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6 Ways to Managing Money in Your 20s

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews 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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Life as a young 20-something-year-old is an exciting time. You’ve likely graduated from college, started your first real-world job, and are making decisions on your own. While your adult life has just begun and retirement seems years away, it’s important to start discussing your financial options, managing your money responsibly, and planning for your future now.

This article will walk you through six suggestions on how to manage money in your 20s.

1. Create a budget

Budgeting is the process of tracking your income, bills and expenses in order to assess how much you can spend and what you can afford each month. Creating a budget and sticking to it is the foundation for financial success as it helps you to live within your means and avoid debt.

“The first thing I recommend to most young people starting out is to understand a budget,” said Corbin Green, a growth and development director and financial advisor based in Salt Lake City. “People need to understand what money is coming in and what money is going out each month, and have it laid out in an organized fashion.”

When creating a budget, you’ll want to write down:

  • Your income: How much are you making each pay period?
  • Your expenses and recurring payments: What does your rent/mortgage, utilities, groceries and gas add up to each month?
  • Debts owed: How much do you owe for student loans, car payment, credit card debt?

Once you’ve assessed your income and expenses, you can make your budget.

2. Pay yourself first

Once you’ve outlined your initial expenses, such as your mortgage, car payment and utilities, it’s crucial to add an “expense” of paying yourself first to start building up a short-term and long-term savings account. Treat your savings and retirement account like a utility bill — it must be paid monthly and on time.

“My recommendation is to pay yourself first. The first bill paid each month should be money to your savings account, then your essential bills and anything left over at the end of the month is fun money,” Green said. “The biggest mistake I see is the younger generations make is not saving early enough. They tend to have a ‘kick the can down the road’ attitude and put off savings until their 30s.”

Let’s look at an example: Assuming you want to have $1 million in savings by the time you retire at age 65, this is how much you’ll need to invest each month:

Monthly savings to reach $1 million by age 65

Starting age

Monthly savings required

25

$381

35

$820

45

$1,920

“This generation lives lavishly, so the number we coach people to save is around 20% of their income. That should help them maintain their current lifestyle in retirement,” Green said. “If you want more travel and more fun stuff during retirement, saving 30% of your income will help you live a lifestyle above what you’re currently living.”

Time is on your side when you’re young. A little bit of money saved now is going to make a big difference later. Make your savings payments consistent, sustainable and automatic.

3. Start an emergency fund

In addition to your retirement account, you’ll want to start an emergency fund. An emergency account is money set aside specifically to cover the cost of an unexpected expense. This account usually consists of three to nine months’ worth of money that is easily accessible in case of an emergency.

If something unexpected were to happen (i.e., inability to work, illness, loss of income), you’d have quick access to cash that would sustain you long enough to pay your bills and allow you to find a qualified job.

4. Pay off existing debt

The average millennial has an average of $23,064 in debt, according to a recent study by LendingTree, the parent company of MagnifyMoney. Debt — or money owed to a lender — can be crippling to your financial, and even your physical and mental health.

Large amounts of debt can seem daunting to pay off, but it’s important to make a plan, start paying it off quickly and include it in your budget as a monthly payment. If you have more than one debt, how do you know which to pay off first?

Green suggests consolidating debt to one payment with a lower interest rate when possible. You may find and compare personal loans you can use to consolidate debt using this tool from LendingTree. You’ll input some personal information before getting to review loan offers.

LendingTree
APR

5.99%
To
35.99%

Credit Req.

Minimum 500 FICO

Minimum Credit Score

Terms

24 to 60

months

Origination Fee

Varies

SEE OFFERS Secured

on LendingTree’s secure website

LendingTree is our parent company

LendingTree is our parent company. LendingTree is unique in that you may be able to compare up to five personal loan offers within minutes. Everything is done online and you may be pre-qualified by lenders without impacting your credit score. LendingTree is not a lender.

But you may be more driven to try the debt avalanche or debt snowball methods of repayment.

“The financial professional in me says to put more money toward the debt with a higher interest rate and some money at the debt with lower interests rates; but never focus on just one expense at a time,” Green said. “But as a human, you may ask yourself ‘which of these debts is a moral victory to pay off?’”

If you owe money to a friend or family member and paying that debt off is a mental relief, Green suggests paying that off first and then moving on to other debts.

As a young adult, it’s important to make a plan to pay off and manage your debt to avoid heavy interest fees.

5. Build credit

A credit report is a report that shows your credit history and is used to determine your creditworthiness. Building a strong credit history and maintaining a high credit score are essential for your financial health. In your early 20s, it’s important to build your credit by paying your credit cards and utilities on time but avoiding debt in the process.

“Never live above your means and use credit for money that you don’t have,” Green said. “I never recommend buying anything on credit unless you have the means to pay it off in full at the end of every month.”

Using a credit card to build credit is a smart use case, but if you can’t afford to pay it off by the end of the billing statement, you probably can’t afford it in the first place.

6. Protect yourself financially

As you enter adulthood, you’ll want to make sure that you are protecting yourself and your finances with adequate insurance. Take advantage of the benefits offered at work — health insurance, life insurance, short and long-term disability insurance and 401(k) match, if offered. You may consider additional benefit packages outside of what your work offers.

“I always recommend you have something outside of work so you have control and coverage should you leave your employer,” Green said.

Managing your money and knowing where to get started with financial planning can be overwhelming and confusing — especially when you’re in your 20s. Finances can be complex, but it’s essential to educate yourself, find out what resources are available to you and start having financial conversations earlier rather than later in life.

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.

Sage Evans
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Sage Evans is a writer at MagnifyMoney. You can email Sage here

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Small Personal Loans: How to Find One and Qualify

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews 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.

Disclosure : By clicking “See Offers” you’ll be directed to our parent company, LendingTree. You may or may not be matched with the specific lender you clicked on, but up to five different lenders based on your creditworthiness.

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Personal loans are the fastest-growing consumer debt in America, according to Experian.

Where a mortgage goes toward buying a home and an auto loan goes toward the purchase of a car, a personal loan can be used in myriad ways. This article will define small personal loans and walk you through a variety of ways to use and get them.

What is a small personal loan?

A small personal loan is defined as anything between $1,000 and $5,000, according to LendingTree, which owns MagnifyMoney. Because small personal loans usually have low interest rates for those with good credit and can be paid back over a relatively short amount of time (two to three years), they allow borrowers quick access to money that can be used at their discretion, unless otherwise specified.

When used wisely and paid back on time, small personal loans can reduce stress, help solve financial problems and build credit. If you’re in need of a few thousand dollars to cover an expense, a small personal loan is worth considering.

“When you have little to no credit history, a small, unsecured loan with a short term that is quickly repaid can help build a positive credit history,” said Tricia Cook, branch manager for First Utah Bank.

Small personal loans are commonly used to help consolidate debt into one manageable payment, but can also be used to pay for medical, dental or veterinary bills, remodels or home repairs, weddings or funeral costs and unexpected expenses, to name a few.

“Usually, small personal loans are applied for in emergency situations, for example, your roof is leaking and you need $5,000 to replace it before winter,” Cook said. “My experience at the bank has shown that small personal loan applications rarely feel like they are planned for and the applicant is desperate for money right now.”

Where to get a small personal loan online

Once you’ve determined you need a small personal loan to cover an expense, you’ll want to start shopping and comparing lenders.

LendingTree’s small personal loan comparison tool can point you in the right direction. Using it, you’ll input basic information about yourself and what you’re looking for in a loan. The tool may then spit out lenders and loan offers for you to consider.

LendingTree
APR

5.99%
To
35.99%

Credit Req.

Minimum 500 FICO

Minimum Credit Score

Terms

24 to 60

months

Origination Fee

Varies

SEE OFFERS Secured

on LendingTree’s secure website

LendingTree is our parent company

LendingTree is our parent company. LendingTree is unique in that you may be able to compare up to five personal loan offers within minutes. Everything is done online and you may be pre-qualified by lenders without impacting your credit score. LendingTree is not a lender.

As you begin your search, consider these online lenders:

Upstart

Upstart offers loans with interest rates low as 8.89% and terms of up to five years. Upstart can be a good choice for small personal loans because it can lend as little as $1,000, depending on the state in which you live. Upstart can also be a good choice because it assesses more than credit score and credit history when determining a rate. It looks at the borrower’s education, area of study and work history for a more holistic picture of the borrower and their ability to repay. If you have a strong education and work history, you’ll likely benefit from a loan with Upstart. Upstart also allows you to pay off your loan on your terms without penalizing you.

APR

8.89%
To
35.99%

Credit Req.

640

Minimum Credit Score

Terms

36 & 60

months

Origination Fee

0.00% - 8.00%

SEE OFFERS Secured

on LendingTree’s secure website

Upstart is an online lender created by ex-Googlers.... Read More

Avant

Avant can be a smart option for those with a low credit score looking for a quick loan. If you qualify, funds can be accessed in as little as one business day. The minimum credit score required for an Avant loan is 580. If your credit score is hindering you from receiving a loan elsewhere, Avant may a good option for you. The minimum loan available is $2,000, with interest rates starting at 9.95% and terms up to 60 months.

APR

9.95%
To
35.99%

Credit Req.

Varies

Minimum Credit Score

Terms

24 to 60

months

Origination Fee

Up to 4.75%

SEE OFFERS Secured

on LendingTree’s secure website

Avant branded credit products are issued by WebBank, member FDIC.

Avant is an online lender that offers personal loans ranging from $2,000 to $35,000. ... Read More

LendingClub

LendingClub can offer small loans starting at $1,000 with interest rates as low as 6.95%. LendingClub offers loans to borrowers whose credit scores vary, but the minimum credit score is 600. If you’re looking for a small loan and have a strong credit history, this may be a smart option for you as you’ll likely get lower interest rates. But if you’re looking to receive your funds almost immediately, LendingClub may not be the best option as it takes about a week to receive your money.

APR

6.95%
To
35.89%

Credit Req.

600

Minimum Credit Score

Terms

36 or 60

months

Origination Fee

1.00% - 6.00%

SEE OFFERS Secured

on LendingTree’s secure website

LendingClub is a great tool for borrowers that can offer competitive interest rates and approvals for people with credit scores as low as 600.... Read More

Best Egg

Best Egg may be the lender for you if you’re looking for a fast and easy loan application process. Funds are deposited in as little as a day, and Best Egg offers interest rates as low as 5.99% to those who qualify. Best Egg analyzes three years’ worth of credit history and requires a 660 minimum credit score, so it may not be the best option for those with poor credit. Best Egg offers terms for up to five years and will loan as little as $2,000.

APR

Up to 5.99%
To
29.99%

Credit Req.

660

Minimum Credit Score

Terms

36 or 60

months

Origination Fee

0.99% - 5.99%

SEE OFFERS Secured

on LendingTree’s secure website

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People looking for a process that is fast and straightforward can’t go wrong when applying through Best Egg for a personal loan. ... Read More


*The Annual Percentage Rate (APR) is the cost of credit as a yearly rate and ranges from 5.99%-29.99%, which may include an origination fee from 0.99% - 5.99%. Any origination fee on a 5-year loan will be at least 4.99% and is deducted from loan proceeds. The APR offered will depend on your credit score, income, debt payment obligations, loan amount, loan term, credit usage history and other factors, and therefore may be higher than our lowest advertised rate. Requests for the highest loan amount may resulting an APR higher than our lowest advertised rate. You need a minimum 700 FICO® score and a minimum individual annual income of $100,000 to qualify for our lowest rate.

Best Egg loans are unsecured personal loans made by Cross River Bank, a New Jersey State Chartered Commercial Bank, Member FDIC. Equal Housing Lender. "Best Egg" is a trademark of Marlette Funding LLC. All uses of "Best Egg" on this site mean and shall refer to "the Best Egg personal loan" and/or "Best Egg on behalf of Cross River Bank, as originator of the Best Egg personal loan," as applicable. Loan amounts generally range from $2,000-$35,000. Offers up to $50,000 may be available for qualified customers who receive offer codes in the mail. The minimum individual annual income needed to qualify for a loan of $50,000 is $130,000. Borrowers may hold no more than two open Best Egg loans at any given time. In order to be eligible for a second Best Egg loan, your existing Best Egg loan must have been open for at least six months. Total existing Best Egg loan balances must not exceed $50,000. All loans in MA must exceed $6,000; in NM, OH must exceed $5,000; in GA must exceed $3,000.

Borrowers should refer to their loan agreement for specific terms and conditions. A loan example: a 5–year $10,000 loan with 9.99% APR has 60 scheduled monthly payments of $201.81, and a 3–year $5,000 loan with 5.99% APR has 36 scheduled monthly payments of $150.57. Your verifiable income must support your ability to repay your loan. Upon loan funding, the timing of available funds may vary depending upon your bank's policies.

To help the government fight the funding of terrorism and money laundering activities, federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account. When you open an account, we will ask for your name, address, date of birth, and other information that will allow us to identify you.

Small loans from credit unions

Getting a small loan from a credit union is another option besides shopping for one online. Credit unions are regulated and insured nonprofits. They are often community-focused.

A credit union is a good place to get a small loan because you can become part of the credit union community, build relationships with the members and potentially get lower interests rates on your small loan.

When applying for a loan, credit unions will assess many factors, such as your credit report and ability to pay back the loan. When obtaining a loan from a credit union, come prepared with your Social Security number, proof of income and personal identification.

Check out personal loan offers at credit unions here.

Small loans from banks

Small loans can ease financial stress when used wisely. Working with a bank to get a small personal loan is a smart idea because the federal government heavily regulates banks. These regulations aim to protect the borrower from getting in too much debt.

Before granting you a loan, the bank will look at your financial history to assess how much money they can reasonably lend you. This will help ensure you are not in over your head when you get the money.

“The ability-to-repay rule [under the Truth in Lending Act] ensures that banks have looked at your current income and your current debt and are able to prove that you have the ability to repay the full balance, not just the monthly minimum payments,” Cook said. “A bank cannot lend to you in a way that would make you overextended.”

When shopping for a small loan from a major bank, you may consider local options such as Citibank or Wells Fargo. But you can review the best personal loans here.

Alternatives to a small personal loan

When you need to borrow money and do not wish to obtain a personal loan or cannot get one due to poor credit, there are a variety of other ways to get a loan. Here are four alternatives to a small personal loan from a bank or credit union.

1. Credit card

Using a credit card to make a purchase or pay off an expense is a viable option if you’re able to pay back the amount charged in full (and on time).

“Credit cards can be smart to have when you are smart with your spending and paying your bill to a zero balance each month,” Cook said. “People get into trouble when they use a credit card and buy things they truly can’t afford, even when the payments are split up over a few months.”

Most credit cards offer at least a 21-day grace period and will not charge interest in that time frame. After that period, if the balance is not paid in full, the cardholder will be charged interest on the remaining statement balance. Credit card interest averages 15%, so if you cannot pay it back quickly, a small personal loan is a better option as the interest rate is much lower and the monthly payment is fixed.

– Compare low interest credit cards here

2. Pawnshop loans

Pawnshop loans allow the borrower to take an item — often jewelry or electronics — to a pawnshop to be evaluated as collateral in exchange for quick cash.

“A pawnshop is a good choice if you want to sell something quickly and take the cash,” Cook said. “But if you truly intend to get your merchandise back, you’re in essence paying for that item twice. Ask yourself: ‘How much will I have paid for my belonging when I’m done?’”

The borrower typically has up to 90 days to repay a pawnshop loan — plus fees and interest, which can be upward of 200%. Pawnshop loans do not require a credit check, can be obtained quickly and do not negatively impact a borrower’s credit score if they are not paid back on time. While pawnshops are regulated by 15 federal laws, keep in mind that the interest rates incredibly high and you will likely lose your collateral should you default on the pawnshop loan.

3. Advance on paycheck

A payroll advance is a type of unsecured loan that allows an employer to release the employee’s pay ahead of time. Paycheck advances are usually used to cover an unexpected expense that must be paid immediately. If you can cover an expense with your upcoming paycheck but need it early, asking about an advance on the paycheck is worth considering.

Policies around paycheck advances differ by company, so it’s best to discuss terms with your HR department to see what options are available. But if using your entire advanced paycheck to cover an unexpected expense will disrupt your monthly budget, a small personal loan may still be your best option.

4. Borrowing from friends

Borrowing money from friends or family has its pros and cons. The upside of borrowing from a friend is you can set your own terms, negotiate interest rates (if any) and determine the repayment schedule. Friends or family who act as a lender may be more lenient with borrowing terms compared to a bank or credit union.

But asking someone close to you to borrow money can be awkward and potentially cause a strain on that relationship. Money can be a sensitive subject. When borrowing from a friend, ensure that both parties agree to the loan terms and are comfortable with the situation.

Avoid payday loans

Payday loans are short-term loans with incredibly high interest rates. Interest rates vary by state but can be upwards of 700% in some instances. Unless paid off in full on time, payday loans should be a last resort and avoided in most cases.

“The advice I’d give anyone is to stay away from a payday loan,” Cook said. “There is no one watching out for the borrower’s best interest. For example, you’ll see an ad that quotes their interest rate of 5%, which sounds good compared to the bank at 13%, but they fail to explain what’s in the fine print — that it’s 5% a month, not 5% APR (annual percentage rate).”

When you’re in need of a small personal loan, know that you have many options available to you.

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.

Sage Evans
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Sage Evans is a writer at MagnifyMoney. You can email Sage here

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Unsecured Debt vs. Secured Debt: What’s the Difference?

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When talking about debt, it’s important to understand the two major forms: unsecured debt and secured debt. Knowing what types of debt you owe, and the differences between secured and unsecured debt, is crucial when it comes to personal finance. This article will define each type of debt, discuss the differences, highlight pros and cons and provide ways to manage it in your budget.

What is unsecured debt?

Unsecured debt is borrowed money that has no collateral — something pledged as security for repayment — attached in case the borrower defaults on the loan. If the borrower defaults on the debt, the bank or lender has nothing to take back as repayment for the debt. Interest rates are usually higher with unsecured loans because they are riskier for the lender.

Common forms of unsecured debt include:

  • Student loans: A student loan is money given by a financial institution or the federal government to a student to pay for advanced education. A student does not have to put down collateral in order to obtain a student loan.
  • Personal loans:Personal loans are another form of unsecured debt. An individual can take out a personal loan for a variety of financial reasons without having to put down collateral — like a home or car — in exchange for the initial loan.
  • Credit cards:Credit cards allow people to borrow money from the bank to make any purchase on credit, with the stipulation that you’ll pay the amount back within a certain period of time. If you pay the bank back in full within the appointed amount of time (no less than 21 days), you will not owe any interest or additional payments on the card. If you fail to pay off your debt during the grace period, you will owe interest money in addition to the original amount owed.

As with all things, there are pros and cons to unsecured debt.

Pros of unsecured debt

1. Unsecured debt is less risky for the borrower
Unsecured debt is less risky for the borrower and more risky for the lender. Because lenders do not have any collateral for your unsecured debt, you cannot lose any of your assets if you cannot make a payment. A lender is not able to take back the purchases you charged on your credit card, but there are other consequences to not repaying unsecured debt.

2. Unsecured debt could improve your credit score if paid in full
If borrowers are diligent about paying their monthly payments on time, this can improve their overall credit score. By regularly paying the debt in full, you’re proving that you are reliable, trustworthy and a safe bet for future loans.

3. Unsecured loans can be used at your discretion
Unsecured loans can be used to pay for a variety of items. Though debt like student loans is limited in its uses, borrowers can use personal loans or credit cards to pay for almost anything, including medical bills, home remodels or debt consolidation. These types of unsecured loans offer borrowers flexibility and more choices on how they use the money borrowed.

Cons of unsecured debt

1. Missed payments can negatively impact your credit
While paying an unsecured debt on time can improve your credit score, missing payments can negatively impact your credit. Lenders can report your failure to pay to a credit bureau, which can lower your credit score and make it more difficult to obtain loans in the future.

2. Unsecured debt can be reported to a debt collector
If you’re unable to pay back your unsecured debt, the lender will likely hire a debt collector to press you to pay back your debt. Debt collectors can aggressively hound you to receive payment for your unsecured debt, and failure to pay it back may also result in legal issues where you can be sued.

What is secured debt?

Secured debt is backed with or guaranteed by collateral and assets. Should a borrower default on a secured loan, the lender has the legal right to take said collateral as payback for the debt owed.

Common forms of secured debt are:

  • Mortgages: A mortgage is a loan from a bank or a mortgage lender that helps you finance the purchase of a home. Borrowers acquire a mortgage knowing that if they default on their monthly payments, the bank can take the house from them as payment for the debt. The house is the collateral that secures the debt.
  • Vehicle loans: Like a mortgage, a loan for a car is a secured form of debt. Vehicle loans are money given to a borrower to put towards a vehicle. Should the borrower not make the required car payment, the lender can repossess the car to satisfy the debt.
  • Car title loans: Once you have paid off your vehicle loan in full, you will own the car outright and receive the car title. A car title can then be used as collateral for future loans. The borrower can give the lender the car title as an asset. Should the borrower default on said loan, they would not receive the car title back until the debt was repaid in full.

Pros of secured debt

1. Secured debt usually has lower interest rates
Secured debts are less risky for lenders because the loan is secured by an asset. If you don’t pay up, the lender can take your collateral to earn back the money it lost on their loan to you. Because the loan is a safer bet, banks and lenders usually offer better interest rates. Lower interest rates allow you to pay more to the principle each month, which in turn, allows you to pay off the loan faster.

For example, the average interest rate on a 30-year mortgage is 4.83% (as of Nov. 1 2018), according to Freddie Mac. In comparison, the interest rate on a personal loan can vary anywhere from 4.99% to 29.99%, according to Lending Tree, which owns Magnify Money.

2. Secured loans can be easier to obtain
Secured loans are a relatively safe option for lenders. By securing your loan with collateral, you’re telling the bank that if you default, they can take said collateral as payment.

Because of this, secured loans are often easier for borrowers to obtain. Unsecured loans are often dependent on your credit score, so not everyone can qualify. While credit score does play a role in obtaining any type of loan, secured loans may have less stringent requirements for borrowers to meet.

3. Secured debt allows you to build credit
When you pay your monthly mortgage or vehicle payment on time, you’re showing lenders that you are a reliable borrower. This in turn boosts your credit score and allows you to improve your credit for future loans.

Cons of secured debt

1. Failure to pay secured debts results in loss of assets
Unlike unsecured debt, failure to pay secured debts results in loss of your collateral. Should you miss payments on your mortgage or vehicle, the lender can foreclose on your home or repossess your car.

2. Default on secured loans can damage your credit
While paying your secured debt on time can build your credit and improve your credit score, failure to pay your secured debt can result in major damage to your credit and affect your ability to get a loan in the future. In addition to losing physical assets with a secured loan, you can also damage your credit score, which can have serious financial repercussions.

Which form of debt is better?

All debt — secured and unsecured — should be taken seriously. Mismanaged debt can negatively impact your credit score, affect your ability to get any kind of future loan and wreck your budget and personal finances.

Secured debt is necessary for obtaining a mortgage or a vehicle loan. You’ll often receive a lower interest rate and higher loan amount, but will have larger consequences — like losing your assets — for missing a payment or defaulting on the debt. Unsecured debt requires no up-front collateral, but failure to pay can result in battles with debt collectors and the courts, and can also damage your credit score and financial history.

Whether you’re paying off secured or unsecured debt, it’s important to ensure you’re making your monthly payments and paying them on time. Failure to pay off debt can result in unnecessary interest payments, loss of assets, damage to your credit score, financial stress and serious legal issues.

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.

Sage Evans
Sage Evans |

Sage Evans is a writer at MagnifyMoney. You can email Sage here

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