Free Credit Monitoring Alerts From All 3 Major Credit Bureaus

Posted on January 1, 2026 // 5 Comments

Updated. Happy New Year! 🎉 🥳 In terms of keeping my finances in order, what I’ve been finding most useful recently are credit monitoring alerts. The last time I applied for a credit card, I received multiple e-mails within minutes alerting me that someone had checked my credit report. I’m also told if a new account is added. This makes me feel more comfortable knowing that I’ll be alerted quickly if someone does try to steal my identity. The following third-party services listed below provide you a free credit score (of various algorithms) and/or free continuous credit monitoring from select credit bureaus.

Credit Karma

  • Free credit score (VantageScore 3.0) from both Transunion and Equifax.
  • Free credit monitoring from both Transunion and Equifax. Via e-mail alerts or app notification. Will let you know about things like a new credit check or a new account added.
  • Limited identity theft monitoring. Credit Karma uses your email address to search and notify you if they are listed in public data breaches.

Credit Sesame

  • Free credit score (VantageScore 3.0) from Transunion. Daily credit score updates and weekly credit report profile updates.
  • Free credit monitoring from Transunion. Via e-mail alert. Will let you know about things like a new credit check or a new account added.

Experian.com (Free Tier)

  • Free credit score (FICO 8) from Experian. Daily credit score updates and daily credit report profile, refreshed upon login.
  • Free credit monitoring from Experian. Free e-mail alerts.
  • Warning that Experian will regularly try to upsell you to a paid membership tier. Simply click “No, keep my membership” to stay on the free tier. I’ve been on it for years.
  • Improve your credit score by adding utility payments. Experian Boost is a free option that can potentially improve your Experian-based credit score by adding on-time utility and phone bill payments.

WalletHub

  • Free credit score (VantageScore 3.0) from Transunion. Daily credit score updates and free daily full credit reports.
  • Free credit monitoring from Transunion. Via e-mail alert. Will let you know about things like a new credit check or a new account added.

CreditWise from Capital One

  • Free credit score (FICO 8) from Transunion. You do not need to be a Capital One customer to sign up.
  • Free credit monitoring from both Transunion and Experian.

None of the services above require a trial or credit card number to sign up for their free tiers. They may ask for the last 4 digits of your SSN for verification. These are all ad-supported (they will pitch you stuff) and usually have a paid upgrade option (but you can stay on the free tier forever).

The government requires the credit bureaus to provide you a free credit report at least once every 12 months (now actually weekly since the pandemic). However, the site will not provide you credit scores or pro-active alerts if anything changes on those reports.

Note that some of the scores above are not FICO scores because Fair Isaac might charge more money in licensing fees. If you really want a FICO number, nearly every major credit card issuer now includes a monthly FICO score with their cards: Chase, Citi, Bank of America, Discover, Barclaycard, and American Express.

Bottom line. Used in combination, I use the services above to keep track of changes to my credit reports across all three credit bureaus for free. None of them require my credit card number, and they quickly alert me to things like new accounts, new credit check inquiries, and high credit line usage. I just ignore the generic ads and upsells.

Filed Under: Credit Cards, Deals & Offers, Debt //

Stockholm Banco vs. FTX: Creating Money From Nothing in 1661 vs. 2022

Posted on November 17, 2022 // 2 Comments

As with the rest of the finance world, I’ve been following the collapse of FTX and Sam Bankman-Fried (SBF). There are many explainers (Matt Levine is my fav, but paywall?), while new details keep emerging. Crypto the newborn currency is growing up and finding out the hard way why traditional finance has all the rules it has. Central bank? FDIC insurance? Independently-audited financials? A board of directors? Not being allowed to buy personal houses with company money and having other expenses approved with emojis? 💸 From the most recent bankruptcy filing and written by the new FTX CEO of less than a week:

Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here. From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.

As a fitting follow-up to the idea of timeless financial wisdom, Doomberg (also paywall) brings us historical perspective from Stockholm Banco, which in 1661 was the first European bank to print banknotes. I found this detailed history of Stockholm Banco [pdf] on the website of Sveriges Riksbank. A single person was granted great and unsupervised power to effectively create unlimited currency. What could go wrong?

In 1656, Johan Palmstruch was finally granted the country’s first bank charter by the King of Sweden after multiple rejections. (His proposal only succeeded after he promised half the profits to the Crown.) At the time, people had to use cumbersome copper and silver currency (see above) that fluctuated in value based on industrial demand for those metals. The slab of copper above was “10 dalers” and the size of two sheets of letter paper and weighed 43 pounds!

It was the inconvenience of copper plate money that the exchange bank would remedy. Institutions and the general public could deposit their plate money in the bank in exchange for a receipt, which could then be used in transactions with other parties. This was a great relief for commerce. In the bank charter, Karl X Gustav emphasised ‘the good convenience our subjects thereby obtain, that in this way they are rid of much subtraction and addition, hauling and dragging and other trouble that the copper coin entails in its handling’. The weighty plates boded well for the success of the exchange bank.

A simple piece of paper could now represent any amount of dalers (100 daler note below):

The charter allowed the creation of an exchange bank. People could deposit their slabs of copper and silver at the bank, and instead receive a paper note promising that it could be redeemed back again at any time. Convenient! The charter also allowed the creation of a loan bank. The bank lent out money, and charged interest. The exchange bank and the loan bank were supposed to be separate. But look at all those pretty deposits just sitting there!

The charters treated the exchange bank and the loan bank as separate entities but this was not observed in practice. Although the exchange bank was no more than a depository for its clients’ money, which could be withdrawn without notice, the Bank started to lend its holdings. This state of affairs continued until 1664.

Soon the deposits were all lent out. But people still wanted loans! There was money to be made! If only there was a way to keep the whole things spinning…

Palmstruch found a solution. According to Erik Appelgren, a bank commissioner, ‘Not long afterwards, credit notes became a supplement invented by Herr Director for the shortage of money’. The bank would issue notes declaring that the holder had a claim on Stockholms Banco for a specified sum of money; the Bank would redeem the notes in exchange for cash. […]

This was a novelty in European banking. Earlier attempts to introduce notes had invariably tied them to deposits. Such certificates of deposit could be transferred as a token of value to business associates, who in turn could pass them on in the same way. In contrast, Palmstruch’s notes were not backed by particular deposits; instead, they relied on public confidence that the Bank would redeem them on demand. The system relied on the Bank’s credibility.

Success! Print as much money as you want! Expansion! Even the Crown and other high-ranking officials borrowed money.

Thanks to the credit notes, lending by the Bank ceased to be dependent on deposits. Loans could be provided for as much as the Bank was prepared to issue notes. After a tentative start, the flood gates were opened during 1663. The Crown borrowed 500,000 d km, Chancellor De la Gardie took a total of 255,000 d km for himself, the tar company borrowed 200,000 d km. More and more loans were unsecured. The business flourished; branches were opened in Abo, Falun and Goteborg; in Skane (ceded to Sweden by Denmark in 1658) the three upper Estates requested a separate branch in either Malmo or Landskrona.

What if… something spooked the customers… and people actually wanted all their deposits back?

However, reality soon caught up. On 12 September 1663, Joachim Schuttehielm, a bank secretary, reported to Palmstruch, who was away in Vasteras, that so much money had been withdrawn that the Bank had less than 4,000 d km in ready cash. To make matters worse, a depositor had announced that he wished to withdraw 10,000 d km. Schuttehielm asked Palmstruch to send money as soon as he could but the Director had nothing to send.

The bank collapsed after only six years. During the cleanup, audits revealed tons of missing money. Palmstruch was sentenced first to execution (later reduced to jail), and died only a year after his eventual release.

The Court of Appeal was not impressed. On 22 July 1668 Palmstruch was dismissed as director and sentenced to the loss of his privileges. He was banished for life and ordered to compensate within six months for ‘all the deficiency and shortage in the Bank that can demonstrably be proven’. If he failed to pay what he owed, he would be executed.

Let’s compare to the current FTX situation. Started out with a simple idea and got out of control very fast. FTX is less than 4 years old. Everyone was easily distracted by getting rich, all greased by the political donations and naming rights that spread the money around and the “effective altruism” that the media loved. The power to create unlimited currency for a while – FTX claimed billions of SRM and FTT tokens as assets – essentially things that FTX made out of thin air and knew it. Eventually, the desperate loaning out (aka stealing) of $10 billion in customer deposits to help themselves out of a jam. The panicked discovery. The coming criminal proceedings.

Individual investors are again reminded why FDIC and NCUA insurance exists – counterparty risk is real. It doesn’t matter what you own if you let the wrong place hold it for you.

Filed Under: Banking, Debt, Investing //

Quiet Confessions of Options Trading, Rental Real Estate, Crypto

Posted on September 15, 2022 // 12 Comments

People are usually quite eager to share their stories of amazing wealth and riches. If you bought Apple in the early years or Bitcoin at $40, why not mention that at a party? Folks are usually much more quiet about their failures. But you can find such admissions thanks to the anonymous nature of social media. Reading these confessions can hopefully provide a clearer perspective of potential dangers.

Options trading. Meme stock mania was born as people learned the power of leveraged positions, but others ended up being the joke instead.

How do you get $100,000? You start with $700,000 and make a bunch of aggressive options trades: My losses, your gains. My unfortunate journey thus far.

That’s not even the worst part. The user admits in the comments (verified by their previous post history) that they ended up borrowing $200,000 at 10% interest:

Unfortunately I lost in options. I borrowed money and now I am paying 10% on 200k.

Assuming that is the full picture, they are negative $100,000 and the juice is still running.

Rental real estate. Many people do build wealth over time with rental real estate, but things can still go wrong. No landlord rents to a squatter that they have to evict on purpose: Lessons from a former accidental landlord…

While I’ve seen plenty of threads on having rentals at part of a FIRE strategy, I’ve rarely seen comments from experienced landlords that outline the challenges or negative outcomes that can come along with being a landlord.

I sold my rental property a couple of months ago, ending my 11-year stint as an accidental landlord. I thought this would be a good time to provide my experience. And before all the “rental moguls” show up to shit on this post, let me qualify that I am not claiming to be an expert. In hindsight there were a lot of things I would have done differently/better. However, I feel I can provide real world examples of what a new landlord can experience.

If done correctly, there can be a lot of financial upside. However, being a landlord is not as hassle/risk free as most people think it is – and there is no guarantee you will make money.

Crypto. The Twitter account @coinfessions shares “anonymous crypto confessions”. These days, there are many people afraid to tell even their spouses how much they lost betting on crypto.

I thought about these stories when reading about the growing popularity of DraftKings and FanDuel: DraftKings Is Coming for Your Dumb Money at Wrigley Field. This is not a net positive development for our society. The Chicago Cubs (and soon your favorite team as well) just can’t say no to the easy money, but also prefer to ignore where it will come from. My children will be told that gambling addiction runs in their family history (there’s my little confession) and that the best path is to never bet at all, even casually (and to never marry someone who gambles). Don’t be the dumb money.

Filed Under: Behavioral Economics, Debt //

Student Loans: File Waiver For Expanded Public Service Loan Forgiveness (PSLF)

Posted on November 15, 2021 // Leave a Comment

Like many folks, I left college with a negative net worth due to $30,000 in student loans. After reading through several articles about changes in the Education Department regarding student loans, I think the overall takeaway is that if you’ve had problems with your student loan management in past years, now would be a good time to check again – especially if you are working towards the Public Service Loan Forgiveness (PSLF) program.

The idea behind PSLF was that if you worked full-time in public service (ex. military, government, nurses, teachers, non-profit workers) and made regular income-based payments for 10 years (120 monthly payments), you would have the remaining balance forgiven at the end of those 10 years. However, this incentive turned out to be an elusive reward at the end of a long and winding maze. The program started in 2007, and as of April 2020, only a little over 2,000 people total (under 2% of the 145,000+ applicants) were ever approved for PSLF.

The maze appears to be opening up a bit, with over 30,000 people expected to be approved in 2021. Most importantly, you must take action and file for a PSLF waiver as soon as possible (must be done by October 2022):

On Oct. 6, 2021, the U.S. Department of Education (ED) announced a temporary period during which borrowers may receive credit for payments that previously did not qualify for PSLF or TEPSLF. Learn more about limited PSLF waiver.

The previous rules were pretty complex and rigid. For example, you could have been paying more than required, but if you weren’t on the right repayment plan, your payments didn’t count toward the 120 monthly payments required (10 years).

Under the new rules, any prior payment made will count as a qualifying payment, regardless of loan type, repayment plan, or whether the payment was made in full or on time. All you need is qualifying employment.

This change will apply to student loan borrowers with Direct Loans, those who have already consolidated into the Direct Loan Program, and those who consolidate into the Direct Loan Program by Oct. 31, 2022.

If you file for the waiver, these types of past monthly payments can now count towards the 120 required:

  • If you were previously ineligible because your loan was of the wrong “type” (will have to consolidate)
  • If you were on an “ineligible” payment plan method
  • If you were deployed active military and placed your loans on hold
  • If you had partial payments
  • If you had payments that were late

You must still be:

  • Employed by government, 501(c)(3) not-for-profit, or other not-for-profit organization that provides a qualifying service
  • Work full-time
  • Have Direct Loans or consolidate into Direct Consolidation Loans. Private student loans are NOT eligible.

It is still rather confusing as to which jobs exactly qualify as “public service”. Your job description doesn’t matter, only the status of your official employer. You could be a teacher or a nurse, but one might be a nurse at a nonprofit hospital and the other might be at a private hospital (or their hospital changed from one to the other at some point, out of their control).

There are also now special considerations for borrowers misled by their schools. Examples of such schools include Corinthian Colleges (Heald College, Everest College, WyoTech), ITT Technical Institute, American Career Institute, Westwood College, Marinello Schools of Beauty, and the Court Reporting Institute. This is called Borrower Defense Loan Discharge:

If your school misled you or engaged in other misconduct in violation of certain state laws, you may be eligible for “borrower defense to loan repayment,” sometimes shortened to “borrower defense.” This is the discharge of some or all of your federal student loan debt.

Students with total and permanent disability have also had their student loan debt forgiven. Students whose schools closed while they were enrolled may also receive loan forgiveness.

Notably, all student loan forgiveness is also considered tax-free at least through through December 31, 2025.

Even if you don’t work in public service, there are still other income-based repayment plans and forgiveness programs. I’m not an expert on the student loan landscape these days, but I would be careful before re-financing your student loans with a private lender as it is non-reversible. Be sure to understand the benefits (such as a lower interest rate) but also what you are giving up (such as these types of forgiveness options).

(image source)

Filed Under: College & Education, Deals & Offers, Debt //

Upsolve: Nonprofit Helps You File Chapter 7 Bankruptcy For Free

Posted on November 24, 2020 // Leave a Comment

Upsolve is a nonprofit 501(c)(3) organization that helps anyone file for bankruptcy on their own behalf. They are not a legal service, but more of a free self-service software tool and step-by-step guide. Essentially “TurboTax for Bankruptcy”, given that both are overly complex (although TurboTax is definitely for-profit while Upsolve never asks for payment). Users can also interact with each other on a Facebook group, although no lawyers are involved. Found via Time’s Best Inventions of 2020.

Upsolve focuses on Chapter 7 bankruptcies, which are generally involve less-complex situations and households with below-median incomes. Chapter 7 can generally discharge unsecured debts, including credit card debt and medical bills. According various sources, the average cost to pay an attorney for file Chapter 7 is about $1,500. Now, that might be worth it if you have a more complex situation (and the ability to pay), but perhaps those with a simple situation might want to take a shot at representing themselves.

In 2019, Upsolve got 80% of their funding from government funding and charitable contributions, and 20% from accepting payments from private independent attorneys that pay to be mentioned for a free consultation if you require professional assistance. You can also support them by making a tax-deductible donation. They are very young so they are not rated by Charity Navigator or Guidestar.

I admittedly know very little about this process, but I figure it’s good to spread the word about free assistance offered to those with limited resources during these difficult times.

Filed Under: Debt, Giving Back //

Refinance Window? 30-Year Fixed at 3%, But New Refinance Fee Added Soon

Posted on September 2, 2020 // 1 Comment

Mortgage rates have hit another all-time low, with some 30-year fixed rate mortgages below 3% and 15-year fixed below 2.5%. I know that many folks have already refinanced successfully, but these lower rates may offer even more homeowners the ability to lower their payments and/or pay off their home sooner. Importantly, Fannie Mae and Freddie Mac announced an additional 0.5% fee on refinances that was supposed to start on 9/1, but that was just delayed to 12/1. This could add thousands to your upfront cost. The fact that they ultimately buy 2/3rd of all refi loans and called this an “adverse market refinance fee” also suggests that they feel rates are so low that they don’t properly compensate for the risk involved.

Here is how mortgage rates have changed in just the last 12 months, per Freddie Mac. Would anyone who lived through the 2009 boom-and-bust have expected a 30-year fixed mortgage to cost the same as a 5/1 ARM?

You may not get these rates as they do assume some points, and it may actually work out better for your situation to pay less in upfront closing costs in exchange for a higher interest rate than 2.91%. You can calculate a breakeven point upon which your saved monthly payments completely offset your upfront costs, and also how far you are “ahead” at certain time periods like 3 or 5 years down the road.

Bottom line. Mortgage rates are even lower and many new homeowners will now able to lower their mortgage rates via a refinance. In addition, a new refinance fee that can add thousands to your upfront cost will be added on 12/1. From what I understand, it’s rather hectic right now and refi’s can take over a month, so you will need to start soon and “pack your patience”.

If you are serious, get an accurate full quote with all the costs involved with a reputable mortgage comparison site like LendingTree (tip: they will likely call whatever phone number you choose to enter) or go local and call up your neighborhood broker. You don’t have to provide your Social Security number to get a quote. If you like what you see, lock in the rate as they can change quickly.


Filed Under: Deals & Offers, Debt, Real Estate //

Live Cheaply and Invest In Yourself

Posted on June 8, 2020 // 10 Comments

The The Money Diaries series at Wealthsimple continues to offer periodic interviews with an interesting mix of people sharing about their financial lives. I’d never heard of Carson Mell, but I appreciated how he cared most about doing what he wanted with his time as a young adult, and how he lived cheaply in order to invest in himself. (His most well-known project is probably Silicon Valley on HBO.)

The power on knowing the cost of your minimum viable lifestyle. My advice to a young ambitious person would be to figure out exactly how little you can live on. Mell’s monthly expenses were on the order of $1,150 a month:

[…] after a few months, I’d saved up some money and I made a decision: I’d quit my job and live as simple and frugal a lifestyle as I could, so that I could invest my time and energy in my own work. I had my own small apartment and paid $700 a month for it. I found that beyond rent, I could get by on 15 bucks a day. A nearby taco place had a $2.75 special for huevos rancheros — I ate there every single day. While I prided myself on throwing myself into my art instead of filling my days working mundane jobs, I learned quickly that meant becoming a cheap bastard.

Once you establish at level at which “I know I can survive on $XXX”, that can create a certain type of self-confidence. For example, I once knew that having $20,000 meant that I could cover my expenses for a year, and thus once I amassed that amount, I could take all the risks with my TIME that I wanted for a year. I could start a new business, learn a new trade, change the direction of my life.

Maybe cheap eats is key too? Beside my apartment, there was a restaurant that sold two eggs any way, hash browns, and toast for $1.99. I lived in the same rundown apartment and ate those over-easy eggs when I made under $20,000 a year, and when I made over $60,000 a year.

I decided that the thing to do was to keep investing in myself — living simply, being a cheap bastard, and putting my time and effort into my work.

Finding the motivation. Some people equate spending thoughtfully with being caring a lot about money (bad). However, it can really extend from caring a lot about how you spend your limited time on Earth (good).

As for myself, I no longer have the headache of hewing to a budget of 15 bucks a day. These days, I don’t mind paying to park in a parking structure, or leaving my car at the valet if it looks like finding a free space will be a pain in the butt. Anything that saves you time is worth spending money on, because your time is an invaluable resource. But I’m extremely mindful of where I spend my money. Here’s the thing: In TV, you don’t know when the next job will come. And I never want to have to take a job just to cover the cost of an upgraded lifestyle. I want to continue to have the chance to invest in myself — my own ideas, my own projects.

I spend money very thoughtfully, and because I save money, I can be selective about what jobs I take or don’t take, and where I put my time and energy.

I forget the exact quote, but to paraphrase – Once you find your “why”, the “how” becomes so much easier.

Filed Under: Debt, Frugal Living, Inspirational //

Top 10 Sources to Raise Emergency Cash, Ranked

Posted on May 13, 2020 // 7 Comments

While not exactly a fun exercise, do you know where you’d turn for some extra cash in an extended emergency? Morningstar has 10 Sources of Emergency Cash, Ranked from Best to Worst which contains many good points, but I would differ in my rankings.

I wondered about severity and duration. Is this money you expect to be able to pay back within a year, or is it a one-time permanent expense? You may not know the answer for sure, but for the purposes of this list I will assume that I become unemployed for an extended period and can’t start paying the loan back for 12 months.

1. Do the legwork and delay, defer, or work out a payment plan. Many lenders will work with you if you are in a temporary cash crunch, but you have to take the initiative. It may be possible to defer mortgage payments, put your student loan into forbearance, or get other forms of relief. By delaying any of these bills and ideally adding the payment due to the end of your term, you can save cash now for something else that can’t be put off until later.

2. Existing emergency fund. The standard advice is to keep 3-6 months of expenses in a liquid savings account. Has there been a reliable study on how many households actually have this? I would keep a little held back if possible and move down to the next available option below.

3. Sell the stuff. If you own things you don’t truly need, like a second car, timeshare, boat, jewelry, or other non-essential assets, it may be time to sell even at a loss. Your pride shouldn’t come in the way of protecting your family’s financial security.

4. 0% APR credit cards. Sure, credit card interest rates can be very high, but that’s because they can’t take away your house, car, or 401k balance away from you if you can’t pay it back! This is an important detail! If you’ve been taking good care of your credit score, you can score some low-interest financing for over a year. You can either go for a 0% APR balance transfer or simply put everything possible on your card to take advantage of 0% APR for purchases. If I was really hurting, cashing one of these 0% APR checks I keep getting and paying an upfront 3% balance transfer fee would be fine. If you don’t have them lined up yet, you should apply before you lose your job, as the credit card companies are tracking your employment nowadays and they may know if you’ve been laid off recently.

5. Taxable brokerage account. If you have stocks and bonds held outside employer plans and IRAs, these are fair game to sell. If I was really paying 17% interest, I would pay off the credit cards with some of this. I would first stop reinvesting dividends and start taking them as cash. Most places say to sell your bonds because they probably have minimal capital gains and haven’t dropped significantly in value during a crisis. You may also look for stock lots with tax losses that you can harvest. Again, it would depend on the tax situation; I might move on below if the expense is a temporary one.

6. Margin loans. Don’t want to sell some of your positions? Margin loans are backed by the value of your brokerage assets, and you can get it as cold hard cash. The risk is that if your collateral (stocks, bonds, ETFs, mutual funds) drop steeply in value, your broker will force you to sell them to cover your loan. That could be a double-whammy of badness! Therefore, you should only borrow a very small percentage of the available amount. (In other words, this option is best if you have a big brokerage balance.) If you believe there is a good chance you will use this feature, consider moving your account over to Interactive Brokers as they have some of the lowest margin rates available (currently 1.55% on $25k). Margin requirements can get a little complex, see this Fidelity article.

7. Home Equity Line of Credit (HELOC). Here’s another place I differ from Morningstar. I would much rather draw some money from my HELOC at about 5% interest for maybe a few months to a year than pull out a Roth IRA contribution that I can’t replace ever again. The catch here is that during a crisis, many banks may stop accepting applications or even freeze your existing HELOC. As of this writing, Wells Fargo and Chase have already stopped opening up new HELOCs. You should set one up now and not wait to pull money out at the last minute.

8. IRA “Loan” (CARES Act.) This is specific to right now. The CARES Act now allows you to take up to $100,000 out of your IRAs, after which you have 3 years to put it back into your IRA again without penalty or tax. It’s kind of like a really long rollover window. However, you will owe income tax on whatever partial amount is not put back within 3 years. This is called a coronavirus-related distribution (CRD) and is limited to those affected by the coronavirus (ex. diagnosed with COVID-19, experienced a layoff, furlough, reduction in hours, or inability to work due to COVID-19, or lack of childcare because of COVID-19.)

9. Life insurance cash values. I don’t have any whole life insurance myself, but built-up cash values seem like an acceptable place to draw some money in a true emergency. The loan option seems to be more complicated.

10. 401k loans. If one person in the household has a job that is very secure, then a 401k loan can offer a very low interest rate. You also pay the interest back into the 401k balance, so the only effective “cost” of the loan is that you will pay income tax on the interest an extra time. For example if the interest rate is 8% and your marginal income tax rate was 25%, you’d only effectively be paying 2% interest. The CARES Act now allows you to take out 100% of the vested balance, up to $100,000. The risk with a 401k loan is that if you get laid off, you must pay back the loan within 90 days or it will count as an unqualified withdrawal (taxes + penalties) until you are over age 59.5.

Everything else. Other options may include taking Social Security early, taking out a reverse mortgage on your home, and other forms of personal loans. My overall theme is that I want to protect my tax-sheltered assets if possible. I don’t want to touch my Traditional IRA, Roth IRA, 401(k). These are meant to grow for decades and decades, and since the contribution amounts are limited each year, I can’t get them back once I have taken them out as a hardship withdrawal.

Filed Under: Banking, Credit Cards, Debt //

Refinance Your Car Loan Due To Ultra-Low Interest Rates?

Posted on May 10, 2020 // Leave a Comment

Many interest rates are at all-time lows right now. This means that if you have any sort of debt, you should explore refinancing. The goal is to lower your interest rate and monthly payments while paying minimal upfront costs and fees.

Did you know that you can refinance your existing car loan? While I advise avoiding car loans because they turn a painful $1,500 in optional features into “only” $20 a month, I also know that most people do end up taking out a loan. Experian says that 85% of new cars and 55% of used cards are financed as of Q4 2019.

I’ve long recommended a good credit union for a new or used car loan. Below are one refi-centric rate comparison and several national credit unions that offer competitive rates on refinancing existing car loans – down to as low as 2% APR. For credit unions, don’t be afraid to use the alternative paths listed to join. There should be no loan application fee, although you will have to undergo a credit check. You should get multiple quotes to compare, including at least one credit union.

MyAutoLoan.com Refinance

  • This one is not a credit union, it is like LendingTree for auto loan refinancing. Open to everyone, you submit one application and they will give you multiple quotes from different private lenders.
  • They offer an interest rate estimator tool with no credit check based on your overall credit profile.
  • No application fees.
  • Refinance for as low as 2.04% APR for 36 months. They seem to specialized in refi, as their listed refinance rates are lower than their new/used car purchase loan rates.
  • No payments for up to 90 days for qualified borrowers.

Pentagon Federal Credit Union

  • Membership open to active, honorably discharged, or retired military, Federal employees, or select membership groups. This includes being a Red Cross blood donor or volunteer. You can also join the Navy League for $25. I recommend just going through the PenFed application process and let them guide you.
  • Currently, they are offering a $250 bonus when you refinance an auto loan with them.
  • Refinance a 2019/2020 model year car for as low as 2.14% APR for 36 months.
  • Refinance a 2018 or older model year car for as low as 2.99% APR for 36 months.

Navy Federal Credit Union

  • Membership open to active military, veterans, and family members of veterans.
  • Refinance a 2019/2020 model year car for as low as 2.29% APR for 36 months.
  • Refinance a 2018 or older model year car for as low as 3.89% APR for 36 months.

USAA

  • Membership open to those with the military affiliation: active duty, Guard or Reserve, a veteran, an eligible family member, or a cadet or midshipman. USAA is the most strict about their membership if you are not military, but they usually have very competitive rates.
  • No application fee.
  • No payments until 60 days after your loan is approved.

Hanscom Federal Credit Union

  • Membership open to active or retired military as well as other partner organizations. If you don’t otherwise qualify, anyone can join the Nashua River Watershed Association for a one-time $35 fee.
  • Hanscom FCU offers a 0.25% discount for loans on new and used vehicles (excluding motorcycles) to current active duty members in the U.S. Military.
  • No application fees or title transfer fees.

Why multiple quotes? If you apply for a car loan, they will run a credit check and provide a specific rate quote on your credit report data. (Check your credit reports for free once a week until April 2021.) Thus, I wouldn’t only go by which place advertises the lowest “as low as” rate unless you have a perfect credit score. You should apply to multiple lenders and compare as they may target differed borrower profiles. If you make these credit checks within a short period of time (Experian suggests 14 days or less), the credit bureaus should automatically recognize that you are comparison shopping and only count one hard inquiry against your credit score.

Filed Under: Banking, Credit Cards, Debt //

Mental Model For Expenses: Past, Present, and Future (With Animated GIFs!)

Posted on October 21, 2019 // 2 Comments

The theory behind financial independence is simple. Spend less, save more, invest it into income-producing assets. The reality is complex, full of daily decisions about balancing income and spending. The Morningstar article (yes, M* is writing about early retirement too now) A Simple Plan for Financial Independence presents this simplified graphic of your “personal economy”.

Income can come from labor, capital, or land. Expenses can be put toward your past (debt), present, or future (investing in capital or land).

I’ve been thinking about this “past, present, and future” mental model for expenses, it meshes will with the simple rules that I want to teach my children: Avoid debt whenever possible, and seek out income-producing assets.

Present. There is countless advice to save money on current expenses. Call it prioritizing, call it frugality, call it whatever. These are important, but I’d rather focus on the added ideas of past and future.

Past. While debt is an important part of the economy, I hate that going into debt for non-essentials is so readily accepted in today’s society. Using home equity lines of credit for a kitchen remodels. Credit cards for vacations. The entire microloans trend where you buy a $100 pair of jeans for $10 a month times 12 months ($120) is a dangerous mind game. Debt is having compound interest work against you, and thus making someone else rich. Debt should not be normalized. Debt is an emergency!

via GIPHY

Future. If you look at people who have really achieved financial freedom, where they truly spend the day doing whatever they want and without money worries, they have all have collected a big pile of income-producing assets. It could be rental property, commercial real estate, a laundromat/car wash/business, dividend-paying stocks, municipal bonds, a pension, Social Security or even just bank CDs if you have enough. In most cases, they collected them with purpose. They didn’t just put the minimum into their 401(k) and call it a day. They would shovel whatever extra money they had into their favorite money-making machine. When I buy more stocks, I see a future income stream:

via GIPHY

When you buy one of these income-producing assets, it should get you excited!

via GIPHY

I’m still not sure exactly how to create this distaste for debt and this desire for money factories, but I’m working on it. If you have these two in place, that should help with everything else – earning more income with labor, spending less on the present.

Oh, and here’s a funny-but-sad representation of the paycheck-to-paycheck lifestyle.

via GIPHY

Filed Under: Budgeting, Debt, Frugal Living, Investing //

Financial Freedom and New Car Loans Don’t Mix Well

Posted on October 9, 2019 // 22 Comments

Apparently, my rule of thumb about affording cars isn’t exactly going viral. If you are serious about financial freedom, you shouldn’t be taking out loans for luxury items. A new car is a luxury item! Basic transportation will cost you under $10,000 and you can usually get a loan with the best interest rate from a credit union. Here are some surprising statistics from the WSJ article The Seven-Year Auto Loan: America’s Middle Class Can’t Afford Its Cars (paywall?).

The average new car auto loan is now $32,000 over 69 months. 1 out of 3 people are rolling over debt from their previous car. 90% of new car loans are for longer than 4 years. 70% of new car loans are for longer than 5 years. This is crazy. Soon we’ll have a 15-year mortgage for cars.

Dealerships now make more money from car loans (and add-on insurance junk) than the purchase price. They are getting a cut of all the interest you’re paying.

So far this year, dealerships made an average of $982 per new vehicle on finance and insurance versus $381 on the actual sale, according to J.D. Power, a data and analytics company. A decade earlier, financing brought in $516 per car and the sale made dealers $837.

This is why I support the FIRE movement. It may not be perfect, but it can inspire a change in mentality where you would never consider going into debt for heated leather seats. Instead of a $32,000 car loan, you could spend $8,000 on a used 2012 Toyota Corolla and put $24,000 towards owning a $120,000 investment rental property with positive cashflow. Or you could put that $24,000 into maxing our your 401(k) or IRA. Or you could start building a compounding stream of dividend payments from owning high quality businesses. Or seed your own new small business. The idea of owning income-producing assets is what should get you excited!!

I’m not saying you should never buy a new car. If you have your financial ducks in a row, then sure buy whatever car you want… with cash! The debt industry wants you to have your dessert NOW, and pay for it later. They want a direct cut of every future paycheck. If it’s a luxury, you should have to save up for it first, and then buy it. I know, such a quaint idea.

Getting far enough ahead to pay cash for your next car can seem impossible. Consider taking out a loan for minimalist basic transportation from all the major credit unions (NavyFed, PenFed, Alliant CU) as well as your local credit union. It’ll work at used car dealerships and even on a car off Craigslist. $10,000 financed at 3.5% APR for 3 years is under $300 a month. After 3 years, instead of starting another new lease or facing another 4 years of car payments, you can now use that $300/month to buy your next income-producing asset.

Here is a chart tracking non-housing debt from the New York Fed. The slight decrease from 2009 to 2013 made me optimistic about the future. Since then, the debt has shot back up and my optimism has gone down:

Have you noticed that half of all TV commercials are about new cars? It takes a lot of effort to convince you to buy something you don’t really need.

Filed Under: Debt, Frugal Living //

Beware Fintech Making High-Interest Debt Easier Than Ever

Posted on September 24, 2018 // Leave a Comment

Fintech (financial technology) is supposed to make our lives better. You’ll hear how they want to nudge us to save more, invest better, spread risk, and lower costs. But if you look a little deeper, another thing many want to make easier is debt.

Fintech doesn’t make you financially literate. Did you know that banks still make $35 billion a year in overdraft fees? Consider the recent findings of a TIAA Institute study Millennial Financial Literacy and Fin-tech Use reported by Felix Salmon:

One might view fin-tech as a tool that provides convenience, but one that also has the potential to improve personal finance decisions and behavior. It could then promote better personal finance outcomes. But the dynamic is more complex and nuanced, especially when viewed at the level of separate fin-tech activities.

  • Millennials are 40% more likely to overdraw their checking accounts if they use mobile payments.
  • Budgeting tools don’t help either. Millennials who use their mobile devices to track their spending are 25% more likely to overdraw their checking account.

Everyone wants to lend you money, from Goldman Sachs to the mall kiosk cashier. Goldman Sachs started a new high-yield savings account and renamed it Marcus. Many people found it prestigious to “have an account” at Goldman Sachs. But really, that savings account only exists so that Marcus has a cheap source of funds to offer personal loans online at up to 25% APR. A Marcus smartphone app is coming soon. SoFi and every other popular student-loan refinance company is expanding to consumer loans as well. Micro-loan companies like Affirm will let you put a $100 pair of jeans on a monthly payment plan.

Here’s the growth of personal loans since 2010, per Quartz:

Got bad or no credit? Fintech to the rescue! LendUp, Elevate, and others already provide payday-type loans with 100%+ APRs. Except they aren’t “payday” loans, they are structured as “installment” loans. Instead of just $300, they’ll lend you more money because they lets them escape the payday loan regulations. See the LA Times article Borrow $5,000, repay $42,000 — How super high-interest loans have boomed in California:

They may be new start-ups, but they can still exhibit old-fashioned bad behavior, like promising to help customers build credit but never actually reporting anything to the credit agencies. CFPB Orders LendUp to Pay $3.63 Million for Failing to Deliver Promised Benefits:

“LendUp pitched itself as a consumer-friendly, tech-savvy alternative to traditional payday loans, but it did not pay enough attention to the consumer financial laws,” said CFPB Director Richard Cordray. “The CFPB supports innovation in the fintech space, but start-ups are just like established companies in that they must treat consumers fairly and comply with the law.”

Margin loan for your next iPhone? Right after writing about buying productive assets instead of going into debt, I get this email from Ally Invest:

Margin is something that short-term traders use in order to increase their buying power temporarily. Long-term investors have little to no use for margin since the interest rates will eat up returns. But at least they’d be buying a productive asset if they bought stocks.

Here’s why using margin loans to buy a car or smartphone is a bad idea. First, your interest rate at Ally Invest starts at 9.50% APR and isn’t fixed. So it’s not like you’re getting some awesome rate. 10%-15% APR is as high as credit card interest. Second, this is a collateralized loan backed by your stock holdings. If you don’t pay it back, you don’t just get a ding on your credit score like with a credit card. They sell your stocks and take the money. A home-equity loan is backed by your house, but at least your interest rates are low. Even worse, if the market value of your portfolio drops enough (something not under your control), your broker will issue a margin call. If you don’t pay up immediately, they will forcibly sell your stocks at that low price to pay off your loan.

Bottom line. Fintech may be new, but some things never change. There will always be people selling you things you don’t absolutely need, and now it will be easier than ever to go into debt to buy those things. Be on the lookout for wolves dressed in slick smartphone apps.

Filed Under: Debt //
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