As a homeowner, if you are looking for a great way to pay down debt or make home improvements, a HELOC (Home Equity Line of Credit) can provide a flexible way to borrow funds. It’s similar to a credit card, yet with the HELOC, you can borrow what you want from the credit line as the need arises over a period of time. Even better, the interest rate is often much lower than what is found on credit cards.
So, how does one find a home equity line that’s a good fit for them and the right rate? Here are the 5 best ways to get you started on the road to a great HELOC rate:
- Have good credit. Before you apply for a HELOC, check your credit reports to ensure there are no errors on your record that may interfere with your score. This is especially important as the credit score is one of the key factors a lender looks at to determine your interest rate.
- Have enough equity. It’s helpful to find an online estimate for the value of your home and subtract the balance owed on your mortgage to figure out how much equity you have. This also influences the interest rate homeowners are able to get. Ultimately, the more equity you have, the less likely you are to have debt against your home which looks better to the lender. Pro-tip: Avoid an existing mortgage debt that exceeds 80% of your home’s value.
- Compare offers. Consider starting your search with a lender who holds your current mortgage or the bank that keeps your checking account or savings, then compare the rate you get to those offered by other players like large, national banks, smaller credit unions, or online lenders.
- Ask about rate changes and caps. Make sure to ask your lender about the starting rate, how long it will hold, and whether there’s a cap on how high your rate could eventually go.
- Watch out for fees. Beware of rates that seem “too good to be true.” They probably are. Some lenders charge upfront fees, third-party fees, or annual fees. Figure out the fees you might be paying in addition to the interest rate– it all adds up in the end!
Families looking to further their finances are often torn between the two decisions: either to invest in their retirement or contribute to their child’s 529. Typically, the parents choose to assist in college debt, 39% of them to be exact.
Just what is the right choice for investing in the future? Here are 5 things to consider before you put off retirement for your children’s student loans sake:
- How much can you save? With investing, the earlier you start the better! It’s truly one of the best ways to build long-term wealth (and a nest egg along the way.) Considering a child’s college education is 18 years down the line, focusing on retirement first can be a major win in the long run. You can start adding to a 529 college savings plan once your monthly 401(k) or IRA contributions are high enough to help reach your long-term retirement goals.
- Retirement expenses vs. college expenses. Statistics show that less than 50% of workers have figured out what they need for retirement. It’s important to sit down and figure this out. The fact that some couples can expect to spend $275,000 during retirement for different expenses can give some insight into the cost of retirement vs college savings or student debt loans. Putting more resources towards retirement first may be the better choice.
- “You can get loans for college, but not for retirement.” It’s important to note that grants and scholarships can be found for support in college, yet retirement savings are entirely on your part. Having the safety net of a nest egg is essential. Encouraging kids to consider community college first, or to apply for scholarships or federal aid can open options to leave room for retirement alongside their education.
- Tax benefits. Simply stated, you’ll get better tax benefits with your tax-advantaged retirement plan, and when you contribute to your 401(k) or IRA, you receive a tax deduction, reducing what you owe right now. With a 529 plan, however, you are less likely to see a tax benefit and there’s no federal deduction for contributions to it.
- Personal values. The bottom line is your personal belief in what’s best for both you and your kids. Do you think your children hold the responsibility to pave the way financially for their education or do you believe in splitting the cost? Find what works for your family. Ultimately, reducing your involvement could free up funds for your future. In the end, you can do both by putting a little money aside for their education, too.
Credit cards can certainly be an awesome tool when used responsibly, but In order to get credit, you have to build credit. Beginners can find themselves in the predicament of getting approved for a credit card in the first place because lenders want to see some credit history before they approve you. There is no need to sweat it because below are 10 guidelines to finding the best first credit card:
- Check your credit. Take a look at your credit history to ensure that everything on the credit report is accurate. Knowing your credit score can help you make a more informed decision on the best fit for your credit card.
- Check for prequalified and preapproved offers. Find out if you can receive prequalified or preapproved offers from your bank. It’s not that they guarantee approval, they can just mean that your credit profile matches the standards the issuer is generally looking for to approve you for that product.
- You don’t have to apply for a secured credit card or store credit card. A secured credit card or store credit card is great for those who have bad marks on their credit history (thus, preventing them from getting approved for typical unsecured cards), but for those with a clean slate and no credit history, it is best to apply for a regular unsecured card first.
- Build credit responsibly. It’s best for beginners to build credit in a slow and responsible manner. Excellent credit means a higher chance of being qualified for credit cards with the best sign-up bonuses and ongoing rewards.
- Don’t spend more than you can afford to pay off at the end of the month. This goes hand in hand with building credit responsibly. Pay your bill on time and in full each month– this can be a huge factor in determining your credit score!
- Keep your credit utilization low. Skip maxing out on your credit limit altogether. The ratio of debt to credit is a major factor in your credit score. Pro-tip: keeping credit utilization low (under 20%) will help boost your credit score fast.
- Read the fine print. The little details matter. Benefits like purchase protection and car rental insurance are often overlooked because credit cardholders don’t want you to know about them.
- Educate yourself. As mentioned above, take the time to read the fine print. Sit down seek out valuable information. There is an abundance of online resources that serve as excellent tools to navigate through personal finances.
- Wait before you apply for the next credit card. Wait at least 6 months to establish a credit history before you get your next card. Issuers want to see that you can use your credit card responsibly.
- Don’t cancel your first credit card. The credit score is affected by the average age of your accounts and keeping that number high by your first credit card will help as you apply for new credit cards in the future. It will also benefit your debt utilization ratio.
A secured credit card or unsecured credit card? That is the question.
With such vast array of credit cards available, how do you know when you have found the right fit? The truth is, not everyone can afford the top-of-the-line rewards credit cards, and sometimes a secured credit card can be the best choice for those with lower credit scores who are seeking to build better credit. Below are the pros and cons of a secured credit card to help you determine if it’s the right fit:
Secured Credit Card Pros:
- Low fees. They can cost an average of $26 in fees during the first year as opposed to $150 more in fees for unsecured cards for people with low credit scores.
- Easier approval than most desirable unsecured cards. Options are limited for those with credit that needs work, but unsecured cards are backed by a cash deposit which means they are easier to get. Your lender can keep the money if you fail to make payments on your credit card bill.
- Refundable deposits. Paying off your balance completely without late payments by the time you close your secured card account means you’ll receive your deposit back. Pro-tip: Always pay your bill by the due date. The biggest factor in most credit scores is payment history.
Secured Credit Card Cons:
- Upfront deposits. Secured credit card deposits are usually $400, which can be tricky as almost half of U.S. adults say they don’t have that much on hand to cover an emergency expense. Although the expense is refundable, it’s certainly a factor to consider and unsecured credit cards do not require a deposit at all.
- Low credit limits. The secured credit card limit range is usually around $300-$500 but can increase over time. You’ll want to use less than 30% of your limit to optimize the credit utilization of your piece of your credit score.
As with any investment towards your financial future, it will pay to do your research and consult trusted sources. Find your financial fingerprint. In terms of rebuilding credit, a secured credit card may be the way to go if you want to work your way towards an unsecured card.
It’s no surprise that the student debt dilemma is a major topic of conversation right now. Millennials, fresh out of college, are rife with debt and looking for smart ways to pay off these loans fast and effectively. Advice often rotates around the concept of “the sooner the better” and timeliness for paying down burdensome student debt loans tends to be at the top of the list. But does that advice always ring true? If you have some extra cash on hand at the end of the month and want to pay off debt early, take a look at these 3 student loan insights first before you jump in:
- High Rate Debt. It’s important to note that student loans tend to have lower interest rates than any other debt. If you have other debts lined up like a big credit card balance or car loan, consider paying those off first and foremost.
- Emergency Fund. Keeping a “rainy day” fund on hand is essential to upholding financial security during the ebb and flow of the economy. Financial experts say that a 3-6 month emergency fund should be an immediate savings goal for those just starting in the job market. Consider putting some extra money aside for an emergency fund before diving into student loan payments.
- Investing. Other financial goals like IRA contributions or 401(k) savings do not have to be put off because of student debt. That very low-interest rate of student loans is often lower than you could earn investing in retirement.
Take a look at your payment schedule and determine what your priorities are. In some cases, it may be better to put your money elsewhere until you have established financial goals in investments or savings.
Explore, research, and apply the knowledge you gain for better results.
Photo by Olu Eletu