Applying for a credit card — and waiting for approval or denial — can feel as scary as taking a final exam or giving a public speech.

Knowing how to apply for a credit card is one thing, but knowing what issuers are looking for before you apply for a new card is really the first step to success.

Depending on your credit (what lenders might refer to as your “creditworthiness”), you may not be ready to apply for a credit card right now, but you can take proactive steps that may help you get approved in the future.

If you think you’re ready, we’ve outlined how to apply for a credit card in eight steps.

1. Check your credit scores

Knowing your credit scores and what’s on your credit reports can help you determine what products to apply for.

2. Determine what type of card you need

If you’re a first-time applicant, it’s probably a good idea to shoot for a card with low or no annual fees and a low interest rate. If you have no credit history at all — or you’ve had trouble getting approved for an unsecured credit card in the past — you might still qualify for a secured credit card, which requires a security deposit and is commonly used to build credit.

3. Understand the terms on your credit card application

Once you’ve decided on the type of card you want to apply for, you’ll come across some credit card terms on the application or in the credit card’s terms and conditions. These include:

Annual fee — This yearly fee, charged by the card issuer, lets you use the card and reap any associated benefits, like cash back rewards.

Annual percentage rate for purchases — The interest rate reflecting the total annual cost of the interest on your card purchase balance if you don’t pay the balance in full each month.

APR for cash advances — The interest rate reflecting the total annual cost of the interest on the cash that you borrow against your credit card balance.

Cash advance APRs tend to run high and the interest starts accruing the day you borrow the cash.

Cash advance fee — Interest charges aren’t the only cost you’ll rack up when you get a cash advance — many credit card issuers also charge a cash advance fee per transaction.

Penalty fees — A card issuer charges you with these fees when you go over your credit limit or make a late payment.

4. Choose where to apply

Already have a checking or savings account at a bank or credit union? Applying for a credit card from a financial institution where you have an account may be a good idea, since you have an established history there.

5. Check to see if you’re prequalified

Some issuers allow you to see if you’re prequalified for their credit cards. You typically need to fill out a short form and submit personal information, including your Social Security number. This triggers a soft inquiry, which won’t affect your credit scores.

If you’re rated as “preapproved” or “prequalified,” this means you’ve met all the lender’s criteria so far. But you still need to apply for the card and being fully approved will depend on other factors, including your income.

6. Prepare for a knock to your credit

When you apply for a new credit card, it usually triggers what’s known as a hard inquiry on your credit reports. A hard inquiry can lower your credit scores by a few points and may stay on your credit reports for as long as two years.

7. Use credit card best practices

If you get approved for a card, congratulations! Educate yourself about credit card best practices, such as making full, on-time payments and keeping your credit usage low.

What if your application is denied?

First of all, don’t despair. Many people have been rejected for credit cards, and many have later been accepted for other cards. Secondly, weigh your options. You might want to try applying for a different traditional (unsecured) card. Or you might consider applying for a secured credit card. But be very selective about additional applications, as each triggers its own hard inquiry that may hurt your credit.

There are several different options available to borrow money. Whether you’re looking for extra cash to consolidate credit card debt, pay a medical bill or take a vacation, the right choice for you depends on your financial situation.

We’ve rounded up eight different borrowing options, along with the advantages and disadvantages of each.

Let’s walk through each option so you know what to consider before you decide if borrowing money might be best for you.

1. Banks
2. Credit unions
3. Online lenders
4. Cash advance apps
5. Cash advance from a credit card
6. Buy-now, pay-later apps
7. 401(k) retirement account
8. Family and friends

1. Banks

Pros of borrowing money from a bank

Banks often offer a range of options for borrowing money, from personal loans to mortgage options. Some bank loans come with perks — you may not be charged a loan origination fee, for example. An origination fee often ranges from 1% to 8% of the loan amount — lenders say it covers administrative expenses for processing your application and paying you the money.

You may also qualify for an interest rate discount — sometimes referred to as a relationship discount — if you’re an existing customer at a bank that offers this perk. Some banks offer loyalty discounts on personal loan interest rates if you maintain qualifying bank accounts.

Cons of borrowing money from a bank

Keep in mind that some big banks don’t offer personal loans at all, so you may have to look for an option outside of your bank. And some banks may require you to have a minimum of good or excellent credit to get approval for a personal loan.

2. Credit unions

Pros of borrowing money from a credit union

A personal loan from a credit union might be a better option than a personal loan from a bank. Why?

A credit union may offer lower interest rates and fees than a bank. Since credit unions are nonprofits dedicated to serving their members, their goal is to return profit to members instead of shareholders.

Some credit unions also offer payday alternative loans, which are short-term loans for small amounts designed to help members avoid costly payday loans.

Cons of borrowing money from a credit union

One drawback is that you must meet a credit union’s eligibility requirements in order to become a member. This can include residence in certain counties, a connection to a specific school or employer, or family ties to a current member.

3. Online lenders

Pros of borrowing money from an online lender

Online lenders don’t have the costs that come with maintaining physical branches. And they often offer the user experience that people have come to expect from digital loan applications.

Many online lenders promise fast funding, with money deposited into your bank account in as little as one or two business days if you’re approved.

Cons of borrowing money from an online lender

There’s a wide range in the types of loans you can get from online lenders. If you’re not familiar with an online lender, research its reputation and check with traditional lenders to see if they can offer better interest rates and terms.

Some online lenders offer loans with terms that are similar to payday loans, so make sure to read the fine print carefully before accepting an offer.

4. Cash advance apps

Pros of borrowing money from a cash advance app

If you find yourself quickly needing a small advance on your next paycheck to tide you over during a financial emergency, a number of companies offer small cash advances that can come with favorable terms compared to traditional payday loans.

These companies often have mobile apps, and they’ll advance you up to $500 a pay period if you meet qualifications.

Cons of borrowing money from a cash advance app

Some of these apps may come with a monthly membership fee, while others ask for optional tips to use their services. To use one of these apps, you may need to connect your bank account or share information about your paycheck — or the service may only be available to employees of certain companies.

5. Cash advance from a credit card

Pros of getting a cash advance from a credit card

Using a credit card to access cash can seem like an appealing option. Since you already have the card, you don’t have to fill out an application or go through a credit check to get what essentially is a short-term loan against the line of credit available on your credit card. Plus, you can typically access the money quickly. If you are planning on getting the advance directly from an ATM, you will be required to use a credit card PIN, which you should be able to set up directly with your issuer if you don’t already have one in place. Alternatively, banks that do business with a specific issuer will likely offer cash advances from a credit card as long as you visit in person and can show a government issued photo ID.

Cons of getting a cash advance from a credit card

The simplicity of a credit card cash advance can come at a price. Some card issuers charge a fee to get a cash advance along with an interest rate that’s usually high. Also, most credit cards don’t offer a grace period for cash advances, meaning that the interest charges start the moment you withdraw the cash.

6. Buy-now, pay-later apps

Pros of borrowing money from a buy-now, pay-later app

If you’re looking to spread out a large purchase over several months, a loan from a buy-now, pay-later app is another option to consider. These apps partner with retailers and even airlines and hotels to help you finance these items.

Cons of borrowing money from a buy-now, pay-later app

You’ll want to consider any fees you may be charged for late payments — which may also affect your credit scores negatively.

7. 401(k) retirement account

Pros of borrowing money from your 401(k)

If your 401(k) plan allows loans, borrowing money from your employer-sponsored 401(k) requires no credit check and could be a low-interest way to quickly access the needed cash. Traditionally, a 401(k) loan allows you to borrow up to $10,000 or 50% of your vested account balance with a cap of $50,000, whichever is greater.

The loan must be repaid within five years, and the interest you pay on the loan goes back into your 401(k).

Cons of borrowing money from your 401(k)

Though accessing cash from your 401(k) sounds simple, consider some of the consequences. For instance, if you leave your job, you could be forced to repay the loan in full before your next federal tax return is due. If you can’t repay the loan, you might be hit with tax penalties.

And don’t forget that you’ll be missing out on investment returns on money you pull out of your 401(k).

8. Family and friends

Pros of borrowing money from family and friends

Getting a loan from a family member or friend may seem like an uncomplicated way to get cash when you need it. After all, a family loan might come with no contract — or a basic contract — and you might get a very favorable interest rate even without excellent credit.

Cons of borrowing money from family and friends

Things can get complicated if a dispute arises over repayment of the loan. What if you still owe $5,000 to Aunt Denise? That can cause a lot of awkwardness. Another drawback: Since your friend or relative can’t report your loan payments to the three major credit bureaus, you won’t reap any credit-building benefits.

Options for borrowing money

FAQs about places to borrow money

Next steps

Whether you need fast cash or a long-term loan, you should take the time to research loan options and ask questions before you borrow money. Here are some key questions to think about.

• Why do I need the money, and which type of loan best fits that need?
• What is the interest rate?
• Are there any fees associated with the loan?
• How long do I have to pay back the loan?
• What happens if I can’t pay back the loan?
• Will a creditor perform a hard credit check that will affect my credit scores?

Try to stay away from expensive forms of borrowing like title loans and payday loans if at all possible.

If you’re in the market for a used car, you probably want to make sure you’re not going to buy a dud.

Carfax provides vehicle history information for buyers and sellers of used cars in the U.S. and Canada, and there are three ways you can get a free Carfax report.

• When you shop for a used car on the Carfax website or on sites like autotrader.com and cars.com
• On a car dealer’s website or at a car dealership
• Through a private seller

But keep in mind that not every online listing, car dealership or private seller will supply a free Carfax vehicle history report. Remember, too, that a Carfax report might not include every facet of a car’s history.

• What is a Carfax report?
• How do I get a free Carfax report?
• What are some alternatives to a free Carfax report?
• What should I look for in a vehicle history report?
• What should I do after reading the vehicle history report?

What is a Carfax report?

Carfax compiles a history report for a vehicle based on data it collects from U.S. motor vehicle agencies, police departments, fire departments, collision repair centers, auto auctioneers and other sources. Carfax says its vehicle history database contains more than 22 billion records.

Each report relies on data reported to Carfax for a unique, 17-digit vehicle identification number, or VIN, which includes information about a car’s history.

• Major accidents
• Past owners
• Maintenance history
• Structural damage
• Manufacturer recalls
• Odometer readings
• Warranty information

Carfax says its reports can help you steer clear of buying a car with hidden problems, including damage caused in an accident.

“Accidents are always a big concern, and a small accident might be a deal-breaker for many,” says Carfax spokesperson Jim Sharifi. “That said, if a car has had a small accident and the damage was repaired correctly, it could still be a great car. That’s why we’ve taken additional steps to explain the location and severity of accident damage on our vehicle history reports.”

How do I get a free Carfax report?

Carfax provides three avenues for getting a free Carfax vehicle history report.

1. Used-car listings

Carfax says every car listed for sale on its website comes with a free Carfax report. Websites like autotrader.com and cars.com also might include free Carfax reports with their listings. If a used-car listing lacks a link to a free Carfax report, Carfax suggests requesting one from the seller.

2. Car dealers

Many used-car dealers offer free Carfax reports on their websites. If you don’t see a link to a free report, Carfax recommends reaching out to the dealer to ask for one. Reports also might be available by visiting a car dealership.

3. Private sellers

If you’re considering buying a used car from a private seller, ask for a free Carfax report. Keep in mind that that the seller might not have a report or might be reluctant to share the vehicle’s history, according to Carfax’s website.

What are some alternatives to a free Carfax report?

Aside from getting a free Carfax report, there are several ways you can get a free vehicle history report.

Get free information from another provider

Companies like VINcheck.info and AutoCheck also supply vehicle history information.

VINcheck.info supplies vehicle history information based on data tied to a car’s VIN or license plate number, including accidents, odometer readings and damage. VINcheck.info promotes its vehicle history reports as no-cost alternatives to reports from Carfax and its competitors.

AutoCheck offers only a free two- or three-digit vehicle history score, which grades a car’s history. You have to buy a report to obtain a car’s full background.

Buy a vehicle history report

In addition to the numerous websites that offer vehicle history reports, the federal government’s National Motor Vehicle Title Information System lists approved providers of vehicle history reports starting at $2.95. These reports, intended to only provide data on indicators associated with preventing auto fraud and theft, broadly cover title information, previous damage and odometer readings — but nothing beyond that. The system’s data comes from three sources: auto recyclers, salvage yards and junkyards.

The Federal Trade Commission, or FTC, notes that since information in one report from one company might not be complete, you may want to consider getting a second report from another company.

If a report is outdated or you think information might be missing or made up, the FTC suggests reaching out to the company that produced the report for clarification.

What should I look for in a vehicle history report?

Once you get a vehicle history report, here are some questions some dealers recommend you ask. 

• Has the car been involved in any crashes?
• How much damage has the car sustained?
• Has the car ever been totaled?
• Has the manufacturer issued any recalls?
• Does it look as if the odometer has been altered?
• How many owners has the car had?
• What type of maintenance and repair has the car undergone?

What should I do after reading the vehicle history report?

A vehicle history report from Carfax or another provider can help you decide whether to buy a car. But it’s not the only consideration.

For instance, the FTC points out that a vehicle history report isn’t a substitute for a vehicle inspection by an independent mechanic, even if the car has been certified by a dealer or if it comes with a warranty. This inspection can detect hidden damage and other problems.

What’s next?

Whether you get it for free or buy it, a vehicle history report can be an important tool when you’re purchasing a used car. Although a vehicle history report might not reveal everything about a car’s past, it can help you make a more informed buying decision.

Here are some other steps to take if you’re buying a used car.

• Go on a test drive.
• Review maintenance records.
• Figure out the value before negotiating a price.
• Research the car’s maintenance and repair costs.

A car bill of sale serves as a written contract between buyer and seller.

Requirements for a car bill of sale vary by state. But even if you live in a state where the bill of sale isn’t mandatory, you may want to request one. Why? Because it can detail important information about the used car you’re buying and the sale on paper for your records.

If you’re selling your car and want to find out whether your state requires a bill of sale, check your local department of motor vehicles or transportation agency website.

• Do I need a bill of sale for a car?
• Who creates the car bill of sale?
• Can I write my own bill of sale for a car?
• What does a car bill of sale look like?

Do I need a bill of sale for a car?

A car bill of sale is a document verifying important details about the car, like its odometer reading, along with other information about the transfer of ownership from one person to another. Some states require a bill of sale.

And a car bill of sale can function differently depending on which state you’re in. For example, if you’re selling your car in Montana and don’t have a copy of your car title, the car bill of sale is one of the documents the buyer will need to get the car’s title transferred to them. And in Georgia you need the bill of sale to get a Georgia title, registration and license plate.

Some states require sellers to complete a bill of sale to remove the seller’s name from the car and help the seller avoid liability related to the car after it’s been sold. That liability risk might, for instance, include the car being …

• Used in a crime
• Involved in a crash
• Ticketed

Who creates the car bill of sale?

Who handles writing up the bill of sale can depend on who sells the car.

For example, in some states, when a dealership sells a car, it will typically produce the bill of sale for you.

But someone selling a car privately may need to generate a bill of sale that both the seller and buyer must sign.

If a bill of sale is required, after both the seller and buyer sign the bill of sale, the seller should make a copy and give it to the buyer.

Can I write my own bill of sale for a car?

Depending on where you live, you may be able to write your own car bill of sale.

Some states require you to use a state-authorized template. Others allow you to write a bill of sale without a template, although you’ll likely need to stick to a checklist of items that must be included. To find out what your state requires, check your local department of motor vehicles. Some offer downloadable templates.

What does a car bill of sale look like?

Image: aaupdatebillofsale

Some states may require the following information in a vehicle bill of sale: 

1. Buyer’s and seller’s names, addresses and signatures. Above the signatures, some state bill of sale templates include a statement like “I declare under penalty of perjury that this information is true and correct.”
2. Vehicle information such as the year, make, body type and model
3. Car’s title number
4. Car’s vehicle identification number, or VIN
5. Date of sale and purchase price
6. Odometer reading

Next steps

If you’re selling your car, you may need to generate a car bill of sale — and even if you don’t have to, you may want to. Some states allow you to download a bill of sale form that may ease the process. Be sure to check with your state about what documentation and information you need to provide to close the sale.

Just as it’s smart to try on shoes before you buy them, it makes sense to take a car for a test drive to make sure it fits your needs before you sign on the dotted line.

Altogether, American drivers together spend some 70 billion hours on the road annually, according to a survey published in 2019 by the AAA Foundation for Traffic Safety. So it’s safe to say that you’ll want your car to perform well during all that time in the driver’s seat — and a test drive can help you spot any potential issues with it.

Ride along as we steer you through some of the key things to look for when you take a test drive, whether you’re shopping for a new car or a used one.

• How to plan for a test drive
• What to look for before your test drive
• What to look for during the test drive
• Options after your car test drive

How to plan for a test drive

After you’ve set your car budget and researched makes and models of interest, schedule test drives for the vehicles on your shortlist. In many cases, you can schedule a test drive online in advance to help ensure the exact cars you want to check out are available at a specific date and time. Some car dealers may even bring the car to your home or office so you can take it for a spin at your convenience.

How long is a test drive?

There’s no set amount of time for a test drive. Drive the car as long as possible, on different types of roads, to get a feel for how it handles different terrain. Consumer Reports recommends test driving a vehicle for at least 30 minutes.

What to look for before your test drive

Before you get behind the wheel, take a moment to walk around the car and give it a once-over. Assess how you’ll use the vehicle and how much space you need. Here are some of the factors to weigh related to roominess.

Room for kids and pets

Do you have children who travel in car seats? Will you be chauffeuring their schoolmates to soccer practice? You probably don’t want your youngsters to be uncomfortably crammed into your car.

Just as you want your kids to ride in comfort, you also want your dogs, cats or other creatures to feel at home (even when they’re not). Is there ample room so they won’t feel caged in?

No matter what you need the space for, be sure to ask yourself …

• Do the seats fold down to provide more room in the car? If so, how simple is it to fold the seats?
• Can you remove the seats? If so, how easy is it take them out?

Cargo space

Do you regularly haul equipment for work? Do you do a lot of yard work that requires you to lug around mulch and plants? Do you make regular trips to the grocery store? Give thought to how much stuff you’ll be carting around in your car.

What to look for during the test drive

Once you’re in the driver’s seat and on the road, consider the following.

Braking

Does the car brake smoothly? Are the brakes a little too sensitive? Or do you have to push forcefully for the brakes to work well?

Steering

Pay attention to how the steering wheel handles. When you change lanes, particularly at high speeds, how does the steering respond? Does the steering pull to the right or the left? If so, that might be a red flag.

How it handles the road

How does the car perform in different conditions? For instance, what’s it like on highways compared with stop-and-go traffic or rough roads? Consider how the car would handle on the kinds of roads you normally travel, such as residential streets, highways or rural roads.

Acceleration

Is the car sluggish or speedy when you step on the gas? Does it have enough power when you’re trying to climb a hill or pass another car?

Infotainment system

These days, so much of how you control a car is connected to the infotainment system. That’s why it’s wise to see how well it operates. For instance, is the system easy or frustrating to use? Is the touch screen fairly small? Does that bug you?

In addition, you should test how electronic options like Bluetooth, Wi-Fi and voice activation features sync with your mobile device.

Backup camera

With safety in mind, you’ll want to see whether the car comes equipped with a rear backup camera. The National Highway Safety Administration as of May 2018 requires rear backup cameras on all new cars.

If the car does come with a backup camera, is the rear view fuzzy or clear? And how well does the camera help you gauge distance? Are there blind spots?

Stereo system

Of course, you can drive a car without a stereo system. But if the car comes with one, you’ll want to make sure you’re pleased with it. For instance, are the speakers working? Do you see any damage? Is satellite radio included? And how does the system sound?

Steering controls

When you’re behind the wheel, you’re constantly steering, so you’ll want to check out the steering controls during a test drive. These controls can operate features like cruise control, headlights, windshield wipers and navigation. How are the controls laid out? Are the controls simple to use or is the process clumsy?

Options after your car test drive

Once you’ve completed a test drive, what’s your next step in the car buying process? Your options include …

• Test drive other vehicles. By getting behind the wheel of several vehicles, you can compare the performance and features to determine which car may be right for you. Car and Driver magazine recommends scheduling all of your test drives on the same day for easier comparisons.
• Ask to keep the car overnight. This will give you more opportunity to drive the car in real-life conditions. For example, you can determine how the car performs after sundown.
• Get ready to negotiate. If you’ve decided after a test drive that you’ve got to have that car, then you may want to try to negotiate a deal. Keep in mind that you can haggle with a car dealer over price, trade-in value, financing terms and other items. However, you might want to put some time between the test drive and the negotiating process to allow you to gather your thoughts without any pressure from a salesperson.

Next steps

It’s smart to do your homework before a test drive. For instance, figure out which features matter most to you and which cars best meet your needs. And comb through online reviews.

You might not want to do a test drive alone. If you bring along a friend or relative or two, it can make you more comfortable doing a test drive with the car salesperson — and they may be able to help identify some of the pros and cons of a car.

If you’re considering buying a used car, be sure to get to get a copy of the vehicle history report and get it inspected by an independent mechanic before you buy. In the end, you want to be sure that your new vehicle fuels a good driving experience for years to come.

Many of us have been in situations where our credit scores aren’t where we’d like them to be.

But your lower scores might not stop you from buying a car. That’s because some lenders offer auto loans to what’s known as “subprime” borrowers — people whose credit scores are within a certain range (defined as 580 to 619 by the Consumer Financial Protection Bureau).

To get you up to speed on subprime auto loans, we’ll cover some basics.

• What is a subprime auto loan?
• How does a subprime auto loan work?
• What are the hidden risks of a subprime auto loan?

What is a subprime auto loan?

A subprime auto loan is aimed at borrowers who have credit scores within a certain range, which can vary depending on the source. While the Consumer Financial Protection Bureau considers a subprime score to be between 580 and 619, credit bureau Experian considers subprime to be between 501 and 600.

The CFPB defines five levels of credit scores for people who take out an auto loan.

• Deep subprime (credit scores below 580)
• Subprime (credit scores of 580 to 619)
• Near prime (credit scores of 620 to 659)
• Prime (credit scores of 660 to 719)
• Super prime (credit scores of 720 or higher)

Subprime auto loans are sometimes even extended to people who have no credit scores at all.

The Federal Reserve Bank of Kansas City emphasizes that there’s actually no universal definition of a “subprime loan.” More often than not, the borrower’s credit scores define whether a loan is subprime. But even the loan’s interest rate or the specific lender can be used to identify a subprime loan.

How does a subprime auto loan work?

Someone taking out a subprime auto loan usually has lower credit scores or no credit scores at all, so a lender typically charges higher interest rates and fees. Why? Because these loans often have higher delinquency rates than loans made to car buyers with higher credit scores.

Keep in mind that because of the nature of subprime auto loans, you might be required to provide additional information to a lender when applying. This could include income or employment verification beyond what’s normally required, like supplying your pay stubs or tax returns.

What are the hidden risks of a subprime auto loan?

Before you sign a loan agreement, consider the potential costs of subprime lending.

High interest rates

First and foremost, a subprime auto loan typically comes with a higher APR than a conventional auto loan does. The APR, or annual percentage rate, is the interest rate of your loan expressed as a yearly rate.

The APR for an auto loan can include fees, like a fee for originating the loan. The APR gives you a sense of how much it’ll actually cost you to borrow money for a car.

For example, a borrower with a FICO® score of 720 to 850 might qualify for a fixed APR of 4.55% on a 60-month loan for a $20,000 new car. Meanwhile, someone with a FICO score of 590 to 619 might qualify for an APR of about 16% for the same loan.

That can make a big difference in the total amount of interest paid during the life of the loan, amounting to $6,794 more paid for the subprime borrower in this example.

Interest rates on subprime auto loans can be upward of 29%, according the Columbia Business Law Review. People with shaky employment situations, and whose employment is dependent on access to a car, are often vulnerable because of it and might not have as much power to negotiate on the loan’s interest rate and terms.

Extra fees

Aside from a higher APR, higher fees might also be attached to a subprime auto loan.

For example, potential car buyers may be hit with several fees, like the following:

• A processing, or origination, fee for taking out the loan
• A prepayment penalty for paying off the loan early
• A service contract for repairs or maintenance service

Risk of default and repossession

Subprime auto loans are often at a higher risk for default and repossession than prime or near-prime loans, according to data from the 2018 Urban Institute analysis of American Community Survey.

If a borrower secures a subprime auto loan with a hard-to-manage repayment plan, it’s likely the borrower will default on the loan and the car will be repossessed, according to a 2016 analysis published by the University of New Mexico law school.

You can default on a loan when you fail to make on-time payments. And a default on an auto loan could lead to repossession of your car, which provides subprime auto lenders with a way to potentially recoup their funds — by reselling your repossessed car.

In fact, some less-than-responsible dealerships will “churn” the same repossessed cars as many times as they can, according to the Center for Responsible Lending.

The harm of default and repossession extends beyond just the loss of the car. A study by Cornell and Rice universities showed that people are much more likely to declare bankruptcy following a repossession, and they face more difficulty in successfully applying for credit in the future than consumers who were behind on car payments but didn’t experience a repossession.

Bottom line

While subprime auto loans come with some hidden risks, there are steps you can take to help reduce those risks.

• Figure out how much car you can afford. See what kind of monthly payment you can fit into your budget before applying for a loan.
• Check your credit scores. These scores carry a lot of weight in determining your lending options, so knowing where your scores stand generally can give you an idea of what your options might be.
• Consider more than the monthly payment. Weigh the total cost of financing a car. Keep in mind that if you lengthen the term of your loan from, say, 48 months to 60 months, you’ll pay more interest.
• Look at all of the expenses of car ownership. This includes state taxes, title fees, insurance, maintenance and repairs.

Finally, keep in mind that the scores you see on Credit Karma may be different from what the lender will use when evaluating your application. You can always ask your lender what information they use while reviewing your application.

Refinancing your personal loan, in the right situation, can be a great way to pay off your debt and save money.

Saving money by refinancing high-interest debt into lower-interest debt is often one of the main reasons people get personal loans in the first place. But if you’d like to get a lower interest rate for an existing debt, it may make sense to refinance your personal loan.

In the third quarter of 2023, the average debt per borrower for unsecured loans was $11,692, according to TransUnion’s Industry Insights Report. In some situations, which we’ll explore below, refinancing a personal loan might make sense for you.

• What is personal loan refinancing?
• Is refinancing a loan a good idea?
• 5 lenders to consider for personal loan refinancing
• Potential disadvantages of refinancing a personal loan
• How to refinance a personal loan
• Could refinancing hurt my credit scores?

What is personal loan refinancing?

When you refinance a personal loan, you replace your existing loan with a new one. You may be able to refinance with the same bank or lender as the original loan — if it offers refinancing — or with a brand-new lender. If you’re approved for a personal loan refinance, the lender will provide you with a new loan with new terms that you can use to pay off your previous loan. There can be advantages and disadvantages to this, and in some cases you may see a negative effect on your credit scores.

Is refinancing a loan a good idea?

Here are a few cases in which refinancing a personal loan offers several potential advantages.

• Possibly getting a lower interest rate — Refinancing your loan may provide you with the opportunity to get a more favorable interest rate than what you’re paying on your current loan. This is especially applicable if your credit has improved since you first took out your personal loan, in which case you may be able to qualify for a better rate on a new loan. Or, if interest rates have dropped, a lower interest rate could save you money on the overall cost of the loan, depending on what’s available based on your credit scores.
• Spending less on monthly payments — Refinancing can also decrease the dollar amount of your monthly payments by stretching out the length of the loan. For example, if you’re struggling to make payments with a loan term of 36 months, refinancing into 48 months could reduce your monthly payment by increasing the number of months you have to pay off the loan. Keep in mind that extending the term of the loan like this can also mean paying more interest in the long run.
• Reducing the number of payments — On the other hand, if your financial situation has changed, switching from a longer repayment period (like 36 months) to a shorter repayment period (like 24 months) means that you’ll be able to pay off your loan much faster, getting out of debt sooner, which can reduce the amount of interest that could accrue.  The loan calculator linked above can help you get a better picture of this as well.

5 lenders to consider for personal loan refinancing

• SoFi — SoFi offers unique member perks, including an unemployment protection program, career counseling, financial planning services, rate discounts and access to exclusive events.  
• Payoff by Happy Money — Payoff offers a personal loan geared specifically toward people who want to consolidate credit card debt. The lender can show you multiple payoff strategies to pick what’s best for you. You can also track your progress toward your goals using the online member portal.
• Avant — This lender offers personal loans to borrowers with less-than-perfect credit. Most Avant customers have credit scores between 600 and 700. You can also check to see if you qualify and explore your rate options without affecting your credit.
• LightStream — This online lender offers potential low rates with its Rate Beat program. The program guarantees that if you’re approved by another lender for a lower rate on an unsecured loan, LightStream will beat it by 0.10%. Restrictions apply, and you’ll need a good to excellent credit profile to qualify for a LightStream loan.
• Wells Fargo — This national bank can send payments directly to third-party creditors within one to three days to help you refinance your debt. This can speed up and simplify the refinancing process.

Potential disadvantages of refinancing a personal loan

Before deciding to refinance your personal loan, it is important to consider the potential pitfalls of refinancing.

A lower interest rate doesn’t necessarily mean more savings

If you’re refinancing for a longer loan term, one potential disadvantage is paying more interest, even with a more attractive interest rate. A longer loan term means you’re paying interest for longer, too. Your lower monthly payments could come with a higher total interest price tag over the life of the loan.

Here’s an example involving a $10,000 personal loan with a 15% interest rate and 36-month term versus a $10,000 personal loan with a 13% interest rate and 60-month term.

• The 36-month/15% loan adds up to a monthly payment of $346.65, with total interest at $2,479.52 over the life of the loan.
• The 60-month/13% loan offers a lower monthly payment of $227.53. Yet the total interest over the life of the 60-month/13% loan comes out to $3,651.84 — because the borrower will be paying interest for a longer amount of time.

While the 13% loan provides a longer term and lower payment, it also bumps up the total interest paid by $1,172.32, making it less attractive in the long run.

Fees that can add up

Some personal loans hit you with extra costs, such as origination fees or prepayment penalties. If you face both, it would mean you have to pay a fee to end the old loan and more to begin the new one.

Even if your new loan has a much lower interest rate than the one you’re refinancing, origination fees could mean paying more over the entire loan term. So when you’re comparing terms between your existing personal loan and a new one, be sure to consider any origination fees and prepayment penalties, along with any additional fees and APRs.

The interest rate — in the form of a percentage — is the cost the borrower pays to borrow the money. Meanwhile, the APR is the annual cost of the loan for the borrower. The APR for a loan combines the interest rate with fees and other added costs to give you a clearer picture of how much you’re paying for a loan over the course of a year.

How to refinance a personal loan

If you’ve weighed the pros and cons and are ready to continue on your refinancing journey, here are some steps you can take.

1. Shop around

Just like when you’re looking for a credit card or a mortgage, you should shop around to compare loans when seeking to refinance a personal loan. This way, you can help ensure you’re getting the lowest interest rate you can qualify for, along with the most-favorable payoff period and manageable monthly payments.

Tip: Be sure to ask the lender that handles your existing personal loan whether it could refinance the loan. Or consider shopping for personal loans online through websites like Credit Karma.

2. Research the reputation of lenders

Every year, the Consumer Financial Protection Bureau receives consumer complaints related to installment loans. Some of those consumers report being told conflicting information about documents and other application requirements. Meanwhile, other consumers complain about being hit with interest charges or fees that they hadn’t expected.

Do some digging to help avoid being surprised by fees or terms, especially when looking to deal with online personal loan lenders. With a little research online, you can find reviews from the Better Business Bureau and other sources that might help you consider which lenders you want to do business with.

3. Check your credit scores

Before you decide on the right offer to refinance your loan, check your credit scores so that you know where you stand. Typically, people with higher credit scores are more likely to qualify for lower interest rates. And lower credit scores generally equate to higher interest rates.

If you aren’t sure where your score falls, we offer a guide to credit score ranges.

4. Figure out the fees

An online loan calculator can help you determine how extra costs like origination fees and prepayment penalties can affect the cost of repaying the refinanced loan.

As we mentioned earlier, these fees can increase the total cost of a loan so that even a refinanced loan with a lower interest rate might mean you end up paying more in the long run.

5. Consider prequalification for a personal loan

Prequalifying for a personal loan — a less formal assessment of your credit — doesn’t guarantee you’ll get a personal loan to refinance your existing one. But it could help you get an idea of your ability to qualify for a loan before you go through an application — and before you potentially harm your credit with a hard inquiry on your credit reports. It can also help you understand if you’ll be able to borrow enough to pay off your existing loan and what interest rate you might get.

6. Fill out the application

Once you’ve shopped around, done the math and prequalified, it’s time to apply for refinancing. This process will likely be similar to how you would have applied for your personal loan in the first place.

This is where your research and prequalifications can pay off. When you apply for credit, the lender will typically check your credit reports, which results in a hard inquiry. Multiple hard inquiries in a short period could give lenders the impression that you’re a higher credit risk, so be careful about how many lenders you apply to.

That said, it’s good to keep in mind that the impact of a hard inquiry on your credit shrinks over time.

Could refinancing hurt my credit scores?

Since refinancing means you’re getting rid of an old loan and taking on a new one, you may see a dip in your credit scores. There are a few reasons this could happen.

• Hard credit check — Lenders will perform a hard inquiry to check your credit history and scores when you apply for a refinance loan. This inquiry can result in a slight drop to your credit scores. When shopping around for a refinance loan and applying with several lenders, try to submit your applications within a 14-day period. Many, though not all, credit-scoring models consider multiple inquiries within a 14-day window as just one inquiry, which will minimize the effect on your credit scores.
• Account closing — Your original loan will be closed after the refinancing goes through. Under some credit scoring systems, loans for paying off debt can be viewed as a negative in ways that home or car loans aren’t. Also, credit-scoring models consider the length of the accounts on your credit reports. Some credit-scoring models will consider the old loan when determining the average age of your accounts, but other credit-scoring models won’t — meaning the average age could go down for those. FICO, a provider of credit-scoring models, says the length of your credit history represents 15% of FICO® credit scores
• New credit — If you’ve recently applied for and taken out other loans or credit, your credit scores could take a hit. Credit-scoring models consider several new accounts within a short time period a greater risk.

But don’t overlook a potential upside of refinancing: If refinancing your personal loan makes it easier for you to make your monthly payments, and ultimately pay off the loan, those actions can positively affect your credit over the long term. Payment history accounts for about 35% of your FICO® scores, and the amount you owe on credit accounts determines 30%.

Next steps

As we laid out above, if you’ve got a personal loan and you’re weighing whether to refinance it, be sure to compare the pros and cons, including interest rate and any fees or penalties associated with ending one loan and opening another.

In the end, this comparison should help you figure out whether refinancing will save money, decrease your monthly payments or both. If you’ve determined that refinancing will benefit you, then make sure you check your credit scores, study the interest rate and fees for the new loan, and think about how refinancing can affect your credit.

A budget can help make sure you’re spending your money on the things that are most important to you. This guide will walk you through building a budget and sticking to it.

A budget creates a road map that can help you fulfill your goals, spend within your means, navigate new financial situations, and help you keep closer track of money coming in and going out.

If you haven’t created a personal or household budget, are looking to create a budget because of new financial circumstances, or you simply want to brush up on your money management skills, this guide can serve as a resource to help you spend and save wisely.

Set your goals

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Just as you’d make sure to embark on a road trip with some sort of map, you should set out on the adventure of life knowing what financial direction you’re heading in. In order to create your financial road map — whether it’s for just you or your family of six — you’ve got to determine where you’re going.

This step involves asking yourself some questions that may vary depending on your stage in life.

• Do I want to buy a house?
• Do I want to have (more) kids?
• When do I want to pay off my student loans?
• When do I hope to wipe out my credit card debt?
• Do I want to buy a new car?
• Are there some trips on my bucket list that I want to take in the next 10 years?
• When do I want to retire?

Whatever the case, it’s important to prioritize your money goals so that you can make sure your budget reflects your day-to-day living expenses and helps set you up to achieve your goals for the future.

Keep in mind that your goals will probably change over time, so you should examine them periodically to make sure you keep them in line with your current expenses and circumstances.

Figure out where your finances stand

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It’s almost impossible to set a realistic budget if you have no idea how much money you’re making and spending each month. This means you’ll likely need to take a hard look at your financial situation. Start by sifting through your bank and credit card statements — either online or on paper — and follow these steps to help you pinpoint your monthly income and expenses.

1. Determine your post-tax income

Make a note of your post-tax income, which is how much is deposited in your account once taxes and other withdrawals, like health insurance, are taken out of each paycheck. If you have multiple sources of income, make sure you’re taking your total income into account during this step.

Related Read

The best money apps for saving and investing

2. Track your expenses for a month

Track each dollar you spend for a month to get a clear sense of your spending habits. Remember to include variable expenses (like entertainment) as well as fixed ones (such as rent or mortgage payments). Compile these numbers in a notebook, spreadsheet, budgeting app or some other place where you can track each dollar and get an overall look at your financial picture. How you track your expenses matters less than just getting started — choose whatever method feels most comfortable to you.

If you’ve already got your post-tax income and expenses collected somewhere, such as your online banking account, you can simply grab those figures and put them in a spreadsheet or whatever tracking format works for you.

3. Group into silos

Once you’ve assembled a month’s worth of income and expenses, you should have a much clearer view of where your money is going each month.

Using your month of tracked income and expenses, you can group your expenses into silos.

• Monthly expenses (rent, groceries, utility costs)
• Periodic expenses (home or auto repairs)
• “Fun” expenses (cooking a big dinner or spending a night with friends)

Grouping your expenses like this can help you understand where your money is going each month.

Create a monthly budget (or whatever time frame makes sense for you)

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When you’re putting together your budget, try to not to feel intimidated. To figure out how much you should be spending and saving, there are a few rules of thumb.

One common suggestion is the 50-30-20 rule: 50% of your expenses should go to needs, 30% to wants, and 20% to savings and paying down debt. But these recommendations for how to allocate your money can vary widely, and they may not match your particular circumstances.

For example, you may need to budget more than 20% for the last bucket if you’re tackling a lot of debt and want to start building up your emergency fund at the same time. Or maybe you’ve got a vacation coming up — you may find it worthwhile to create a separate vacation savings bucket to help you save up.

When you’re setting your own budget, these buckets can be anything you want them to be, as long as they fit your goals. Don’t overlook the fact that your budget should reflect your shorter-term goals, like paying rent, as well as your longer-term goals, like buying a car.

More budgeting basics

• Learn more about the 50/30/20 rule
• Learn how to make a budget

Also, it’s important to be realistic. If you’re swimming in debt or struggling to pay rent, you may need to take care of these immediate needs before setting aside money to meet longer-term goals.

Keep in mind that your budget is more than a journal. Mindlessly keeping track of dollars coming in and going out likely won’t do the trick. Try to spend a little time every month thinking about whether your expenses need to be adjusted so that they’re better aligned with your income and your financial goals.

How do I reduce my credit card debt?

To help tackle credit card debt, make a list as part of your budgeting process. The list — whether it’s on paper, in a spreadsheet or online — should include the amount you owe on each card and the annual percentage rate for each account, along with the minimum amount you’re supposed to pay each month.

Once you have that info, you can take on your credit card debt in different ways.

1. The avalanche method: Focus on paying down the debt on the card with the highest APR. Be sure to make the minimum monthly payment on every card, but pay as much as you can on the card with the highest APR. Once you’ve wiped out the debt on that card, do the same with the card that has the second- highest APR. Keep up that pace until all your credit cards are paid off.
2. The snowball method: Concentrate on the card with the lowest balance, regardless of the APR. Make at least the minimum monthly payment on each card, but pay even more on the card with the lowest balance. Once you’ve paid off the lowest-balance card, then you’ll have more money to put toward your other credit card bills. Repeat those steps until you’ve eliminated your credit card debt.

But neither of those strategies can work if you keep making purchases on your credit cards. Try to avoid running up your credit card bills any further while you’re working on whittling down your debt.

Related Read

How to get out of credit card debt

Stick to the plan

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Many of us run into trouble remaining on a diet plan. The same can happen with a spending plan.

You might feel an enormous sense of accomplishment after you’ve set up a plan and stuck to it for a number of months. But it can be easy to fall back into bad financial habits.

Remember that your budget is designed to steer you toward covering your day-to-day expenses and achieving your financial goals.

Related Read

Roughly 2 in 5 Americans would rather pack on debt than pounds, a new Credit Karma survey finds

To stay on course, Robin Burk, author of “Check Your Connections: How to Thrive in an Uncertain World,” recommends rewarding yourself when you meet budgetary milestones, such as setting aside 10% of your income in a savings account.

“Feel good about the progress you’re making,” Burk says. “Once in a while, allow yourself a small treat — one tablespoon of that incredible gelato, one forkful of a really good chocolate cake — and then go back to the budget. When you’ve built the budget habit, small treats [should] satisfy more than binge eating.”

Another way to try to stay on track is to automate your finances. You can set up automatic transfers from your checking account to your savings or investment accounts to help you reach short-term or long-term spending goals. Or you can make sure you don’t miss a bill payment by turning on any autopay functions available through bank accounts, credit card accounts or creditors such as utility companies.

Review the plan

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A budget does you little good if you don’t review and tweak it on a regular basis. You’ll typically need to make adjustments as time goes by.

When you look over your budget, ask yourself some basic questions.

• What changes have there been in my income?
• Which expenses are going up and down?
• Am I putting enough money into my emergency fund? (Financial experts recommend having enough cash to cover three to six months of living expenses.)
• Where do I need to cut costs?

More about emergency funds

• Emergency fund basics
• Why should I have an emergency fund?
• How much should I have in my emergency fund?
• Where should I keep my emergency fund?

Don’t feel obligated to build the “perfect” budget from the get-go, says Sean Potter, founder of personal finance website MyMoneyWizard.com. In other words, realize that you’re bound to make mistakes as you go along.

“These days, I’d tell my 21-year-old self not to stress so much, and instead just start watching my money and making any necessary changes as I go,” Potter says. “Over time, the perfect budget [should] become obvious.”

Related Read

3 steps to build a solid financial foundation

Preparing and using a good budget can improve your financial health. The prescription for healthier finances involves establishing your goals and figuring out your financial situation, and then creating, sticking to and reviewing your spending plan.

Krista Neeley, a managing vice president at Appreciation Financial, an insurance and financial services company, says that our financial health is just as important as our physical, mental and emotional health.

“Taking time to better understand and empower yourself financially can be the backbone to creating the freedom, flexibility and peace of mind you desire for your future,” Neeley says. “Having a strong, stable foundation for your finances is a great way to create a bright future in all other areas of your life.”

Plan your spending with our budget calculator

You can use our budget calculator to get a clearer picture of how much money you’re spending, what you’re spending it on and where you could improve.

Before getting married, you should give some serious thought to how you and your partner will merge your financial lives. And that financial conversation should keep happening well beyond the honeymoon.

If you didn’t discuss finances before the wedding, now is a great time to start. It makes sense to iron out financial details in order to avoid clashes over cash.

In fact, a 2014 Money magazine survey of 1,010 married U.S. adults age 25 and over found that 70% argued about money. Money was the biggest source of friction – more than sex, togetherness and household chores — the survey showed.

“It’s easy to be swept up in the excitement and romance of the honeymoon phase at the expense of tackling its serious financial implications,” says Carla Dearing, co-founder and CEO of SUM180, an online financial wellness service.

“But the fact is, investing time and effort upfront to get your joint financial house in order will free you to avoid conflicts about money and enjoy your new life together as fully as possible,” she says.

This guide lays out eight steps you can follow to build a successful financial partnership.

Have the “money talk”

Money is a sore subject for many couples.

Certified Financial Planner™ Byron Ellis, managing director of United Capital Financial Advisers in The Woodlands, Texas, says newlyweds shouldn’t avoid difficult discussions about money.

“Honesty is the cornerstone of a successful relationship, and you should be just as honest with your financial selves as you are in every other aspect of your relationship,” Ellis says.

Here’s a list of questions about finances that newlyweds should ask each other.

• How much is your salary?
• What workplace benefits do you get?
• What is the state of your investments?
• How many credit cards and how much credit card debt do you have?
• What’s your net worth?
• What are your credit scores?
• What sort of debt, such as student loans and credit card debt, do you have?

Rachel Kampersal, a spokeswoman for American Consumer Credit Counseling, says, “Sit down together and figure out your combined assets and liabilities, because you don’t want any big surprises down the line. Be transparent.”

Establish goals

You set career goals. You set health and fitness goals. Why not set financial goals with your new spouse?

Here are some of the questions you should consider discussing when setting goals together.

• How big should our emergency fund be?
• Do we want to reduce our debt?
• Do we want to buy a house? If so, when do we need to start saving for a down payment?
• Are there any other big purchases, such as a car, that we should start saving for?
• How do we want to start planning for retirement?
• Are there any nonessential things, like vacations, that we want to save for?

Creating goals together is the first step toward a united financial strategy.

Set a budget

To some people, “budget” might be a four-letter word. But creating a budget can help keep newlyweds from hurling four-letter words at each other. Being aligned on spending can help newlyweds keep household harmony.

Some of the budgeting considerations for newlyweds:

• How much money will you set aside each month for savings. How much will you allocate for entertainment and other nonessential expenses?
• How will you handle expenses that weren’t expected? How much should you regularly save in an emergency fund to cover these surprises?
• Will each of you contribute equally to the household expenses, or will you chip in amounts based on how much money each of you earns?
• Who’s going to act as the household banker, by paying bills, keeping track of savings and monitoring investments? Or do both of you want to split the duties?
• Do you have a plan in place to wipe out debt? And who’ll be responsible for any debt that was accumulated before the two of you got hitched?

Once newlyweds are on the same page regarding their budget, they should revisit their spending plan together every month.

In other words, the household budget shouldn’t be a set-it-and-forget-it blueprint.

“Schedule a financial ‘date night’ where you spend an hour reviewing your budget and have time together to talk about your goals for the future and how you can attain them,” says accredited wealth management adviser Tiffany Welka, vice president of VFG Associates, a financial services firm in Livonia, Michigan.

“The last thing that any couple wants, whether they are newlyweds or seasoned, is to argue over money. Budgeting helps open the doors of financial communication for a couple.”

Hammer out banking details

Figuring out how to set up bank accounts is not a one-size-fits-all concept for newlyweds; what works for one couple may not work for another.

It may be important for you to open joint bank accounts so you both can easily track household expenses and agree on spending objectives.

Byron Ellis, a certified financial planner, recommends newlyweds open both a joint checking account and a joint savings account to which both spouses contribute money. This way, he says, household expenses — like rent and groceries — can be paid from the same pool of cash. This is advisable even if the spouses decide to maintain individual accounts they had before getting married.

If establishing joint accounts isn’t feasible — for instance, one spouse would lose an account’s special perks if it’s closed — a spouse could put the husband’s or wife’s name on existing individual accounts in case immediate access to that money is needed, Ellis says. For instance, if one spouse is critically injured, the other spouse could tap into that money without any hassles.

“Even if you started the accounts years before you met, extending that trust to your partner can go a long way toward merging your financial lives,” he says.

Also, couples could maintain separate accounts for individual expenses — maybe one spouse wants, for instance, to splurge on fishing tackle from time to time while the other wants to occasionally treat colleagues to after-work drinks. This allows some level of financial independence.

“The rule should be that neither person can pick on the other one for the way they want to spend the money in that account as long as that person isn’t overspending with the couple’s credit cards or tapping into the joint account,” says Erika Jensen, president of Respire Wealth Management in Houston.

Of course, this works only if both spouses agree on individual and joint spending goals. Otherwise, this could be a source of friction.

Evaluate your credit cards and debt

Newlyweds may want to keep their individual credit cards they had before getting married, but they may also want to open a joint credit card and share responsibility for making the payments. Talk about what makes the most sense in your situation.

Credit card debt can weigh down a marriage. Therefore, it’s critical for newlyweds to sort out any credit card issues before they turn into major headaches; this includes creating and sticking to a plan to whittle down any credit card debt that was brought to the marriage.

Keep in mind that after you exchange vows, your individual credit reports and scores are not combined. Credit-reporting bureaus maintain a separate credit history for you and your spouse. However, your spouse’s credit history will affect any joint accounts you open.

Discuss life insurance

The average American newlyweds are in their late 20s, so life insurance might not be on their radar. However, a life insurance policy can help cover funeral expenses, pay off debt and replace lost income in the case of a death of a partner.

Despite the risks, many Americans lack life insurance. In a 2017 survey by Life Happens and LIMRA, 85% of the more than 2,000 U.S. adults who participated in the study indicated that most people need life insurance, yet only 59% said they had life insurance.

On top of that, nearly 40% of the people surveyed said they wished their spouse or partner had more life insurance.

“When you’re young and newly married, life insurance is probably the last thing on your mind, but there’s nothing that says love more than making sure that your significant other is taken care of if something happens to you,” Jeff Rose, a certified financial planner, wrote on his blog.

What stops consumers, including newlyweds, from buying life insurance or adding to existing coverage? Some people might mistakenly think it’s too expensive.

In the survey from Life Happens and LIMRA, people overinflated how much a life insurance policy might cost. Survey respondents guessed that the cost of a $250,000 term life insurance policy for a healthy 30-year-old was around $500 per month, which is more than triple the typical cost.

Assess your tax situation

As a married couple, you’ve got two choices for filing your tax returns: You can jointly file one return or you can each file a separate return.

Kampersal from American Consumer Credit Counseling advises consulting a tax professional to determine which option is right for you. When you meet with a tax professional, you should come armed with recent pay stubs and tax documents to help with the tax-planning process.

Each newlywed should notify his or her employer so that the W-4 tax-withholding form that’s on file can be updated to reflect the new marital status.

Since your household has gotten bigger, you can increase the number of allowances from one to two — one for you and one for your partner. If you have children, you can claim even more allowances. Typically, the more allowances you list, the less tax that’ll be subtracted from your paycheck, which means more money in your pocket.

Look toward retirement

For newlyweds, retirement may feel as if it’s in the distant future, but it can creep up on you sooner than you think.

Here are some questions to discuss with your spouse as you contemplate retirement together.

• At what age do we want to retire?
• How much money do we need saved by the time we retire?
• How much post-retirement traveling do we want to do?
• Are we going to stay in our current location or move somewhere else?
• Will we find part-time jobs or do volunteer work?
• How much will each of us contribute to employer-sponsored retirement plans?
• Will we need supplementary retirement investments, such as an IRA or annuity?

“Many individuals struggle to plan for their own retirement. When people get married, it’s also oftentimes overlooked,” says certified financial planner and financial wellness coach Marques Lang, owner of Paradigm Consulting & Coaching in Hood River, Oregon.

“This is particularly true when it comes to the type of lifestyle that each spouse would like to have during retirement.”

Sort it out now so that you can both have the retirement of your dreams later.

What’s next

Being financially healthy is an important part of a successful partnership, so it makes sense to align on how you think about and treat money as soon as you get married. This can help you avoid money conflicts in the short term and help you meet your financial and life goals together in the long term.

Start talking about your finances today and keep the conversation going throughout your marriage, so you’re always on the same page about your money goals.

What do people with perfect credit scores and the Loch Ness monster have in common? Most people can’t decide if they actually exist.

While we don’t know about the elusive aquatic creature in Scotland, we do know there are humans out there who have reached credit-score nirvana.

For most credit-scoring models, including VantageScore 3.0 and FICO, the highest credit score possible is 850.

We were able to speak to two Americans who belong to the exclusive FICO 850 Club: Brad Stevens of Austin, Texas, and John Ulzheimer of Atlanta. Both proudly showed off computer screenshots proving they’ve reached the pinnacle of credit scoring.

“Many people are skeptical that 850 is attainable. But it certainly is,” says Ulzheimer, who is president of The Ulzheimer Group and a nationally recognized credit expert.

Tips to get a high credit score

For years, it’s been widely reported that fewer than one percent of American adults have a FICO credit score of 850.

So, how did Stevens and Ulzheimer climb to the top of the credit-score mountain? Both of them say it was a slow trek that was aided by responsible handling of debt.

Ulzheimer says some of the control over your credit rests with you, while some of the control is out of your hands.

Just like a professor who grades your college coursework, credit-scoring models grade you on your credit activity. So while you might think you deserve a perfect score, the professor — or in this case, the credit-scoring model — has the final say over your grade.

How do you improve your credit?

There’s no quick fix. Improving your credit health takes time, but the most important behaviors can be summed up as this: Pay your bills on time (and if possible, in full) and reduce the amount you owe. It also helps to check your credit reports regularly and dispute any errors you see, such as a collections account that hasn’t been removed from your reports after seven years from the original delinquency date.

Based on the experiences of Stevens and Ulzheimer, what follows are some things you can do to aim for the FICO 850 mark (or at least improve your credit).

Keep in mind, though, that their circumstances are unique, and what they’ve done to achieve a FICO 850 score might not work for you.

Here’s the advice they gave:

• Nothing negative can show up on your credit reports. One example: You can’t have a single late payment on a credit card account. Payment history accounts for 35 percent of a FICO credit score.

• Almost none of your accounts can be carrying a balance. In other words, credit card debt must be near zero. The amount of debt you owe makes up 30 percent of a FICO credit score.

• Your credit history must stretch over many years. A 2011 study by SubscriberWise, a credit reporting agency for the communications industry, found the average length of a credit history for someone with an 850 FICO score was 30 years. Ulzheimer says some people simply can’t ascend to 850 yet because their credit history isn’t old enough, “even if they do everything else right.” Length of credit history accounts for 15 percent of a FICO credit score.

You’ll need to “max out” each of those components to pull off a perfect 850, thus making the task difficult, Ulzheimer says.

It’s not necessary to have a perfect score

Ulzheimer says his FICO credit score has hit 850 off and on for the past five to seven years. That achievement became easier once his credit history passed the 20-year milestone, he says. Yet Ulzheimer notes he hasn’t been striving for perfection with his credit score – he just knows the right behaviors for managing his credit well.

Unlike Ulzheimer, Stevens says racking up a perfect FICO credit score of 850 has been his goal for a few decades.

“As many do in their 20s, I experienced financial instability and suffered some setbacks that greatly impacted my credit scores. That credit also limited my economic flexibility,” says Stevens, managing partner of a private car service in Austin.

He adds: “As I grew older, I became more aware of how good credit opened opportunities for advancing and enhancing my life. So I continued to work on getting an ever-better score. After a while, it not only became a goal but … a total obsession.”

But Ulzheimer says obsessing over how close your FICO credit score is to 850 doesn’t necessarily pay off. Why?

Ulzheimer says an 850 FICO score isn’t needed to gain the best interest rates or APRs on credit cards and loans. In fact, he adds, there’s not much difference in that regard between, say, 800 and 850. More than anything else, arriving at 850 merely gives you “bragging rights,” Ulzheimer says.

“As long as your scores are above 760, you are likely going to get the best deals,” Ulzheimer says.

Bottom line

Achieving a perfect credit score isn’t necessary, but checking your credit scores and reports is. If you’re not tracking your credit on a regular basis, then you don’t know whether your scores are heading in the right — or wrong — direction.

Want to see your VantageScore 3.0 credit scores for free? At no cost, you can see them from two major credit bureaus, Equifax and TransUnion, on Credit Karma.

Chances are, a cashier at a retail store has asked whether you’d like to get a credit card from that store.

To tempt you to sign up on the spot, that cashier might dangle a special offer — for example, 30 percent off regularly priced merchandise — if you’re instantly approved for the store’s card.

But should you take up that offer? The answer depends, in large part, on what your credit history is like and how responsible you are with credit.

What types of store credit cards are available?

First, let’s cover the two types of department store, or retail, credit cards.

One type of retail card looks just like a regular credit card, but you can only use it to buy goods and services from that retailer. That’s unlike a traditional credit card, which can be used wherever a merchant accepts cards.

The other type of retail card bears the name of a retailer, but the card can be used at other locations as well, not just at that specific store.

Pro: Department store credit cards can be a financial tool.

“Store credit cards can be a wise financial tool when you understand their pros and cons,” says personal finance expert Laura Adams, host of the “Money Girl” podcast.

But the card is a wise tool only if you can demonstrate financial responsibility, which includes making regular payments on time. Payment history is a key factor in determining your credit scores.

For someone with not-so-great credit or no credit at all, a department store credit card can be a decent path for building credit. Why? Consumers who have trouble opening a traditional credit card because of their credit may find it easier to be approved for a store credit card.

Broadly speaking, issuers of store credit cards have looser standards for approving an applicant than issuers of standard credit cards do. That can make store credit cards appealing to people with credit scores below 700 — those who are trying to build or rebuild their credit.

Credit consultant Julie Marie McDonough, author of “How to Make Your Credit Score Soar,” calls retail cards the “training wheels” of credit. That’s because when you use a store card, your payment history and other details are reported to the credit bureaus and contribute to creating a credit history.

You can also benefit from a card’s perks, such as earning rewards from the retailer’s loyalty program, special discounts or advance notice of promotions or sales.

Con: Department store credit cards can also lead to financial trouble.

Department store credit cards typically have higher annual percentage rates (APRs) than traditional credit cards do. This means if you don’t pay off the balance on your department store credit card every month, you’ll accrue interest payments that are higher than those you’d normally find with a traditional credit card.

However, if you do pay off the balance on time every month on a department store card, you won’t rack up interest payments.

“Just don’t go overboard and spend more than you should by jumping on every ‘savings’ opportunity that a store credit card offers,” Adams says.

Also, since retailers regularly seduce consumers with credit card sign-up bonuses, it can seem alluring to apply for several store cards during one trip to the mall. But that could spell trouble as well. When you apply for credit, the retailer — or, more accurately, the bank that issues the retailer’s card — performs a hard inquiry. Having too many of these inquiries can signal you’re a higher-risk borrower, which can lower your credit scores.

Fortunately, it can be harder to go overboard with a store credit card, as this kind of card often comes with a lower credit limit than a regular card does. But there’s a catch here: Being at or near the limit on a card can bump up your credit utilization ratio and possibly lead to a dip in your credit scores.

Who should get a store credit card and who shouldn’t?

So, Adams says, a store credit card is “a poor choice when you typically charge a lot or need to carry a balance from month to month.”

As noted by Consumer Reports, if you fail to pay your monthly balance in full, “the interest you’ll be charged could wipe out the discount you got for signing up for the card.”

However, Adams says, a store credit card can be a smart choice if you regularly make purchases from a retailer such as Amazon.com or Costco — and you pay off the balance on time and in full every month to avoid accumulating interest.

Bottom line

As with any credit card, you should carefully study the terms and conditions if you decide to apply for a store card. Pay close attention to the APR, and make sure you’re comfortable with that interest rate.

The perks that come with a store credit card can sound awesome at first. But they might not be so awesome if you’re struggling to pay off the full balance every month and are hit with high interest charges.

It takes time and determination to conquer a mountain of debt.

But if you’re equipped with the right knowledge and tools, the journey to conquering that mountain can be relatively smooth. Plus, you don’t have to tackle that mountain of debt alone — credit counselors are available to help.

Of course, no two attempts to conquer debt are the same — a debt reduction plan that works for one person may not work for another. And unless you stick to your plan, you’ll likely have a tough time chipping away at your debt.

If you’re not sure how to tackle your credit card debt, we’ve got some advice on steps you can take. While this advice won’t guarantee success, it can help point you in the right direction.

How to get out of credit card debt

1. Evaluate your finances
2. Prioritize your spending
3. Create a budget
4. Free up money
5. Set a strategy
6. Seek help (if you need it)
7. Work on your financial habits

1. Evaluate your finances

A good first step toward getting out of credit card debt is to assess your financial situation.

Create a list of everything you owe, including credit card debt and all other monthly bills. This review of your overall debt should include the balance and the annual percentage rate, or APR — the price you’re charged to borrow money — for each credit card.

Looking at each card’s balance and APR will help you decide how to approach reducing your debt. In some cases, you might want to tackle debt with the highest interest rates first to save money on interest charges; in other cases, you might want to give yourself a psychological edge by paying off lower-balance cards first.

Next, compare your debt and expenses with your income. You should consider items such as rent or mortgage debt, credit card balances, loan debt and grocery bills.

As for your income, take into account your salary, the interest earned on your savings and anything else that generates money.

2. Prioritize your spending

When mapping out how to get rid of credit card debt, be sure to cover the basics first, says Sean Fox, co-president and CRO of Freedom Financial Network, a financial services company that specializes in debt settlement. Those basics include food, housing and clothing.

Then, Fox says, be sure to pay at least the minimum amount on secured debts. This type of debt is secured by an asset (sometimes referred to as “collateral”), such as a car or home. If you fail to make timely payments on secured debt, you could lose the asset that’s backing the loan, he warns.

Next, tackle your credit card debt. Credit Karma’s Debt Repayment Calculator is a great way to get started and stay on track. Just enter in the balance you owe and the interest rate, and then enter your expected monthly payment or desired payoff time frame to get an idea of how long it will take to tackle that debt.

Also, focus on student loan debt, Fox says. Why? Because the federal government, which backs most student loan debt, can punish you financially if you’ve defaulted on the repayment of a student loan. For example, the government can garnish your wages, your tax refunds and your Social Security benefits. If you have a private student loan, the lender can’t go after your wages or Social Security benefits, but it can pursue legal action in court to collect student loan debt.

Consider not using your credit cards while you’re working on cutting your debt. Paying for things with cash or a debit card can ensure that you don’t rack up debt as you’re trying to pay it off, which can be a frustrating experience.

Most importantly, make sure you’re making at least the minimum payments on all of your outstanding debts.

Balance transfer cards: One way to help pay off debt

Rather than pay interest on your credit card debt, you may be able to transfer high-interest debt to a single credit card with a balance transfer.

A number of balance transfer cards allow you to pay an introductory interest rate of 0% on your balance for a set amount of time, so you can pay more money toward your principal and reduce how long it will take to pay off your debt.

Learn how to do a balance transfer in six steps.

3. Create a budget

Once you’ve prioritized your debts, it’s time to establish a budget. A budget will help you track your spending and get a better handle on how to shrink your credit card debt.

Beverly Harzog, credit card expert and author of “The Debt Escape Plan,” says that in paying off more than $20,000 of her own credit card debt, she learned that it takes persistence, self-discipline and “a darned good budget” to get rid of that financial burden.

Online tools such as Mint and YNAB (You Need a Budget) can be useful in setting a budget and making sure you don’t stray too far from it each month. If you need additional education on budgeting, check out Credit Karma’s Guide to Budgeting.

Fox says creating a budget will guide your decision about what strategy to use for reducing your credit card debt. (Later, we’ll explain in detail how to pick the right strategy.)

4. Free up money

As you’re sticking to your budget, you might want to investigate ways you can trim expenses and generate more income.

Going without cable TV or canceling your gym membership are just a couple of ways to trim down your expenses. It’s up to you to decide which luxuries you’re willing to give up and which you simply can’t live without.

If you’re itching for some extra income and have some extra time on your hands, give some thought to getting a side job or making money from a hobby, such as designing jewelry. Or perhaps you can volunteer for paid overtime at your full-time job.

And — though it may be tempting — remember to steer that extra income toward your credit card debt instead of spending it.

5. Set a strategy

There are three main strategies for debt reduction: the avalanche method, the snowball method and the blizzard method.

Here’s how each works.

The avalanche method

Fox says that the avalanche method involves paying off your balances with the highest interest rates first. The goal is to erase your debt as quickly and efficiently as possible.

Here’s how it works: Make minimum payments on each of your balances except the one with the highest APR. For the card account with the highest APR, pay the minimum plus any extra you can afford.

“Repeat this process every month until that debt has been paid off,” Fox says. “Then, keep paying the same monthly total, but take every dollar you were using to pay off the highest-interest debt and put that toward paying off the debt with the second-highest interest rate.”

By aggressively paying down your highest interest balances first, you may save hundreds or even thousands on interest charges in the long run. If saving money is your top priority, stick to this strategy until all your credit card debt is gone.

The snowball method

With the snowball method, you pay off the card with the smallest balance first and work up from there, Fox explains. As with the avalanche method, you always make the minimum payments on all your accounts, but then you put any remaining money toward the card with the smallest balance.

After the balance on that card is wiped out, put any extra cash toward the card that now has the smallest balance. This method can help you build the confidence and positive repayment habits you need to eventually conquer all your debt.

The blizzard method

The third debt-repayment strategy is known as the blizzard method. This combines paying off the smallest balance first (snowball) and then paying off the highest-interest balance (avalanche).

“The avalanche saves the most money, but some folks prefer a quick win with the snowball method,” Harzog explains. “The blizzard combines both — you get the emotional boost and then you can save money by using the avalanche.”

Whatever your strategy, paying down credit card debt can help you improve your credit scores. This is because payment history, or how often you make on-time payments toward your credit accounts, is one of the most important factors in determining your credit scores.

6. Seek help (if you need it)

Do you still feel overwhelmed? Then it might be time to seek a credit counseling agency, whose experts can help put you on the right track. A credit counselor will work with you to help improve your financial situation, offering tools and resources to help you gain control over your money.

The Federal Trade Commission suggests finding a credit counseling agency that offers in-person services. Ask friends and relatives for suggestions on which agencies are reputable; your bank is another potential resource.

Once you’ve done your preliminary homework, double check whether the agencies you’re considering are trustworthy by contacting the attorney general’s office in your state or reaching out to your local consumer protection agency.

7. Work on your financial habits

If you don’t alter the behavior that got you into credit card debt in the first place, you might slip back into debt again in the future.

Fox stresses the importance of differentiating between “wants” and “needs.” Do you need food and housing? Definitely. Do you need to pay your bills and set up an emergency fund? Most likely. Fox says these needs should take precedence over wants.

He also stresses the need to stick to the budget you’ve created. If you’re not keeping close track of your income and spending, you may wind up in debt all over again.

Bottom line

Getting out of credit card debt usually doesn’t happen immediately. If it took you a while to rack up the debt, it may take you a while to become debt free.

Just keep in mind that one of the most important things you can do is make consistent, on-time payments every month.