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Yahoo
04-05-2025
- Business
- Yahoo
5 Best Ways To Use Your Stimulus Check If You Just Got Your $1,400 Payment
A stimulus check may seem like free money. However, financial experts said how consumers use unexpected money can make a big difference in an uncertain economy. Whether you're catching up on bills, boosting retirement savings or paying down debt, here are the five best ways to use your stimulus check if you just got your $1,400. Read Next: Try This: Recipients should consider using their $1,400 stimulus check to build or replenish an emergency fund, especially if it's currently underfunded. A solid cushion can help cover unexpected expenses like medical bills or job loss without relying on high-interest debt. 'The rule of thumb is to have enough money set aside to cover at least three months of your current expenses, but at a minimum you should have enough to cover your highest insurance deductible,' said financial coach Chris Fohlin. 'That's usually a couple thousand dollars to cover you in any worst-case scenarios like a health emergency or car accident. If you don't have enough in emergency savings, that's where the entire check should go,' Fohlin explained. Check Out: Using the stimulus check to pay down credit cards or other high-interest loans can offer long-term financial relief. Reducing debt not only lowers monthly payments but also frees up cash for future needs or emergencies. 'Getting a windfall can seem like a great opportunity to just spend money or buy something fun. For many, using the money for something fun can make sense. But if you are behind on expenses or have high-interest debt, then you are missing out on a chance to get your finances under control,' said Ashley Morgan, bankruptcy and tax lawyer at Ashley F. Morgan Law. 'Using the $1,400 for any high-interest debt will help save you money in your monthly budget,' Morgan added. For those who are financially stable, putting stimulus funds toward a Roth IRA or workplace retirement plan can help grow long-term wealth. Even small contributions can compound significantly over time, especially when invested early. 'I typically coach clients to make a rule that 15 to 25% of their income goes into retirement savings,' Fohlin said. 'I had a client decide she would treat unexpected income differently and put 50% into retirement. The point is to create a playbook that factors in all your goals so there's no guesswork around making smart money choices.' For those new to investing, options like high-yield savings accounts, certificates of deposit (CDs) or beginner-friendly ETFs offer modest returns without high risk. 'If you are saving the money, typically you want to first look into a high-yield savings account,' Morgan said. 'If you do not need to have access to the funds, then looking at a CD or a bond technically is a no risk option, but you won't be able to easily pull funds until maturity.' These tools can help build confidence and financial momentum without sacrificing stability. 'For beginner investing, I recommend getting started with an IRA or brokerage account and sticking to diversified options like index funds, where your money gets spread across a bundle of companies,' Fohlin said. 'You want to diversify so that one company's bad day won't sink your portfolio.' By approaching unexpected income with the same care as a paycheck, people can avoid common regrets and make financial choices that actually support their long-term goals. 'I see too many new clients who were flippant with unexpected money and later regret it,' Fohlin added. 'Don't treat unexpected money with any less intention than your regular income.' More From GOBankingRates 6 Used Luxury SUVs That Are a Good Investment for Retirees How Far $750K Plus Social Security Goes in Retirement in Every US Region 7 Overpriced Grocery Items Frugal People Should Quit Buying in 2025 12 SUVs With the Most Reliable Engines Sources Chris Fohlin, Ashley Morgan, Ashley F. Morgan Law. This article originally appeared on 5 Best Ways To Use Your Stimulus Check If You Just Got Your $1,400 Payment Sign in to access your portfolio
CBS News
13-02-2025
- Business
- CBS News
Secured vs. unsecured debt: Everything to know now
Debt is crushing American households in 2025. A recent Achieve Center for Consumer Insights survey found that 28% of consumers saw their debt increase last fall, with many struggling to cover basics including food and housing. Between inflation, resumed student loan payments and unexpected medical bills, more people are turning to credit cards just to make ends meet. With interest rates at record highs, debt can quickly spiral out of control. Even a few missed payments can lead to severe consequences. Before borrowing money, it helps to understand how secured and unsecured debt differs. Each type comes with unique risks that could impact your finances for years. . Secured vs. unsecured debt: Everything to know now The key difference between secured and unsecured debt boils down to the level of risk. Adrienne Hines, a bankruptcy attorney, explains that secured debt gives lenders "security" through valuable assets such as your home or car. In contrast, unsecured debt relies on your promise to repay. Without collateral as protection, lenders may charge higher interest rates and require excellent credit scores to offset their risk. Understanding secured debt and its risks Secured debt is backed by collateral or a hard asset and comes in these forms: Mortgages Car loans Home equity loans and home equity lines of credit (HELOCs) Secured credit cards (which require you to put a cash deposit) Missing payments on any of these debts can have swift and serious consequences. Debt and bankruptcy attorney Ashley Morgan of Ashley F. Morgan Law warns that car lenders can repossess your vehicle after one missed payment — though most wait until you're 90 days behind. With mortgages, falling behind can trigger foreclosure proceedings, putting your home at risk. The financial damage doesn't stop at losing your property. "If your home is foreclosed on and sold or your car is repossessed, you can be financially liable for the difference in the value and the sale price," says Gwyneth Borden, debt and public policy expert and founder of Remynt. This means you could still owe thousands even after losing your asset. Speak to a debt relief expert about your options now. The ins and outs of unsecured debt Unsecured debt doesn't require collateral. Here are the most common examples: Credit cards Medical bills Student loans Personal loans While unsecured lenders don't have immediate recourse to take your property if you default, these debts come with other risks. "The predatory nature of unsecured lenders has become very sophisticated at targeting desperate people," Hines warns. "They're trapping them in a cycle of daily compounding interest [that can last for decades]." Missing payments can damage your credit score, making recovery even harder. Black marks on your credit can hinder you from renting a new home, getting approved for credit cards or qualifying for reasonable interest rates on future loans. Strategies for tackling debt head-on Getting out of debt starts with understanding where your money goes. "Budgeting, as basic as it sounds, is usually the starting place to get your finances under control," explains Morgan. By tracking your spending and credit card balances each month, you can spot places to cut back and free up money for debt payments. Beyond budgeting, financial experts recommend these proven debt assistance strategies: Consider getting a debt consolidation loan: If you have good credit, Borden suggests consolidating high-interest debts into a single loan with a lower rate. Just be careful not to rack up new credit card debt after consolidating. Talk to your creditors: Some lenders offer hardship programs that can lower your interest rates or restructure payments. This can save you money without involving debt relief companies. Consult a bankruptcy attorney:"Most people don't realize their retirement plans and the equity in their homes are often protected (in whole or in part) if they file for bankruptcy," explains Hines. A free consultation can help you understand your options. Use the snowball method: Paying off your smallest debts first can keep you motivated. As you pay off debt, roll that payment into tackling your next smallest balance. Try the avalanche method: Target debts with the highest interest rates first while making minimum payments on others. Using this strategy, you save money in interest charges in the long run. The bottom line "To fix [secured or unsecured] debt, you [must] be honest about how much [of it] you [have] and be open to exploring all available ways to manage it," emphasizes Hines. A single conversation with a financial advisor, credit counselor or bankruptcy attorney can open doors to solutions you might not know exist. Not sure where to start? Experts recommend beginning with a simple budget to stop adding new debt. Then, weigh if debt relief is a good idea for your situation — and which strategy fits best. The snowball method offers quick wins, the avalanche approach saves on interest and bankruptcy might provide a fresh start.
