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9 Things You Should Never Finance (But Most People Do)

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We live in a world where financing is just a click away. From flashy gadgets to dream vacations, it’s tempting to spread out payments and enjoy things now, even if it means paying more later. But not everything should be bought on credit. Financing the wrong purchases can trap you in a cycle of debt, drain your savings, and limit your financial freedom. If you want to build real wealth and avoid unnecessary stress, it’s crucial to know which expenses are best paid for in cash. Here are nine things you should never finance—even though most people do.

1. Furniture

Financing furniture is a common trap. Retailers often lure buyers with “zero interest” deals, but these offers usually come with hidden fees or deferred interest that kicks in if you miss a payment. Furniture loses value quickly, and by the time you finish paying it off, it’s often already worn out or out of style. Instead, save up and buy quality pieces you can afford. Consider secondhand options or wait for sales to stretch your dollars further.

2. Vacations

A vacation should be a break from stress, not a source of financial anxiety. Financing a trip means you’ll be paying for your memories long after the tan fades. Interest charges can turn a reasonable getaway into a budget-buster. Instead, set up a dedicated travel fund and plan trips you can pay for in full. This approach saves money and makes your vacation feel truly rewarding.

3. Clothing and Accessories

It’s easy to swipe a card for the latest fashion, but financing clothes is a fast way to rack up debt for items that quickly lose value. Trends change, and so do your tastes. If you’re still paying off last season’s wardrobe, you’re limiting your ability to invest in things that matter. Stick to a clothing budget and avoid buy-now-pay-later schemes that can lead to overspending.

4. Weddings

Weddings are special, but starting married life with debt isn’t romantic. The average wedding in the U.S. costs over $30,000, and many couples finance the big day with loans or credit cards. Financing a wedding can delay other financial goals, like buying a home or starting a family. Focus on what’s meaningful, set a realistic budget, and remember that the best memories don’t come with a price tag.

5. Electronics and Gadgets

New phones, laptops, and TVs are tempting, but financing electronics is rarely a smart move. Technology becomes outdated fast, and you could still be paying off a device long after it’s obsolete. If you can’t afford the latest gadget upfront, consider waiting or buying refurbished. This habit will help you avoid unnecessary debt and keep your finances healthy.

6. Everyday Groceries

Using credit to pay for groceries might seem harmless, but it’s a sign your budget needs attention. Interest charges on everyday essentials can add up quickly, making it harder to get ahead. If you find yourself regularly financing groceries, it’s time to review your spending and look for ways to cut costs. Building a realistic grocery budget and sticking to it is key to financial stability.

7. Holiday Gifts

The pressure to give generously during the holidays can lead many people to finance gifts. However, paying interest on presents months after the celebration is over isn’t worth it. Instead, plan ahead and set aside money throughout the year for holiday spending. Homemade gifts or thoughtful gestures can be just as meaningful as expensive purchases.

8. Medical Bills

While emergencies happen, financing medical bills with high-interest credit cards or loans can make a tough situation worse. Many providers offer payment plans with little or no interest, so always ask about your options before reaching for a credit card. If you’re struggling with medical debt, consider negotiating your bill or seeking assistance programs.

9. Small Home Improvements

It’s tempting to finance small upgrades like new appliances or landscaping, but these projects rarely add enough value to justify the interest. Save up for home improvements and tackle projects as your budget allows. This approach keeps your finances flexible and ensures you’re not paying extra for something that doesn’t significantly increase your home’s worth.

Building Wealth Means Saying No to Unnecessary Financing

Financing can be a useful tool for major investments like a home or education, but using it for everyday purchases or depreciating assets is a recipe for financial stress. By paying cash for things like furniture, vacations, and electronics, you keep more money in your pocket and avoid the debt trap. Remember, true financial freedom comes from living within your means and making intentional choices. The next time you’re tempted to finance a non-essential purchase, ask yourself if it’s really worth the long-term cost.

What’s something you regret financing—or are glad you paid for in cash? Share your story in the comments!

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From Likes to Loans: The Financial Impact of Going Viral

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Going viral isn’t just about racking up likes and shares anymore—it can have a real, lasting impact on your wallet. Whether you’re a content creator, small business owner, or just someone who posted a funny video at the right time, the financial impact of going viral is bigger than ever. But with all the buzz, it’s easy to overlook the money moves you need to make when your online moment explodes. If you’ve ever wondered how a viral post could change your financial future—or even help you qualify for a loan—this article is for you. Let’s break down the real-world ways that internet fame can affect your finances and how you can turn those fleeting likes into lasting financial wins.

1. Viral Fame Can Boost Your Creditworthiness

It might sound wild, but your online presence can actually influence your ability to get a loan. Lenders are starting to look beyond traditional credit scores and consider alternative data, including your social media activity. If your viral moment leads to a surge in followers, engagement, or even a new business, it could make you look more attractive to lenders. Some fintech companies now use social signals as part of their risk assessment, especially for small business loans. So, if you’re thinking about applying for a loan after going viral, don’t underestimate the power of your digital footprint. Just remember, consistency and authenticity matter—lenders want to see that your popularity isn’t just a one-hit wonder.

2. Monetizing Your Moment: Turning Likes Into Income

Going viral can open the door to a whole new world of income streams. From brand partnerships and sponsored posts to selling your own products or services, there are plenty of ways to cash in on your newfound fame. Platforms like TikTok, Instagram, and YouTube offer creator funds and ad revenue sharing, which can add up quickly if your content keeps trending. But don’t stop there—think about launching a side hustle, starting a Patreon, or even writing an eBook. The key is to act fast while your audience is engaged, but also to plan for the long term.

3. The Tax Side of Going Viral

Sudden income from viral success can be exciting, but it also comes with tax responsibilities. Whether you’re earning from ad revenue, sponsorships, or merchandise sales, the IRS considers this taxable income. It’s important to keep track of every dollar you make and set aside a portion for taxes—otherwise, you could face a nasty surprise come tax season. Consider consulting a tax professional who understands the unique challenges of digital income. They can help you navigate deductions, estimated payments, and even business formation if your viral fame turns into a full-time gig.

4. Protecting Your Brand (and Your Bank Account)

When you go viral, you’re not just a person anymore—you’re a brand. That means you need to think about protecting your intellectual property, managing your reputation, and keeping your finances secure. Registering trademarks, securing your social media handles, and setting up a business bank account are all smart moves. You should also be on the lookout for scams and impersonators who might try to cash in on your success. Taking these steps early can save you a lot of headaches (and money) down the road. Remember, the financial impact of going viral isn’t just about making money—it’s about keeping it, too.

5. Viral Success Isn’t Always Sustainable

It’s easy to get caught up in the excitement of going viral, but remember: internet fame can be fleeting. The financial impact of going viral is often strongest in the first few weeks or months, so it’s important to make smart decisions while the spotlight is on you. Don’t quit your day job or take out a big loan based solely on a viral moment. Instead, use your newfound platform to build lasting relationships, diversify your income, and invest in your future. Think of viral fame as a launchpad, not a finish line.

Turning Clicks Into Long-Term Financial Wins

Going viral can feel like winning the lottery, but the real magic happens when you turn that moment into lasting financial impact. Whether you’re leveraging your online presence to boost your creditworthiness, monetizing your content, or protecting your brand, every step you take can help you build a more secure financial future. The key is to stay grounded, make smart choices, and remember that the financial impact of going viral is what you make of it. So, if your fifteen minutes of fame come knocking, be ready to answer with a plan.

Have you ever experienced a viral moment? How did it affect your finances or your outlook on money? Share your story in the comments below!

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Unsettling Truths About Debt That Rich People Don’t Face

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Debt is a reality for millions of Americans, shaping everything from daily choices to long-term dreams. For many, debt isn’t just a number on a statement—it’s a source of stress, a barrier to opportunity, and a constant worry about the future. Yet, the way debt impacts everyday people is worlds apart from how the wealthy experience it. Understanding these differences isn’t just eye-opening; it’s essential for making smarter financial decisions and protecting your future. If you’ve ever wondered why debt feels like a trap for some but a tool for others, you’re not alone. The unsettling truths about debt that rich people don’t face can help you see your own situation more clearly—and take action to change it.

1. Debt Is More Expensive for the Average Person

The cost of debt isn’t just about the amount you owe—it’s about the interest rates you pay. For most Americans, especially those with average or below-average credit, borrowing money comes with steep costs. The Federal Reserve reports that the U.S.’s average credit card interest rate now exceeds 20%, while payday loans can carry annual percentage rates (APRs) of 400% or more. In contrast, wealthy individuals often access loans with single-digit interest rates, thanks to strong credit scores and valuable collateral.

This difference means that a $5,000 credit card balance can cost a middle-class borrower hundreds of dollars in interest each year, while a wealthy borrower might pay a fraction for a much larger loan. Over time, these higher costs make it harder to pay down debt, trapping many in a cycle of minimum payments and mounting balances. If you’re struggling with high-interest debt, consider options like balance transfers, credit counseling, or negotiating lower rates to reduce the long-term burden.

2. Debt Limits Opportunity for Most, But Not for the Wealthy

For many, debt isn’t just a financial obligation—it’s a barrier to opportunity. Student loan debt, for example, now totals over $1.7 trillion in the U.S., with the average borrower owing more than $37,000. This burden can delay major life milestones like buying a home, starting a family, or saving for retirement. A 2023 Pew Research Center study found that 22% of young adults with student debt have postponed marriage or having children due to their financial situation.

On the other hand, wealthy individuals often use debt strategically to build wealth—borrowing against assets to invest in businesses, real estate, or the stock market. They have access to financial advisors and flexible credit lines that allow them to leverage debt for growth, not just survival. For most people, though, debt means fewer choices and more stress. If debt is holding you back, focus on building an emergency fund and paying down high-interest balances first, so you can regain control over your financial future.

3. The Safety Net Is Thinner for Regular Borrowers

When financial setbacks hit, the consequences of debt can be severe for the average person. Missed payments can lead to late fees, damaged credit scores, and even wage garnishment. The Consumer Financial Protection Bureau notes that nearly 28% of Americans with a credit record have at least one debt in collections. A single emergency—like a medical bill or car repair—can trigger a downward spiral for those living paycheck to paycheck.

Rich people, by contrast, have resources to cushion the blow. They can sell assets, tap into savings, or restructure loans with favorable terms. Even in bankruptcy, wealthy individuals often retain significant assets through legal protections. For most, though, the margin for error is razor-thin. To protect yourself, build a small emergency fund—even $500 can make a difference—and seek out community resources or nonprofit credit counseling if you’re struggling to keep up.

4. Credit Access Is Unequal—and It Matters

Access to affordable credit is a privilege, not a guarantee. Lenders use credit scores, income, and assets to determine who gets the best rates and terms. A 2024 Experian report shows that the average credit score in the U.S. is 715, but scores below 670 are considered subprime, leading to higher costs and fewer options. This system disproportionately affects people of color and those from lower-income backgrounds, who are more likely to face higher rates or outright denial.

Wealthy borrowers, meanwhile, often have established relationships with banks and can negotiate custom loan terms. They may even use “asset-based lending,” where their investments serve as collateral, unlocking low-cost credit unavailable to most. If you’re working to improve your credit, start by checking your credit report for errors, paying bills on time, and keeping credit card balances low. Over time, these steps can open doors to better financial opportunities.

5. The Emotional Toll of Debt Is Heavier for Most People

Debt isn’t just a financial issue—it’s an emotional one. Surveys from the American Psychological Association consistently show that money is the top source of stress for Americans, with debt playing a major role. Anxiety, sleeplessness, and even depression are common among those struggling to keep up with payments. The wealthy, insulated by assets and access, rarely face the same level of day-to-day worry.

This emotional burden can affect relationships, job performance, and overall well-being. If debt stress is impacting your life, don’t hesitate to seek support from friends, family, or a mental health professional. Remember, you’re not alone, and taking small steps toward managing debt can help restore peace of mind.

Rethinking Debt: What You Can Do Differently

The unsettling truths about debt that rich people don’t face reveal a system stacked against the average borrower. High costs, limited opportunities, thin safety nets, unequal access, and emotional strain all combine to make debt a much heavier burden for most Americans. But knowledge is power. By understanding these differences, you can take steps to protect yourself: focus on improving your credit, build a small emergency fund, seek out lower-cost borrowing options, and don’t be afraid to ask for help.

What’s one change you could make today to lighten your debt load or reduce financial stress? Share your thoughts and experiences in the comments—your story could help someone else feel less alone.

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Can I Get A HELOC With Bad Credit: 12 Reasons Why You Shouldn’t

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Home Equity Lines of Credit (HELOCs) can be a tempting option for homeowners looking to tap into their home’s equity. However, if you have bad credit, obtaining a HELOC may not be the wisest financial decision. While it’s possible to get approved, there are significant risks and drawbacks to consider. Here are 12 reasons why you shouldn’t get a HELOC with bad credit.

1. Higher Interest Rates

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With bad credit, lenders view you as a higher-risk borrower. This means you’ll likely face much higher interest rates compared to someone with good credit. Higher interest rates can significantly increase the cost of borrowing, making the HELOC more expensive in the long run. The additional cost in interest can outweigh the benefits of accessing your home’s equity, especially if you’re already struggling financially. It’s essential to calculate the total cost of borrowing and consider whether it’s worth the financial burden.

2. Increased Monthly Payments

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Higher interest rates also lead to higher monthly payments. If you’re already dealing with financial difficulties, adding a large monthly payment to your budget can exacerbate your financial stress. Missing payments on your HELOC can lead to serious consequences, including damage to your credit score and potential foreclosure. It’s crucial to ensure you can comfortably afford the payments before taking on additional debt.

3. Risk of Foreclosure

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A HELOC is secured by your home, meaning if you fail to make payments, the lender can foreclose on your property. With bad credit, your financial situation is already precarious, and taking on a HELOC increases the risk of losing your home if you can’t keep up with payments. Foreclosure not only results in the loss of your home but also severely damages your credit score, making it even harder to secure credit in the future. The risk of foreclosure should be a significant deterrent when considering a HELOC with bad credit.

4. Variable Interest Rates

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Most HELOCs have variable interest rates, which means the interest rate can fluctuate over time. With bad credit, you may already be dealing with high interest rates, and an increase can make your payments even more unaffordable. Variable rates add a layer of unpredictability to your financial planning. If rates rise significantly, you might find yourself unable to meet the payment obligations, leading to financial distress.

5. Additional Fees and Costs

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Obtaining a HELOC comes with various fees and costs, such as application fees, appraisal fees, and closing costs. With bad credit, lenders may charge higher fees to offset the risk, adding to the overall expense of the loan. These upfront costs can be a financial strain, especially if you’re already in a precarious financial situation. It’s important to consider whether you can afford these additional expenses before pursuing a HELOC.

6. Impact on Credit Score

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Applying for a HELOC with bad credit can further impact your credit score. The application process involves a hard inquiry, which can lower your score. Additionally, taking on more debt can increase your debt-to-income ratio, negatively affecting your credit profile. If you struggle to make payments, missed or late payments will further damage your credit score, making it even more challenging to secure favorable credit in the future.

7. Limited Borrowing Power

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With bad credit, you may not be able to borrow as much as you need. Lenders are likely to offer a smaller credit line to minimize their risk, which might not meet your financial needs. A smaller HELOC might not be worth the costs and risks, especially if it doesn’t provide sufficient funds for your intended purpose. Exploring other borrowing options that might offer more favorable terms could be a better strategy.

8. Negative Equity Risk

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If the value of your home decreases, you could end up owing more than your home is worth, leading to negative equity. This is particularly risky if you have bad credit, as it limits your ability to refinance or sell your home. Negative equity can trap you in an unfavorable financial situation, making it difficult to move or improve your financial standing. Avoiding additional debt that could exacerbate this risk is a prudent decision.

9. Strain on Finances

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Taking on a HELOC with bad credit can put a significant strain on your finances. The added debt and higher payments can stretch your budget thin, leaving little room for savings or emergency expenses. This financial strain can lead to increased stress and impact your overall quality of life. It’s important to consider whether the benefits of the HELOC outweigh the potential negative impact on your financial well-being.

10. Potential for Over-Borrowing

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Access to a HELOC can tempt you to borrow more than you need, especially if you’re using it for discretionary spending. Over-borrowing can lead to a cycle of debt that’s difficult to escape, particularly if you’re already struggling with bad credit. It’s essential to borrow only what you need and have a clear plan for repayment. Discipline and careful planning are crucial to avoid falling into a debt trap.

11. Alternatives May Be Better

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There are often better alternatives to a HELOC for those with bad credit. Personal loans, debt consolidation loans, or working with a credit counselor to manage your debts might provide more favorable terms and reduce the risks associated with a HELOC. Exploring these alternatives can help you find a solution that improves your financial situation without putting your home at risk.

12. Long-Term Financial Impact

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The long-term financial impact of a HELOC with bad credit can be severe. Higher interest rates, increased debt load, and potential foreclosure can create lasting financial difficulties. It’s crucial to consider the long-term consequences and whether a HELOC is the best solution for your financial needs. Taking a comprehensive view of your financial health and considering all options can help you make a more informed decision that supports your long-term financial stability.

Consider Your Options Carefully

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While a HELOC can be a valuable financial tool, it’s not always the best choice for those with bad credit. The risks and potential negative impacts often outweigh the benefits, making it crucial to explore other options. By considering alternatives and focusing on improving your credit score, you can find more favorable borrowing solutions that support your financial health. Remember, making informed decisions today can lead to a more secure and prosperous future.

What Is A Hard Inquiry & How Does It Affect Your Credit Score?

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Applying for credit is a common aspect of managing one’s personal finances. However, not many people are aware of the impact that credit inquiries can have on their credit scores.

In this blog post, we’ll discuss the concept of a hard inquiry, its effect on your credit score, and how to minimize its impact.

What Is A Hard Inquiry?

A hard inquiry, also known as a hard credit check or hard pull, occurs when a lender checks your credit report as part of their decision-making process when you apply for credit. In fact, hard inquiries take anywhere from 3 to 7 points off your credit score.

Common examples of situations that trigger a hard inquiry include applying for a credit card, mortgage, auto loan, or personal loan. Lenders use the information on your credit report to assess your creditworthiness and determine whether to approve your credit application. Hard inquiries typically remain on your credit report for two years.

How Hard Inquiries Affect Your Credit Score

Hard inquiries can have a negative impact on your credit score, albeit a relatively small one. According to FICO, hard inquiries account for about 10% of your total credit score. A single hard inquiry can cause your credit score to drop by a few points, but the effect is usually temporary and tends to lessen over time.

Multiple hard inquiries within a short period can be more damaging, as they may signal to lenders that you are experiencing financial difficulties or are seeking new credit irresponsibly.

Rate Shopping And Its Impact On Hard Inquiries

Rate shopping refers to the process of applying for credit with multiple lenders to find the best interest rate or loan terms. While it’s a smart financial move, rate shopping can potentially result in multiple hard inquiries on your credit report.

Fortunately, credit scoring models, like FICO and VantageScore, recognize that rate shopping is a common practice and have built-in provisions to protect consumers.

These models use a process called “deduplication“, which groups together multiple hard inquiries for the same type of credit within a specific time frame (usually 14 to 45 days) and treats them as a single inquiry.

This means that when you’re rate shopping, you should try to complete all applications within a short period to minimize the impact on your credit score.

The Difference Between Hard And Soft Inquiries

It’s essential to differentiate between hard and soft inquiries, as they have different effects on your credit score.

While hard inquiries result from applying for credit and can negatively impact your score, soft inquiries do not affect your credit score.

Soft inquiries occur when you or a third party, such as an employer or a company offering a pre-approved credit card, checks your credit report for reasons unrelated to a credit application.

How To Minimize The Impact Of Hard Inquiries

To protect your credit score from the negative effects of hard inquiries, consider the following tips:

  • Apply for credit only when necessary: Limit the number of hard inquiries by applying for credit only when you genuinely need it.
  • Rate shop within a short period: Complete all loan or credit applications within a 14 to 45-day window to take advantage of deduplication.
  • Maintain good credit habits: Focus on other aspects of your credit score, such as timely payments, low credit utilization, and maintaining a diverse mix of credit accounts.

Conclusion

Hard inquiries are an inevitable part of the credit application process, but understanding their impact on your credit score can help you make better financial decisions. While hard inquiries can temporarily lower your credit score, practicing good credit habits and minimizing the number of inquiries can mitigate their effects.

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5 Things to Do Before Applying for a Mortgage

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Buying a home of your own is a huge milestone. Many people work towards buying a home for years, renting while they save up money for a downpayment. However, with home prices rising and a nationwide debt crisis, qualifying for the mortgage you need is only getting harder.

Before you go out looking for your dream home, you should try getting preapproved for a mortgage. This will help you determine whether you will be able to get a mortgage and what you will be able to afford.

There are steps you should take before applying for preapproval. Do the following 5 things before applying for a mortgage.

1. Check your credit score

Checking your credit score is the most significant step to take when you want to apply for a mortgage. Your credit score essentially provides an overview of your credit history. If you have struggled to pay back debt in the past or have outstanding debts, your credit score will be low. If you have never had credit before, you will not have a credit score. But if you have had credit, whether credit cards or loans, and paid it back without trouble, you will have a high credit score.

This is definitely a flawed way of looking at someone’s reliability. But it is the biggest factor that banks and other mortgage providers look at when determining whether to give you a mortgage. If your credit score is below 580, you are unlikely to get a mortgage from any provider and will have to work on improving it.

Checking your own credit score before applying is ideal, as hard credit checks carried out by financial institutions can lower your credit score. If your credit score is already low, you can avoid making it worse this way.

What do you do if your credit score is poor? The next step will help you begin to improve it.

2. Pay outstanding debts

Unfortunately, your credit score is not going to improve if you still have not paid the debts that caused it to drop in the first place. As such, you will need to pay for each debt that is on your credit record. If you don’t have the funds to do so, you will need to save up before beginning to rebuild your credit score.

There are options such as debt consolidation, which is when you take out a single new loan to pay off old loans. However, do your research before agreeing to a debt consolidation loan. If you do find a loan with a reasonable interest rate and you have no other way of paying your debts, it may give you a fresh start which helps you rebuild your credit score.

3. Don’t apply for credit for a full year

Once you have taken care of your outstanding debts, you will need to be very careful with your credit. In order to get your credit score to a better place, you should avoid applying for any credit for at least a year. This may be difficult if you are finding money tight, but it is necessary if you want to qualify for a mortgage.

Taking this time also gives you the opportunity to save more towards a downpayment. The bigger your downpayment is, the better rates and terms you will get on a mortgage.

4. Compare mortgage lenders

Once you have the credit score necessary to get a mortgage, you should compare the different lenders. These may include banks and private lenders, each of which provide various options. The most common mortgage is a thirty-year term, and that is what you will most likely be approved for.

Choose the 3 options with the best reviews and which will accept your credit score.

5. Apply for preapproval

Now it is time to apply to be preapproved for a mortgage. Applying to too many mortgage providers is not a good idea as it can have an impact on your credit score. However, you should get more quotes than just the one. Apply to your 3 top providers and wait for their quotes.

They will each offer you a specific amount with a specific annual percentage rate (APR). If one is lower than the others, use their offer to negotiate. Many banks and providers will lower their rates to get your business. It is important that you have a good idea of the current average rate for 30-year mortgages, so that you know what you are aiming for.

Getting preapproved for a mortgage is a big step towards owning your new home. The next step is looking within your price range and going to see different homes to choose the perfect one for you and your family.

Applying for a Mortgage

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There’s always talk about home-buying and mortgages, but with interest rates being at all-time lows over the past few years, I feel like the talk about those things have picked up. Not only that, interest rates are likely going up this year so people are trying to get in before it’s too late. In this post, I want to talk about mortgages, how they work, and what happens when applying for a mortgage.

What’s a mortgage?

A mortgage is a loan you get from the bank or another lender to buy a house. When you submit an offer to buy a house, you’ll apply for a mortgage, and it’s a very involved process. More on that later.

In a mortgage, you’ll have options for what your term is. Your typical options are 15-year, 20-year, and 30-year.

You’ll also have to make a down payment. Current trends show that a lower down payment is pretty common. Depending on the type of loan, you can put down 3+%. And how much you put down matters. If you put down less than 20%, you’ll have to pay Primary Mortgage Insurance (PMI).

Here are the pieces of your typical mortgage payment – principal, interest, taxes and insurance, and PMI (if applicable). Taxes and insurance are commonly put in an escrow account and paid when they’re due by the lender.

Mortgage application process

From application to closing, it’s about 45-60 days. During that period, you’ll go through underwriting. In underwriting, they’ll have you submit documentation to confirm your credit report, annual income, current assets and liabilities, employment information, prior tax returns, among other things.

After you’ve cleared underwriting and they’ve confirmed everything, you’ll head to closing. At closing, you’ll sign a lot of papers. You’ll likely need to bring your checkbook with you as well.

There are closing costs associated with your mortgage. Some of these can be added to your total mortgage and some of them need to be paid. Closing costs are normally 3%-6% of the total mortgage and can include real estate commissions, taxes, insurance premiums, title fees, and record filing fees.

And if you’re buying, you’ll also need to write a check for the down payment.

Who gets a mortgage?

There is a slough of factors you need to meet when applying for a mortgage. Credit score matters. Usually, you’ll need at least a 620 credit score (all else being equal) to get a mortgage. Though the better the credit score, the better interest rate you’ll get.

The debt to income ratio needs to be under 50%. The lower the debt to income ratio (all else being equal) the more you can afford. If you have a 45% debt to income ratio and can afford a $250,000 mortgage, you’d probably be able to afford a $300,000 if your debt to income ratio is 25% (this is just an example, I didn’t do the math on this).

Condition of the home. With an FHA mortgage, they are a little pickier on the condition of your home. Usually, it’s just the outside of the home they’re picky with. Chipped paint is a typical thing they take issue with, so just be aware of that.

Applying for a mortgage is necessary for most people so it’s important you understand how they work.

Related reading:

Understanding 15-Year vs. 30-Year Mortgages in the USA

What to do when you’re one month behind on your mortgage

Why Financial Literacy is Important

Disclaimer:

**Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Securities America and its representatives do not provide tax or legal advice; therefore, it is important to coordinate with your tax or legal advisor regarding your specific situation. Please see the website for full disclosures: www.crgfinancialservices.com

Here Is What To Do If You Have Debt In Arrears

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This article is a response to a reader’s question about paying off debt on an irregular income. They write:

Can you advise me how to manage to settle my absa loan & credit card because they are in arrears

At my work I earn with commission , sometimes I didn’t earn.

Here is my answer:

Being in debt is a challenge. It takes away money you could use for more productive things. It’s even more difficult when you’ve missed payments and your debt is now in collections. If that’s you, here are some tips to help you settle your debt that’s in arrears.

Pay down debt

Utilize some debt repayment strategies.

Debt snowball – pay your smallest balance first while making minimum payments to your other debts. When you pay off your smallest balance, move on to the next smallest balance. As you get rid of debts, you’ll be able to make larger payments to the following debt.

Debt avalanche – pay your highest interest rate first. Similar strategy as the “snowball”. Once your highest interest rate debt is eliminated, pay as much as you can towards the debt with the next highest interest rate.

Use retirement funds to pay off your debt. You’ll likely, depending on your age, pay a 10% tax penalty, however (if you’re under 59 1/2). Do you have any cash accumulated in a whole life insurance policy? Use that cash value to pay off your debts

Negotiate

How much, in terms of dollars, can you pay to your creditors as a settlement? Figure out what that number is before you start contacting creditors.

It may take a couple of phone calls, so don’t get discouraged. If you don’t like what you’re hearing from the representative you’re talking to, try and get a hold of a different one. Remember the dollar amount you can pay and don’t go over that amount. If you can pay 50% of what you owe, start with an offer to pay 30%. The creditor will counteroffer and hopefully, the agreed amount is 50% or lower.

Make sure you’re clearly communicating the financial hardship you’re experiencing that put you behind on your debts. Getting sympathy from a representative could help you! Get any settlement or repayment plan in writing as soon as possible.

Make sure you’re speaking to your creditors, not collections agencies. Collections agencies will take a settlement amount and sell whatever is left to another agency. Before you’ll know it, they’ll be after you again. Speak to the creditor you initially owed. Also, be prepared to pay taxes on the forgiven amount.

Bankruptcy

Nobody likes to think about it and it would be a very difficult decision, but it might be one to strongly consider if you want to settle your debt.

If you don’t have luck with negotiations, you might have to consider bankruptcy. There are generally two options – Chapter 7 and Chapter 13. Chapter 7 clears all of your debts. Chapter 13 is more of a reorganization.

Check credit reports

Clarify with the credit reporting agencies how things were settled. Clean up the report and it could help your score a little. Late payments and charge-offs stay on your credit report for 7 years. Debts in collections stay on your credit report for 180 days.

Debt settlement is about commitment. There are penalties if you miss ONE payment of your agreed-upon settlement, so don’t miss!

One more thing. Know your rights. There are several things collectors can’t do:

  • They can’t threaten you
  • They can’t shame you
  • They can’t force you to repay your debt
  • They can’t falsify their identity to trick you
  • They can’t harass you

It’s a tough road, but getting out of debt is paramount for your psyche and your financial success. Utilize strategies to pay down debt. Speak with your creditors about negotiating. If negotiation doesn’t work, consider bankruptcy. Once you settle your debt, review your credit report and dispute errors.

Related reading:

What you need to know about bankruptcy

Diving deep into debt

How to improve your finances on a low income

What to do about debt collectors

Disclaimer:

**Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Securities America and its representatives do not provide tax or legal advice; therefore, it is important to coordinate with your tax or legal advisor regarding your specific situation. Please see the website for full disclosures: www.crgfinancialservices.com

What Happens if Debt Is Sold to a Collection Agency?

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When debt is sold to a collection agency, it’s incredibly common to get upset and/or worried. Odds are, you’ll start getting calls, emails, and text messages about you paying what’s owed.

In today’s post, we’ll discuss what leads to debt going to collections, what to do, what the collections agency can do, and what happens to your credit.

Why does debt go to collections?

Debt goes into collections when you’re behind a certain period of time (usually 30+ days) on your payment.

The lender will either use their own debt collectors or hire a third party to collect. What might also happen is your debt is sold to a collection agency, where they buy the debt from the lender (at a reduced amount than what you actually owe) and then attempt to collect on that amount.

Mortgages

With regard to mortgages, there are certain time periods to keep in mind:

  • 1 – 15 days – Typical grace period. Your payment must be paid in this period.
  • 16 30 days – You’ll start getting reminders, and you’ll likely pay a small late fee. No damage to your credit.
  • 31 – 59 days – Reminder calls and letters will increase. Your credit will reflect your current late status and your credit score will fall.
  • 60 – 90 days – The reminder calls and letters will stop. Someone from your lender will come to your house.

Read more on this subject, here.

What to do when your debt is sold to a collection agency

Don’t ignore it. The best thing you can do is get ahead of it. Gather information about the debt in question. Have them send it to you in writing.

Contact the creditor. Dispute it if you believe there are inaccuracies, or if it’s just not your debt. If it is your debt and everything is accurate, try to negotiate with the lender – they prefer to receive some of what you owe!

If the collection agency is harassing you, submit a request in writing for them to stop.

What if you’re at your wit’s end and don’t know what to do? Hire an attorney. All correspondence, going forward, has to go through them. If anything, get a consultation from an attorney (which is often offered for free) and see what they recommend.

What can they do?

When it comes to collections and the law, there are a few things they can do and several things they can’t do. If you want to know more about that, click here.

Your credit

There are two important things to know when it comes to collections and your credit report.

  1. A collection (or a charge off) hurts your credit score. Not only that, but your payment history (number one factor when calculating your score) will no longer be 100%, and that’s damaging as well.
  2. A collection will stay on your credit report for 7 years. You can implement strategies to improve your score, but you’ll only be able to do so much while that collection is on there.

Having a debt sold to a collection agency isn’t the end of the world. There are several things you can do to rectify it, dispute, or recover from it.

Related reading:

What You Need To Know About Bankruptcy

Deep Dive Into Credit Cards

What Affects Your Credit Score

How Long Does Bankruptcy Stay on Credit Report?

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Filing for bankruptcy is a tough decision to make. It can provide relief when you’re drowning in debt, but it does have consequences when it comes to your credit. How long does bankruptcy stay on your credit report?

We’re going to explore the answer to that question, as well as a few other items, in this article.

What is bankruptcy?

It’s a legal proceeding when an individual or an entity is relieved from some or all of their debts. Whether it’s all or some, and how that process takes place depends on the type of bankruptcy that’s filed.

  • Chapter 7 – Liquidable assets are sold in order to pay off debts. When those assets are exhausted, the remaining debt is discharged.
  • Chapter 11 – The most expensive option, which is usually used by companies (General Motors and J.C. Penny, for example). This is a reorganization plan that enables companies to remain open while getting their financial obligations situated.
  • Chapter 13 – Only available to individuals. The person filing implements a payment plan and is typically able to keep their assets (house, car, etc.). The debt must be paid off in 3 to 5 years.

Federal student loans are often excluded from being discharged, so you’ll be on the hook for that.

Let’s take a look at how bankruptcy affects your credit report.

How it affects credit

I’ll state the obvious by telling you that bankruptcy negatively affects your credit. Typically, you can expect your score to drop by 20-25%. This also depends on your current credit score and credit strength.

Discharges on more accounts and/or accounts with higher balances will affect your score more than discharges on a small number of accounts and/or low balances.

Delinquency usually proceeds bankruptcy and those stay on your report for 7 years. Chapter 7 bankruptcy stays on your credit report for 10 years, while chapter 13 stays on for 7 years.

What to do after

Inspect your credit report with a fine-toothed comb. Make sure that the debts discharged were actually discharged. If you find errors, go through the proper channels to get those corrected.

Once you’ve filed, you can immediately start building your credit back up. The first step is to ALWAYS pay your bills on time. I’ve stated before that on-time payment history is the number one factor when calculating your credit score.

The next step is to open a credit account. This should be something small and manageable. I often suggest a secured credit card. With this type of account, you make a deposit and that deposit acts as your credit limit.

Establish a positive payment history and keep your utilization well below 30%.

Bankruptcy on your report

You don’t have to do anything to remove the bankruptcy from your credit report. It will fall off on its own.

Review your credit report once the 7 or 10 year period ends. At that point, depending which type you filed, the bankruptcy should come off.

Give it a few months as your credit report often lags a little after the activity actually took place.

Stay diligent. Bankruptcy is not a death sentence, it’s a fresh start. Pay on time, keep your utilization low, and keep your spending in check.

Related reading:

How to Answer a Civil Summons for a Credit Card

What You Need to Know About Bankruptcy

What Affects Your Credit Score