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Tag: debt

  • Wall Street to Jerome Powell: We don’t believe you

    Wall Street to Jerome Powell: We don’t believe you

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    Do you want the good news about the Federal Reserve and its chairman Jerome Powell, the other good news…or the bad news?

    Let’s start with the first bit of good news. Powell and his fellow Fed committee members just hiked short-term interest rates another 0.25 percentage points to 4.75%, which means retirees and other savers are getting the best savings rates in a generation. You can even lock in that 4.75% interest rate for as long as five years through some bank CDs. Maybe even better, you can lock in interest rates of inflation (whatever it works out to be) plus 1.6% a year for three years, and inflation (ditto) plus nearly 1.5% a year for 25 years, through inflation-protected Treasury bonds. (Your correspondent owns some of these long-term TIPS bonds—more on that below.)

    The second bit of good news is that, according to Wall Street, Powell has just announced that happy days are here again.

    The S&P 500
    SPX,
    +1.05%
    jumped 1% due to the Fed announcement and Powell’s press conference. The more volatile Russell 2000
    RUT,
    +1.49%
    small cap index and tech-heavy Nasdaq Composite
    COMP,
    +2.00%
    both jumped 2%. Even bitcoin
    BTCUSD,
    +1.00%
    rose 2%. Traders started penciling in an end to Federal Reserve interest rate hikes and even cuts. The money markets now give a 60% chance that by the fall Fed rates will be lower than they are now.

    It feels like it’s 2019 all over again.

    Now the slightly less good news. None of this Wall Street euphoria seemed to reflect what Powell actually said during his press conference.

    Powell predicted more pain ahead, warned that he would rather raise interest rates too high for too long than risk cutting them too quickly, and said it was very unlikely interest rates would be cut any time this year. He made it very clear that he was going to err on the side of being too hawkish than risk being too dovish.

    Actual quote, in response to a press question: “I continue to think that it is very difficult to manage the risk of doing too little and finding out in 6 or 12 months that we actually were close but didn’t get the job done, inflation springs back, and we have to go back in and now you really do have to worry about expectations getting unanchored and that kind of thing. This is a very difficult risk to manage. Whereas…of course, we have no incentive and no desire to overtighten, but if we feel that we’ve gone too far and inflation is coming down faster than we expect we have tools that would work on that.” (My italics.)

    If that isn’t “I would much rather raise too much for too long than risk cutting too early,” it sure sounded like it.

    Powell added: “Restoring price stability is essential…it is our job to restore price stability and achieve 2% inflation for the benefit of the American public…and we are strongly resolved that we will complete this task.”

    Meanwhile, Powell said that so far inflation had really only started to come down in the goods sector. It had not even begun in the area of “non-housing services,” and these made up about half of the entire basket of consumer prices he’s watching. He predicts “ongoing increases” of interest rates even from current levels.

    And so long as the economy performs in line with current forecasts for the rest of the year, he said, “it will not be appropriate to cut rates this year, to loosen policy this year.”

    Watching the Wall Street reaction to Powell’s comments, I was left scratching my head and thinking of the Marx Brothers. With my apologies to Chico: Who you gonna believe, me or your own ears?

    Meanwhile, on long-term TIPS: Those of us who buy 20 or 30 year inflation-protected Treasury bonds are currently securing a guaranteed long-term interest rate of 1.4% to 1.5% a year plus inflation, whatever that works out to be. At times in the past you could have locked in a much better long-term return, even from TIPS bonds. But by the standards of the past decade these rates are a gimme. Up until a year ago these rates were actually negative.

    Using data from New York University’s Stern business school I ran some numbers. In a nutshell: Based on average Treasury bond rates and inflation since the World War II, current TIPS yields look reasonable if not spectacular. TIPS bonds themselves have only existed since the late 1990s, but regular (non-inflation-adjusted) Treasury bonds of course go back much further. Since 1945, someone owning regular 10 Year Treasurys has ended up earning, on average, about inflation plus 1.5% to 1.6% a year.

    But Joachim Klement, a trustee of the CFA Institute Research Foundation and strategist at investment company Liberum, says the world is changing. Long-term interest rates are falling, he argues. This isn’t a recent thing: According to Bank of England research it’s been going on for eight centuries.

    “Real yields of 1.5% today are very attractive,” he tells me. “We know that real yields are in a centuries’ long secular decline because markets become more efficient and real growth is declining due to demographics and other factors. That means that every year real yields drop a little bit more and the average over the next 10 or 30 years is likely to be lower than 1.5%. Looking ahead, TIPS are priced as a bargain right now and they provide secure income, 100% protected against inflation and backed by the full faith and credit of the United States government.”

    Meanwhile the bond markets are simultaneously betting that Jerome Powell will win his fight against inflation, while refusing to believe him when he says he will do whatever it takes.

    Make of that what you will. Not having to care too much about what the bond market says is yet another reason why I generally prefer inflation-protected Treasury bonds to the regular kind.

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  • These 20 stocks led the January rally

    These 20 stocks led the January rally

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    The initial version of this story had incorrect price changes for 2023. It is now updated with information as of the market close on Jan. 31.

    Investors staged a January rally, with solid gains for the S&P 500 and an even better showing for technology stocks that led the dismal downward action in 2022.

    This…

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  • Bangladesh to get $4.7bn IMF package

    Bangladesh to get $4.7bn IMF package

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    The funding comes under a new programme which aims to help vulnerable middle-income countries and island states.

    The International Monetary Fund’s (IMF) executive board has approved a support programme for Bangladesh worth $4.7bn at current exchange rates, making the South Asian country the first to access its new Resilience and Sustainability Facility (RSF).

    The funding announced on Monday includes $3.3bn under the IMF’s Extended Credit Facility and Extended Fund Facility programmes and $1.4bn under the new RSF, which aims to help vulnerable middle-income countries and island states.

    The board approval of a staff agreement reached last November allows the immediate disbursement of about $476m to Bangladesh, the IMF said.

    The IMF said the 42-month borrowing package “will help preserve macroeconomic stability, protect the vulnerable and foster inclusive and green growth”.

    The fund said it includes reforms focused on creating fiscal space to enable greater social and developmental spending, strengthening Bangladesh’s financial sector, boosting fiscal and governance reforms, and building climate resilience.

    The IMF announced the new RSF facility in October last year to provide policy support and affordable longer-term financing for low-income and vulnerable middle-income countries in addition to the existing lending toolkits that these countries had access to. RSF facilities come with a 20-year maturity and a 10-1/2-year grace period during which no principal is repaid.

    The funding from the RSF will help support the country’s climate change adaptation and mitigation efforts, the IMF said.

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  • The Fed and the stock market are set for a showdown this week. What’s at stake.

    The Fed and the stock market are set for a showdown this week. What’s at stake.

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    Let’s get ready to rumble.

    The Federal Reserve and investors appear to be locked in what one veteran market watcher has described as an epic game of “chicken.” What Fed Chair Jerome Powell says Wednesday could determine the winner.

    Here’s the conflict. Fed policy makers have steadily insisted that the fed-funds rate, now at 4.25% to 4.5%, must rise above 5% and, importantly, stay there as the central bank attempts to bring inflation back to its 2% target. Fed-funds futures, however, show money-market traders aren’t fully convinced the rate will top 5%. Perhaps more galling to Fed officials, traders expect the central bank to deliver cuts by year-end.

    Stock-market investors have also bought into the latter policy “pivot” scenario, fueling a January surge for beaten down technology and growth stocks, which are particularly interest rate-sensitive. Treasury bonds have rallied, pulling down yields across the curve. And the U.S. dollar has weakened.

    Cruisin’ for a bruisin’?

    To some market watchers, investors now appear way too big for their breeches. They expect Powell to attempt to take them down a peg or two.

    How so? Look for Powell to be “unambiguously hawkish,” when he holds a news conference following the conclusion of the Fed’s two-day policy meeting on Wednesday, said Jose Torres, senior economist at Interactive Brokers, in a phone interview.

    “Hawkish” is market lingo used to describe a central banker sounding tough on inflation and less worried about economic growth.

    In Powell’s case, that would likely mean emphasizing that the labor market remains significantly out of balance, calling for a significant reduction in job openings that will require monetary policy to remain restrictive for a long period, Torres said.

    If Powell sounds sufficiently hawkish, “financial conditions will tighten up quickly,” Torres said, in a phone interview. Treasury yields “would rise, tech would drop and the dollar would rise after a message like that.” If not, then expect the tech and Treasury rally to continue and the dollar to get softer.

    Hanging loose

    Indeed, it’s a loosening of financial conditions that’s seen trying Powell’s patience. Looser conditions are represented by a tightening of credit spreads, lower borrowing costs, and higher stock prices that contribute to speculative activity and increased risk taking, which helps fuel inflation. It also helps weaken the dollar, contributes to inflation through higher import costs, Torres said, noting that indexes measuring financial conditions have fallen for 14 straight weeks.

    The Chicago Fed’s National Financial Conditions Index provides a weekly update on U.S. financial conditions. Positive values have been historically associated with tighter-than-average financial conditions, while negative values have been historically associated with looser-than-average financial conditions.


    Federal Reserve Bank of Chicago, fred.stlouisfed.org

    Powell and the Fed have certainly expressed concerns about the potential for loose financial conditions to undercut their inflation-fighting efforts.

    The minutes of the Fed’s December meeting. released in early January, contained this attention-grabbing line: “Participants noted that, because monetary policy worked importantly through financial markets, an unwarranted easing in financial conditions, especially if driven by a misperception by the public of the Committee’s reaction function, would complicate the Committee’s effort to restore price stability.”

    That was taken by some investors as a sign that the Fed wasn’t eager to see a sustained stock market rally and might even be inclined to punish financial markets if conditions loosened too far.

    Read: The Fed delivered a message to the stock market: Big rallies will prolong pain

    If that interpretation is correct, it underlines the notion that the Fed “put” — the central bank’s seemingly longstanding willingness to respond to a plunging market with a loosening of policy — is largely kaput.

    The tech-heavy Nasdaq Composite logged its fourth straight weekly rise last week, up 4.3% to end Friday at its highest since Sept. 14. The S&P 500
    SPX,
    +0.25%
    advanced 2.5% to log its highest settlement since Dec. 2, and the Dow Jones Industrial Average
    DJIA,
    +0.08%
    rose 1.8%.

    Meanwhile, the Fed is almost universally expected to deliver a 25 basis point rate increase on Wednesday. That is a downshift from the series of outsize 75 and 50 basis point hikes it delivered over the course of 2022.

    See: Fed set to deliver quarter-point rate increase along with ‘one last hawkish sting in the tail’

    Data showing U.S. inflation continues to slow after peaking at a roughly four-decade high last summer alongside expectations for a much weaker, and potentially recessionary, economy in 2023 have stoked bets the Fed won’t be as aggressive as advertised. But a pickup in gasoline and food prices could make for a bounce in January inflation readings, he said, which would give Powell another cudgel to beat back market expectations for easier policy in future meetings.

    Jackson Hole redux

    Torres sees the setup heading into this week’s Fed meeting as similar to the run-up to Powell’s speech at an annual central banking symposium in Jackson Hole, Wyoming, last August, in which he delivered a blunt message that the fight against inflation meant economic pain ahead. That spelled doom for what proved to be another of 2023’s many bear-market rallies, starting a slide that took stocks to their lows for the year in October.

    But some question how frustrated policy makers really are with the current backdrop.

    Sure, financial conditions have loosened in recent weeks, but they remain far tighter than they were a year ago before the Fed embarked on its aggressive tightening campaign, said Kelsey Berro, portfolio manager at J.P. Morgan Asset Management, in a phone interview.

    “So from a holistic perspective, the Fed feels they are getting policy more restrictive,” she said, as evidenced, for example, by the significant rise in mortgage rates over the past year.

    Still, it’s likely the Fed’s message this week will continue to emphasize that the recent slowing in inflation isn’t enough to declare victory and that further hikes are in the pipeline, Berro said.

    Too soon for a shift

    For investors and traders, the focus will be on whether Powell continues to emphasize that the biggest risk is the Fed doing too little on the inflation front or shifts to a message that acknowledges the possibility the Fed could overdo it and sink the economy, Berro said.

    She expects Powell to eventually deliver that message, but this week’s news conference is probably too early. The Fed won’t update the so-called dot plot, a compilation of forecasts by individual policy makers, or its staff economic forecasts until its March meeting.

    That could prove to be a disappointment for investors hoping for a decisive showdown this week.

    “Unfortunately, this is the kind of meeting that could end up being anticlimactic,” Berro said.

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  • The Fed and the stock market are set for a showdown this week. What’s at stake.

    The Fed and the stock market are set for a showdown this week. What’s at stake.

    [ad_1]

    Let’s get ready to rumble.

    The Federal Reserve and investors appear to be locked in what one veteran market watcher has described as an epic game of “chicken.” What Fed Chair Jerome Powell says Wednesday could determine the winner.

    Here’s the conflict. Fed policy makers have steadily insisted that the fed-funds rate, now at 4.25% to 4.5%, must rise above 5% and, importantly, stay there as the central bank attempts to bring inflation back to its 2% target. Fed-funds futures, however, show money-market traders aren’t fully convinced the rate will top 5%. Perhaps more galling to Fed officials, traders expect the central bank to deliver cuts by year-end.

    Stock-market investors have also bought into the latter policy “pivot” scenario, fueling a January surge for beaten down technology and growth stocks, which are particularly interest rate-sensitive. Treasury bonds have rallied, pulling down yields across the curve. And the U.S. dollar has weakened.

    Cruisin’ for a bruisin’?

    To some market watchers, investors now appear way too big for their breeches. They expect Powell to attempt to take them down a peg or two.

    How so? Look for Powell to be “unambiguously hawkish,” when he holds a news conference following the conclusion of the Fed’s two-day policy meeting on Wednesday, said Jose Torres, senior economist at Interactive Brokers, in a phone interview.

    “Hawkish” is market lingo used to describe a central banker sounding tough on inflation and less worried about economic growth.

    In Powell’s case, that would likely mean emphasizing that the labor market remains significantly out of balance, calling for a significant reduction in job openings that will require monetary policy to remain restrictive for a long period, Torres said.

    If Powell sounds sufficiently hawkish, “financial conditions will tighten up quickly,” Torres said, in a phone interview. Treasury yields “would rise, tech would drop and the dollar would rise after a message like that.” If not, then expect the tech and Treasury rally to continue and the dollar to get softer.

    Hanging loose

    Indeed, it’s a loosening of financial conditions that’s seen trying Powell’s patience. Looser conditions are represented by a tightening of credit spreads, lower borrowing costs, and higher stock prices that contribute to speculative activity and increased risk taking, which helps fuel inflation. It also helps weaken the dollar, contributes to inflation through higher import costs, Torres said, noting that indexes measuring financial conditions have fallen for 14 straight weeks.

    The Chicago Fed’s National Financial Conditions Index provides a weekly update on U.S. financial conditions. Positive values have been historically associated with tighter-than-average financial conditions, while negative values have been historically associated with looser-than-average financial conditions.


    Federal Reserve Bank of Chicago, fred.stlouisfed.org

    Powell and the Fed have certainly expressed concerns about the potential for loose financial conditions to undercut their inflation-fighting efforts.

    The minutes of the Fed’s December meeting. released in early January, contained this attention-grabbing line: “Participants noted that, because monetary policy worked importantly through financial markets, an unwarranted easing in financial conditions, especially if driven by a misperception by the public of the Committee’s reaction function, would complicate the Committee’s effort to restore price stability.”

    That was taken by some investors as a sign that the Fed wasn’t eager to see a sustained stock market rally and might even be inclined to punish financial markets if conditions loosened too far.

    Read: The Fed delivered a message to the stock market: Big rallies will prolong pain

    If that interpretation is correct, it underlines the notion that the Fed “put” — the central bank’s seemingly longstanding willingness to respond to a plunging market with a loosening of policy — is largely kaput.

    The tech-heavy Nasdaq Composite logged its fourth straight weekly rise last week, up 4.3% to end Friday at its highest since Sept. 14. The S&P 500
    SPX,
    +0.25%
    advanced 2.5% to log its highest settlement since Dec. 2, and the Dow Jones Industrial Average
    DJIA,
    +0.08%
    rose 1.8%.

    Meanwhile, the Fed is almost universally expected to deliver a 25 basis point rate increase on Wednesday. That is a downshift from the series of outsize 75 and 50 basis point hikes it delivered over the course of 2022.

    See: Fed set to deliver quarter-point rate increase along with ‘one last hawkish sting in the tail’

    Data showing U.S. inflation continues to slow after peaking at a roughly four-decade high last summer alongside expectations for a much weaker, and potentially recessionary, economy in 2023 have stoked bets the Fed won’t be as aggressive as advertised. But a pickup in gasoline and food prices could make for a bounce in January inflation readings, he said, which would give Powell another cudgel to beat back market expectations for easier policy in future meetings.

    Jackson Hole redux

    Torres sees the setup heading into this week’s Fed meeting as similar to the run-up to Powell’s speech at an annual central banking symposium in Jackson Hole, Wyoming, last August, in which he delivered a blunt message that the fight against inflation meant economic pain ahead. That spelled doom for what proved to be another of 2023’s many bear-market rallies, starting a slide that took stocks to their lows for the year in October.

    But some question how frustrated policy makers really are with the current backdrop.

    Sure, financial conditions have loosened in recent weeks, but they remain far tighter than they were a year ago before the Fed embarked on its aggressive tightening campaign, said Kelsey Berro, portfolio manager at J.P. Morgan Asset Management, in a phone interview.

    “So from a holistic perspective, the Fed feels they are getting policy more restrictive,” she said, as evidenced, for example, by the significant rise in mortgage rates over the past year.

    Still, it’s likely the Fed’s message this week will continue to emphasize that the recent slowing in inflation isn’t enough to declare victory and that further hikes are in the pipeline, Berro said.

    Too soon for a shift

    For investors and traders, the focus will be on whether Powell continues to emphasize that the biggest risk is the Fed doing too little on the inflation front or shifts to a message that acknowledges the possibility the Fed could overdo it and sink the economy, Berro said.

    She expects Powell to eventually deliver that message, but this week’s news conference is probably too early. The Fed won’t update the so-called dot plot, a compilation of forecasts by individual policy makers, or its staff economic forecasts until its March meeting.

    That could prove to be a disappointment for investors hoping for a decisive showdown this week.

    “Unfortunately, this is the kind of meeting that could end up being anticlimactic,” Berro said.

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  • U.S. consumer sentiment strengthens in final January reading

    U.S. consumer sentiment strengthens in final January reading

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    The numbers: U.S. consumer sentiment improved in late January to 64.9, according to the University of Michigan’s gauge of consumer attitudes.

    This added 5.2 index points from 59.7 in December and was up from the initial January reading of 64.6.

    Economists surveyed by The Wall Street Journal had forecast an unchanged reading of 64.6.

    Key details: A  gauge of consumer’s views of current conditions rose to a final reading of 68.4 in January from 59.4 in the prior month.

    The indicator of expectations for the next six months rose to 62.7 from 59.9 in December.

    Americans viewed that inflation was moderating in January. They expected the inflation rate in the next year to average about 3.9%, down from 4.4% in December. This is the lowest level since April 2021.

    In the longer run, inflation expectations held steady at 2.9%.

    Big picture: Consumer confidence rose for the second straight month on lower energy prices and better financial market conditions. Assessments of personal finances are improving, supported by higher income and easing price pressures.

    But sentiment remains well below the pre-pandemic level of 101 hit in February 2020 and the more recent high of 88.3 hit in April 2021.

    Market reaction: Stocks
    DJIA,
    -0.20%

    SPX,
    -0.17%
    opened higher on Friday. The yield on the 10-year Treasury note
    TMUBMUSD10Y,
    3.534%
    rose to 3.54%.

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  • Fiat Debases Belief, But Bitcoin Makes Us Human

    Fiat Debases Belief, But Bitcoin Makes Us Human

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    This is an opinion editorial by Jimmy Song, a Bitcoin developer, educator and entrepreneur and programmer with over 20 years of experience.

    We need beliefs. Belief is something that we live for, something that informs our morals, something that defines our metaphysical existence. We need belief because we need purpose. Belief is a necessary part of a fulfilling life and, traditionally, people valued their beliefs more than anything else. Sadly, fiat money debases our beliefs the same way Nickleback debases music and Joel Osteen debases Christianity.

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    Jimmy Song

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  • Best Personal Loans of 2023

    Best Personal Loans of 2023

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    A personal loan is a type of installment loan in which money is borrowed in a lump sum and repaid over time in fixed monthly payments.

    Borrowers commonly use personal loans to consolidate debt, because a single loan can replace multiple monthly payments and potentially give you a lower interest rate than you pay on high-interest debts like credit cards.

    Other than a couple of restrictions, including buying a home or paying for education costs, you can get pretty creative with how you use a personal loan. It could give you a leg up to start a business if you can’t get approved for a dedicated business loan. Plus, a personal loan can give you a lifeline if your financial situation changes unexpectedly or help you shoulder big expenses without the high interest of credit cards.

    Personal loans offered by online lenders and traditional financial institutions share a lot of standard features. They tend to come in amounts between $5,000 to $40,000, with interest rates between 5% and 36%, and repayment periods between two and seven years (though there are outliers for all of these parameters). Most lenders offer a discounted interest rate if you sign up for automatic payments, typically 0.25 or 0.5 percentage points.

    Typically, you need good to excellent credit — a score of at least 670 — but you can find lenders, especially through online platforms, that cater to borrowers with lower scores. A few lenders offer perks, like repayment benefits or a free FICO score, that could make one more attractive for you than another.

    But the biggest selling point will likely be the cost of your loan — check your prequalified rates with lenders (it doesn’t affect your credit score) to find the loan with the best interest rate, monthly payment and repayment period for your situation.

    Personal Loans at a Glance

    Company APR with Autopay Min/Max Loan Amounts Loan Terms
    LightStream 5.99% – 23.99% $5,000 – $100,000 Up to 7 years SEE DETAILS
    Credible Personal Loans 5.40% – 35.99% $600 – $100,000 1 – 7 years SEE DETAILS
    Upstart 6.50% – 35.99% $1,000 – $50,000 3 or 5 years SEE DETAILS
    SoFi 7.99% – 23.43% $5,000 – $100,000 2 – 7 years SEE DETAILS
    PenFed $600 – $50,000 $5,000 – $50,000 1 – 5 years SEE DETAILS
    Upgrade 7.96% – 35.97% $1,000 – $50,000 24 – 84 months SEE DETAILS
    Rocket Loans 8.416% – 29.99% $2,000 – $45,000 36 or 60 months SEE DETAILS
    Happy Money 8.99% – 29.99% $5,000 – $40,000 2 – 5 years SEE DETAILS
    Discover 6.99% – 24.99% $2,500 – $35,000 36, 48, 60, 72 or 84 months SEE DETAILS
    Marcus 8.99% – 24.74% $3,500 – $40,000 36 – 72 months SEE DETAILS
    LendingClub 8.05% – 36.00% $1,000 – $40,000 3 or 5 years SEE DETAILS
    Prosper 6.99% – 35.99% $2,000 – $40,000 3 or 5 years SEE DETAILS
    Avant 9.95% – 35.95% $2,000 – $35,000 24 – 60 months SEE DETAILS
    LendingPoint 7.99% – 35.99% $2,000 – $36,500, 24 – 60 months SEE DETAILS

    LightStream

    Best for Good to Excellent Credit

    Key Features

    • Same-day funding
    • No fees
    • Loans available for low credit scores

    LightStream offers fixed-rate personal loans up to $100,000, with funding as soon as the same day you’re approved. Its Rate Beat Program guarantees it’ll offer you the lowest rate you can find — just submit a request with information about a lower rate offered by a competitor, and it’ll offer you that rate minus 0.10 percentage points.

    LightStream

    APR

    5.99% – 23.99%

    Loan amounts

    $5,000 – $100,000

    Minimum credit score

    600

    Credible

    Best Loan Marketplace

    Key Features

    • Compare rates from top lenders
    • Loans for poor credit available
    • Loan amounts as low as $600

    Use Credible’s search engine to find personal loans for as little as $600. Unlike other marketplaces, Credible only gets paid when you accept a loan offer, so it doesn’t sell your information to lenders to pester you. You’ll see prequalified offers and compare lenders side by side, then click through from your Credible dashboard to a lender’s site to apply.

    Credible

    APR

    5.40% – 35.99%

    Loan amounts

    $600 – $100,000

    Minimum credit score

    640

    Upstart

    Best for Borrowers Without a Traditional Credit History

    Key Features

    • AI-powered lending for partner banks
    • Considers more than your credit history
    • Potential for one-day funding
    Upstart isn’t technically a lender, but it’s not a marketplace, either. You’ll see prequalified rates from partner lenders and apply right through its platform. Upstart’s proprietary AI uses more than the traditional credit score to assess a borrower’s creditworthiness, so you might have a higher chance of approval on the platform if you have no credit score but other positive factors, like education and income.

    Upstart

    APR

    6.50% – 35.99%

    Loan amounts

    $1,000 – $50,000

    Minimum credit score

    300

    SoFi

    Best for Same-Day Funding

    Key Features

    • No fees
    • Unemployment protection
    • Potential for same-day funding

    SoFi is a tech platform-turned bank that offers a range of financial services from the convenience of an app. Its personal loans come with no origination fees, prepayment penalties or other hidden fees. Funding is usually available the same day as approval, and SoFi includes unemployment protection: If you lose your job, SoFi works with you to modify your payments temporarily.

    SoFi

    APR

    7.99% – 23.43%

    Loan amounts

    $5,000 – $100,000

    Minimum credit score

    650

    PenFed

    Best Credit Union for Personal Loans

    Key Features

    • No hidden fees
    • Loan amounts as low as $600
    • Flexible terms

    PenFed Credit Union is the best credit union for personal loans. Terms are flexible (12 to 60 months), and you can get a loan for as low as $600. Don’t sweat the fees (because there aren’t any); you won’t pay an origination fee, and there’s no early payoff penalty. The only downside? You have to be a member of the credit union to apply.

    PenFed

    APR

    7.74% – 17.99%

    Loan amounts

    $600 – $50,000

    Minimum credit score

    650

    Upgrade

    Best for Raising your Credit Score

    Key Features

    • Checking, credit and loans in one platform
    • No prepayment penalties
    • Next day funding

    Upgrade is a financial tech company that offers rewards checking, an innovative-payment credit card, credit monitoring and personal loans. The platform is an all-in-one debt payoff and management solution — its personal loans and credit cards are designed with quick repayment in mind, you get free credit monitoring, and you may be able to qualify for a loan with a fair or poor credit score.

    Upgrade

    APR

    7.96% – 35.97%

    Loan amounts

    $1,000 – $50,000

    Minimum credit score

    560

    Rocket Loans

    Best for Transparent Process

    Key Features

    • Same day funding
    • No prepayment penalties
    • All-online application

    Apply online for a personal loan from Rocket Loans to see prequalified offers in less than a minute. You can complete your application entirely online, including income and identity verification, so no phone calls or snail mail from lenders. Funding could come within a couple of business days — if not the same day. A major pitfall? The 7% origination fee

    Rocket Loans

    APR

    8.416% – 29.99%

    Loan amounts

    $2,000 – $45,000

    Minimum credit score

    640

    Happy Money

    Best for Debt Consolidation

    Key Features

    • Specially designed for credit card payoff
    • Borrow from community-based lenders
    • Origination fee between 0% and 5%

    Happy Money is a financial tech company that works with community based lenders — credit unions and mission-driven institutions — to provide The Payoff Loan, a personal loan designed for credit card debt consolidation. See loan offers and choose among the lowest monthly payment, lowest interest rate or quickest payoff date to align with your financial goals.

    Happy Money

    APR

    8.99% – 29.99%

    Loan amounts

    $5,000 – $40,000

    Minimum credit requirement

    600

    Discover

    Best for Flexible Repayment Options

    Key Features

    • No fees (except late fees)
    • Repayment assistance options
    • Free FICO credit score

    Discover personal loans are straightforward, fee-free loans up to $35,000 with a minimum credit score of 660. Discover offers flexible terms and a 30-day guarantee in case you change your mind. The lack of fees, including origination and prepayment, is a huge selling point for Discover — as is the low potential APR.

    Discover

    APR

    6.99% – 24.99%

    Loan amounts

    $2,500 – $35,000

    Minimum credit score

    660

    Marcus

    Best for On-Time Payment Rewards

    Key Features

    • No fees
    • Skip-a-payment reward for on-time repayment
    • Customize your monthly payment

    Marcus is the personal banking arm of Goldman Sachs, offering individual savings, investing, credit cards and loans. Its personal loans are available to borrowers with good credit for up to $40,000, with no fees — not even late fees. And it rewards you for on-time payment: Make your monthly payment on time for 12 months in a row, and you can defer payment for a month with no additional interest accrued.

    Marcus

    APR

    8.99% – 24.74%

    Loan amounts

    $3,500 – $40,000

    Minimum credit score

    660

    LendingClub

    Best for Joint Loans

    Key Features

    • Borrow up to $40,000
    • Funding within 48 hours
    • No prepayment penalty

    LendingClub is an online marketplace bank offering checking accounts and personal loans for consumers. Take out personal loans up to $40,000 for terms of three to five years — you can even do joint loans. (You might know the platform for peer-to-peer lending, which is how it started, but as of 2020, LendingClub only offers traditional personal loans.)

    LendingClub

    APR

    8.05% – 36.00%

    Loan amounts

    $1,000 – $40,000

    Minimum credit score

    600

    Prosper

    Best for Peer-to-Peer Borrowing

    Key Features

    • Peer-to-peer lending
    • Next-day funding
    • No prepayment penalty

    Prosper is an online peer-to-peer lending company that lets individuals and institutions invest in personal loans to support borrowers and earn returns through debt securities. Prosper handles the loan application, origination and management, so you don’t work directly with funders, but you can rest assured that the interest you pay goes back to real people, not just banks.

    Prosper

    APR

    6.99% – 35.99%

    Loan amounts

    $2,000 – $50,000

    Minimum credit score

    600

    Avant

    Best for Fair Credit Loans

    Key Features

    • Next-day funding
    • Low minimum credit score
    • Easy-to-use app

    Avant offers personal loans up to $35,000 as soon as the next business day after you’re approved. Most Avant borrowers have FICO credit scores between 600 and 700, but Avant sometimes awards loans to borrowers whose score is as low as 580. If you have fair credit, Avant is worth a shot.

    Avant

    APR

    9.95% – 35.95%

    Loan amounts

    $2,000 – $35,000

    Minimum credit score

    580

    LendingPoint

    Best for Fair Credit Borrowers

    Key Features

    • Next-day funding
    • No co-sign loans
    • AI technology that considers more than just cred

    LendingPoint uses proprietary algorithms to assess creditworthiness using factors that go beyond the traditional FICO score. It offers unsecured personal loans as well as e-commerce and point-of-sale financing. With a minimum credit score of 600, this could be a good option for borrowers with fair credit scores, though it doesn’t offer co-signed loans, which can be useful for low-credit borrowers.

    LendingPoint

    APR

    7.99% – 35.99%

    Loan amounts

    $2,000 – $36,500

    Minimum credit score

    600

    Types of Personal Loans

    “Personal loan” is a broad category of lending that you can apply to almost any financial need. Lenders often advertise things like home improvement loans, wedding loans, timeshare loans or adoption loans — but these are all technically just personal loans, structured the same way.

    A few key differences to look out for are:

    • Debt consolidation loans: Many people use personal loans for credit card debt consolidation or refinancing — replacing one or many debts with another. It can simplify  repayment and reduce your interest rate. When you take out a personal loan for this purpose, the lender usually sends the money directly to your other creditors, instead of to you.
    • Secured loan: A secured loan of any kind is one backed by collateral — that’s an asset you put on the line to turn over to the lender in case you can’t repay the loan. For mortgages, the collateral is your home; for auto loans, it’s the vehicle. Secured personal loans are also available, and you could put up anything of value as collateral, like a boat, jewelry, fine art or investment funds.
    • Unsecured loan: Unsecured loans are those without any collateral backing them. This increases the risk for the lender, so you usually have to have excellent credit and income to qualify.

    Personal Loan Costs to Consider

    When you evaluate personal loan offers, you’ll probably focus on the interest rate, because that has a significant impact on the long-term cost of the loan. But there are other costs to consider.

    Before accepting any loan offer or signing the agreement, make sure you know how much you’ll pay (if anything) in these common costs:

    • APR: Annual percentage rate is what’s often referred to as your interest rate and usually the most prominently advertised feature of your loan. Personal loan interest rates tend to fall between 5% and 36%. A higher credit score and shorter repayment period can lower the interest rate, while a lower credit score and longer repayment period can increase it.
    • Origination fee: Many lenders take a bite out of your loan upfront, so you won’t receive 100% of the loan amount. Origination fees are usually around 2% or 3% of your loan amount, and lenders subtract them from the original loan amount you receive.
    • Late fee: Your loan agreement will likely come with a fee for late payments, usually a percentage of the payment due or sometimes a flat fee. Those fees are added to your loan balance when you’re late making a monthly payment.
    • Prepayment penalties: They’re becoming less common, but some lenders still include prepayment fees in loan agreements. If you pay off part or all of the loan early, usually within a determined period after receiving it, the lender could charge you an additional fee. The prepayment fee is usually a percentage of the total loan balance at the time you pay it off.

    The other thing that’ll help you determine whether a loan offer is right for you are the repayment terms. Along with any additional costs, look for the basics, including how long you have to repay and how much your monthly payments will be.

    Who Can Take out a Personal Loan?

    Any individual can apply for a personal loan for just about any purpose.

    Many lenders advertise loans for specific purposes, like vacation, weddings or home improvements — but those are usually marketing details. You can use personal loan funds almost any way you want, except for some uses that are restricted to dedicated types of loans, including buying a home and paying for education.

    Unsecured personal loans tend to be tougher to qualify for than those dedicated loans, because they aren’t attached to any collateral or government backing.

    A few companies look into alternative factors to forecast your ability to repay a loan, but most are looking for traditional creditworthiness, including:

    • Credit score and credit history: Lenders usually want to see a credit score of at least 720 for personal loans, though some “bad credit loans” might be accessible for borrowers with scores as low as 600.
    • Debt-to-income ratio: Your debt-to-income ratio (DTI) is the difference between how much you make each month and how much you owe in mortgage and other debt payments, like credit card debt and existing loans. Lenders typically want to see a DTI no higher than 43%, but the lower the better.
    • Income: Lenders typically require you to prove a regular source of income that shows your likely ability to make monthly payments. You can show this through pay stubs if you’re employed, or a recent tax return if you’re self-employed. If you don’t have either of those (or they don’t accurately reflect your expected income), contact a lender before submitting your application to make sure you can work out an alternative way to prove your income.

    Where to Get a Personal Loan

    You can find personal loans through several types of platforms, including:

    • Banks and credit unions, where you could keep all of your banking, credit cards, investing and insurance under one financial institution.
    • Online lenders, meaning companies that only offer loans, but not other banking or financial services.
    • Marketplaces, like Fiona, AmOne or OppLoans, which aggregate offers from multiple lenders and let you see pre-approved rates with a soft credit check. Some marketplaces also let you handle the entire loan application and origination process through their platform, while others simply connect you with lenders to complete the process on their site or over the phone.

    How to Get a Personal Loan

    Follow these steps to get a personal loan:

    1.Consider your financial options. Is a personal loan the best way to meet your needs? You might have alternatives, like delaying a purchase and saving the money.

    2. Review your finances. Figure out a monthly payment you can comfortably fit into your life for the next few years, and use that as a guide when reviewing loan offers.

    3. Check your credit score. Personal loan lenders generally look for borrowers with good or excellent credit scores — about 700 or higher. Even those that accept borrowers with lower scores use your credit history to determine your repayment terms and interest rate. Know where you stand before applying by checking your credit score.

    4. Compare lenders. You’re off to a good start! Checking reviews like this and comparing loan offers through marketplaces can help you see lenders side by side easily. Check lender requirements and options for loan terms before applying and dinging your credit history.

    5. Get pre-qualified. Either through a marketplace or directly on a lender’s site, you can give a little information to go through a soft credit check (that won’t affect your credit score) and get pre-qualified for a loan. You’ll see an interest rate and repayment terms a lender could offer you based on the credit check, so you can decide whether it’s worth putting in a full application.

    6. Review the loan details. Look over offers carefully to make sure the terms, including the monthly payment, repayment period and any fees, fit with your financial plan.

    7. Complete an application. Choose a loan you want, and fill out an application with the lender. You’ll go through a hard credit check (which shows up on your credit report as a request for credit and could lower your score temporarily), and likely be officially approved for the loan.

    8. Receive the funds. Personal loan funds typically go straight into your bank account (unless you’re using them for debt consolidation), and many online lenders fund loans within the same day or the next day after you’re approved.

    9. Set up a payment plan. Most lenders offer better interest rates if you set up automatic payments, which you can do through the lender’s website if you’re comfortable with it. If you’re paying back other debts at the same time, use a repayment method like the debt snowball or avalanche to determine where to direct your money whenever you’ve got extra to put toward your financial goals.

    Frequently Asked Questions (FAQs) About Personal Loans

    There are a lot of questions about how to acquire personal loans and which ones are the best. We’ve rounded up the answers to the most commonly asked questions.

    Which Bank is Best for Personal Loans?

    The offer you get for a personal loan from any institution depends on your credit history, income and existing debt. Shop online or use a lending marketplace to compare options before applying and dinging your credit report. If you have a low credit score (below 700), look for online lending platforms that use innovative algorithms to assess creditworthiness with factors beyond your credit report, like education and bill payments. If you have a stellar credit and debt payment history, look for lenders that offer rewards like on-time payment bonuses and auto-pay discounts on interest.

    Which Bank Has the Easiest Personal Loan Approval?

    While they’re steadily improving, most traditional banks have lengthier personal loan approval processes than online lenders. With a traditional bank, you might have to connect with a loan officer on the phone, mail in or drop off paper application materials and wait several days for approval. Online lending companies use technology to assess your application quickly and make loan offers almost instantly. Funding typically comes within one business day, and some even offer same-day funding.

    What is the Easiest Loan to be Approved For?

    Unsecured personal loans can be harder to qualify for than other types of loans, because they aren’t backed by collateral, like mortgages and auto loans; or supported by future potential earnings, like student loans. Secured personal loans can be easier to qualify for, even with a low credit score, because you put up collateral, like jewelry, a boat or investment funds, to mitigate the lender’s risk in case you don’t repay. Auto loans tend to be the easiest types of loans to qualify for, even with low income or credit scores, because they’re relatively small and are backed by collateral (a vehicle).

    How Much Will a Bank Lend for a Personal Loan?

    Most personal loan lenders offer loans up to around $40,000, but some offer personal loans as high as $100,000. Banks typically make minimum personal loans of around $5,000, while online lenders often lend as little as $1,000 or less. Repayment terms range between two and seven years, so you can work with a lender to land on a repayment plan that gives you a monthly payment you can accommodate.

    What Is the Minimum Income for a Personal Loan?

    How much income you need to qualify for a loan depends on the amount you want to take out, how much debt you already have and how long you’ll have to repay the loan. Lenders might set their own minimum income to qualify for a personal loan, or they might just want to see that you have regular income every month. Generally what’s more important than a minimum income amount is your debt-to-income ratio, the amount of debt payments you owe each month compared with your monthly income. Lenders want to see this to assess whether you can accommodate another loan payment.

    What is the Monthly Payment on a $10,000 Loan?

    Your monthly payment for a personal loan depends on your repayment period (how many months or years you have to repay the loan) and your interest rate. You should be able to see your estimated monthly payment in a loan offer before you apply, so you can figure out whether it’s a fit for you. A couple of examples: A $10,000 loan with a fixed 7% APY and three-year repayment term would come with a $309 monthly payment. A $10,000 loan with 17% interest and a seven-year term would come with a $204 monthly payment.

    Contributor Timothy Moore has written about personal finance with specialities in banking and insurance since 2012. His work has appeared in publications such as Debt.com, Ladders, WDW Magazine, Glassdoor and The News Wheel. The Penny Hoarder staff contributed to this report.


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    tmoorefreelance@gmail.com (Timothy Moore)

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  • Is debt cancellation the way forward for Sri Lanka?

    Is debt cancellation the way forward for Sri Lanka?

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    Colombo, Sri Lanka – More than 180 prominent economists and development experts from around the world have made a global appeal to Sri Lanka’s financial lenders to forgive its debt, even as other experts are not convinced it is the best way forward for the island nation.

    According to World Bank estimates, Sri Lanka has an external debt burden of more than $52bn as of December. Of that, nearly 40 percent is owed to private creditors, including financial institutions, while the rest is owed to bilateral creditors where China (52 percent), Japan (19 percent) and India (12 percent) are the largest ones.

    Colombo defaulted on its debt repayments in April and negotiated a $2.9bn bailout with the International Monetary Fund (IMF).

    But the IMF will not release the cash until it feels that the island nation’s debt is sustainable.

    Now several prominent academics and economists, including Thomas Piketty who wrote the bestseller Capital, Harvard University economist Dani Rodrik and Indian economist Jayati Ghosh have issued a statement (PDF) calling for the cancellation of Sri Lanka’s debt by all external creditors and measures to stem the illicit outflow of capital from the country. The statement was put together by the “Debt Justice” campaign group, a global movement to “end unjust debt and the poverty and inequality it perpetuates”.

    The private investors who lent at high interest rates to corrupt politicians must face the consequences of their risky lending by cancelling the debt, the academics said in the statement.

    The academics have accused private creditors of contributing to Sri Lanka’s first-ever sovereign debt default as they accrued “a massive profit” by charging a premium to lend. Therefore, they said, the private lenders who benefitted from higher returns must be “willing to take the consequences” of their actions, meaning cancelling the debt and forfeiting the loans.

    But not everyone agrees with this suggestion.

    WA Wijewardene, a former deputy governor of the Central Bank of Sri Lanka, says that should the debt cancellation plan actually go through, it might lead to the collapse of the current global financial system.

    Many of the academics who have signed the said statement are not economists, he told Al Jazeera.

    “It is a galaxy of academics belonging to the social sciences field. As such, it needs to be critically appraised because, if accepted for Sri Lanka, it in fact provides a blueprint for a new world economic order.”

    He added: “The present economic order is an interdependent, interconnected system. If you break this, the world will collapse. You don’t know what would happen thereafter.”

    The ongoing economic crisis has left at least 8 million Sri Lankans as ‘food insecure’ [File: Eranga Jayawardena/AP Photo]

    Wijewardene told Al Jazeera that he was surprised that Dani Rodrik, “who was a strong advocate for Washington Consensus, ie neo-liberal economic reform throughout the world” and Thomas Piketty, “who is from the opposite camp,” are on the same platform calling for debt cancellation.

    Instead, he said, these academics and economists “should argue for the accountability to be established”.

    “Money borrowed has been wasted or appropriated by rulers, leaving [out] people who haven’t benefitted from them. Those rulers should be made accountable for the losses and we should fight to establish a governance system in which they should be prosecuted for their crimes,” he said.

    Wijewardene added that the cancellation of debt would not benefit the people but “the corrupt, despot” leaders.

    “Corrupt despots have already benefitted from the money borrowed. When debt is cancelled, they don’t have to repay and can continue to borrow more and use that money for private gains. This is known as the moral hazard problem in economics; that when someone has taken responsibility for your liabilities, you have no incentive to take even the minimum precautions to minimise it,” he said.

    Time for bilateral creditors to step up

    For now, Nandalal Weerasinghe, the head of the Sri Lanka Central Bank, has urged China and India to come to an agreement over reducing the country’s debt.

    “We don’t want to be in this kind of situation, not meeting the obligations, for too long. That is not good for the country and for us. That’s not good for investor confidence in Sri Lanka,” Weerasinghe told the BBC recently.

    On Friday, India’s Foreign Minister S Jaishankar, while on a two-day visit to Sri Lanka, said that New Delhi had extended financing assurances to the IMF to clear the way for Sri Lanka to move forward but did not specify what those assurances were.

    Indian Foreign Minister S Jaishankar shakes hands with Sri Lankan President Ranil Wickremesinghe.
    India’s Foreign Minister S Jaishankar (left), seen shaking hands with Sri Lankan President Ranil Wickremesinghe, told Sri Lanka that his country has given financial assurances to the IMF to facilitate a bailout plan [File: Sri Lankan President’s Office via AP]

    On the heels of India’s assurance, China has offered a two-year moratorium, according to Sri Lanka’s Sunday Times newspaper.

    In a letter to President Ranil Wickremesinghe, the Exim Bank of China, responsible for much of the loans given to Sri Lanka, said the two-year moratorium would be a short-term suspension of the debts owed to China while asking all Sri Lanka’s creditors to get together to work out medium-term and long-term commitments.

    China is yet to make any official statement in this regard.

    The assurances come on the eve of a Paris Club meeting of Sri Lanka’s creditors to discuss debt restructuring measures as a prelude to the IMF funds.

    The chances of China acceding to requests for a loan waiver are slim as similar demands will then come from other parts of the developing world where China is an active lender, said Dhananath Fernando, the chief executive officer of Advocata Institute, an economic policy think tank in Sri Lanka.

    “When you offer a debt relief to one country, it is like a court order. Other countries will also like to get the same relief,” he told Al Jazeera.

    Moreover, taxpayers in any country would not be happy to completely write off loans offered to another country, a sentiment pointed out by IMF Managing Director Kristalina Georgieva.

    “It is the notion, and is actually very broadly shared by many officials and citizens in China, that China is still a developing country and therefore … they expect to be paid back because it is a developing country,” she said in a media roundtable earlier this month.

    “So, a haircut in the Chinese context is politically very difficult,” but China understands that the equivalent of that can be achieved by stretching maturities, reducing or eliminating interest rates, and payments to ultimately reduce the burden of debt, she added.

    Dismissing the call for debt cancellation as “impractical”, Advocata Institute’s Fernando said that all the creditors will eventually have to agree on either a haircut (reducing the debt payment), coupon clipping (asking the lenders to reduce or waive off interest rates on bonds), extending the maturity of the loans or a combination of all three.

    The Japanese embassy in Colombo had not responded by press time to an Al Jazeera request for comment.

    Trade unions join call to cancel debt

    Meanwhile, supporting the call for debt cancellation, a trade union representing garment factory workers, a key employer and income generator in Sri Lanka, said the economic restructuring measures required by the IMF as part of its debt relief plan will have the Sri Lankan government privatise state-owned enterprises, impose new taxes and increase the tax rates.

    None of these measures “would provide an answer to Sri Lanka’s present debt crisis,” said Anton Marcus, co-secretary of the Free Trade Zones and General Services Employees Union, in a statement. The academics’ call “should be further lobbied by all labour rights campaigners and global trade union federations when Sri Lanka’s export manufacturing and service sector is hard-pressed for orders that threaten employment on large scale, in a country that is burdened with spiralling cost of living,” Marcus said.

    The World Food Programme estimates that 8 million Sri Lankans — out of a 22 million population — are “food insecure” with hunger especially concentrated in rural areas.

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  • This dividend-stock ETF has a 12% yield and is beating the S&P 500 by a substantial amount

    This dividend-stock ETF has a 12% yield and is beating the S&P 500 by a substantial amount

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    Most investors want to keep things simple, but digging a bit into details can be lucrative — it can help you match your choices to your objectives.

    The JPMorgan Equity Premium Income ETF
    JEPI,
    +0.20%
    has been able to take advantage of rising volatility in the stock market to beat the total return of its benchmark, the S&P 500
    SPX,
    +1.19%    ,
    while providing a rising stream of monthly income.

    The objective of the fund is “to deliver a significant portion of the returns associated with the S&P 500 Index with less volatility,” while paying monthly dividends, according to JPMorgan Asset Management. It does this by maintaining a portfolio of about 100 stocks selected for high quality, value and low price volatility, while also employing a covered-call strategy (described below) to increase income.

    This strategy might underperform the index during a bull market, but it is designed to be less volatile while providing high monthly dividends. This might make it easier for you to remain invested through the type of downturn we saw last year.

    JEPI was launched on May 20, 2020, and has grown quickly to $18.7 billion in assets under management. Hamilton Reiner, who co-manages the fund with Raffaele Zingone, described the fund’s strategy, and its success during the 2022 bear market and shared thoughts on what may lie ahead.

    Outperformance with a smoother ride

    First, here’s a chart showing how the fund has performed from when it was established through Jan. 20, against the SPDR S&P 500 ETF Trust
    SPY,
    +1.20%    ,
    both with dividends reinvested:

    JEPI has been less volatile than SPY, which tracks the S&P 500.


    FactSet

    Total returns for the two funds since May 2020 pretty much match, however, JEPI has been far less volatile than SPY and the S&P 500. Now take a look at a performance comparison for the period of rising interest rates since the end of 2021:

    Rising stock-price volatility during 2022 helped JEPI earn more income through its covered call option strategy.


    FactSet

    Those total returns are after annualized expenses of 0.35% of assets under management for JEPI and 0.09% for SPY. Both funds have had negative returns since the end of 2021, but JEPI has been a much better performer.

    ““Income is the outcome.””


    — Hamilton Reiner

    The income component

    Which investors JEPI is designed for? “Income is the outcome,” Reiner responded. “We are seeing a lot of people using this as an anchor tenant for income-oriented portfolios.”

    The fund quotes a 30-day SEC yield of 11.77%. There are various ways to look at dividend yields for mutual funds or exchange-traded funds and the 30-day yield is meant to be used for comparison. It is based on a fund’s current income distribution profile relative to its price, but the income distributions that investors actually receive will vary.

    It turns out that over the past 12 months, JEPI’s monthly distributions have ranged between 38 cents a share and 62 cents a share, with a rising trend over the past six months. The sum of the past 12 distributions has been $5.79 a share, for a distribution yield of 10.53%, based on the ETF’s closing price of $55.01 on Jan. 20.

    JEPI invests at least 80% of assets in stocks, mainly selected from those in the S&P 500, while also investing in equity-linked notes to employ a covered call option strategy which enhances income and lowers volatility. Covered calls are described below.

    Reiner said that during a typical year, investors in JEPI should expect monthly distributions to come to an annualized yield in the “high single digits.”

    He expects that level of income even if we return to the low-interest rate environment that preceded the Federal Reserve’s cycle of rate increases that it started early last year to push down inflation.

    JEPI’s approach may be attractive to investors who don’t need the income now. “We also see people using it as a conservative equity approach,” Reiner expects the fund to have 35% less price volatility than the S&P 500.

    Getting back to income, Reiner said JEPI was a good alternative even for investors who were willing to take credit risk with high-yield bond funds. Those have higher price volatility than investment-grade bond funds and face a higher risk of losses when bonds default. “But with JEPI you don’t have credit risk or duration risk,” he said.

    An example of a high-yield bond fund is the iShares 0-5 Year High Yield Corporate Bond ETF
    SHYG,
    -0.10%    .
    It has a 30-day yield of 7.95%.

    When discussing JEPI’s stock selection, Reiner said “there is a significant active component to the 90 to 120 names we invest in.” Stock selections are based on recommendations of JPM’s analyst team for those that are “most attractively priced today for the medium to long term,” he said.

    Individual stock selections don’t factor in dividend yields.

    Covered call strategies and an example of a covered-call trade

    JEPI’s high income is an important part of its low-volatility total-return strategy.

    A call option is a contract that allows an investor to buy a security at a particular price (called the strike price) until the option expires. A put option is the opposite, allowing the purchaser to sell a security at a specified price until the option expires.

    A covered call option is one an investor can write when they already own a security. The strike price is “out of the money,” which means it is higher than the stock’s current price.

    Here’s an example of a covered call option provided by Ken Roberts, an investment adviser with Four Star Wealth Management in Reno, Nev.

    • You bought shares of 3M Co.
      MMM,
      +1.63%
      on Jan. 20 for $118.75.

    • You sold a $130 call option with an expiration date of Jan. 19, 2024.

    • The premium for the Jan. 24, $130 call was $7.60 at the time that MMM was selling for $118.75.

    • The current dividend yield for MMM is 5.03%.

    • “So the maximum gain for this trade before the dividend is $18.85 or 15.87%. Add the divided income and you’ll get 20.90% maximum return,” Roberts wrote in an email exchange on Jan. 20.

    If you had made this trade and 3M’s shares didn’t rise above $130 by Jan. 19, 2024, the option would expire and you would be free to write another option. The option alone would provide income equivalent to 6.40% of the Jan. 20 purchase price in the period of a year.

    If the stock rose above $130 and the option were exercised, you would have ended up with the maximum gain as described by Roberts. Then you would need to find another stock to invest in. What did you risk? Further upside beyond $130. So you would have written the option only if you had decided you would be willing to part with your shares of MMM for $130.

    The bottom line is that the call option strategy lowers volatility with no additional downside risk. The risk is to the upside. If 3M’s shares had doubled in price before the option expired, you would still wind up selling them for $130.

    JEPI pursues the covered call options strategy by purchasing equity-linked notes (ELNs) which “combine equity exposure with call options,” Reiner said. The fund invests in ELNs rather than writing its own options, because “unfortunately option premium income is not considered bona fide income. It is considered a gain or a return of capital,” he said.

    In other words, the fund’s distributions can be better reflected in its 30-day yield, because option income probably wouldn’t be included.

    One obvious question for a fund manager whose portfolio has increased quickly to almost $19 billion is whether or not the fund’s size might make it difficult to manage. Some smaller funds pursuing narrow strategies have been forced to close themselves to new investors. Reiner said JEPI’s 2% weighting limitation for its portfolio of about 100 stocks mitigates size concerns. He also said that “S&P 500 index options are the most liquid equity products in the world,” with over $1 trillion in daily trades.

    Summing up the 2022 action, Reiner said “investing is about balance.” The rising level of price volatility increased options premiums. But to further protect investors, he and JEPI co-manager Raffaele Zingone also “gave them more potential upside by selling calls that were a bit further out of the money.”

    Don’t miss: These 15 Dividend Aristocrat stocks have been the best income builders

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  • Sezzle Review: Everything You Need to Know About the Buy Now, Pay Later App

    Sezzle Review: Everything You Need to Know About the Buy Now, Pay Later App

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    A brand-new MacBook for work, a pair of new Pumas for the running trail, or a replacement Android smartphone — sometimes big purchases can be a brutal financial hit. That was until Sezzle came along to give a bit of sizzle to shopping.

    A buy now, pay later service, Sezzle helps make large purchases more accessible. Whether you are shopping online or in person, Sezzle can help you split one large payment into four smaller, more manageable payments.

    To learn more about the financial service, let’s dive into this Sezzle review.

    What Is Sezzle?

    Sezzle is one of many buy now, pay later services. If you find yourself face to face with a purchase that is too large for your wallet, you can choose to buy the product now and pay for it later.

    For half a decade, Sezzle has provided buyers with a more accessible shopping experience; since then, there have been nearly 8 million sign-ups for the platform. There is no lack of merchants either, with over 40,000 available to shoppers.

    How does the Sezzle purchase process work? Let’s take a closer look at the approval and shopping processes, along with the payment schedule.

    How Does Sezzle Work?

    To begin using Sezzle for your purchases, visit Sezzle’s website or download the app for either iOS or Android devices. We strongly recommend downloading the mobile app for the best shopping experience.

    Downloading the Sezzle App

    Once the Sezzle app has been downloaded, you can launch it for the first time to begin the sign-up process. Sezzle will ask you for personal details to create an account; we found the overall process straightforward.

    During the sign-up process, Sezzle will perform a soft credit check, which will have no effect on your credit score or credit report.

    Once your Sezzle account has been created, you can immediately begin shopping. But first, you may want to know how much money you have been preapproved to spend. We feel as though Sezzle hides this a bit more than other services.

    You will need to activate your Sezzle virtual card to see your preapproved spending amount (credit limit), which requires providing a standard credit card for payments. At the bottom of the app screen, tap on the Virtual Card tab to begin this process.

    You will need to provide a physical card, such as a debit card, to activate your Sezzle virtual card. Your physical card will be the card used to pay off any accrued purchase; it can be changed to a different card later if desired.

    Once your Sezzle virtual card is active, you can head to the Shop tab at the bottom of the screen. Select any store, then tap on Pay with Sezzle at the bottom of the screen to view your preapproval amount; it will be listed under the graphic of your card.

    Shopping With Sezzle

    Unlike some buy now, pay later services that work with any retailer, Sezzle is limited to its approved merchant network. Luckily, there are over 40,000 options available, but you may miss some of your favorites, such as Amazon and Best Buy.

    Visit the Shop tab to begin your shopping adventure. We recommend using the search bar at the top of the screen to find any potential stores or brands you may be interested in exploring.

    Once you tap on the retailer you wish to shop at, Sezzle will bring you to a mobile version of the store’s website. Begin shopping on the website as you normally would, adding items to your shopping cart.

    Once you reach the checkout page, tap the Pay with Sezzle button at the bottom of the screen. Use the provided virtual card number, security code and expiration date to continue with your purchase using a Sezzle loan.

    Sezzle will split your total transaction into four equal payments. The first payment is due at the time of purchase, while the others will be due over the coming weeks in installments.

    Managing Your Sezzle Purchases

    Once you make your purchase, any Sezzle loan you have appears in the Orders tab at the bottom of the app. Upcoming payments for the current month (as well as payment history) can be viewed by tapping the Payments tab.

    With the first installment occurring on the day of purchase, the remaining installments will occur every two weeks for six weeks. This process splits your single purchase into four total payments over six weeks without any interest.

    One factor that we like about Sezzle is the ability to reschedule your payments without any additional fee. It’s important to note that you can reschedule for free only once; a fee is added to your next upcoming installment if you reschedule a second or third time.

    Sezzle may charge a small convenience fee if you pay off installment balances using a credit or debit card. To avoid these fees, connect a bank account to your Sezzle account.

    Sezzle also charges a fee if your payment method is declined. You will be charged a late fee, and it will be noted in your payment history, so be sure to make your payments on time and ensure your bank account has sufficient funds.

    Overall, we find Sezzle’s fees to be reasonable. Make on-time payments with a bank account, and your buy now, pay later purchases will have no additional costs.

    Alternatives to Sezzle

    During our Sezzle review process, we found the company to be a worthy buy now, pay later offering for shoppers. But there are a few downsides associated with its use, such as the inability to shop with any merchant.

    If you need a few other large purchase financing options, we’ve got you covered.

    Other Buy Now, Pay Later Services

    Sezzle isn’t the only buy now, pay later service available to consumers. Other prominent options include Affirm, Afterpay, Zip (formally Quadpay), Klarna and PayPal.

    Here’s a comparison chart to see how some of the most popular options compete:

    Buy Now, Pay Later Services Compared

    Features Sezzle Affirm Klarna Afterpay
    Payment schedule First of 4 payments immediately, then every 2 wks Affirm Pay in 4 (every 2 wks) or monthly financing Pay in 4, Pay in 30 Days & monthly financing First of 4 payments immediately, then every 2 wks
    Interest rates 0% interest 0% on Affirm Pay in 4; 0%-36% on monthly 0% for Pay in 4 and Pay in 30 Days; 0%-29% monthly 0% interest
    Late fees $10 No late fees Up to $7 on Pay in 4 $10, followed by $7 if payment isn’t made
    Credit score effect Soft credit check for Pay in 4 Soft credit check; may report history to Experian Soft credit check for Pay in 4 and Pay in 30 No credit check
    Where it’s accepted Select online & in-store retailers Everywhere online & in-store w/ wireless pay Everywhere online & select in-store retailers Select online & in-store retailers

    Personal Loans and Zero-Interest Credit Cards

    If a buy now, pay later service doesn’t seem like the right option for you, more traditional choices are available to help fund your purchases. At the forefront is the idea of a personal loan, which enables you to borrow money and grow your credit simultaneously.

    For those seeking a personal loan, check out our guide on the best personal loans, where we break down the competitors with the best interest rates and fees.

    If you are entirely new to the loan process, you may also wish to dive into our step-by-step personal loan guide for more assistance.

    Another solid option is financing your purchase with a zero-interest credit card. Check out our Credit Cards 101 course over at The Penny Hoarder Academy. Just be sure to keep your payment history positive, as these options will report to the three major credit bureaus.

    The Pros and Cons of Sezzle


    Pros

    • No-interest loans are available for shoppers looking to make large purchases.
    • Sezzle allows you to pay back loans over six weeks in four biweekly payments.
    • Sezzle has no fees if you pay installments on time with an attached bank account.


    Cons

    • Sezzle does not report on-time payments to credit bureaus, so you won’t be able to build creditworthiness with the service.
    • The buy now, pay later service is limited to supported partner merchants.

    Frequently Asked Questions (FAQs)

    How Trustworthy Is Sezzle?

    Through our review process, we discovered that Sezzle has been an established competitor in the buy now, pay later service market, operating since 2017. 

    We believe that Sezzle is a trustworthy competitor in the space; it currently trades on the stock exchange and has nearly 8 million users.

    Is Sezzle or Afterpay Better?

    Sezzle offers features similar to those of Afterpay. Similarities include a biweekly, six-week payment schedule, 0% interest rate and no effect with credit bureaus. 

    Both services charge fees if your scheduled payment fails. We recommend selecting the service that has your favorite merchants.

    What Credit Score Do I Need for Sezzle?

    Sezzle does not specify a minimum credit score for its service; however, it does perform a soft credit check with the credit bureaus when you first create your account. 

    As a result, we assume a credit score is taken into account for your Sezzle credit limit.

    Michael Archambault is a senior writer at The Penny Hoarder specializing in technology.


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  • Scholz upbeat about trade truce with US in ‘first quarter of this year’

    Scholz upbeat about trade truce with US in ‘first quarter of this year’

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    PARIS — German Chancellor Olaf Scholz raised optimism on Sunday that the EU and the U.S. can reach a trade truce in the coming months to prevent discrimination against European companies due to American subsidies.

    Speaking at a press conference with French President Emmanuel Macron following a joint Franco-German Cabinet meeting in Paris, Scholz said he was “confident” that the EU and the U.S. could reach an agreement “within the first quarter of this year” to address measures under the U.S. Inflation Reduction Act that Europe fears would siphon investments in key technologies away the Continent.

    “My impression is that there is a great understanding in the U.S. [of the concerns raised in the EU],” the chancellor said.

    Macron told reporters that he and Scholz supported attempts by the European Commission to negotiate exemptions from the U.S. law to avoid discrimination against EU companies.

    The fresh optimism came as both leaders adopted a joint statement in which they called for loosening EU state aid rules to boost home-grown green industries — in a response to the U.S. law. The text said the EU needed “ambitious” measures to increase the bloc’s economic competitiveness, such as “simplified and streamlined procedures for state aid” that would allow pumping more money into strategic industries. 

    The joint statement also stressed the need to create “sufficient funding.” But in a win for Berlin, which has been reluctant to talk about new EU debt, the text says that the bloc should first make “full use of the available funding and financial instruments.” The statement also includes an unspecific reference about the need to create “solidarity measures.” 

    EU leaders will meet early next month to discuss Europe’s response to the Inflation Reduction Act, including the Franco-German proposal to soften state aid rules.

    The relationship between Scholz and Macron hit a low in recent months when the French president canceled a planned joint Cabinet meeting in October over disagreements on energy, finance and defense. But the two leaders have since found common ground over responding to the green subsidies in Washington’s Inflation Reduction Act. Macron said that Paris and Berlin had worked in recent weeks to “synchronize” their visions for Europe. 

    “We need the greatest convergence possible to help Europe to move forward,” he said.

    But there was little convergence on how to respond to Ukraine’s repeated requests for Germany and France to deliver battle tanks amid fears there could be a renewed Russian offensive in the spring. 

    Asked whether France would send Leclerc tanks to Ukraine, Macron said the request was being considered and there was work to be done on this issue in the “days and weeks to come.”

    Scholz evaded a question on whether Germany would send Leopard 2 tanks, stressing that Berlin had never ceased supporting Ukraine with weapons deliveries and took its decisions in cooperation with its allies.

    “We have to fear that this war will go on for a very long time,” the chancellor said.

    Reconciliation, for past and present

    The German chancellor and his Cabinet were in Paris on Sunday to celebrate the 60th anniversary of the Elysée treaty, which marked a reconciliation between France and Germany after World War II. The celebrations, first at the Sorbonne University and later at the Elysée Palace, were also a moment for the two leaders to put their recent disagreements aside.

    Paris and Berlin have been at odds in recent months not only over defense, energy and finance policy, but also Scholz’s controversial €200 billion package for energy price relief, which was announced last fall without previously involving the French government. These tensions culminated in Macron snubbing Scholz by canceling, in an unprecedented manner, a planned press conference with the German leader in October.

    At the Sorbonne, Scholz admitted relations between the two countries were often turbulent. 

    “The Franco-German engine isn’t always an engine that purrs softly; it’s also a well-oiled machine that can be noisy when it is looking for compromises,” he said.  

    Macron said France and Germany needed to show “fresh ambition” at a time when “history is becoming unhinged again,” in a reference to Russia’s aggression against Ukraine. 

    “Because we have cleared a path towards reconciliation, France and Germany must become pioneers for the relaunch of Europe” in areas such as energy, innovation, technology, artificial intelligence and diplomacy, he said. 

    On defense, Paris and Berlin announced that Franco-German battalions would be deployed to Romania and Lithuania to reinforce NATO’s eastern front.

    The leaders also welcomed “with satisfaction” recent progress on their joint fighter jet project, FCAS, and said they wanted to progress on their Franco-German tank project, according to the joint statement. 

    The joint declaration also said that both countries are open to the long-term project of EU treaty changes, and that in the shorter term they want to overcome “deadlocks” in the Council of the EU by switching to qualified majority voting on foreign policy and taxation.

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  • How Tiny Payments Can Put a Big Dent In Your Debt

    How Tiny Payments Can Put a Big Dent In Your Debt

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    If you haven’t warmed up to the snowball or avalanche debt payoff methods, think smaller. Much smaller.

    Consider the debt snowflake strategy for tackling debt. Unlike its better-known siblings, the snowflake method doesn’t involve a structured budgeting system for paying down your debt — think of it more like an easy way to throw a little extra money toward your debt.

    Just like snowflakes, tiny payments might not seem like much when tackling a mountain of debt. But when they pile up, your snowflake payments can add up to a lot of help. Here’s how.

    How Does the Debt Snowflake Method Work?

    First, although they all sound frosty, debt snowflake is not another variation of debt avalanche and debt snowball, two popular methods for tackling debt. Here’s a summary of those methods, in case you’re unfamiliar with them:

    • The avalanche method prioritizes paying off debts with the highest interest rates first. After the biggest balance is paid off, you move on to the next-highest interest debt, and so on. It’s the best way to save the most money on interest as you’re paying down your debt.
    • For the snowball method, you pay off the smallest amount of debt first, then work your way up through paying off progressively larger debts. It’s great for people who are motivated by small wins as they watch individual debts disappear faster.

    Both options involve creating schedules for making payments and putting any money toward the targeted goal — that’s not the case with the debt snowflake method.

    Accumulation is the key to making snowflake work. It requires you to realize all the ways you can save and/or make extra money each day — above and beyond your usual strategies.

    Consider this scenario:

    On your drive to work, you stop for a jumbo coffee that costs $6. If you downsize to a medium  for $5, you save $1.

    At lunch, you and your coworker head to the deli to buy $10 subs. By splitting one instead, you’ll add $5 to your snowflake pile.

    After work, your neighbor asks if you can babysit her toddler for a couple hours. You consider it a favor, but she insists on giving you $10 for your trouble.

    At the end of the day, you’ve saved/made $16 that you immediately pay toward your credit card balance.

    Need more suggestions for piling on the pennies — and dollars? We have a blizzard’s worth of ideas:

    Ways to Save Money:

    Ways to Make Money:

    Does the Snowflake Method Actually Work?

    We’re not trying to pull some snow job on you (like you didn’t think I’d go there) — collecting the money you save by splitting a sandwich is not your quick and easy way to pay off $20,000 in credit card debt.

    In fact, the snowflake method is likely to produce such small results that you might want to consider it more of an add-on to your other debt payoff method.

    But that doesn’t mean snowflakes can’t help you pay off your debt faster. And if you start looking for ways to save/make money each week — yard sale, anyone? — those little snowflake payments can add up fast.

    Let’s look at another example:

    You’re trying to pay off a credit card with a $3,000 balance that’s charging you 17% interest and requires a $90 minimum monthly payment. Check out the difference you could make if you could accumulate $100 extra through the debt snowflake method:

      Interest rate Minimum Payment Monthly Addition to Your Payment How Many Months It Will Take to Pay Off Balance Amount of Interest Paid
    No Snowflake 17% $90 -0- 46 $1088.88
    With Snowflake 17% $90 100 18 $419.80

    You’d save about $670 and shave 28 months of your debt payback timeline. Let it snow!

    Where to Gather Your Snowflakes

    Here’s the thing about snowflakes: They melt fast. If you’re going to use the snowflake method, you need to move quickly before your micro payments disappear into the abyss of other expenses.

    So how do you capture them? If you’re using cash, you can start a change jar to collect your savings at the end of the day — just make sure to deposit your savings into your bank account and use the entire amount to pay off the debt on a regular basis.

    If you’re using a debit card, you can transfer the amounts into a separate account in real time.

    Pro Tip

    Contact your lender to request that your payments be applied toward your principal balance — it will help you save money on interest and pay off your loan faster.

    But beware: Many banks have a limit on the number of transfers you can make in a month, and you don’t want all your snowflakes paying for transaction fees.

    Instead, keep a running tally of your savings for a specified period (like every two weeks), then pay the total amount at the end of the period. Also check with your lender to ensure that you won’t get dinged for making multiple payments in a specified period.

    However you save it, do yourself a favor and track the additional amount you paid each month as a reminder of how much those little snowflakes can add up — you can use it for motivation when Uber Eats beckons you.

    Less debt? Now that’s cool.

    Tiffany Wendeln Connors is deputy editor at The Penny Hoarder. A journalist for 25 years, she has been with The Penny Hoarder since 2018 covering debt and ways to make money. 


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  • Why the U.S. debt-ceiling is worrying stock and bond investors

    Why the U.S. debt-ceiling is worrying stock and bond investors

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    The U.S. Treasury Department began taking “extraordinary measures” on Thursday to keep the federal government current on its bills, while giving Congress more time to come up with a debt ceiling deal.

    Those special measures allow the Treasury to keep paying its bills, including paying holders of government debt what they are due, while also, for now, continuing the issuance of bills and notes as scheduled in the near $24 trillion Treasury market, the world’s biggest debt market, to replace maturing debt.

    “There’s constant maturities and constant new issuance,” said Jim Vogel, an interest-rate strategist at FHN Financial, in an interview Thursday. “Until the Treasury calls a halt to auctions they go on as normal.”

    In part, new note auctions on deck will replace maturing bonds issued years ago, which should help give confidence to investors that the U.S. government intends to fully repay principal and interest, as promised. It also helps bide time for Congress to strike a deal to increase or suspend the existing debt limit.

    “Your early warning system is when 6-month bills get cheaper,” Vogel said, adding that a wobble in that part of the Treasury market could signal worries by investors that top lawmakers could fail to reach a debt ceiling deal by this summer, which could then raise the threat level of a U.S. government default.

    What’s next in the U.S. debt limit standoff

    The U.S. debt limit was first set in 1917, and already has been increased or suspended 102 times since World War II, according to David Kelly, chief global strategist at JP Morgan Funds, in a recent client note.

    The government had been approaching its current debt limit of $31.385 trillion, prompting Treasury Secretary Janet Yellen on Thursday to deploy special measures to keep the government current on its bills, including making payments to bondholders, in moves she outlined a week ago.

    Kelly said the Treasury has leeway to make adjustments to postpone “our real rendezvous with disaster” potentially until June, but that from an economic and financial perspective a U.S. default would be “an unmitigated disaster.”

    Tax payments due to the U.S. government from corporations and households this spring also factor into the bigger debt-limit picture, while also influencing the final deadline for Congress to avoid an default on America’s debt.

    “We are coming up to the March corporate tax day,” said Steven Ricchiuto, U.S. chief economist at Mizuho Securities, by phone Thursday. “That could boost the Treasury’s balances,” he said, while also noting the influx from taxes last was higher than anticipated.

    Why investors are focusing on the debt ceiling now

    With the ultimate showdown likely months away there are no discernible ripples in financial markets right now, but investors and analysts do seem to be paying much closer attention to the threat at a much earlier date than in past episodes, market watchers said.

    Blame the intraparty battle between House Republicans that saw Kevin McCarthy elected speaker on Jan. 7 after a historic 15 ballots – and only after agreeing to a series of concessions to a small group of far-right conservatives.

    Investors are “talking about it early because it came on the heels of a very difficult election of the speaker of the House and the sense that there’s now much more leverage that a few members of Congress may have to force this crisis that’s more likely to hit later in the summer,” said Christopher Smart, chief global strategist at Barings and head of the Barings Investment Institute, in a phone interview.

    Some recent history underscores the concern. It took all of then-Speaker John Boehner’s political capital – “and then some” – to finally secure a vote among the Republican caucus on raising the debt limit during a similar showdown in 2011, Smart noted, observing that Boehner had “much more leeway” than McCarthy.

    “So if there are five or more members who won’t vote” on raising the limit “without certain conditions being met,” it’s easy to imagine potentially ugly scenarios that could rattle markets, he said.

    What’s at stake

    Former Federal Reserve Bank of New York President Bill Dudley said Thursday in an interview with Bloomberg that a U.S. default would be a “huge blow” to markets, but also that a contingency plan exits if it happens.

    “The way it works is if you actually run out of money, the Treasury will decide what payments to present to the Fed,” Dudley said. “Presumably, the Treasury will decide to prioritize debt repayment and interest payments, so there isn’t a technical default. The Fed will basically honor the payments the Treasury present.”

    The Fed also could step in to shore up market functioning in the Treasury market, if needed.

    “What we saw in 2011 is that the Treasury market got stronger until we got close to the deadline,” Dudley said. “People don’t want to buy Treasury bills that are maturing right around the time the debt limit could be binding.”

    As a result of a 2011 debt-ceiling standoff, credit rating firm Standard & Poor’s downgraded the U.S. credit ratings to AA from AAA.

    U.S. stocks declined for a third straight day on Thursday, with the Dow Jones Industrial Average
    DJIA,
    -0.76%
    losing 252.40 points, or 0.8%, while the S&P 500
    SPX,
    -0.76%
    shed 0.8% and the Nasdaq Composite Index
    COMP,
    -0.96%
    dropped 1%.

    —Greg Robb contributed reporting to this article.

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  • Treasury Dept. Now Taking ‘Extraordinary Measures’ On Debt

    Treasury Dept. Now Taking ‘Extraordinary Measures’ On Debt

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    WASHINGTON (AP) — The countdown toward a possible U.S. government default is in the offing, and frictions between President Joe Biden and House Republicans are raising alarms about whether the United States can sidestep a potential economic crisis.

    The Treasury Department on Thursday said in a letter to congressional leaders it has started taking “extraordinary measures” as the government has brushed up against its legal borrowing capacity of $38.381 trillion. An artificially imposed cap, the debt ceiling has been increased roughly 80 times since the 1960s.

    Markets so far remain calm, given that the government can temporarily rely on accounting tweaks to stay open and any threats to the economy would be several months away. Even many worried analysts assume there will be a deal.

    But this particular moment seems more fraught than past brushes with the debt limit because of the broad differences between Biden and new House Speaker Kevin McCarthy, who presides over a restive Republican caucus.

    Those differences increase the risk that the government could default on its obligations for political reasons. That could rattle financial markets and plunge the world’s largest economy into a wholly preventable recession.

    Biden and McCarthy, R-Calif., have several months to reach agreement as the Treasury Department imposes “extraordinary measures” to keep the government operating until at least June. But years of intensifying partisan hostility have led to a conflicting set of demands that jeopardize the ability of the lawmakers to work together on a basic duty.

    Biden insists on a “clean” increase to the debt limit so that existing financial commitments can be sustained and is refusing to even start talks with Republicans. McCarthy is calling for negotiations that he believes will lead to spending cuts. It’s unclear how much he wants to trim and whether fellow Republicans would support any deal after a testy start to the new Congress that required 15 rounds of voting to elect McCarthy as speaker.

    Asked twice on Wednesday if there was evidence that House Republicans can ensure that the government would avert a default, White House press secretary Karine Jean-Pierre said it’s their “constitutional responsibility” to protect the full faith and credit of the United States. She did not say whether the White House saw signs at this stage that a default was off the table.

    “We’re just not going to negotiate that,” Jean-Pierre said. “They should feel the responsibility.”

    McCarthy said Biden needs to recognize the political realities that come with a divided government. The speaker equates the debt ceiling to a credit card limit and calls for a level of fiscal restraint that did not occur under President Donald Trump, a Republican who in 2019 signed a bipartisan suspension of the debt ceiling.

    “Why create a crisis over this?” McCarthy said this week. “I mean, we’ve got a Republican House, a Democratic Senate. We’ve got the president there. I think it’s arrogance to say, ‘Oh, we’re not going to negotiate about pretty much anything’ and especially when it comes to funding.”

    Any deal would need to pass the Democratic-run Senate. Many Democratic lawmakers are skeptical about the ability to work with Republicans aligned with the “Make America Great Again” movement started by Trump. The MAGA movement has claimed that the 2020 election lost by Trump was rigged, a falsehood that contributed to the Jan. 6, 2021, insurrection at the U.S. Capitol.

    “There should be no political brinkmanship with the debt limit,” said Senate Majority Leader Chuck Schumer, D-N.Y. “It’s reckless for Speaker McCarthy and MAGA Republicans to try and use the full faith and credit of the United States as a political bargaining chip.”

    In order to keep the government open, the Treasury Department on Thursday was making a series of accounting maneuvers that would put a hold on contributions and investment redemptions for government workers’ retirement and health care funds, giving the government enough financial space to handle its day-to-day expenses until roughly June.

    What happens if these measures are exhausted without a debt limit deal is unknown. A prolonged default could be devastating, with crashing markets and panic-driven layoffs if confidence evaporated in a cornerstone of the global economy, the U.S. Treasury note.

    Analysts at Bank of America cautioned in a report last week that “there is a high degree of uncertainty about the speed and magnitude of the damage the U.S. economy would incur.”

    The underlying challenge is that the government would have to balance its books on a daily basis if it lacks the ability to issue debt. If the government cannot issue debt, it would have to impose cuts equal in size on an annual basis to 5% of the total U.S. economy. Analysts say their baseline case is that the U.S. avoids default.

    Still, if past debt ceiling showdowns such as the one that occurred in 2011 are any guide, Washington may be in a nervous state of suspended animation with little progress until the “X-date,” the deadline when the Treasury’s “extraordinary measures” are depleted.

    Unlike the 2011 showdown, the Federal Reserve is actively raising interest rates to lower inflation and is rolling off its own holdings of U.S. debt, meaning that recession fears are already elevated among consumers, businesses and investors.

    Biden administration officials have said they will not prioritize payments to bondholders if the country passes the “X-date” without an agreement. Over the years, officials have studied this emergency option, which Treasury officials across administration have said is unworkable because of the government’s payments system.

    “To some extent, the ‘extraordinary measures’ are the backup plan, and once those are exhausted the next step is a major question mark,” economists at Wells Fargo wrote in a Thursday analysis.

    AP writer Lisa Mascaro contributed to this story.

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  • 16 Best Debt Consolidations Loans of 2023

    16 Best Debt Consolidations Loans of 2023

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    A debt consolidation loan is a path to relief for a lot of people struggling to manage credit cards and other high-interest debt.

    Debt consolidation replaces your existing debts with a single loan, usually with more favorable terms, like a lower interest rate that’ll save you money, or a lower monthly payment and longer repayment period that gives you more breathing room.

    These loans are a common part of savvy debt payoff strategies, because they can often help you save money, pay off debt faster or both. If you feel like you’re drowning in debt, they could extend the time it takes you to pay and take the stress off of keeping up with monthly payments.

    Debt consolidation loans are available from lenders as personal loans, sometimes marketed specifically as “debt consolidation loans” and sometimes simply as personal loans.

    We’ve reviewed some of the top personal loan lenders online to help you find the best debt consolidation loans available for your financial situation and goals.

    Note: Loan terms accurate as of January 6, 2023 and subject to change. See lenders for most up-to-date information.

    Best Debt Consolidation Loans at a Glance

    Company APR with Autopay Min. and Max. Loan Amounts Loan Terms
    Universal Credit 11.69% – 35.93% $1,000 – $50,000 36 to 60 months SEE DETAILS
    Happy Money 7.99% – 29.99% $5,000 – $40,000 2 – 5 years SEE DETAILS
    LightStream 7.99% – 24.49% $5,000 – $100,000 Up to 12 years SEE DETAILS
    Credible Personal Loans 5.40% – 35.99% $600 – $100,000 2 – 7 years SEE DETAILS
    Upstart 6.5% – 35.99% $1,000 – $50,000 3 or 5 years SEE DETAILS
    SoFi 7.99% – 23.43% $5,000 – $100,000 3 – 7 years SEE DETAILS
    Figure 5.75% – 31.44% $5,000 – $50,000 3 years SEE DETAILS
    Upgrade 7.96% – 35.97% $1,000 – $50,000 24 – 84 months SEE DETAILS
    Rocket Loans 8.416% – 29.99% $2,000 – $45,000 36 or 60 months SEE DETAILS
    Discover 6.99% – 24.99% $2,500 – $35,000 36, 48, 60, 72 or 84 months SEE DETAILS
    Marcus 6.99% – 24.99% $3,500 – $40,000 36 – 72 months SEE DETAILS
    LendingClub 6.34% – 35.89% $1,000 – $250,000 6 or 144 months SEE DETAILS
    Prosper 6.99% – 35.99% $2,000 – $50,000 2 or 5 years SEE DETAILS
    Avant 9.95% – 35.99% $2,000 – $35,000 24 – 60 months SEE DETAILS
    LendingPoint 7.99% – 35.99% $2,000 – $36,500 24 – 72 months SEE DETAILS

    Universal Credit

    Best for Credit Scores below 600

    Key Features

    • Funding within one day
    • Fixed interest rate
    • Rate discounts for debt pay off

    Universal Credit is designed especially for debt consolidation and pay off. It offers rate discounts of between one and two percentage points — pretty significant! — for borrowers who use a Universal Credit personal loan to directly pay off credit card debt. Loans are available for borrowers with fair or bad credit.

    Universal Credit

    APR

    11.69% – 35.93%

    Loan amounts

    $1,000 – $50,000

    Minimum credit score

    560

    Happy Money

    Best for Community-Based Lenders

    Key Features

    • Designed for credit card payoff
    • Borrow from community-based lenders
    • Loans up to $40,000

    Happy Money’s Payoff Loan is designed specially for credit card debt consolidation. The financial tech company works with community credit unions and mission-driven community banks to provide personal loans to pay off your debt directly. Choose the plan that works best for you, whether it’s a lower monthly payment, lower interest rate or earlier payoff date.

    Happy Money

    APR

    7.99% – 29.99%

    Loan amounts

    $5,000 – $40,000

    Minimum credit score

    640

    LightStream

    Best for Good to Excellent Credit

    Key Features

    • Same-day funding
    • No fees
    • Loans available for low credit scores

    LightStream’s personal loans for borrowers with good or excellent credit can help you get hold of up to $100,000 as soon as the same day you’re approved. It also eschews fees and offers to beat the rate of any competitor — just submit information about a lower rate you’re offered elsewhere, and LightStream will offer you a rate 0.10 percentage points lower through its Rate Beat program.

    LightStream

    APR

    7.99% – 23.99%

    Loan amounts

    $5,000 – $100,000

    Minimum credit score

    660

    Credible

    Best for Low Loan Amounts

    Key Features

    • Compare rates from top lenders
    • Loans for poor credit available
    • Loan amounts as low as $600

    Credible is a lending marketplace that can help you find debt consolidation loans as low as $600. You don’t have to worry about Credible selling your information like other comparison sites — it only gets paid when you accept a loan offer, so it won’t help lenders pester you. You can use the site to compare loan offers side by side and click through to the lender’s site to officially apply.

    Credible

    APR

    5.40% – 35.99%

    Loan amounts

    $600 – $100,000

    Minimum credit store

    560

    Upstart

    Best for Non-Traditional Credit History

    Key Features

    • AI-powered lending for partner banks
    • Considers more than your credit history
    • Loan amounts as low as $1,000

    Upstart is technically a technology company, not a lender or a marketplace. Its platform uses proprietary AI to connect you with partner lenders, and you manage the loan entirely through the platform. Upstart uses more than a traditional credit score to assess your creditworthiness, so factors like your education and income could help you get a loan even if you have a low or no credit score.

    Upstart

    APR

    6.5% – 35.99%

    Loan amounts

    $1,000 – $50,000

    Minimum credit score

    580

    SoFi

    Best for SoFi Customers

    Key Features

    • No fees
    • Access to events and perks
    • Discounts for SoFi clients

    SoFi is an online bank that offers financial services ranging from banking to student loans to investing. It offers debt consolidation loans with no fees, and you can apply and manage your account right from its convenient app. You can qualify for a discounted interest rate if you’re an existing SoFi member with a free SoFi bank account or other product in the app.

    SoFi

    APR

    7.99% – 23.43%

    Loan amounts

    $5,000 – $100,000

    Minimum credit score

    600

    Figure

    Best for Crypto-Backed Loans

    Key Features

    • Next-day funding
    • Powered by Provenance blockchain
    • 0% to 5% origination fee

    Figure is an innovative online lender that offers personal loans, with blockchain technology adding efficiency and transparency to its application and loan origination processes. It offers traditional and crypto-backed loans. Figure doesn’t offer direct debt payoff, but you can take out a personal loan up to $50,000 and use the funds to pay off your debts.

    Figure

    APR

    5.75% – 31.44%

    Loan amounts

    $5,000 – $50,000

    Minimum credit score

    680

    Upgrade

    Best for Raising Credit Score

    Key Features

    • Checking, credit and loans in one platform
    • No prepayment penalties
    • Next day funding

    Upgrade is a financial tech platform designed to help you raise your credit score through checking, credit cards, credit monitoring and personal loans. It offers debt management and payoff in one platform, and you may qualify for a debt consolidation loan with a fair or bad credit score as low as 580.

    Upgrade

    APR

    7.96% – 35.97%

    Loan amounts

    $1,000 – $50,000

    Minimum Credit Score

    580

    Rocket Loans

    Best for Transparent Process

    Key Features

    • Same day funding
    • No prepayment penalties
    • All-online application

    Rocket Loans lets you apply online for a debt consolidation personal loan in minutes. The online application starts with a transparent overview of the process, so you know what to expect at each step as you await your loan. You can verify your income and identity entirely online, so you don’t have to worry about phone calls or snail mail slowing down the process.

    Rocket Loans

    APR

    8.416% – 29.99%

    Loan amounts

    $2,000 – $45,000

    Minimum credit score

    610

    Discover

    Best for Flexible Repayment Options

    Key Features

    • No fees (except late fees)
    • Repayment assistance options
    • Free FICO credit score

    Discover’s debt consolidation loans are fee-free and available to borrowers with a credit score as low as 660. Its repayment assistance options are robust compared to many competitors: If your financial situation changes, you could apply for payment deferral, a short-term shift to interest-only payments or extend your repayment period for lower monthly payments.

    Discover

    APR

    6.99% – 24.99%

    Loan amounts

    $2,500 – $35,000

    Minimum credit score

    660

    Marcus

    Best for On-Time Payment Rewards

    Key Features

    • No fees
    • Skip-a-payment reward for on-time repayment
    • Customize your monthly payment

    Marcus is the personal banking arm of Goldman Sachs, offering individual savings, investing, credit cards and loans. Its personal loans are available to borrowers with good credit for up to $40,000, with no fees — not even late fees. And it rewards you for on-time payment: Make your monthly payment on time for 12 months in a row, and you can defer payment for a month with no additional interest accrued.

    Marcus

    APR

    6.99% – 24.99%

    Loan amounts

    $3,500 – $40,000

    Minimum credit score

    660

    LendingClub

    Best for Bad Credit Loans

    Key Features

    • Borrow up to $250,000
    • Funding within 48 hours
    • No prepayment penalty

    LendingClub calls itself an “online marketplace bank.” It offers checking accounts and personal loans, including loans for debt consolidation, up to $250,000 for terms of three to five years. LendingClub can be a good option if you have a low credit score; loans may be available for lenders with scores as low as 600.

    LendingClub

    APR

    5.99% – 35.89%

    Loan amounts

    $1,000 – $40,000

    Minimum credit score

    600

    Prosper

    Best for Peer-to-Peer Borrowing

    Key Features

    • Peer-to-peer lending
    • Next-day funding
    • No prepayment penalty

    Prosper is one of few peer-to-peer lending platforms left — individuals and financial institutions can invest in personal loans to support borrowers and earn a little bit of a return. You don’t have to deal with investors directly; Prosper manages the application and loan origination. Loans are available from $2,000 to $50,000 with a credit score as low as 600.

    Prosper

    APR

    6.99% – 35.99%

    Loan amounts

    $2,000 – $50,000

    Minimum credit score

    600

    Avant

    Best for Fair Credit Loans

    Key Features

    • Next-day funding
    • Minimum credit score 580
    • Not available in New York

    Avant offers personal loans up to $35,000, with funding as soon as the next business day after approval. The lender’s minimum credit score is just 580; most borrowers have FICO scores between 600 and 700.

    Avant

    APR

    9.95% – 35.99%

    Loan amounts

    $2,000 – $35,000

    Miminum credit score

    580

    LendingPoint

    Best for Fair Credit Borrowers

    Key Features

    • Next-day funding
    • No co-sign loans
    • Not available in Nevada or West Virginia

    LendingPoint assesses creditworthiness with a proprietary algorithm that looks beyond traditional FICO scores, so it’s able to lend to borrowers with scores as low as 600. LendingPoint loans are available in every state except Nevada and West Virginia.

    LendingPoint

    APR

    7.99% – 35.99%

    Loan amount

    $2,000 – $36,500

    Minimum credit score

    600

    How Does a Debt Consolidation Loan Work?

    A debt consolidation loan is a type of personal loan you take out to pay off existing debts, and it’s most commonly used to pay off high-interest credit card debt.

    The reason this is beneficial, even though you still have to repay the same amount of debt, is that personal loans come with much lower interest rates than most credit cards. You might have a few credit card balances accumulating interest at around 16% to 25%, while personal loans usually come with interest rates closer to 5% to 12%.

    A “debt consolidation loan” is just a personal loan marketed specifically for debt payoff. They work exactly like personal loans on paper, except that many lenders send loan funds directly to creditors for you. If they don’t, you could still take out a personal loan and use the funds to pay off debts yourself.

    To make a debt consolidation loan worth it, you should receive at least one of these benefits:

    • A lower interest rate (lower than the average of the debts you’re paying off).
    • A lower monthly payment than the total of what you pay now. This could come with a higher interest rate and/or longer repayment period, but it might be what you need for now to stay above water. You can always refinance in the future for a better rate.
    • Quicker payoff. A debt consolidation loan might come with a higher monthly payment, but if you can manage it, that could simplify your debt management, save you on interest and get you out of debt faster.
    • Longer repayment. If you’re consolidating or refinancing existing loans with short repayment terms, a new loan could extend the time you have to repay by lowering your monthly payment. You’ll likely pay more in interest this way, but it could ease your monthly commitments.

    How to Choose a Debt Consolidation Loan

    Before you commit to any debt consolidation option, shop around to see what lenders can offer you. Your available terms could vary quite a bit from lender to lender because of how they evaluate your credit history and what kind of borrowers they’re targeting.

    Online lending marketplaces like Credible or Fiona make it easy to quickly see and compare pre-qualified offers from lenders side-by-side, so they could save you some time.

    To choose the loan that fits your financial goals, consider these features:

    • Interest rate: If your main goal is to save money, look for a debt consolidation loan with an interest rate that’s lower than the average rate on your existing debts. Lenders typically offer lower interest rates with shorter repayment periods, so play with those factors to land on a rate that works for you.
    • Monthly payment: Primarily, you need a monthly payment you can pay comfortably every month, considering your existing commitments. If you’re overwhelmed by your current debt payment, refinancing or consolidating into a loan with a lower monthly payment could offer some relief. It’ll probably come with a later payoff date, which could mean you pay more in interest over time — but that lower bill could make the difference between paying on time or not.
    • Repayment term: This is the number of months or years to repay the loan. A longer term (or period) means lower monthly payments, but often comes with a higher interest rate and will mean more time for interest to accumulate. A shorter repayment term means a quicker payoff date, so if your goal is fast debt elimination, look for lenders that offer one- or two-year terms.
    • Fees: Many of the lenders we’ve listed charge no fees, but some still charge an origination fee, which lops off a small percentage of your loan up front. Some companies also charge late payment fees and a few companies even charge a prepayment penalty, which means you could pay extra if you pay off the loan early.

    Debt Consolidation Loan Costs to Consider

    Debt consolidation loans come with the typical costs included with any personal loan, including:

    • Interest: This is the extra you’ll repay on top of the amount you borrow. Debt consolidation loan rates could be as low as 3.5% or as high as 35.99%, depending mostly on your credit. Avoid loans with a higher interest rate than your existing debt unless consolidation feels like your only option to meet your financial goals.
    • Origination fees: A lot of lenders charge a fee up front just for making you the loan. It’s usually charged as a percentage of the loan amount, around 2% or 3%, and it’s deducted from the initial funds you receive. If your lender charges an origination fee, take that into account to make sure you get the funds you need to cover your debt balances.
    • Late fees: Some lenders charge a late fee if you make a payment past the monthly due date. The fee is typically a percentage of the payment due or a flat fee. Take note of these in your loan agreement if your financial situation changes and you’re unable to make payments on time. You might be able to avoid them by working with the lender to move your due date or ask for a deferment period.
    • Prepayment penalties: Few lenders of debt consolidation loans charge these anymore, but double-check before you sign an agreement. Prepayment penalties are fees you owe if you repay ahead of schedule — either paying your loan balance off early or getting too far ahead on your monthly payments.

    Debt Management vs. Consolidation vs. Refinancing

    As you seek options to tackle your debt, you’ll probably come across information and services for debt management, debt consolidation and debt refinancing. They all have similar aims, but they’re not the same things.

    • Debt management is a service offered by nonprofit organizations to get difficult debt under control. You work with a debt counselor to make arrangements with creditors, like adjusted repayment plans or reduced balances, and you make a single monthly payment to the organization, which pays creditors on your behalf.
    • Debt consolidation is a personal loan or balance transfer credit card that replaces existing debt. You use a debt consolidation loan to pay outstanding balances, so you only owe money to a single lender each month, ideally with a lower interest rate or lower monthly payment.
    • Debt refinancing is a way to take an existing loan and repackage it with different terms. Like consolidation, you basically replace one loan with another, but refinancing focuses on just one loan, rather than a plethora of debt accounts. You can often go back to your existing lender to ask for better terms — because, say, your credit has improved or the prime rate has gone down — or shop around for other offers.

    Alternatives to Debt Consolidation Loans

    Debt consolidation loans aren’t the only avenue for tackling your debt. Consider these other options and their effect on your credit score and financial goals before committing to a loan:

    • Balance transfer cards: These credit cards let you transfer the outstanding balance of an existing card or several, so you pay it off to the new creditor. It’s a way for a credit card company to entice you away from a competitor. Balance transfer cards usually offer an interest-free period of about a year. If you expect to be able to repay your credit card debt within that period, this is a great way to save on interest. If you don’t repay within that period, though, back interest usually comes due, and your balance could become less manageable than you expected.
    • Refinancing: If you have a single loan with unfavorable terms, you could return to the lender and ask to refinance. This could get you a lower interest rate or different monthly payment, depending on your financial situation and needs.
    • Debt forgiveness: A debt management plan usually comes with some amount of forgiven debt, which could offer a tremendous amount of relief. You might also be able to negotiate a reduced repayment amount on your own directly with your creditors. This kind of settlement usually shows up on your credit report as a negative mark.
    • Deferment: Check the terms of your existing debt to see if your lender offers deferment or other flexible repayment options. You may just need a month or two off of monthly payments or interest to get back on track, and that could save you the trouble of applying for a whole new loan.

    What Is the Smartest Way to Consolidate Debt?

    Two main options exist to consolidate credit card debt: a debt consolidation loan or a balance transfer card. Each has pros and cons, and which is best for you depends on your financial situation and goals.

    A debt consolidation loan usually comes with a longer repayment period and a lower interest rate than a balance transfer card. The loan pays off your existing debts, and you just owe one monthly payment to the new lender. Ideally, you’ll lower your interest rate or monthly payment, depending on your goal.

    A balance transfer card absorbs the balance of other credit cards and lets you continue to spend on the new balance. They often come with a year or so of no interest for the transferred balance, so this could be a strategic way to save money if you’re paying off debt fast. Back interest usually comes due at the end of the introductory period, though, so this becomes a costly option if you don’t pay your debt down fast.

    A debt consolidation loan is probably a better option in most cases, because it sets you up for slower, steady debt payoff at a monthly payment you can manage and an interest rate that hopefully saves you money.

    A balance transfer card is a smart strategy if you’re focused on quick debt payoff and are pretty certain you’ll eliminate your balance within the next 12 months. It can, however, be a risky move if you don’t have that solid plan in place to prioritize debt payoff for the near future.

    How Does Debt Consolidation Affect Your Credit Score?

    Debt consolidation could lower your credit utilization and create a positive line on your credit report, which could improve your credit score over time.

    Here’s how it works:

    • Credit utilization: Paying off your credit card debt — even if you take on a loan to do it — lowers the amount of your available credit you’re using, called your credit utilization. Lower utilization is better for your credit score.
    • Credit report: Making your loan payments on time or ahead of time throughout the life of the loan creates a positive line on your credit report, which can help to balance any negative marks you’ve accumulated with unpaid credit card debt.

    Debt consolidation could also impact your credit score negatively in these ways:

    • New credit inquiry: When you apply for a loan, the lender does a hard credit inquiry, which shows up on your credit report as a request for credit. Your credit score will probably take a temporary dip because of that, but that effect doesn’t tend to last beyond a few months.
    • Payment history: Paying your loan on time will be good for your credit score — but if you don’t make payments on time or you default on the debt consolidation loan, it’ll hang out on your credit report for about seven years and hurt your score.

    How to Protect Your Credit When You Consolidate Debt

    Debt consolidation can be a smart strategy as part of a plan to pay off your debt and improve your credit score. Replacing high-interest balances with a lower-interest loan is a smart step toward eliminating debt, which is good for your credit score.

    But be careful not to make these common mistakes when you consolidate debt — they could end up hurting your credit score:

    • Don’t close your paid accounts. Leave your credit card accounts open even after you pay off the balances. If you want to avoid using the cards again, cut up the physical cards, remove the virtual cards from your digital wallet and erase the card numbers from your browser. Keeping old accounts open ensures you have mature accounts in your credit history, and the unused balances help reduce your credit utilization.
    • Don’t skip monthly payments. Plan ahead to take out a loan with monthly payments you expect to be able to absorb. If you’re coming up on a monthly payment you won’t make on time, contact the lender ASAP to negotiate a different due date, deferment or other flexible repayment option. Missing monthly payments dings your credit report and will certainly lower your score, in addition to racking you up more debt in fees and interest.
    • Don’t add more credit card debt. If you can avoid it, don’t use credit cards while you repay your debt consolidation loan. Or use them with careful intention, and repay your purchases frequently (like, daily) to avoid carrying a new balance. This lets you concentrate on paying off just the one debt, so you can work toward financial relief.

    Keep on Refinancing

    You don’t have to stop after one debt consolidation loan.

    After you’ve made on-time payments for a year or so, check your options again to see if you could refinance to even more favorable terms. Your positive payment history and reduced credit card debt can very likely improve your credit score and expand your options for better loans.

    Knowing this is an option down the road could give you some relief now, too: You may need to take out a high-interest loan with a long repayment term because you have bad credit now. Consolidating your debt this way might be your best path to getting out from under a mountain of stressful and confusing debt. But you don’t have to stick with those terms forever.

    As your credit score improves and your debt balance goes down, consider refinancing the loan in the future to get better terms that’ll save you money and help you reach your goals even faster.

    Frequently Asked Questions (FAQs) About Debt Consolidation Loans

    We’ve rounded up answers to some of the most commonly asked questions about debt consolidation loans.

    What Credit Score Do You Need for a Consolidation Loan?

    Plenty of lenders make loans available for borrowers with bad or fair credit scores in the high 500s to mid 600s. Just watch out for the interest rate. It doesn’t usually help you to replace your existing debt with a loan with a higher interest rate. And a monthly payment you can’t pay won’t improve your situation, either.

    The higher your credit score, the better odds you’ll always have for landing a loan and getting favorable terms. But you don’t necessarily need a good or excellent credit score to get a debt consolidation loan.

    Does Consolidation Affect Credit Score?

    Your credit score can be hurt temporarily by a debt consolidation loan. It can also hurt your credit utilization score. However, meeting the payment deadline on the consolidation loan will help your score over time.

    Do Debt Consolidation Loans Typically Work?

    Debt consolidation loans are most helpful for people with credit card debt. The consolidation loans often have a lower interest rate than credit cards which means more of your money is going to pay down the loan amount. They also work if you meet the payment deadline.

    Contributor Dana Miranda is a Certified Educator in Personal Finance® who has written about work and money for publications including Forbes, The New York Times, CNBC, Insider, NextAdvisor and Inc. Magazine. Freelancer Veronica Matthews contributed to this post. 


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    dana@danamedia.co (Dana Miranda, CEPF®)

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  • As More Car Payments Soar to $1,000/Month, Here’s How to Lower Yours

    As More Car Payments Soar to $1,000/Month, Here’s How to Lower Yours

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    You know inflation is bad when your monthly car payment hits a thousand bucks.

    For an increasing number of drivers, that’s the reality. A record number of Americans are paying at least $1,000 a month for their vehicles, according to new findings from the auto inventory site Edmunds.

    Nearly 16% of car buyers who financed a new vehicle in the fourth quarter of 2022 have monthly payments reaching four figures. That share of car buyers more than doubled in two years.

    Even used car buyers aren’t totally safe. More than 5% of buyers who financed a used vehicle in late 2022 are paying at least $1,000 a month, according to Edmunds. That number more than tripled in two years.

    Analysts fear that some of these high-dollar borrowers are getting in over their heads. They say people who buy cars today are at risk of going underwater on their car loans down the road as used car values decline.

    So we’re here to discuss two things:

    1. How to lower your car payment, and
    2. How to trade in a car that has negative equity.

    We’ve got four tips for each.

    4 Ways to Lower Your Car Payment

    It looks like this is the future for more and more of us, since cars and car loans are more expensive than ever. The average sticker price of a new automobile has shot up to nearly $46,000.

    Interest rates on car loans have risen to an average of 6.5% on new vehicles and 10% on used vehicles, compared with 4% and 7.4% two years ago, according to Edmunds.

    Here are some ways to get a lower car payment:

    1. Save Up for a Larger Down Payment

    Just like with a mortgage, the more money you put down at the beginning, the lower your payments will be over the life of your auto loan.

    For example, if you put a $5,000 down payment on a $25,000 car with 7% sales tax and a 4.5% APR, with a five-year loan, you would end up with a monthly car payment of a little over $400.

    With no down payment and those same terms, you’d have a monthly payment of nearly $500.

    2. Get Preapproved for a Loan

    Get a loan preapproval. Shopping around for a preapproved auto loan for your new loan potentially helps you snag a lower interest rate than the one a dealership would offer.

    By talking to lenders before you start shopping, you’ll not only know how much car you can afford, but you’ll have negotiating power for the loan’s interest rate as well as the length of the loan.

    3. Buy a Used Car

    They’re more affordable. Here’s our ultimate beginner’s guide for how to buy a used car.

    If you’ve ever heard someone refer to a car as a depreciating asset, it’s true. The longer you have a car, the less it’s worth. The first year of owning a new vehicle is when depreciation really packs a punch.

    When you buy a used car, the original owner has already taken that initial hit on depreciation and the price you pay accounts for that.

    Just because you’re buying a used car doesn’t mean you’ll be stuck with a clunker that was manufactured decades ago. Cars that are just a few years old often hit dealership lots when their previous owners reach the end of their lease.

    It is possible to get a car loan with bad credit. Here’s how.

    4. Refinance Your Loan

    In our article “7 Ways to Lower Your Car Payment & Help Your Budget,” we suggest that you consider refinancing your existing auto loan.

    Refinancing can make sense if you’re looking to lower your car payment over a longer term.

    While you’re at it, you might be able to get a lower interest rate as well. Interest rates have likely risen since you bought your car, though. On the flip side, your credit score might have gone up, too.

    Checking on your refinancing options may be worthwhile. Keep in mind, though, that a longer term means more interest paid over the life of the auto loan.

    That leads us to our next subject…

    4 Tips for Trading in a Car With Negative Equity

    Edmunds analysts worry that in the near future, more people are going to be trading in cars that they still owe money on.

    What if you get stuck with an underwater car loan on a vehicle you need to unload? Let’s start with the best idea and work our way down.

    1. Calculate Your Car’s Equity

    Before we get ahead of ourselves, are you sure your vehicle is worth less than what you owe? Here’s how to calculate the equity in your vehicle:

    Value of your vehicle – loan payoff amount = equity

    You can find out how much your vehicle is worth by checking Edmunds, Kelley Blue Book and the National Automobile Dealers Association’s Guide.

    When figuring out how much you owe on the loan, use the loan payoff amount and not the principal, as the payoff amount may include things like fees and taxes you still owe on.

    2. Hang Onto Your Car

    This is really the best option, financially speaking. Yes, it isn’t always an option — especially if your current car needs expensive repairs — but you should at least weigh the cost of repairs vs. the long-term financial benefits of holding onto your old wheels.

    3. Sell the Car Yourself

    Here’s the hardest way to get yourself out of your underwater car loan, but it could also be among the most lucrative: Sell the car yourself. The payoff for the extra effort could be worth your time as opposed to trading your car in at the dealership.

    4. Roll Over the Amount You Owe Into a New Auto Loan

    This is the worst option, but sometimes you’ve got to do what you’ve got to do. You’ll end up with a bigger loan and a higher interest rate.

    If this is your only option, you might consider downsizing to a cheaper car if possible. That way, you could be looking at a smaller payment even after adding the underwater debt amount into the new loan. Be warned that car prices have been going up, though.

    None of these options will necessarily prevent you from starting out underwater on your next car loan, but they can help reduce the time you’ll spend climbing out of the hole.

    Remember, unless you’re wealthy, a $1,000-a-month car payment is something to avoid if possible.

    Mike Brassfield ([email protected]) is a senior writer at The Penny Hoarder.


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    mike@thepennyhoarder.com (Mike Brassfield)

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  • 10 simple investments that can turn your portfolio into an income dynamo

    10 simple investments that can turn your portfolio into an income dynamo

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    Many people are good at saving up money for retirement. They manage expenses and build up their nest eggs steadily. But when it comes time to begin drawing income from an investment portfolio, they might feel overwhelmed with so many choices.

    Some income-seeking investors might want to dig deeply into individual bonds or dividend stocks. But others will want to keep things simple. One of the easiest ways to begin switching to an income focus is to use exchange-traded funds. Below are examples of income-oriented exchange-traded funds (ETFs) with related definitions further down.

    First, the inverse relationship

    Before looking at income-producing ETFs, there is one concept we will have to get out of the way — the relationship between interest rates and bond prices.

    Stocks represent ownership units in companies. Bonds are debt instruments. A government, company or other entity borrows money from investors and issues bonds that mature on a certain date, when the issuer redeems them for the face amount. Most bonds issued in the U.S. have fixed interest rates and pay interest every six months.

    Investors can sell their bonds to other investors at any time. But if interest rates in the market have changed, the market value of the bonds will move in the opposite direction. Last year, when interest rates rose, the value of bonds declined, so that their yields would match the interest rates of newly issued bonds of the same credit quality.

    It was difficult to watch bond values decline last year, but investors who didn’t sell their bonds continued to receive their interest. The same could be said for stocks. The benchmark S&P 500
    SPX,
    -0.20%
    fell 19.4% during 2022, with 72% of its stocks declining. But few companies cut dividends, just as few companies defaulted on their bond payments.

    One retired couple that I know saw their income-oriented brokerage account value decline by about 20% last year, but their investment income increased — not only did the dividend income continue to flow, they were able to invest a bit more because their income exceeded their expenses. They “bought more income.”

    The longer the maturity of a bond, the greater its price volatility. Depending on the economic environment, you might find that a shorter-term bond portfolio offers a “sweet spot” factoring in price volatility and income.

    And here’s a silver lining — if you are thinking of switching your portfolio to an income orientation now, the decline in bond prices means yields are much more attractive than they were a year ago. The same can be said for many stocks’ dividend yields.

    Downside protection

    What lies ahead for interest rates? With the Federal Reserve continuing its efforts to fight inflation, interest rates may continue to rise through 2023. This can put more pressure on bond and stock prices.

    Ken Roberts, an investment adviser with Four Star Wealth Management in Reno, Nev., emphasizes the “downside protection” provided by dividend income in his discussions with clients.

    “Diversification is the best risk-management tool there is,” he said during an interview. He also advised novice investors — even those seeking income rather than growth — to consider total returns, which combine the income and price appreciation over the long term.

    An ETF that holds bonds is designed to provide income in a steady stream. Some pay dividends quarterly and some pay monthly. An ETF that holds dividend-paying stocks is also an income vehicle; it may pay dividends that are lower than bond-fund payouts and it will also take greater risk of stock-market price fluctuation. But investors taking this approach are hoping for higher total returns over the long term as the stock market rises.

    “With an ETF, your funds are diversified. And when the market goes through periods of volatility, you continue to enjoy the income, even if your principal balance declines temporarily,” Roberts said.

    If you sell your investments into a declining market, you know you will lose money — that is, you will sell for less than your investments were worth previously. If you are enjoying a stream of income from your portfolio, it might be easier for you to wait through a down market. If we look back over the past 20 calendar years — arbitrary periods — the S&P 500 increased during 15 of those years. But its average annual price increase was 9.1% and its average annual total return, with dividends reinvested, was 9.8%, according to FactSet.

    Also see: When can I sell my I-bonds? Are I-bonds taxed? Answers to your questions about Series I bonds.

    In any given year, there can be tremendous price swings. For example, during 2020, the early phase of the Covid-19 pandemic pushed the S&P 500 down 31% through March 23, but the index ended the year with a 16% gain.

    Two ETFs with broad approaches to dividend stocks

    Invesco Head of Factor and Core Strategies Nick Kalivas believes investors should “explore higher-yielding stocks as a way to generate income and hedge against inflation.”

    He cautioned during an interview that selecting a stock based only on a high dividend yield could place an investor in “a dividend trap.” That is, a high yield might indicate that professional investors in the stock market believe a company might be forced to cut its dividend. The stock price has probably already declined, to send the dividend yield down further. And if the company cuts the dividend, the shares will probably fall even further.

    Here are two ways Invesco filters broad groups of stocks to those with higher yields and some degree of safety:

    • The Invesco S&P 500 High Dividend Low Volatility ETF
      SPHD,
      -0.33%
      holds shares of 50 companies with high dividend yields that have also shown low price volatility over the previous 12 months. The portfolio is weighted toward the highest-yielding stocks that meet the criteria, with limits on exposure to individual stocks or sectors. It is reconstituted twice a year in January and July. Its 30-day SEC yield is 4.92%.

    • The Invesco High Yield Equity Dividend Achievers ETF
      PEY,
      -0.70%
      follows a different screening approach for quality. It begins with the components of the Nasdaq Composite Index
      COMP,
      +1.39%      ,
      then narrows the list to 50 companies that have raised dividend payouts for at least 10 consecutive years, whose stocks have the highest dividend yields. It excludes real-estate investment trusts and is weighted toward higher-yielding stocks meeting the criteria. Its 30-day yield is 4.08%.

    The 30-day yields give you an idea of how much income to expect. Both of these ETFs pay monthly. Now see how they performed in 2022, compared with the S&P 500 and the Nasdaq, all with dividends reinvested:


    Both ETFs had positive returns during 2022, when rising interest rates pressured the broad indexes.

    8 more ETFs for income (and some for growth too)

    A mutual fund is a pooling of many investors’ money to pursue a particular goal or set of goals. You can buy or sell shares of most mutual funds once a day, at the market close. An ETF can be bought or sold at any time during stock-market trading hours. ETFs can have lower expenses than mutual funds, especially ETFs that are passively managed to track indexes.

    You should learn about the expenses before making a purchase. If you are working with an investment adviser, ask about fees — depending on the relationship between the adviser and a fund manager, you might get a discount on combined fees. You should also discuss volatility risk with your adviser, to establish a comfort level and to try to match your income investment choices to your risk tolerance.

    Here are eight more ETFs designed to provide income or a combination of income and growth:

    Company

    		 Ticker

    		 30-day SEC yield

    		 Concentration

    		 2022 total return
    iShares iBoxx $ Investment Grade Corporate Bond ETF

    		 LQD,
    -0.36%         		4.98%

    		 Corporate bonds with investment-grade ratings.

    		 -17.9%
    iShares iBoxx $ High Yield Corporate Bond ETF

    		 HYG,
    -0.34%         		7.96%

    		 Corporate bonds with lower credit ratings.

    		 -11.0%
    iShares 0-5 Year High Yield Corporate Bond ETF

    		 SHYG,
    -0.26%         		8.02%

    		 Similar to HYG but with shorter maturities for lower price volatility.

    		 -4.7%
    SPDR Nuveen Municipal Bond ETF

    		 MBND,
    +0.04%         		2.94%

    		 Investment-grade municipal bonds for income exempt from federal taxes.

    		 -8.6%
    GraniteShares HIPS US High Income ETF

    		 HIPS,
    +0.82%         		9.08%

    		 An aggressive equity income approach that includes REITs, business development companies and pipeline partnerships.

    		 -13.5%
    JPMorgan Equity Premium Income ETF

    		 JEPI,
    -0.25%         		11.77%

    		 A covered-call strategy with equity-linked notes for extra income.

    		 -3.5%
    Amplify CWP Enhanced Dividend Income ETF

    		 DIVO,
    -0.55%         		1.82%

    		 Bue chip dividend stocks with some covered-call writing to enhance income.

    		 -1.5%
    First Trust Institutional Preferred Securities & Income ETF

    		 FPEI,
    +0.05%         		5.62%

    		 Preferred stocks, mainly in the financial sector

    		 -8.2%
    Sources: Issuer websites (for 30-day yields), FactSet

    Click the tickers for more about each ETF.

    Read: Tomi Kilgore’s detailed guide to the wealth of information available for free on the MarketWatch quote page.

    Definitions

    The following definitions can help you gain a better understanding of how the ETFs listed above work:

    30-day SEC yield — A standardized calculation that factors in a fund’s income and expenses. For most funds, this yield gives a good indication of how much income a new investor can be expected to receive on an annualized basis. But the 30-day yields don’t always tell the whole story. For example, a covered-call ETF with a low 30-day yield may be making regular dividend distributions (quarterly or monthly) that are considerably higher, since the 30-day yield can exclude covered-call option income. See the issuer’s website for more information about any ETF that may be of interest.

    Taxable-equivalent yield — A taxable yield that would compare with interest earned from municipal bonds that are exempt from federal income taxes. Leaving state or local income taxes aside, you can calculate the taxable-equivalent yield by dividing your tax exempt yield by 1 less your highest graduated federal income tax bracket.

    Bond ratings — Grades for credit risk, as determined by ratings agencies. Bonds are generally considered Investment-grade if they are rated BBB- or higher by Standard & Poor’s and Fitch, and Baa3 or higher by Moody’s. Fidelity breaks down the credit agencies’ ratings hierarchy. Bonds with below-investment-grade ratings have higher risk of default and higher interest rates than investment-grade bonds. They are known as high-yield or “junk” bonds.

    Call option — A contract that allows an investor to buy a security at a particular price (called the strike price) until the option expires. A put option is the opposite, allowing the purchaser to sell a security at a specified price until the option expires.

    Covered call option — A call option an investor writes when they already own a security. The strategy is used by stock investors to increase income and provide some downside protection.

    Preferred stock — A stock issued with a stated dividend yield. This type of stock has preference in the event a company is liquidated. Unlike common shareholders, preferred shareholders don’t have voting rights.

    These articles dig deeper into the types of securities mentioned above and related definitions:

    Don’t miss: These 15 Dividend Aristocrat stocks have been the best income builders

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  • New York Empire State factory gauge drops sharply in January signaling deep contraction in activity

    New York Empire State factory gauge drops sharply in January signaling deep contraction in activity

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    The numbers: The New York Fed’s Empire State business conditions index, a gauge of manufacturing activity in the state, tumbled 21.7 points to negative 32.9 in January, the regional Fed bank said Tuesday. 

    This is the lowest level since the worst of the pandemic in May 2020 and among the lowest levels in the survey’s history, the regional Fed bank said.

    Economists had expected a reading of negative 7, according to a survey by The Wall Street Journal.

    Any reading below zero indicates contraction.

    Key details: The new orders index fell 27.5 points to negative 31.1 in January. Shipments fell 27.7 points to negative 22.4.

    The indexes for prices paid and prices received moved lower.

    The employment gauges were also weak.

    Firms expect little improvement in coming months, with the futures index at 8.

    Big picture: The Federal Reserve’s steady increase in interest rates is having a slowing impact on capital spending as firms are scaling back investment, economists said. Demand for goods is also slowing after two strong years on the weak global economy. Added to the mix is the strong dollar which makes U.S. exports more expensive.

    The market pays attention to the Empire State index because it is seen as a early read on the national ISM manufacturing index to be released early next month.

    The ISM factory index contracted in December for the second straight month, falling to 48.4% from 49% in the prior month.

    Looking ahead: “Manufacturing conditions in the U.S. are deteriorating and the worst is likely ahead,” said Gurleen Chadha, economist at Oxford Economics.

    Market reaction: U.S. stocks
    DJIA,
    -1.14%

    SPX,
    -0.20%
    opened lower on Tuesday. The yield on the 10-year Treasury note
    TMUBMUSD10Y,
    3.489%
    retreated to 3.51% after reaching 3.57% in early morning trading.

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  • Dear Penny: My Boyfriend’s Debt and Crypto Loss Cost Me $48K. Can I Trust Him?

    Dear Penny: My Boyfriend’s Debt and Crypto Loss Cost Me $48K. Can I Trust Him?

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    Dear Penny,

    My boyfriend of three years now has charged up $10,000 on my credit card until finally I put a stop to it. He started a business with a food truck and says he will pay me back and not to worry. Well, he’s only giving me $300 each month, and $160 goes to interest.

    He lives with me and only pitches in $300 for rent and $200 for bills. The rent is $1,000. He says times are hard for him right now and that he can’t get credit cards because he’s denied due to his “low credit score.” Yet I haven’t seen any proof in the form of denial letters. I don’t fully trust him, therefore I haven’t been able to tell him I love him. He tells me every day that he loves me.

    With crypto, he had me invest $40,000 and assured me he knew what he was doing. Well, it’s down to $2,000. He hasn’t shown me anything so I really don’t know if he has moved it to his crypto wallet or what. 

    I hate to argue or have discussions because he’s never clear with me. He also owes me $900 cash because he is behind on rent and bills. What should I do?

    -L.

    Dear L.,

    Manipulative people thrive when others are perpetually confused, so don’t expect clarity from your boyfriend. Listen to your gut instead.

    You know you can’t trust your boyfriend. You know he’s sucked nearly $50,000 out of you over three years. The bleeding will only continue if you stay. I think you know what you should do: You should end this relationship.

    Got a Burning Money Question?

    Get practical advice for your money challenges from Robin Hartill, a Certified Financial Planner and the voice of Dear Penny.

    DISCLAIMER: Select questions will appear in The Penny Hoarder’s “Dear Penny” column. We are unable to answer every letter. We reserve the right to edit and publish your questions. But don’t worry — your identity will remain anonymous. Dear Penny columns are for general informational purposes only, but we promise to provide sound advice based on our own research and insights.

    I wish you could just change the locks tomorrow and have him out of your life. But you’re not going to get any cooperation from your boyfriend once you dump him, so it’s important that you prepare, even if that means you have to delay things a bit. Avoid bringing up relationship issues and your lack of trust in the discussions you need to have. Stick to the financial matters at hand.

    Since your boyfriend owes you nearly $11,000, I’d ask him to sign a promissory note for your own peace of mind. At least if he’s willing, you’ll have it in writing that he agreed to repay you. If he fails to do so, you can use it as evidence if you sue him. Of course, getting a judgment doesn’t mean you’ll collect on a judgment. If your boyfriend has no income or assets, odds are slim that you’d recoup your money.

    Make sure you remove your boyfriend from any credit accounts if he has authorized user status. Also, ask for a replacement card for each account in case he has your card number stored. You’ll also want to pull each of your credit reports at AnnualCreditReport.com and confirm that he hasn’t racked up additional debt in your name.

    You also need to get information about the crypto he bought with your money. And I get your hesitance to ask questions here given that crypto is notoriously confusing and filled with outlandish claims.

    But what you really need to understand here is the five W’s, i.e., what type of crypto he bought, where it’s stored, when he purchased it, etc. If he bought into some obscure cryptocurrency, it’s entirely possible that a $40,000 “investment” could be worth just $2,000 today, though I also wouldn’t rule out the possibility that he took some of that money. You could tell him that you need the information because you’re considering cashing out and deducting some of your losses for tax purposes.

    Finally, you need a plan for your living situation. I don’t know whether both of your names are on the lease, but even if it’s only in your name, your state may consider him a tenant since he’s been paying some expenses. If you want to stay and you don’t think your boyfriend would leave if you dumped him, you’ll want to consult with an attorney about the process for formally evicting him.

    Even if you follow all the advice I’ve just given, it’s important to be realistic. You may never get your money back. But please don’t let that reality stop you from moving on.

    Think about the lessons you can apply to future relationships. Don’t take on debt for a future partner or let them invest money on your behalf.

    But the takeaways aren’t just financial. Whenever someone responds with “Don’t worry, I love you” to your legitimate concerns, your reflex should be to run. Arguing is healthy in a relationship. So don’t let fear of fighting cause you to ignore the reality that’s staring you dead in the eye.

    Robin Hartill is a certified financial planner and a senior writer at The Penny Hoarder. Send your tricky money questions to [email protected].


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    robin@thepennyhoarder.com (Robin Hartill, CFP®)

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