the loan balance becomes a distribution, you may also have to pay a 10% early withdrawal penalty.

There may be similar consequences if you default on a 401(k) loan.

What Are Some Ways of Minimizing Risks to Your Retirement?

If you decide using a 401(k) to pay off debt is your best (or only) option, here are a few things that could help you lower your financial risk.

• Not using your high-interest credit cards once you use your 401(k) to pay them off. If you continue to use your credit cards, and then have credit cards and the 401(k) loan payments to make every month, you could end up in even more financial trouble.

• Continuing to make contributions to your 401(k) while you’re repaying the loan — at least enough to get your employer’s match.

• Not overborrowing. Creating a budget could help you determine how much you can comfortably pay each quarter while staying on track with other goals. And try to stick to taking only the amount you really need to dump your debt and no more.

Why Do People Use Their 401(k) to Pay Down Debt?

Although there are significant costs involved in taking money out of a 401(k) to pay debt, many people still do it. It can seem like a good option if you have high-interest debt like credit card debt and you have to face those bills every month. If you have lower interest debt like student loans, personal loans, auto loans, or a home equity line of credit (HELOC), then the early withdrawal penalty and other consequences may be a deterrent.

But if you’re paying high interest on your current debt, or if you have debt payments due and no way to cover them, using your 401(k) might seem better than the risks of missing payments on those bills. Late payments can rack up fees, interest, and can ding your credit score. And if you default on a debt, that can have even more dire consequences, potentially including court actions and wage garnishment — depending on the type of debt and the creditor or lender. You can’t exactly wait it out and count on winning the lottery or inheriting money from some long-lost relative.

If your credit score ends up damaged due to late payments, that, too, could have a huge impact on your finances. Having a low credit score can make it more difficult to get loans in the future. You might have to pay a higher interest rate or there might be limits on how much you can borrow.

Given the dire consequences of doing nothing, using your 401(k) to pay off debt might seem like an attractive choice. But before you contact your HR department or plan administrator to request a loan or withdrawal, you may want to take time to look at some other options that could help you repay your debts.

What Are Some Alternatives to Taking Money Out of Your 401(k)

When it comes to paying down debt, your 401(k) isn’t the first or only place you can look for relief. There are some solid alternatives.

For example, refinancing your debt might be an option. When it comes to things like student loans or auto loans, you might be able to get a lower interest rate than you’re currently paying.

This may be especially true if your credit score or income has improved since you first took out your loan. If you took out educational loans when you were still a student, for example, you’re likely making more money now and might have built up a credit history that could make you eligible for a better deal.

If you have federal student loans and are still working toward that dream job (and salary), you could look into income-driven repayment plans that limit the amount that you pay each month to a certain percentage of your monthly discretionary income — which could help keep your monthly payments more manageable.

Many of these plans will also forgive any remaining balance on your federal student loans after 20 to 25 years of qualifying, on-time payments — something that you won’t be able to take advantage of if you pay off your loans with your 401(k).

If you still need help, you could look into whether you qualify to have your federal student loans put into forbearance or deferment (although you’ll want to consider these programs carefully, as you may still be responsible for any interest that accrues).

If you have credit card debt or other high interest debt, you could look into a credit card consolidation loan. Debt consolidation loans are loans designed to pay off your current loans or credit cards, ideally at a lower interest rate or with more favorable terms.

You can get these loans from a bank, credit union, or online lender, often by filling out a quick form and sending a few scanned documents. But it’s important to remember that this is still taking on debt, even if it’s debt with different terms.

One critical thing to remember when using a personal loan to refinance or consolidate debt is that you may have the option to extend the length of your loan, which may reduce your monthly payments and free up some near-term cash flow.

While extending your loan term means you’ll likely pay more in interest over the life of your loan, it might be a worthwhile move to ensure you can cover your debt payments.

The Takeaway

It may not have ever crossed your mind, when you opened your 401(k), that you’d use it for anything other than retirement. And though it may be tempting to tap it now, especially if you’re facing a daunting amount of expensive debt, that’s a decision with both short- and long-term consequences. Before you use your 401(k) to pay off debt, you may want to consider other available alternatives. With a SoFi Personal Loan, for example, you might be able to get a do-over on that debt and a more manageable monthly payment.

Learn more about personal loan options with SoFi for consolidating debt.

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October 26, 2021

Using a Personal Loan to Pay Off Credit Card Debt

People talk all day long about their workouts, favorite apps, and their love lives, but bring up the subject of money, especially credit card debt, and suddenly everyone clams up.

But just because we don’t talk about debt doesn’t mean it’s not an issue. After all, the average American household carrying a credit card balance has over $5,500 in credit card debt in 2021. But how do you pay off credit card debt? One method to consider: taking out a personal loan.

How Using a Personal Loan to Pay Off Credit Card Debt Works

Personal loans are a type of unsecured loan that a borrower can take out for almost any purpose, including paying off credit card debt. Loan amounts can vary by lender and will be paid to the borrower in one lump sum after the loan is approved. The borrower then pays back the loan — with interest — in monthly installments that are set by the loan terms.

Many unsecured personal loans come with a fixed interest rate that won’t fluctuate or change over the life of the loan. An applicant’s interest rate will be determined by a set of factors, including their financial history, credit score, income, and other debt, among other factors. Typically, the higher an applicant’s credit score the better their interest rate will be, as they may be seen as a less risky borrower. Lenders may offer individuals with low credit scores a higher interest rate, presuming they will be more likely to default on their loans.

When using a personal loan to pay off credit card debt, the loan proceeds are used to pay off the cards’ outstanding balances, consolidating the debts into one loan. Ideally, the new loan will have a much lower interest rate than the credit cards. Consider that the average credit card interest rate is about 16% , while the average personal loan rate is about 9.5% , according to the Federal Reserve. By consolidating credit card debt into a personal loan, a borrower’s monthly payments can be more manageable and cost considerably less interest.

Finally, using an unsecured personal loan to pay off credit cards also has the benefit of ending the cycle of credit card debt, without resorting to a balance transfer card.

Balance transfer credit cards are just credit cards that usually have an introductory offer of a low rate (or a 0% rate) on balance transfers to the new card. This might seem like an appealing offer. But if the balance isn’t paid off before the promotional offer is up, the card holder could end up paying an even higher interest rate than they started with. Balance transfer cards often charge a balance transfer fee, which could ultimately increase the total debt.

Taking Out a Loan to Pay Off Credit Card Pros and Cons

While on the surface it may seem like taking out a personal loan to pay off credit card debt could be the best solution, there are some potential drawbacks to consider as well. Here’s a look at some of the pros and cons.

Pros	Cons
Lower interest rate: Personal loans may charge a lower interest rate than high-interest credit cards. Consider the average interest rate for personal loans is under 10%, while credit cards charge over 16% on average.	Lower rates aren’t guaranteed: If you have poor credit, you may not qualify for a personal loan with a lower rate than you’re already paying. In fact, it’s possible lenders would offer you a loan with a higher rate than what you’re paying now.
Streamlining payments: When you consolidate credit card debt under a personal loan, there is only one loan payment to keep track of each month, making it less likely a payment will be missed because a bill slips through the cracks.	Loan fees: Lenders may charge any number of fees, such as loan origination fees, when a person takes out a loan. Be mindful of the impact these fees can have. It’s possible they will be costly enough that it doesn’t make sense to take out a new loan.
Pay off debt sooner: A lower interest rate means there could be more money to direct to paying down existing debt, potentially allowing the debtor to get out from under it much sooner.	More debt: Taking out a personal loan to pay off existing debt is more likely to be successful when the borrower is careful not to run up a new balance on their credit cards. If they do, they’ll potentially be saddled with more debt than they had to begin with.
Credit score boost: It’s possible that taking out a personal loan could boost the borrower’s credit score by increasing their credit mix and lowering their credit utilization by helping them pay down debt.	Credit score dip: If closing the now-paid-off credit cards after taking out a personal loan is a temptation, perhaps reconsider doing so. Closing credit accounts that have been on a person’s credit report for some time could shorten their length of credit history and possibly negatively affect their credit score.

So You’ve Decided to Apply for a Personal Loan to Pay Off a Credit Card. Now What?

The steps for paying off a credit card with an unsecured personal loan aren’t particularly complicated, but having a plan in place is important.

Getting the Whole Picture

It can be scary, but getting the hard numbers — how much debt is owed overall, how much is owed on each specific card, and what the respective interest rates are — can give a sense of what personal loan amount might be helpful to pay off credit cards.

Searching Personal Loan Options

These days, most — or all— personal loan research can be done online. A personal loan with an interest rate lower than the credit card’s current rate is an important thing to look for. Origination fees, which can add to a person’s overall debt and possibly throw off their payoff plan, is another thing to watch out for.

Paying Off the Debt

Once an applicant has chosen, applied, and qualified for a personal loan, they’ll likely want to immediately take that money and pay off their credit card debt in full after they receive the loan proceeds.

The process of receiving a personal loan may differ. Some lenders will pay off the borrower’s credit card companies directly, while others will send the borrower a check that they’ll then have to deposit and use to pay off the credit cards themself.

Hiding Those Credit Cards

One potential risk of using a personal loan to pay off credit cards is that it can make it easier to accumulate more debt. The purpose of using a personal loan to pay off credit card debt is to keep from repeating the cycle.

Consider taking steps like hiding credit cards in a drawer and trying to use them as little as possible.

Paying Off Your Personal Loan

A benefit of using a personal loan to consolidate credit card debt is that there is only one monthly payment to worry about instead of several. Not missing any of those loan payments is important — setting up a monthly reminder or alert can be helpful.

Applying for a Personal Loan to Pay Off Credit Cards

With online applications, the process for getting a personal loan can be quick and easy, and some lenders may provide live customer support.

Applying online typically doesn’t take more than a few minutes. And there are more options than ever with innovative fintech startups doing what they can to make the process of refinancing your credit card debt quick and easy.

Again, there’s also the potential for saving. Of course, everyone’s situation varies, but you can use SoFi’s credit card interest calculator and personal loan calculator to do the math on your own.

Budgeting Debt Payoff

Before embarking on paying off credit card debt, a good first step is pulling together a budget, which can help a person better manage their spending. And they might even find money in their budget to put towards that outstanding debt.

If a person has more than one type of debt, for instance, a mortgage, student loan, and maybe a car loan, they may want to think strategically about how to tackle them.

Some finance gurus recommend taking on the debt with the highest interest rate first, a strategy known as the avalanche method. As those high-interest-rate debts are paid off, there is typically more money in the budget to pay down other debts.

Another approach, known as the snowball method, is to pay off the debts with the smallest balances first. This method gives a psychological boost, with small wins early, and over time can allow room in the budget to make larger payments on other outstanding debts. Of course, for either of these strategies, keeping current on payments for all debts is essential.

Ready for a Personal Loan to Pay Off Credit Card Debt? Use SoFi Today!

SoFi Personal Loans have low interest rates and fixed monthly payments, which can be helpful when paying off high-interest debt. The online application is quick – find your rate in just two minutes without any commitment to continue. If you’re approved, the funds are deposited directly into your account.

View your rate. Earn $10.
Because you deserve a more rewarding personal loan.

The Takeaway

High-interest credit card debt can be a huge financial burden. If a person is only able to make minimum payments on their credit cards, their debt will only increase, and they’ll find themselves in a vicious debt cycle. Personal loans are one potential way to end that cycle, as a tool to pay off debt in one fell swoop and hopefully replace it with a single, more manageable loan.

Remember, however, personal loans aren’t for everyone. While they typically have lower interest rates than credit cards, they are still debt and should be considered carefully and used responsibly.

Ready to get rid of your credit card debt? Check your rate on a SoFi personal loan in just a few minutes.

Source: sofi.com

October 7, 2021

Tips For Your First Physician Sign On Bonus

If you’re a new doctor who has just been offered your first sign on bonus, you’re probably over the moon. Chances are, you’ve put in eight years of school, then another three to seven years of residency and fellowships, all while making do on a low salary. Now, your hard work is finally paying off financially.

$30,000 in 2017, which is a record high. The size of bonuses has increased substantially since 2011, when the average was around $20,000 . The largest recorded bonus paid in 2017 was a whopping $200,000 .

Bonuses are very common: About 90% of doctors now get them. Swelling bonuses and salaries are partly a response to a growing physician shortage in the U.S.

The size of bonuses is especially impressive compared to what you’ve likely earned up until this point. The average medical resident makes only $59,300 a year. Given how frugally you’ve been living, you may not know what to do with this large chunk of change. Here are some tips on how to make the most of your bonus, and some words of caution about how not to spend that newfound cash.

What Not to Do with Your Doctor Sign On Bonus

Since you’re not used to having a large amount of extra cash, you may be tempted to use your bonus on a fun splurge. Or, you may simply not know what to do, having focused more on your medical textbooks than financial know-how. Here are some things to avoid doing with your bonus:

• Don’t blow it on things that won’t last. After years of penny-pinching, it’s understandable that you’d want to treat yourself to some costly retail therapy, or on expensive meals and trips. There’s nothing wrong with spending on high-quality goods or a life-changing experience but be conscientious about each purchase.

• Don’t let your money linger. Putting your bonus into a checking or savings account, can seem like the easiest thing to do and a way to protect your money. But, the interest rates you earn likely won’t even be enough to keep up with inflation. That means your money could decrease in value while in these accounts.

• Don’t slide into debt. Having a large sum of cash can make you feel richer than are. You may be tempted to take on ongoing expenses, such as a house or car, that you can’t really afford once the bonus runs out. If your regular cashflow can’t sustain these expenses, you run the risk of going into credit card debt.

How Much is a Sign On Bonus Taxed?

Your bonus will be considered supplemental income and be subject to federal taxes, as well as state and local taxes depending on where you live. In 2018 , the IRS taxed supplemental wages at a rate of 22%.

If you receive the bonus as a check, rather than as part of your paycheck, it will be up to you to make sure you pay taxes on it. Get clear on how much you owe before you spend the check, and set money aside for taxes—otherwise, you might spend more than you actually have and come up empty when tax time rolls around.

Smart Options for Spending Your Physician Sign on Bonus

If you’re looking for ways to use your physician sign on bonus to wisely plan for the future, there are a lot of options that can be beneficial for your finances. Depending on your personal situation, you’ll be able to determine which option will best set you up to try and hit your financial goals.

Make a Dent in your Debt

If you’re just getting your first physician job, you might still have a hefty amount of student loan debt. Over a quarter of medical residents have student debt over $200,000 .

Since you’ve been living on a pretty low salary, you may have racked up some credit card debt as well. Particularly if your debt comes with high interest rates, it could be a smart move to use your bonus to pay some of it off. This is particularly true for credit card debt, which usually has high interest rates.

With student loans, your bonus could go even further if you refinance. Refinancing student loans involves taking out a single new loan, which comes with a new term and interest rate, to pay off your existing loans. Now that you have a stable job and a higher salary, refinancing may get you a lower interest rate, which may reduce how much you pay over the life of your loan.

Use a student loan calculator to figure out how much you could save, and how putting some of your bonus toward the loan could reduce what you owe over the life of the loan.

Build an Emergency Fund

Many financial professionals advise that everyone have an emergency fund equivalent to about six months of living expenses. This fund is meant to pay for unexpected and urgent costs, such as medical bills, car repairs, or a layoff.

The money should be kept in cash equivalents, so you can access it as soon as you need to. The fund is meant to help prevent you from going into credit card debt or worse if an emergency comes up. If you don’t already have an emergency fund, it makes sense to use your bonus, or part of it, to create one.

Save for Retirement

A frequently cited rule of thumb is to have the equivalent of one year of your salary saved for retirement by the age of 30. But, you might be behind on building your nest egg, since you’ve been in school or in low-paying residencies and fellowships. If you already have an emergency fund, you can use your sign on bonus to increase your 401(k) contribution (the maximum is $18,500 per year).

traditional or Roth IRA. These are accounts you can open on your own, regardless of what your employer offers, and allow you to invest in a variety of stocks, bonds and other assets.

The traditional and Roth IRA offer different tax benefits, and you must make below a certain income limit to qualify for a Roth IRA. If you’re not sure whether you’re on track in saving for retirement, an online retirement calculator may help you figure out where you stand.

Invest through a Wealth Account

Opening an individual investment account, such as a SoFi Invest account, is a great way to help your bonus benefit you in the long term. You can put in as much money as you want—the minimum is $100—and withdraw it anytime. Your funds will be invested in five to seven Exchange Traded Funds (ETFs), which consist of a diverse mix of stocks and bonds.

Diversification can help reduce risk, while investing in passively managed ETFs is a good lower fee approach. Plus, there are no management fees no matter the size of your portfolio. SoFi rebalances portfolios at least quarterly to maintain an investment mix and risk level you’re comfortable with. With a SoFi Invest® account, you can benefit from the low costs of automated investing, as well as the clarity that comes with human advisors.

The earlier in life you invest, the more value you can potentially create down the line. Of course, this isn’t guaranteed, since you can’t predict how the market will perform in any given time period. But the earlier you invest, and the longer you leave your money in the market, the more of a chance your money has to grow.

Suddenly having thousands, or even tens of thousands of dollars on your hands can be confusing for anyone. It can be especially overwhelming for a new physician used to getting by on student loans or a low resident’s salary.

Don’t make the mistake of thinking short-term or letting your doctor bonus sit idle.Whether you pay off debt, prepare for emergencies, save for retirement, or invest, you can rest assured that your money will be put to good use. By thinking long term, you can use this windfall at the beginning of your career to help set yourself up for a successful well planned financial future.

Use your sign on bonus to invest in a fulfilling future. Open a SoFi Invest account and put your money to work for you today.

SoFi can’t guarantee future financial performance.
This information isn’t financial advice. Investment decisions should be based on specific financial needs, goals and risk appetite.
SoFi doesn’t provide tax or legal advice. Individual circumstances are unique. Consult with a qualified tax advisor or attorney.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Advisory services offered through SoFi Wealth, LLC, a registered investment advisor.
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Source: sofi.com

October 5, 2021

How Much Money Do You Need to Move Out? Your Guide to a Moving-Out Budget

Living with your parents has its perks: homecooked meals, childhood memories… oh, and free rent. So it’s not surprising that nearly half of 22-to-24-year-olds and just over one-fourth of 25-to-29-year-olds in the U.S. lived with their parents in 2019, according to the Federal Reserve Board. The top reason for doing so? Saving money.¹

Your childhood home can also provide a safe haven when times get tough. During the coronavirus pandemic, for example, 52 percent of young adults ages 18 to 29 lived with one or both of their parents, according to Pew Research Center.²

At some point, though, you might feel the urge to get your own place. (And your parents probably wouldn’t mind, either.)

As you prepare to live on your own, you might want to explore the statistics behind financial independence and see the average costs of living expenses across the country. Financial expert Lindsay Dell Cook is also here to help fill in the gaps as you determine how much money you need to move out. She’s the president and founder of Budget Babble, which provides personal financial education and coaching services.

Moving-out budget - financial help spending ratio.

How much should you save before moving out?

Even if you think you know how to live on your own, you’re probably still wondering: How much money do you need to move out?

Everyone will have a unique answer, says Cook, because the cost of rent, your lifestyle and other factors can vary drastically from person to person. While the exact numbers will be specific to the individual, there is a way to figure out how to live on your own while remaining financially secure.

The key, according to Cook, is to estimate everything from your moving costs (hint: check out tips for moving on a budget) to the monthly expenses you’ll have once you’re living on your own. You’ll also want to keep your long-term savings goals in mind.

Below, Cook walks through each of the major expenses that you need to account for in your moving-out budget before you actually make the move.

Each category is accompanied by cost averages that can serve as a starting point as you determine how much money you need to move out. You’ll find costs by age range since these expenses tend to increase as you get older.

You can explore all of the costs you’ll need to plan for, or you can skip to any of the following living expenses to learn more:

Open up a spreadsheet, reference your favorite budgeting app or grab pen and paper, and let’s get started building your budget for your big move. By factoring in the categories below, you should be able to create your moving-out budget and determine how much you can afford in rent.

Rent and move-in fees: Account for these basic housing expenses

Moving-out budget - average yearly rent costs stat.

As you’re thinking about how much money you need to move out, your biggest expense will almost certainly be rent. Rents can vary from a few hundred dollars to thousands a month, depending on where you choose to live and if you have roommates to keep costs down. (Word to the wise: If you’re living with others, be sure you know how to split living costs with your roommates first.)

While rent is the first thing you might think about before moving out, Cook actually recommends saving it for last as you create your moving-out budget. That’s because the amount you can afford in rent will depend on what money you have left after subtracting all of your living expenses in the categories below from your after-tax income.

Remember: Once you sign a lease, you’re responsible for that monthly rent payment until the lease expires. It’s important to ensure that your budget can accommodate the rent payment.

Keep in mind that simply multiplying your monthly rent by the number of months on your lease won’t give you the complete picture of how much money you need to move out. You’ll need to account for a potential security deposit, move-in fees and pet fees to be fully prepared.

Security deposits and move-in fees

Cook recommends earmarking one and a half month’s rent for your security deposit and/or move-in fees if you don’t yet know where you’ll live. If you pay a security deposit, you’ll likely get it back after your lease is up (provided you didn’t do any major damage to the place).

Sometimes, landlords ask for a move-in fee instead of (or, less commonly, in addition to) a security deposit. A move-in fee can cost several hundred dollars, and it’s a one-time, nonrefundable expense, Cook notes.

Pet deposits

If you have a pet, keep in mind that many landlords will ask for a pet deposit as well, which Cook has seen as high as $500. “The pet deposit can actually be more significant than you would even imagine,” she says.

You may be able to negotiate a pet deposit with your landlord, which could help reduce costs in your moving-out budget.

Moving: Consider all the necessities for the big move

Moving-out budget - moving costs stat.

Cook says clients tend to underestimate how much it costs to move out of their parents’ place and into their new digs. A 14-foot truck rental (typically large enough for up to two bedrooms) tends to cost between $20 and $30 per day, in addition to a per-mile charge of 68 cents-$1.10, according to CostHelper.com.

For packing supplies, the consumer-focused site estimates the cost of a moving kit for a one-bedroom apartment (comprising 14-29 packing boxes, one roll of 55-yard moving tape and a marker) to usually fall somewhere between $69 and $90.

If you’re hiring professional movers, Cook suggests reaching out well before you’re ready to pack your boxes. “Just because you’re not ready to move doesn’t mean that you can’t reach out and just get a pulse on how much things might cost.” A moving-out budget that includes all the costs associated with your move can take the guesswork out of how much you’ll need to save.

Cook warns that a moving truck, packing materials and professional movers can add up. “Whatever you think it will be, add at least $200 to that,” she says.

Utilities: Keep the lights on and the water running

Moving-out budget - average yearly utility costs stat.

Gas, electricity, water—what would we do without them? You’ll need to make sure you have enough money earmarked in your moving-out budget to cover your bills to avoid any unpleasant surprises (like a cold shower).

When you’re touring new places to live, Cook recommends asking the landlord or current tenants about average monthly utility costs. Make sure you understand which—if any—utilities are included in your rent. Sometimes, Cook says, you can negotiate for your landlord to cover utilities if they’re really in need of tenants.

Home decor: Find a balance between old and new

Moving-out budget - average yearly furniture and appliances costs stat.

When Cook’s clients move into their first places, they sometimes repurpose old furniture from their parents’ house or from other relatives. “There’s no shame in the hand-me-down game,” Cook says.

Some items might seem obvious in your moving-out budget, like a desk if you’re planning a home office, but it’s the little things that often get forgotten until you need them, like silverware, trash cans and bathmats. That can add up to big, unplanned-for expenses.

Cook encourages her clients to use all the secondhand items they can and then list every new household item they’ll need to furnish their apartment. Once they add up the expected costs, Cook increases the estimate by 10%. That’s because there are almost always extra little touches or necessities you’ll buy to make your new place your own.

Food and dining: Track your spending for a realistic estimate

Moving-out budget - average yearly food costs stat.

Moving out of your parents’ house and learning how to live on your own comes with a lot of benefits, but one of the downsides is that you’re on the hook for all your meals. Cook says younger adults tend to drastically underestimate how much they’ll spend on food. “Some people spend the same amount on food as they do on rent,” she says.

The most straightforward way to determine how much you will spend on food is to track how much you are spending on food for at least a week. (If your parents treat you to a meal, ask them how much it cost so you can account for it.) When Cook works with clients to track their spending for the first time, food is the line item that raises the most eyebrows. “They’ll say, ‘Oh my gosh, I had no idea the line item for food would be so expensive,’” she says.

Cooking meals at home can be an effective way to keep a lid on food expenses, but that takes some experience in the kitchen as you learn how to live on your own—a life skill that can take time to develop. If you want to sharpen your skills as an at-home chef, you can start watching online cooking tutorials and making meals at home while you’re still living with your parents.

Discretionary spending: Make room for “the fun stuff”

Moving-out budget - average yearly discretionary expenses stat.

Unless you’re getting help from your parents (and there’s no shame in that), you’ll be on the hook for every purchase once you move out.

Managing your discretionary spending is a key component of mastering how to live on your own. You can think of your discretionary expenses as wants, rather than needs—and everyone needs a chunk of money available to cover things like a new TV, movie tickets or home gym equipment. How much you have in your discretionary budget each month will depend on your income and your other costs, Cook says.

Some discretionary expenses don’t occur on a consistent schedule. You can, however, plan for these costs in your moving-out budget.

Cook encourages clients to look at a calendar and note the weddings, vacations and holiday spending that will need to be paid for over the next year. Add up the estimated cost for each of these big, irregular expenses and divide by 12.

Each month, you can contribute a planned amount to a high-yield savings account that’s dedicated to these discretionary expenses. Whenever you need to book flights, buy gifts or update your wardrobe, you’ll have a savings account that you can dip into guilt-free. This strategy can help prevent you from stressing over money, too.

Healthcare: Prepare for expected medical costs

Moving-out budget - average yearly medical costs stat.

If you’re wondering how to live on your own but don’t have health insurance, Cook strongly recommends that you get it. You can get health insurance through your employer, your parents or in the healthcare marketplace.

“Medical expenses are one of the main reasons a person can end up in financial distress and debt,” Cook says. “Even if you’re young and healthy, it’s not a gamble worth taking.”

When you have health insurance, you might still pay out of pocket for certain visits, procedures and medication. Refer to your insurance plan to see what out-of-pocket costs you’ll need to pay and build those into your moving-out budget.

Emergency fund: Start building your safety net

Moving-out budget - emergency fund stat.

An emergency fund is exactly what it sounds like: money that is stowed away in case you lose your job or unexpected expenses pop up. Experts agree that ideally, your emergency fund should be able to cover your living expenses for three to six months, should you ever find yourself without a steady source of income. “That would include rent, food and any other bills you have to pay, like a car payment,” Cook says.

Since an emergency fund is an important and potentially significant part of your moving-out budget, you may want to start saving for this line item well in advance.

However, don’t be discouraged if you emergency fund isn’t quite where you want it to be. If you’re ready to move out before you’ve built up your emergency fund, you can start small and continue to contribute to it once you live on your own. Just make sure you’re budgeting for it like any other expense.

Wondering where to keep your emergency fund? Consider opening a high-yield savings account to stash the cash. This will keep it slightly out of sight, so you won’t be as tempted to dip into it for nonemergency use. Plus, the higher interest rate will help your money grow through the magic of compound interest.

Student loans and other financial goals: Pay off debt and save for the future

Moving-out budget - student loans monthly payment stat.

In addition to an emergency fund, you want to account for other savings goals in your moving-out budget, Cook says. Whether you want to pay off your student loans, save for a vacation, plan for retirement or financially prepare for grad school, you need to be diligently putting that money away.

“You really want to make sure you understand your budget and ensure that your rent and other living costs are still allowing you to save,” Cook says.

Create your own moving-out budget

So how much money do you need to move out? Break out your calculator and add up your honest estimates of each of the above expenses to build your moving-out budget.

After doing the math, will you have enough money left over to save for your goals? If not, then Cook recommends revisiting your financial plan before moving out. “The bottom line is that you either need to be able to cut expenses, have a higher income or some combination of the two,” Cook says.

Don’t end your budgeting goals there. As you set out on your own, learn how to manage your first salary so you can cover your post-move expenses while saving for the future.

Articles may contain information from third-parties. The inclusion of such information does not imply an affiliation with the bank or bank sponsorship, endorsement, or verification regarding the third-party or information.

¹“Report on the Economic Well-Being of U.S. Households in 2019, Featuring Supplemental Data from April 2020.” Federal Reserve Board. https://www.federalreserve.gov/publications/files/2019-report-economic-well-being-us-households-202005.pdf

²“A Majority of Young Adults in the U.S. Live With Their Parents for the First Time Since the Great Depression.” Pew Research Center, Washington, D.C. (September 4, 2020) https://www.pewresearch.org/fact-tank/2020/09/04/a-majority-of-young-adults-in-the-u-s-live-with-their-parents-for-the-first-time-since-the-great-depression/

³“Majority of Americans Say Parents Are Doing Too Much for Their Young Adult Children.” Pew Research Center, Washington, D.C. (October 23, 2019) https://www.pewsocialtrends.org/2019/10/23/majority-of-americans-say-parents-are-doing-too-much-for-their-young-adult-children/

^{4 “}Consumer Expenditure Survey, 2018-2019.” U.S. Bureau of Labor Statistics.”

⁵“True Cost Guide.” HomeAdvisor. https://www.homeadvisor.com/cost/storage-and-organization/hire-a-moving-service/#size

^{6 “}Report on the Economic Well-Being of U.S. Households in 2019 – May 2020.” Federal Reserve Board. https://www.federalreserve.gov/publications/2020-economic-well-being-of-us-households-in-2019-student-loans-other-education-debt.htm

Source: discover.com

What Does Financial Independence Look Like?

Benefits of Financial Independence

How to Be Financially Independent

Setting Realistic Goals

Understanding That Income Isn’t Everything

Building a Budget

Establishing A Safety Net

Putting a Debt Pay-Off Plan Into Action

Being a Smart And Savvy Investor

The Takeaway

Pros of No-Interest Credit Cards

Making the Most of the Promotional Period

Transferring a High-Interest Balance

Doubling the Incentive

Cons of No-Interest Credit Cards

Temporary Promotional Rate

Fees for Balance Transfers

Interest May Apply Retroactively

Can Credit Scores Be Affected by No-Interest Credit Cards?

The Takeaway

What Does This Mean for Borrowers?

How to Tackle Student Loan Repayments

1. Build an Emergency Fund.

2. Determine Your Eligibility for Income-Driven Repayment Plans.

3. Lower Your Interest Rates.

4. Choose a Debt Payoff Method

5. Make Sure You Have a Budget.

6. Find a Side Gig.

7. Cut Expenses.

Your average account age may have decreased

You may now have fewer types of credit

Your credit utilization may have increased

Other reasons your credit score could drop after paying off debt

Dig Deeper

Additional Resources

How Debt Affects Your Mortgage Application

Debt Ratios

Credit

Down Payments & PMI

Non-Mortgage Factors Affecting Your Decision

Cost of Renting vs. Owning in Your Market

How Long You Plan to Stay

The Interest Rate on Your Other Debts

Your Ability to Suspend or Reduce Other Debt Payments

Your Appetite for House Hacking

Access to Other Funding Sources for Your Down Payment

Tax Implications

A Framework for Deciding Whether to Pay Down Debts or Save a Down Payment

Final Word

Related Articles

1. Tally

2. Self

3. Acorns

4. Qoins

5. Debt Free

6. Unbury.me

7. MTN Solutions Center

What Are Some Options for Taking Money out of a 401(k)?

401(k) Withdrawal

401(k) Loan

What Are the Rules for 401(k) Withdrawal?

Are 401(k) Withdrawals Subject to Taxes and Penalties?

What Are the Costs Associated With 401(k) Loans?

What Are Some Ways of Minimizing Risks to Your Retirement?

Why Do People Use Their 401(k) to Pay Down Debt?

What Are Some Alternatives to Taking Money Out of Your 401(k)

The Takeaway

How Using a Personal Loan to Pay Off Credit Card Debt Works

Taking Out a Loan to Pay Off Credit Card Pros and Cons

So You’ve Decided to Apply for a Personal Loan to Pay Off a Credit Card. Now What?

Getting the Whole Picture

Searching Personal Loan Options

Paying Off the Debt

Hiding Those Credit Cards

Paying Off Your Personal Loan

Applying for a Personal Loan to Pay Off Credit Cards

Budgeting Debt Payoff

Ready for a Personal Loan to Pay Off Credit Card Debt? Use SoFi Today!

View your rate. Earn $10. Because you deserve a more rewarding personal loan.

The Takeaway

View your rate. Earn $10.
Because you deserve a more rewarding personal loan.