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Can I Use Life Insurance to Pay Off Debt?

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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There are many ways to pay off debt, but some lesser-known strategies could be right for your situation. One of those more obscure methods is borrowing from your life insurance policy and applying the money to your debt.

Note that not all life insurance policies allow you to do this. Standard term life policies don’t offer this feature because they don’t build up a cash value from which to borrow. They are, as the name implies, intended to provide coverage for a defined period. When that time is up, if you’re still alive, you receive no benefit.

But whole life insurance lasts for your entire life, building cash value with each premium payment you make. That cash value can ultimately be tapped for a loan if necessary.

But, before you say “sign me up,” Sa El, co-founder of Simply Insurance, a licensed insurance agency, said you must understand how the process works as well as the pros and cons. If you’re considering this as a debt payoff option, he said you should have a lengthy discussion with a life insurance professional to see if it makes sense for your specific situation and learn what will happen with your policy if you borrow from it.

What to know about borrowing from your life insurance policy

Here are some things you need to know, according to El, before borrowing from your life insurance policy:

  • It takes a long time to build up cash value since only a small percentage of your monthly premium payment goes toward the value.
  • If you take out a loan from your policy, you may pay a fee to your insurance company to process the transaction. The amount varies based on your policy or insurer.
  • Depending on your state’s laws, the cash you receive from this loan may be open to creditors that you owe (if you have a judgment, for example).

Pros of borrowing from your life insurance plan

There are a few benefits to utilizing a life insurance loan, according to El:

  • Getting the loan can be easy. If you’ve got cash value built up, reach out to your insurer to fill out necessary forms. There’s no credit check or drawn-out process, and you’ll generally have the money in a few days.
  • The loan won’t appear on your credit report.
  • You won’t have any pressure to repay the loan since there is no official due date.
  • Interest rates may be lower than other lending options (especially subprime loans), ranging from 5% to 11%, per El, depending on the insurance company.

Cons of borrowing from your life insurance plan

Conversely, El points out that there are a few downsides to taking out such a loan:

  • If you fail to pay back the loan (principal and interest) , your heirs will receive a reduced death benefit.
  • If the amount borrowed plus interest accrued ever exceeds the policy’s value, the insurer could cancel it.
  • You’re not utilizing the life insurance policy as it was intended. “Life insurance isn’t for you,” he said. “It’s for the people you’re leaving behind.”

How to avoid debt moving forward

Once you’ve said goodbye to your debt, how can you avoid getting back into financial trouble? Here are a few ways to keep your personal balance sheet in the black:

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Laura Gariepy is a writer at MagnifyMoney. You can email Laura here

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Strategies to Save

8 Ways to Save on Your Energy Bill

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You pay your utility bills every month, but you may not realize what they’re actually costing you. Would you be surprised to learn that, according to Energy Star, just heating and cooling your home likely runs you more than $1,000 per year? When you also factor in cooking, bathing, doing laundry and all of your other normal daily activities, your energy costs add up to more than a pretty penny. But don’t worry — there are plenty of ways to rein in these monthly expenses.

Here are ways to save money on your energy bill.

8 tips to saving on energy costs

Do an energy assessment at home

A home energy assessment will give you a baseline of how efficiently you’re using energy in your house, says the Federal Trade Commission (FTC). Your utility company may offer you a free or low-cost assessment. Other companies offer this service, but be advised that it could run you hundreds of dollars to have it done.

If you go with a paid service, do your due diligence and check out the company’s reputation before committing to doing the assessment. If you’re interested in a more DIY option, Energy Star offers the online Home Advisor tool, where you enter in your home’s information, receive energy saving recommendations and have the ability to track your progress toward efficient energy use.

Flip the switch

As a child, you probably heard your parents yell “turn off the lights!” That’s because it works. Did you know that according to Energy Star, one light left on for eight hours per day costs you about $20 a year? For that reason, Energy Star encourages you to shut off lights, fans and other electronics when you’re not using them. Use dimmer switches, motion detectors and programmable thermostats to reduce energy usage without interfering with your needs and comfort.

Mind your windows

Uncovered windows let in up to 80% of the sun’s energy, according to Energy Star. This gives you free lighting and warmth during the day, reducing your need to use other power sources. Additionally, you can regulate the temperature inside your house using window drapes or blinds. They act as insulation, keeping more of the heated or cooled air where it belongs — inside your home.

Maintain your HVAC system

To keep heating and cooling costs in check, regularly examine your HVAC system air filter. Dirty air filters put a strain on your system, wasting both energy and money. You should always change the filter when it’s dirty and be sure to replace it at least once per quarter. It is also recommended that you have your system periodically tuned by an HVAC professional to keep it in tiptop shape.

Seal up leaks and insulate

You can save up to $200 per year on your heating and cooling costs by having proper insulation and door and window seals, says Energy Star. When you feel a draft coming from your windows or doors, use caulk or weatherstripping to make a tight seal around the edges.

When it’s time to upgrade, consider purchasing Energy Star-rated models for added efficiency. If you buy new insulation, the Department of Energy (DOE) advises you to look for a product with a high R-value, which indicates an insulation’s effectiveness.

Hack your laundry

Heating the water for your washing machine accounts for an astounding 90% of the energy it takes to run the load, says Energy Star. Washing your clothes in cold water will result in significant energy savings. To be even more efficient, only run full loads and take advantage of the extended spin cycle to cut down on your drying time.

To save on drying costs, be sure to clean the lint trap before each use, dry full loads and, if possible, utilize the automatic shut-off feature, which turns off the machine when it detects that clothing is dry. During warm weather, consider drying your clothes on an outdoor line. Indoor drying racks are also an option. According to Energy Star, your dryer accounts for 6% of your electricity bill, so it’s worth making some adjustments.

Lower the temperature on your water heater

Heating water for your home is your second highest energy-related expense, behind regulating the temperature in the dwelling, says Energy Star. To curtail this cost, reduce the temperature on your water heater to 120 degrees. Your system won’t have to work as hard, rewarding you with a lower utility bill.

Ready to replace your water heater? Consider opting for a tankless model. This energy-saving option heats water on demand, rather than maintaining a continuous reserve of hot water.

Buy energy-efficient appliances

When you’re in the market for new appliances, the FTC encourages you to buy energy-efficient models. Just look for the EnergyGuide label on the appliance to see the amount of electricity it uses annually, the approximate yearly cost to run it and how that cost compares with similar models. If the label indicates that the unit is Energy Star-rated, the appliance uses less electricity than nonrated models, making it better for the environment and your wallet. The FTC advises you to multiply the projected annual kilowatt hours (kWh) the appliance will use by your current kWh rate to get the most accurate cost-to-run estimate.

Seemingly endless possibilities to save money

This article provides several ways for you to save money on your energy bill, but it is by no means an exhaustive list. You can optimize just about every element of your home if you have the time and means. Resources like this DOE Energy Saver Guide show you how to get quick wins and help you plan for longer-term improvements. You can also make small changes to your habits (like flipping the switch) to further increase your savings.

What to do with all of these savings?

Now that you’re saving money on energy costs, what should you do with the extra cash? You likely have several financial goals that you’re working toward, but you can’t go wrong with paying down debt or bolstering that emergency fund.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Laura Gariepy is a writer at MagnifyMoney. You can email Laura here

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Pay Down My Debt

Couponing 101: How to Get Started So You Can Eliminate Debt

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews, statements or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Think couponing is a waste of time? Think again. Taking a moment to clip a coupon or ask for a deal can go a long way toward getting out of debt.

The Federal Reserve’s most recent Survey of Consumer Finances shows that 77% of Americans have some form of debt, with credit card debt being the most common. And, according to financial attorney Leslie H. Tayne, founder of Tayne Law Group P.C., there is no downward trend in sight. With the cost of goods on the rise, and income levels not keeping pace, the Melville, N.Y., lawyer says that people become trapped in the paycheck to paycheck cycle. Their debt severely limits their opportunities — both financially and in life.

Lauren Greutman, Syracuse, N.Y.-based consumer savings expert and founder of That Lady Media, once knew that struggle. With $40,000 in debt and an underwater mortgage, she turned to couponing to slash her grocery bill from $2,000 to $200 per month, allocating those savings to her debt. She coupled her couponing strategies with some side hustles and eliminated that burden in three years.

“By couponing, you can give yourself a $5,000-a-year raise that you can use to pay down debt or put towards your other financial goals,” Greutman said.

Here’s how to get your start.

How to start couponing

Greutman said that it’s important for you to first learn when to use a coupon and when not to. For example, she pointed out, buying a generic good may still be cheaper than buying a name brand good with a coupon. She adds that you should hold on to coupons until the items are on sale to increase your savings. Consumer.gov takes it a step further and advises you to avoid buying things just because you have a coupon. It’s not a good deal if you don’t want or need the item.

Next, Greutman encourages you to learn the couponing policies of your favorite stores. Do they let you double up on coupons? At one point, she was getting $500 worth of groceries for $40 by taking advantage of triple coupon sales that her preferred grocer ran once per month.

Greutman’s go-to strategy to get coupons? She emails her favorite manufacturers directly, who, nine times out of 10, send her free products or a high-value coupon. Tayne concurs and often asks companies what deals they have running. If it’s quick and simple, she “loves the idea of trying to pay less.” Consumer.gov says that coupons can also be found in newspapers, magazines, on manufacturer’s websites, or on websites specifically dedicated to coupons.

Couponing strategies from the pros

Greutman offers the following pro couponing tips:

  • Stack savings by pairing a store coupon with a manufacturer’s coupon to purchase a sale item that has a mail-in rebate.
  • Learn the sales cycles of your favorite brands (competitors will never have their goods on sale at the same time).
  • Meal plan around deals to feed your family for super cheap.

Tayne also likes the planning aspect of couponing. She said that the process helps you stick to a budget because you’re thinking about your purchases before you get to the store. This can prevent overspending and taking on additional debt. The Consumer Financial Protection Bureau (CFPB) encourages you to make frugal shopping a family endeavor and teach your children about the value of using coupons early on.

On her website, Greutman urges you to realize that couponing is a skill that takes time to hone. She encourages you to not give up just because you’re not scoring the mega deals right out of the gate. With patience, couponing, and meal planning, the whole frugal shopping experience can eventually become automatic to you.

A word of caution on couponing

On couponing, Greutman said that “short term sacrifice will give you long term gain.” However, both she and Tayne agree that extreme couponing may not be cost effective due to the time commitment. If the process is quick and simple, it absolutely makes sense to try and pay less, Tayne said. But, she cautioned, “don’t let [couponing] take over your life and impact your ability to earn money, which may be more valuable than couponing.”

Once Greutman mastered couponing, she started her business to help other women get out of debt using the tools that she learned. By doing this, she increased her household’s income, further hastening the process of becoming debt free. The moral? Your best way to get out of debt appears to be a two-pronged approach of saving money (through coupons or other means) and earning more of it.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Laura Gariepy |

Laura Gariepy is a writer at MagnifyMoney. You can email Laura here

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