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How to Dig Out of a Financial Hole in 5 Steps

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Running into a financial dead-end is no one’s dream. But it is definitely everyone’s nightmare. With the thoughts of lost assets, unpaid debts, and little to no funds, the situation is enough to induce anxiety among the toughest of minds. 

If you find yourself in such a scenario, it can be difficult to find the light at the end of the tunnel. But even though it can be difficult to believe, all is not lost in a financially challenging situation. As long as you keep your wits and perseverance intact, you can make your way out of these difficulties. 

To help you make it through to the other end, here’s how to dig out of a financial hole in 5 steps. 

1. Assess Your Situation

With millions of people struggling with debt, collections, and limited income, you are not alone in your financial problems. But similar to almost every human experience, the challenge looks unique for everyone. Keeping this in mind, make it a point to assess your specific situation. From your existing debts to your current assets, this calls for you to take every detail into account.

From there, you can learn how debt collection laws protect you in your specific situation and how you can manage recovery with your current income. This lets you plan your next steps, such as expense control and debt payments, with a comprehensive picture in your mind. 

2. Speak to a Financial Advisor

While taking note of your specific scenario is a basic first step, its effective resolution calls for professional help. That is where you can speak to financial advisors who specialize in helping people out of financial ruts. With many such professionals now making use of advisor transition services, you can find them running their own private or affiliated practice.

This makes it incredibly easy to reach out to these experts and get the advice that you need for financial stability. These professionals can advise you on aspects such as controlling your expenses and maximizing debt repayments. This ensures that you can recover your finances in a timely manner, while also benefiting from knowledgeable decisions to boot. 

3. Find Ways to Keep Motivated

If you are planning to simply barge on with financial management with no regard to mental health, you might crumble under the process before you have even started. That is why it is important that you find ways to keep yourself motivated. Looking into a mental health app can help you in this regard. 

In recent years, mental health coaching has joined the ranks of flourishing business ideas in the medical industry. This makes it easier for you to reach out to these experts even from the comfort of your home. In many cases, these services also don’t break the bank. This allows you to access them on a budget and lets you follow your goals with their help.

4. Stick to Your Budget

Making your way out of a financial rut requires persistence at every step. This is perhaps more evident in the practice of sticking to a budget, which comes into play in almost all financial recovery plans. That is where a budget planner app can come to the rescue. 

By using these solutions, you can have the information about your financial recovery handy with you at all times. If you ever need to refer to your financial standing before a purchase or a payment, you can simply refer to your phone in your pocket. This convenience is one of the top reasons why you need a budget planner. At the same time, the solution stays critical in terms of following financial recovery plans. 

5. Do Regular Check Ins 

Whether you are going at it solo or getting help from a professional, handling financial management calls for frequent check ins. This not only enables you to determine the efficacy of your budgeting and expense control efforts, but also allows you to tweak your ongoing strategy as you see fit. This particular aspect goes a long way towards helping you out of your financial problems.

Doing so on your own will require intensive calculations and planning. But if you have the help of a financial expert, you can simply hop onto a video chat app to get precise advice about revised strategies. This ensures that you have everything you need to optimize your ongoing plans. 

By keeping these points in mind, you can navigate your way through your financial challenge and towards your ideal recovery. This helps you improve your financial status in a timely manner, while also taking care of your overall well-being.

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Personal Finance

Can You Refinance a Car Loan More Than Once?

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You can refinance your car as often as you can find a lender willing to approve a new loan, but finding a lender to refinance again and again could be difficult.

When you refinance, you’re replacing your current car loan with a new one — almost always with a different lender. Since most lenders won’t refinance their own loans, you’d likely need to get approval from a new lender each time.

Also, the most common reasons for refinancing a car loan are to save money, lower the monthly payment or pay off the loan sooner. Once you’ve refinanced to meet one or more of these goals, it may not be easy finding another loan that provides any additional benefit.

Reasons to refinance a car loan more than once

Throughout the life of your auto loan, you may experience different situations when refinancing makes sense — leading you to refinance more than once. Here are some examples:

  • To replace a dealer’s high interest rate. Maybe you financed your car at a dealership and realized the next day that you could qualify for a lower rate. If you have solid credit, you likely can find a lender to refinance your loan to a lower rate right away, or as soon as they can obtain the vehicle’s title.

  • To take advantage of your improved credit. If your car loan has a high interest rate because of previous credit problems or no credit history, and you’ve made on-time loan payments for six to 12 months, you might now be able to qualify for an auto refinance loan with a lower rate.

  • Because you need a lower monthly car payment. If your financial situation has worsened — for example, you changed jobs and took a cut in pay — you might need to refinance to a longer loan term for a lower payment that you can afford.

Why refinancing a car over and over can be a bad idea

Before you refinance your car multiple times, be aware of some potential disadvantages.

  • Paying more than you save. Refinancing is applying for a new loan, which can come with loan origination fees, lender processing fees and title transfer fees. Occasionally, you could have prepayment penalties for your current loan. And if you extend the loan term, you’ll likely increase the amount of interest you pay overall. So before you refinance, consider whether the benefits outweigh your total cost.

  • Lowering your credit score. Each time you get approved for a new auto refinance loan, the lender runs a hard inquiry on your credit report, which causes a slight, temporary drop in your credit score. In most cases, your score rebounds in a few months, but it’s still something to consider if you plan to apply for any other types of loans during that time.

  • Owing more than your car is worth. If you keep refinancing your car to a longer term, you can become upside down on your car loan. While you’re taking extra time to pay off your car, it’s most likely depreciating in value, and at some point, you may owe more than you could get for the car if you decide to sell it or if it’s totaled in an accident.

Also, most lenders have vehicle age and mileage limits for refinancing, so if you keep extending the loan on an older car, it could become ineligible for refinancing.

Finding a lender to refinance again

Many lenders are hesitant to refinance a car that has already been refinanced many times. They perceive repeated refinancing as a sign that a borrower may be struggling to repay the loan or having other financial issues — especially if they’ve used cash-back auto refinancing more than once. Even if a lender approves another loan for refinancing, the loan may be considered high risk and come with a much higher interest rate.

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Whole Life Insurance Definition

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Whole life insurance is a popular type of permanent coverage. It can last your entire life, has a guaranteed death benefit and provides guaranteed cash value growth. Whole life is more expensive than term life insurance, which covers you for a fixed number of years only and doesn’t build cash value.

Definition of whole life insurance

Whole life is a type of permanent life insurance. It pays out regardless of when you die and includes cash value — an investment component. When the policy has built enough cash value, you can withdraw or borrow against the funds while you’re still alive. Unlike other types of permanent coverage, the cash value in a whole-life policy is guaranteed to grow at a set rate.

Whole life insurance premiums stay the same throughout the length of the policy and the death benefit is guaranteed. If there are no outstanding cash value loans or withdrawals when you die, your life insurance beneficiaries receive the full death benefit.

🤓Nerdy Tip

If you want permanent insurance without the bells and whistles, whole life may be a good fit. However, due to its guarantees, the cost of whole life insurance is typically higher than that of other permanent policies.

Whole-life policy features: Definitions

Guaranteed death benefit: The death benefit for whole life insurance is guaranteed; it won’t decrease or change over time as long as you pay your premium. Though whole-life policies are considered lifelong, many mature upon the insured person reaching a certain age, such as 100. When the policy matures, the death benefit is paid to the policyholder or coverage can be extended until the insured’s death. Therefore, even if you outlive the policy’s maturity date, the death benefit is guaranteed to pay out.

Guaranteed cash value: The cash value in a whole life insurance policy is guaranteed to grow at a fixed rate set by the insurance company. A portion of your insurance premium funds the policy’s cash value, which grows over time. You can withdraw or borrow against the funds while you’re still alive. But keep in mind that withdrawing or borrowing against the policy’s cash value without paying it back can reduce the death benefit — the amount your beneficiaries receive when you die.

Fixed premiums: Whole-life premiums are typically fixed, which means they remain level throughout the length of the policy. If you miss a premium payment, your coverage can lapse. In some cases, funds from the cash value can be used to cover the missed premium. But this perk may not apply to all policies.

Dividends: When you buy a whole life insurance policy from a mutual company — one owned by its policyholders — you may receive dividends if the company performs well. Dividends typically aren’t taxed as income. Depending on the terms of your policy, you may be able to use the dividends to increase the death benefit or pay your premiums.

More about whole life insurance

Learn more about whole life insurance and find the best policy for you.

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Personal Finance

3 Reasons Not to Tap Your Home Equity Right Now

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Soaring real estate values mean many homeowners are awash in equity — the difference between what they owe and what their homes are worth. The average-priced home is up 42% since the start of the pandemic, and the average homeowner with a mortgage can now tap over $207,000 in equity, according to Black Knight Inc., a mortgage and real estate data analysis company.

Spending that wealth can be tempting. Proceeds from home equity loans or lines of credit can fund home improvements, college tuition, debt consolidation, new cars, vacations — whatever the borrower wants.

But just because something can be done, of course, doesn’t mean it should be done. One risk of such borrowing should be pretty obvious: You’re putting your home at risk. If you can’t make the payments, the lender could foreclose and force you out of your house.

Also, as we learned during the Great Recession of 2008-2009, housing prices can go down as well as up. Borrowers who tapped their home equity were more likely to be “underwater” — or owe more on their houses than they were worth — than those who didn’t have home equity loans or lines of credit, according to a 2011 report by CoreLogic, a real estate data company.

Other risks are less obvious but worth considering.

You may need your equity later

Many Americans aren’t saving enough for retirement and may need to use their home equity to avoid a sharp drop in their standard of living. Some will do that by selling their homes and downsizing, freeing up money to invest or supplement other retirement income.

Other retirees may turn to reverse mortgages. The most common type of reverse mortgage allows homeowners 62 and up to convert home equity into a lump of cash, a series of monthly payments or a line of credit they can use as needed. The borrower doesn’t have to pay the loan back as long as they live in the home, but the balance must be repaid when the borrower dies, sells or moves out.

Another potential use for home equity is to pay for a nursing home or other long-term care. A semi-private room in a nursing home cost a median $7,908 per month in 2021, according to Genworth, which provides long-term care insurance. Some people who don’t have long-term care insurance instead plan to borrow against their home equity to pay those bills.

Clearly, the more you owe on your home, the less equity you’ll have for other uses. In fact, a big mortgage could preclude you from getting a reverse mortgage at all. To qualify, you either need to own your home outright or have a substantial amount of equity — at least 50% and perhaps more.

You’re deeply in debt

Using your home equity to pay off much higher-rate debt, such as credit cards, can seem like a smart move. After all, home equity loans and lines of credit tend to have much lower interest rates.

If you end up filing for bankruptcy, though, your unsecured debts — such as credit cards, personal loans and medical bills — typically would be erased. Debt that’s secured by your home, such as mortgage and home equity borrowing, typically isn’t.

Before you use home equity to consolidate other debts, consider talking to a nonprofit credit counseling agency and to a bankruptcy attorney about your options.

What you’re buying won’t outlive the debt

It’s rarely, if ever, a good idea to borrow money for pure consumption, such as vacations or electronics. Ideally, we should only borrow money for purchases that will increase our wealth: a mortgage to buy a home that will appreciate, for example, or a student loan that results in higher lifetime earnings.

If you’re planning to borrow home equity to pay for something that won’t increase in value, at least ensure that you aren’t making payments long after its useful life is over. If you’re using home equity to buy a vehicle, consider limiting the loan term to five years so that you’re not facing big repair bills while still paying down the loan.

Home equity loans typically have fixed interest rates and a fixed repayment term of anywhere from five to 30 years. The typical home equity line of credit, meanwhile, has variable rates and a 30-year term: a 10-year “draw” period, where you can borrow money, followed by a 20-year payback period. You typically are required to pay only interest on your debt during the draw period, which means your payments could jump substantially at the 10-year mark when you start repaying the principal.

This leads to a final piece of advice: With interest rates on the rise, consider using a home equity loan or line of credit only if you can repay the balance fairly quickly. If you need a few years to pay back what you borrow, getting a fixed interest rate with a home equity loan may be the better way to tap equity now.

This article was written by NerdWallet and was originally published by The Associated Press. 

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