How to Pay for Addiction Treatment

If you or a loved one has faced addiction, you’re not alone. One in seven Americans will face substance addiction in their lives, according to USA Today. However, only 10% of those people will ever receive treatment.

Addiction is caused by a variety of factors, including genetics, psychological problems, the type of drug, and trauma, among other things. It can build slowly over time and become a chemical craving for the substance.

One of the major barriers to treatment is cost. According to recovery.org, inpatient treatment can cost between $2,000 and $25,000 for a 30-day program. Outpatient treatment can range from free to $10,000, and detox can range from $300 to $800 a day.

Given the high cost of treatment, the idea of paying for rehab can seem overwhelming, but it doesn’t have to be.

The cost to stay addicted is also high. There’s the money required to pay for the substances, along with the incalculable toll addiction takes on one’s body and interpersonal relationships.

Consider these estimations of annual costs of addiction collected by RehabSpot:

• Alcohol: $4,500+/year
• Marijuana: $7,000+/year
• Cocaine: $8,000+/year
• Heroin: $54,000+/year
• Prescription Opioids: $3,500 to $70,000+/year

But it’s not just the cost of substances or lost relationships that make addiction so expensive. Health issues caused by addiction can also drive up healthcare costs and raise insurance rates. Moreover, time missed from work, being fired from a job or losing income due to addiction can all take a financial toll.

There’s also the legal costs to factor in, too. A person who is arrested for possession, usage or driving under the influence may also encounter court fees, attorney bills and other financial penalties, along with the longstanding negative impact of having a record in the criminal justice system.

Addiction can cause feelings of a loss of control or helplessness, but there is hope for recovery. Rehab can help people who are addicted to substances overcome the obstacles through services that include detox, counseling, nutritional therapy and relationship building. Rehab does have up front costs, but in the long run, recovery can alleviate future financial burdens, and can be an instrumental way to repair relationships and one’s lifestyle.

The cost of rehab can be expensive, which may discourage those in need of treatment. This doesn’t have to be the case. Those who are facing addiction, and their loved ones, have options to pay for addiction treatment. These range from personal loans to credit cards for bad credit.

Don’t give up hope. Here’s information about how to finance addiction treatment so you or a loved one can get the help that’s needed.

How Much Does Rehab Cost?

Rehab costs are determined by a variety of factors, including the type of substance the rehab is for, the type of facility where rehab is provided (and whether or not the person is living in that facility), amenities and treatment options offered, and more.

Here’s an idea of the overall average cost of rehab:

• Outpatient Detox: $1,000 to $1,500
• Inpatient Rehab: Between $6,000 and $20,000 for a 30-day program; between $12,000 to $60,000 for a 60- or 90-day program
• Outpatient Rehab: Between $5,000 and $10,000 for a 30-day program

On top of the rehab program, a patient may need to pay for certain medications. For example, year-long methadone treatment for heroin users costs around $4,700. Alcohol and opiate addicts may need certain medications for treatment.

In addition to initial rehab costs, patients and families should be aware of the potential for relapse. According to the National Institute on Drug Abuse, “Relapse rates for drugs are similar to rates for other chronic medical illnesses. If people stop following their medical treatment plan, they are likely to relapse.”

The National Institute on Drug Abuse explains that relapse is a normal part of recovery, with relapse rates for substance use disorders ranging from 40-60%. Relapse can be very dangerous and lead to overdose. That is why re-entry to rehab may be a life-or-death situation when a relapse occurs.

When you or a loved one is seeking treatment for addiction, know that relapse is a possibility. Mentally and financially prepare for the recovery process, which may include relapse. One cycle through rehab may or may not be enough.

When someone has undergone addiction treatment, they may also have had to take time off of work, which may reduce their income. It’s important to be aware of financial pitfalls like these when seeking addiction treatment.

The freedom that can be gained from recovery can be worth the cost. Getting help now can alleviate a greater financial and personal burden in the future. There are options.

Factors That Determine Rehab Price

When you’re considering addiction treatment for yourself or a loved one, you’re probably wondering about the costs and what your options are. Here are some factors that may affect the price.

Type of Treatment Offered

Depending on whether treatment is for drugs, alcohol or another substance, the costs may vary. Within drug treatment, treatment for certain types of drugs may differ as well. Treatment centers that offer addiction treatment for more than one substance may also charge differently.

Length of Stay

For patients living in an inpatient facility, the length of stay will affect the addiction treatment cost. Outpatient facility costs will also be influenced by how long the services are used.

Location

The location of the rehab facility will likely influence the cost, due to the cost of living in that state and the compensation for the staff working at the facility. Some treatment centers near desirable locations for patients, like those located near beaches or on horse ranches, may also cost more than suburban or rural treatment centers.

Amenities

The amenities at treatment centers will vary and affect the cost. Some treatment centers offer amenities like spas, horse therapy and yoga studios. Luxury rehab resorts may offer hotel-style living, no chore requirements and single-occupancy rooms, which can also increase costs.

Type of Center

Each center’s organizational model will influence its costs. Some are inpatient, where a patient lives in the treatment facility. Others are outpatient, where a patient lives outside the treatment facility.

Some people who want to recover from addiction may opt to go through a detox process first, which is a supervised program that enables the safe clearing of substances from one’s body. Other rehab models may range from nonprofit to locally owned.

Some treatment centers will offer little-to-no-cost services depending on the population served, such as those that are geared towards military veterans.

Size of Facility

The size of the facility may also influence costs. Typically, smaller facilities will cost more because they offer more personalized service to each treatment patient. Here are some typical rehab costs, according to a 2019 report by Recovery.org:

Type of rehab	Costs
Inpatient rehab	Basic low-cost, 30-day residential: $2,000-$7,000 and includes counseling, meetings and meals Standard 30-day residential: $10,000-$20,000 and includes treatment and aftercare planning, gym and yoga, meetings Premium/luxury 30-day residential: $25,000+ and includes private room, holistic treatments, variety of therapies, outside activities and weekend activities
Outpatient rehab	Therapy and counseling: Free-$1,000 Partial hospitalization: Cost depends on medical needs Intensive outpatient care: $3,000-$10,000
Detox	$300-$800/day

Paying for treatment through financing

Most people don’t have access to the full amount of money they need for treatment at the precise moment they need it. However, there are various financing options available. Patients and their families may consider combining several methods to pay for treatment.

Here are some ways to pay for rehab that you might consider.

Credit Cards

Credit cards provide instant access to funds. In some cases, you can also get rewards credit cards that provide spending rewards, including cash rewards, that can help offset rehab costs.

There are also credit cards that are available specifically for medical expenses, like CareCredit. Medical credit cards work just like other types of credit cards, but they may only be able to be used for medical purchases with a single provider.

One of the potential risks of using credit cards is that they can come with a high interest rate or additional fees. If you want to use credit cards to pay for rehab, you’ll want to have a plan in place to make on-time credit card payments so you don’t accrue extra costs from interest.

You may be wondering about how to get credit cards for bad credit. Unsecured credit cards don’t require a down payment and have affordable up front costs, and they may be available to you, even if you aren’t sure you’ll qualify.

Loans

Loans, like credit cards, include interest on the amount of the loan, which must be paid back along with the principal. However, interest rates for loans tend to be lower than those associated with credit cards, so they may be a good alternative for paying treatment costs.

In May 2019, the Federal Reserve reported that the average rate on a credit card that was assessed interest was 15.13%. The average rate on a 24-month personal loan was 10.63%.

A personal loan can get you the cash you need quickly so you or your loved one can enter addiction treatment. You’ll know the exact amount you’ll need to pay back in regular monthly installments. Some loans are unsecured, which means you can qualify based on your credit score and history. With unsecured loans, you don’t have to put up collateral, like a car or home.

There are other types of loans that are offered specifically for addiction treatment, such as those offered by My Treatment Lender. Discuss your options with lenders you’re considering to find the lowest interest rate possible.

Crowdfunding

Crowdfunding websites, which allow communities to financially support a cause, have become popular options for those needing medical treatment. According to Advisory Board, one-third of campaigns on the crowdfunding site GoFundMe are for medical bills.

Here’s how crowdfunding works. You set up a campaign on the website explaining your cause and why you need help with funds. On sites like GoFundMe, you set a goal for how much you want to raise. You keep what is raised, whether you reach the total goal or not.

You can create a video explaining why you’re in need, share updates and progress, and more. For those who need addiction treatment, getting support from friends and family through a crowdfunding site can be a way to get help.

Home Equity Loan

A home equity loan is a way for a borrower to use their home as collateral for the loan. Equity is available when your home’s value is higher than what you owe on your home loan.

Personal loan approval is typically quicker than a home equity loan, but a home equity loan may come with a lower interest rate because your home is being used as collateral. In addition to this benefit, home equity loans may be tax deductible. This type of loan provides a simple way to get a large sum of money quickly.

Be aware, though, that if you live in an area where home prices are declining, taking out a home equity loan may come with risks. If your home’s value declines, your home loan balance, which is what you owe on your loan, may be greater than the home’s value.

It’s best to discuss loan options with a lender to determine the best fit for your unique financial situation.

Other Rehab Payment Options, Including Insurance

You may also be able to pay for addiction treatment using health insurance. Under the Affordable Care Act, all marketplace insurance plans must provide coverage for addiction treatment. Many addiction treatment centers accept various types of insurance for payment.

Veterans who have military insurance, such as Tricare, also have coverage for substance use disorder treatment. Most private insurance plans also cover rehab.

Medicare and Medicaid

Medicare, a federal- and state-funded program, provides insurance for those older than 65 or for people under 65 who have a severe disability. Medicare provides coverage for inpatient rehabilitation care when a doctor certifies that the patient has a medical treatment requiring rehab, medical supervision or coordinated care.

Medicaid, also a federal- and state-funded program, provides health insurance to those with very low income. Under the Affordable Care Act, Medicaid must provide coverage for substance abuse treatment. Patients will need to verify whether the treatment center they’re considering accepts Medicaid.

Government Programs

There are also public-assistance options for substance-abuse treatment. Addicts and family members can call the Substance Abuse and Mental Health Services Administration help line at 1-800-662-HELP (4357) to get recommendations for treatment centers. Callers who have no insurance or who are underinsured will be referred to their state office for state-funded treatment program options.

FreeRehabCenters.org also lists free, sliding scale, low income and payment assisted rehab centers based on state.

How to Rebuild Finances After Rehab

Rehab has up-front expenses, but the results can be life changing and transformative. By overcoming addiction, patients can improve their professional lives, earn more and build a more financially secure future.

Becoming financially stable is one key to a healthy lifestyle, in part because financial stress is linked to health issues. To stay healthy and sober, it’s important to have healthy finances, too. Here are some ways to rebuild finances after rehab.

1. Gain Employment

Find a job where you’re interested in the work and can work the required schedule. You can start earning a paycheck and work toward saving and paying off debt. Working after rehab has other benefits, too.

“Research has shown that working helps people overcome substance abuse and stay sober,” according to an article written by Washington Post reporter Lenny Bernstein. “It provides income and health benefits, of course, but also can instill meaning and purpose in their lives, which are powerful incentives to stay off drugs.”

2. Create a Budget

Determine your fixed expenses, such as rent, transportation, insurance and any debt payments. Aim to put as much of what remains from your income into savings. 

Identify what your unnecessary expenses are, including entertainment. Think of less expensive swaps you can make to save money, or find free ways to have fun. This can help you save more and build up a savings cushion.

Financial experts recommend saving at least three to six months worth of income in case you lose your job. While you’re working toward this goal, try to limit unnecessary spending.

Buy groceries and cook instead of eating out. Head to the library to borrow movies, books and music. Exercise outside instead of at a gym.

3. Automate Your Savings

Look into a savings account that allows you to automatically transfer part of your income into savings. Or, work with your employer to use direct deposit and put a portion of your paycheck into savings.

You can also open an individual retirement account (IRA account) and contribute to that with automatic payments. With that, you may gain tax advantages as you save for retirement.

4. Increase Your Credit score

Your credit score can impact your ability to rent a home, purchase a car, secure a loan and more. You’ll want to raise your score and maintain a good credit rating. You can do so by:

• Reducing your debt
• Making outstanding payments on time
• Avoiding overspending and utilizing too much credit
• Avoiding applying for credit cards and loans you don’t need

As you make on-time payments and minimize your debt, you should start to see your score increase over time.

There are Addiction Treatment Options Available for any Financial Situation

Don’t let finances prevent you or a loved one from getting the substance abuse treatment that’s needed. It’s never too late to get the help you need. Given that there are credit cards, loans, government programs, insurance and other rehab payment options, there are ways to finance addiction treatment.

If you or a loved one is struggling with addiction, you can start with this list of resources for addiction to find a rehab option that may work for you.

• SAMHSA’s National Helpline: 1-800-662-HELP (4357)
• National Institute on Drug Abuse: 301-443-1124
• National Institute on Alcohol Abuse and Alcoholism: 301-443-3860
• Center for Substance Abuse Treatment

At The Simple Dollar, it’s our mission to help readers like you take control of your finances; we encourage you to learn more financial tips today.

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Home Equity Line of Credit vs Personal Loan

HELOC vs Personal Loan

Coming up with the funding for a major purchase or project can be challenging if you don’t have the cash on-hand. Luckily, personal loans or a home equity line of credit (HELOC) can make financing those large purchases possible.

Deciding between a home equity loan or a personal loan takes some thought, though, since the two options are quite different. Not only are the qualifications different, but there are also certain circumstances that are better suited for each option.To figure out which funding source is right for you, it’s important to understand the differences between a HELOC, home equity loan and a personal loan. Let’s take a look.

What is a HELOC?

In order to qualify for a HELOC, you must be a homeowner and have equity in your property, which means that your home is worth more than you owe on it. With this type of loan, you’ll have access to a revolving credit line that you can draw from if you need it, and you only pay back what you borrow.

Lenders will allow you to borrow up to a certain percentage of your home equity with a HELOC. If, for example, the amount left on your mortgage is $300,000, but your home is valued at $350,000, then your current equity would be $50,000. The typical HELOC loan is for 80% of that amount, which in this case would qualify you for a $40,000 line of credit. That means you’d have ongoing access to $40,000 of credit should you need it, but you can also draw from it for smaller projects in lower increments, too. However, interest rates are variable so if overall rates increase, your payment amount will as well.

What Is a Personal Loan?

A personal loan is typically an unsecured loan that allows you to borrow a lump sum of money without using any of your assets as collateral, though there are times when a personal loan is secured by your property, like your house or car. You pay back the loan by making monthly payments for a predetermined period of time. In addition to repaying the principal balance, each payment will include interest, which is calculated at the rate determined for your loan. Some lenders also charge an origination fee that is deducted from your loan funds before you receive them. Typically, the fee ranges between 1% and 8% of your loan amount.

Both your interest rate and your loan amount are based on the information in your personal loan application. Your lender considers your credit score, income and debt-to-income ratio before extending a loan offer. Online lenders make it quick and easy to apply, and you can get funded within a few days (or sometimes less), which makes personal loans a good option for time-sensitive expenses.

A HELOC isn’t a Home Equity Loan

Be sure that you understand the difference between a home equity line of credit and a home equity loan, though, because there are big differences between the two.

With a HELOC, you gain access to a revolving credit line with a variable interest rate that you draw on as needed, and you only pay interest on the amount you actually use. It’s great for home renovation projects or major events, like a wedding, where a large sum of cash will be necessary.

With a home equity loan, also called a second mortgage, you receive a lump sum just as you would with a personal loan, but you’re using your house as collateral, so interest rates are usually much lower than personal loans. Unlike a HELOC, home equity loans almost always come with fixed rates.

Which Is Better? A Personal Loan or a HELOC?

Choosing between a HELOC and a personal loan will depend on your circumstances. Only homeowners can qualify for a HELOC or a home equity loan, so if you’re not a homeowner you can’t get a HELOC. It’s also important to remember that you’ll be putting your home at risk if you fall behind on your payments. On the other hand, you can save money on interest by taking advantage of competitive HELOC rates.

On the other hand, anyone can apply for a personal loan. The approval process is also usually quicker because you don’t have to confirm your home value, and if you opt for an unsecured loan, the higher interest rate is offset by the fact that none of your personal belongings are used as collateral.

How to Choose a Personal Loan Provider

When comparing personal loan providers, narrow your list by choosing the ones that work with borrowers in your credit profile. This saves you time and avoids adding too many inquiries on your credit report. While personal loans can typically be used for almost any purpose, some lenders do offer certain loans for specific  reasons, such as debt consolidation loans or home improvement loans. You’ll also find that different lenders offer different loan amounts. If you know how much you want to borrow, focus on lenders that work in that range.

Once you’ve narrowed down the list, submit an application to your top choices. Most online lenders respond with an approval and a loan offer within minutes. Compare your options and find the best personal loan to match your budget and timeline.

How to Choose a HELOC Provider

When you want to tap into your home equity to fund a purchase or expense, don’t rush through the vetting process. Take your time to find the best lender and make sure you’re getting the best terms that make sense for you. In addition to comparing interest rates, also look at how long the funding process takes, especially if you need the money by a certain time.

Next, consider how the lender determines the value of your home. Do you have to pay for a third-party appraiser? If so, that could cost a minimum of a few hundred dollars, not to mention take a few weeks to complete from start to finish. Once you have a clear picture of how the process works, you’re ready to start applying.

The Bottom Line

As with any financing decision, it’s smart to weigh all of your options before taking the plunge. Deciding between a HELOC and a personal loan involves weighing two very different structures of funding and repayment.

When exploring a HELOC or home equity loan, you should also pay ongoing attention to your local real estate market before applying and after receiving your funds. If the home prices are trending downward in your market, tread carefully. If you take out a loan against your home in a downward spiraling market, you could end up owing more on your house than it’s worth should you need to sell it. So, make sure to stay on top of how much remaining equity you have, and whether that’s growing or diminishing with current market trends.

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Tesla Car Insurance Review

Interested in affordable car insurance for your Tesla? Tesla Insurance offers comprehensive coverage and claims management support that’s often 20% to 30% lower than other car insurance providers. If you’re a California resident, you’re in luck. You can purchase Tesla insurance for your Model S, X, 3 and Roadster today. Currently, Tesla only offers this insurance to California residents, but they have plans to expand to other states in the near future. The cost of Tesla insurance varies depending on factors like model, year, your driving record, etc. However, the average cost to insure a Tesla is just below $1,000 per year.

The Tesla Insurance Program

Because Tesla understands their vehicle technology, safety and repair costs, they’re able to eliminate fees taken by traditional insurance carriers. Insurance prices reflect Tesla’s safety and advanced driver assistance features, which allows drivers to acquire a reduced insurance cost compared to other providers. Only California residents currently benefit from this insurance, but Tesla plans to expand their offerings across the country to make Tesla insurance more affordable. Tesla offers drivers traditional discounts like good driver discounts and multi-driver discounts but also offers exclusive Tesla discounts for features like autopilot, anti-lock brakes, stability control, an anti-theft system, and more.

Average cost of insuring a Tesla

The average cost of insuring your Tesla will vary depending on insurance carrier, model, your driving record, and more. Here’s is how the average monthly insurance rate for a Tesla S through Tesla’s Insurance program compares to other popular insurance companies:

Company	Tesla Model S Monthly Insurance Rate
Progressive	$539
Geico	$545
State Farm	$554
Tesla	$436

This chart accurately reflects Tesla’s claim to be 20-30% more affordable compared to other car insurance providers. Because Tesla’s technology continues to improve and become more complex, maintenance and repair fees increase, which makes the cost to repair a Tesla after a collision more expensive compared to other automobiles. Because of this, Tesla aims to make insurance more affordable and easily accessible for their customers.

Average cost of Tesla insurance by model

Tesla Model	Average annual insurance cost
Model 3	$1,913
Model X	$2,473
Model S	$2,963

Why are Teslas so expensive to insure?

The average cost of insurance for Tesla’s different models is relatively high, mainly due to Tesla’s high repair and maintenance costs. There’s a limited number of Tesla-approved body repair shops, and the aluminium body of some of the Tesla models is more expensive compared to traditional steel frames. As Tesla technology continues to grow and become more advanced, repairs become more complicated, time consuming, and expensive. For all of these reasons, even a fender bender can become incredibly expensive for a Tesla driver compared to other automobiles.

Frequently Asked Questions

What is the cheapest and most expensive Tesla model to insure?

The most inexpensive Tesla model to insure is the Model 3 at an average of $1,913 per year. The most expensive model to insure is the Model S 90, Tesla’s highest-end car, at an average of $2,693 per year.

How can I save money on my Tesla insurance?

Whether you’re a California resident purchasing Tesla’s car insurance, or purchasing insurance through another provider, make sure that you’re receiving every discount you’re entitled to. This includes the traditional discounts like good-driver, multi-driver, etc and Tesla specific discounts like stability control and an anti-theft system.

How much will my Tesla insurance policy cost?

You can expect to pay somewhere between $1,900 and $3,000 a year. The price varies on the individual, the model, their driving record, what discounts you qualify for, and other factors. In some instances, you may save more money by bundling your car insurance with your homeowners insurance company. That being said, it’s important to do your research and consider all of your options before deciding on the insurance company that’s right for you as a Tesla owner.

How is Tesla insurance more affordable than other insurance providers?

Because Tesla better understands their vehicles, their technology, and their repair costs, the company is able to eliminate certain fees that other providers include in your traditional yearly insurance fee. In addition, Tesla owners are entitled to Tesla-specific discounts if you are insured through the company. For example, Tesla takes their active safety and advanced driver assistance features into account when pricing policies, which also brings down the price.

How do I purchase Tesla insurance?

Current Tesla owners who live in California can purchase a policy within minutes on the Tesla website. If you’re a brand new Tesla owner, you can request a quote prior to delivery once a VIN number is assigned to your Tesla account.

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4 Steps to Take if You’re One of the 2 Million People Behind on Their Student Loans

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If you’re falling behind on your student loans, you’re not alone.

Nearly 2 million people say they’re also behind on payments, according to The New York Times. Another 7.5 million borrowers have defaulted, meaning they haven’t made a full payments in more than 270 days.

It’s natural to start feeling trapped and hopeless in this situation. If you can’t afford your monthly payments, then how many options do you really have? You might not have time for a side gig or a second job. And you can’t skip rent just to pay your student loans.

Don’t give up just yet. These steps could help you get out of student loan debt. 

1. Apply For An Income-Driven Repayment Plan

If you have federal student loans and haven’t defaulted, you might qualify for an income-driven repayment plan.

This means your student loan payments are recalculated based on your income and your family size. According to the Federal Student Aid website, your payments could be as low as $0 a month.

It’s free to apply for an income-driven repayment plan on the Federal Student Aid website, and it shouldn’t take more than about 10 minutes.

2. Replace Your Student Loans With Something More Manageable

Whether you’re behind on your payments or have already defaulted, refinancing your loans (federal or private) can be the relief you’ve needed.

Here’s how student loan refinancing works: You take out a personal loan and use it to pay off your student loan (or loans). 

Sure, it might sound like you’re just moving your debt around, but the key is to find a personal loan that has more favorable interest rates, lower monthly payments and/or a longer repayment period. Now you’ll be left with one monthly personal loan payment that more easily fits into your budget.

Before taking out any old personal loan, you’ll want to shop around. One of the easier ways to do this is with a website like Fiona. Enter your student loan amount, ZIP code and credit rating, and Fiona will match you with an option.

With Fiona, if your credit score is at least a 620, you can borrow up to $100,000 with repayment periods ranging from 24 to 84 months. Interest rates start at 3.84%.

Once you review your match, it takes two minutes to fill out some information, then your loan could be approved and funded as soon as tomorrow.

It literally takes a few seconds to search your options.

3. Seek Student Loan Forgiveness

What if the government just forgave your federal student loans? Wiped them out. Said “Nah, we’re good.”

Fortunately, the government offers student loan forgiveness, cancelation and discharge programs. Unfortunately, these programs can take years to qualify for.

Your eligibility for these programs typically depends on your job. If you work in public service, you can receive forgiveness after a certain amount of time, typically 10 years.

There’s a whole lot to know about student loan forgiveness programs, so use our student loan forgiveness guide to see if you might qualify.

4. Apply For Deferment or Forbearance

If you need to take a short break from your federal student loan payments, you might qualify for a deferment or forbearance. This would allow you to either lower your monthly payments or stop making payments altogether for a short amount of time — and, ideally, get yourself in a better financial situation.

Heads up, though: Generally, during a forbearance, you still have to pay the interest that stacks up on your loans. You can choose to do this during the forbearance period or add it to your loan at the end of the forbearance period.

You could be eligible if you’re unemployed for up to three years, in college or grad school, on active duty military service or in economic hardship. Typically, forbearance periods are given for no more than a year at a time.

If you want more information, head over to the Federal Student Aid website. To apply, reach out to your loan servicer.

Carson Kohler (carson@thepennyhoarder.com) is a staff writer at The Penny Hoarder.

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

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Why Banks Advertise APYs for Savings Accounts but APRs for Credit Cards

You’re careful to shop for the lowest interest rates on credit cards and loans, and you go out of your way to find the savings accounts that offer the highest returns. 

But not all interest rates are created — or calculated — equally. 

We’re talking about the difference between APY and APR, and how that one little letter can make a difference.

APR vs. APY: What’s the Difference?

What is APR, and what is APY? APR (annual percentage rate) and APY (annual percentage yield) are both used to describe interest percentages. Interest is the amount of money you pay over time on a debt you owe, or the amount that is paid to you over time when you deposit money. 

But here’s the thing: A 10% APR and 10% APY aren’t exactly the same thing. In fact, in many cases, there can be a fairly significant difference.

That’s because of the effects of compounding, or the frequency with which interest is added to your loan balance or bank account. Interest can compound daily, monthly, quarterly or even yearly, but whenever it’s compounded, it becomes part of your total balance — which pushes the next term’s interest calculation that much higher.

What Is APY?

Annual percentage yield, as its name suggests, takes into account the entire amount of interest generated over the course of a year. For this reason, it’s also sometimes called “earned annual interest,” or EAR. 

That means APY does take compounding into account when it’s calculated. The frequency at which interest is applied is already built into the figure, so you know exactly how much interest you’ll owe or earn at the end of one year’s time. 

What Is APR?

Annual percentage rate, on the other hand, does NOT take the effects of compounding into account. And you may have to do a little digging to learn how often your loan is compounded.

The information will be buried somewhere in that monolithic stack of paperwork you have to sign to take out the loan. You can also ask the lender directly how often the loan is compounded, and we highly recommend you do so before you sign any paperwork.

A loan may compound on a yearly basis, which would effectively mean the APR and APY percentages are equal. But in most cases, they compound more frequently — monthly or even daily — which could mean you pay more in interest over time.

APR is more likely to be seen on financial products that cost you money over time, like a mortgage, auto loan, or consumer credit card.

But you’re more likely to see APYs advertised on products that help you earn money through accrued interest, like a certificate of deposit or savings account. Lenders almost never express their interest rates in APY — because they can make the cost look lower by using APR instead.

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Why Does Compounding Matter?

You may already see where this is going, but here’s what makes APR so tricky: Whenever your loan is compounded, that interest is added onto your total debt — which means the effective amount of interest you pay during each compounding period keeps growing. 

So the 10% APR we mentioned earlier actually works out to 10.51% APY when interest is compounded daily, which many credit cards do.

Conversely, of course, compound interest can also work in your favor when you’re using it to grow your retirement fund or other investments. However, the percentage you see on high-growth savings account is usually in APY — which means that 5% is 5% for the year, total.

APR vs. APY: Comparing Apple to Apples

Since these two measures are so different, why are both in use?

It all comes down to marketing. Lenders know that listing interest in APR can make it look like you won’t pay as much interest over time, whereas those offering an investment opportunity want to make the interest payout look as high as possible. 

So how can you ensure you don’t end up on the wrong end of the APR vs. APY equation?

The answer lies in an actual equation, by which you can calculate the APY out of an APR rate.

That equation is: APY = 100[(1 + r/c)c – 1], where “r” represents the APR (expressed in decimal form) and “c” represents the number of times per year your interest compounds. For example, if your interest compounds quarterly, c=4; if your interest compounds daily, c=365.

However, if you, like me, get minor tremors just looking at something this algebraic, fear not: You can also run your loan terms through a handy-dandy online loan calculator. 

Bottom line: Make sure you understand exactly what you’ll pay (or receive) over time before you sign any paperwork… even if that means doing some math. Your future self and your bank account will certainly thank you later.

Jamie Cattanach’s work has been featured at Fodor’s, Yahoo, SELF, The Huffington Post, The Motley Fool and other outlets. Learn more at www.jamiecattanach.com.

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

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Why Debt Consolidation Usually Makes Sense

Recently, I’ve heard from a few readers asking some very general questions about consolidating their student loans. Their questions mostly boil down to the fact that they’ve heard that it’s a good idea, but they don’t really understand why. What’s the benefit of student loan consolidation – or consolidating any loans for that matter? This is a great “personal finance 101” question, the type of question I already answer sometimes for my children and I expect to answer more and more as they migrate into adulthood.

Almost always, the reason you should consolidate is so that the sum total of everything you owe over the lifetime of your loan (or loans) is as low as it can possibly be, and consolidation is often a way to lower that total. The lower the total is, the less you’re paying in interest and the more you’re keeping in your pocket.

You can figure out how much you’re going to owe in total over the course of a loan by multiplying the monthly payment by how many months are left – often this is added up for you on the statement, but you can do it easily yourself with any calculator.

Let’s start off with a straightforward example.

An Example of Consolidation

Let’s say you have two loans.

With Loan A, you still owe $10,000, the interest rate on it is 6%, and you’re going to be making payments for the next 8 years. With Loan A, you’re making payments of $131.41 every month for the next eight years, and over the course of that time, you’re going to pay back your $10,000 along with an extra $2,615.77 in interest.

With Loan B, you still owe $15,000, the interest rate on it is 5.5%, and you’re going to be making payments for the next 7 years. With Loan B, you’re making payments of $215.55 every month for the next seven years, and over the course of that time, you’re going to pay back your $15,000 along with an extra $3,106.25 in interest.

If you don’t consolidate your loans, eight years from now everything will be paid off, but you will have paid your lenders an extra $5,722.02 in interest.

Let’s say that you have an offer to consolidate those loans into a 5 year loan at 4.5% interest. This will result in a monthly payment of $466.08 a month for the next five years, which seems bad at first. After all, with things as they are now, you’re paying a total of $346.96 per month. The lower payment is better, right?

The benefit with the consolidation is that you’re actually paying off your loans three years earlier than you would otherwise. When you hit that 60 month mark with your consolidated loan, it’s done. You’ve paid it off. Better yet, you’ve only paid $2,964.53 in interest!

Here’s another way to look at it. Before consolidation, all of your payments added together would be $25,000 (how much you owe) plus $5,722.02 in interest, for a total of $30,722.02. After consolidation, all of your payments added together would be $25,000 (how much you owe) plus $2,964.53 in interest, for a total of $27,964.53. You save about $2,800 by consolidating in this example, money that stays in your pocket, and all you had to do was consolidate your loans and thus change who you’re writing the check to and how much the check is each month.

It’s worth noting that not all consolidation offers are going to wind up with such obvious benefits as this one. Some consolidation offers are barely beneficial, while others will end up costing you more in the long run.

Here’s how to figure out which is which.

The Decision to Consolidate

The decision to consolidate should come down to two questions, both of which need a “yes” answer from you.

First, will this reduce the total amount of all payments I’ll owe on my debts? If you add up the total of all payments on the debts you’re considering consolidating, the total of all payments on the consolidation needs to be lower than that or it’s not worthwhile.

So, for each loan you have now, take the amount you pay each month and multiply it by the number of payments remaining. Add the total for each loan together.

For the consolidated loan, rely on the quote that you’re given by the lender. Take the amount of your monthly payment and multiply it by the number of payments you’ll have to make. If this number isn’t lower than what you’re already paying, it’s not a good deal.

It is very important here to include all consolidation fees in this calculation. You will sometimes be quoted pure interest rates or payments that don’t include any fees. Make sure you include all payments and fees you will owe in this calculation.

Ideally, you’ll want to aim for the lowest payment total amongst consolidation offers. If you’re going to consolidate, it’s worth getting a few quotes before you do so, and the one that has the lowest total is probably the right one for you.

However, there is a second question that’s quite important: are you able to easily make that new monthly payment? Again, if you’re facing a monthly payment that you can’t easily pay, then consolidation isn’t a good choice.

Often, the offer that gives you the lowest possible total of all payments has some of the highest possible individual payments. That’s because many of the best offers are for a much shorter term. If you consolidate twenty year loans into 10 year loans, or consolidate 10 year loans into 5 year loans, you’re almost always reducing the total amount you owe by quite a bit, but at the same time, you’re almost always raising the monthly payment – you’re just going to be making a lot fewer of those payments.

You need to make sure that if your monthly payment does go up, you can handle it. The advantage, of course, is that you’ll eliminate that loan far faster after consolidation and you’ll pay far less interest and fees in total than you were paying before. In the long run, it’s a good move provided you can handle the monthly payments.

Everyone’s finances are a little different and I can’t universally suggest how much of a monthly loan payment you can handle. You have to assess that for yourself. In general, it’s a poor idea to have your total monthly debt payments and your monthly housing costs exceed 50% of your take home pay. If you’re in that situation, you’re walking a very risky financial tightrope and you should look at moving to a lower cost housing option and hold off on consolidation for now.

What you want to aim for is the lowest total of all monthly payments where you can handle the individual monthly payments. That’s usually the best option for consolidating loans and is probably the option you should go with.

Final Thoughts

Consolidating your loans can be an intimidating option to consider, but the math behind it is really simple. Take each of your current loans and multiply them by the number of payments left, then add those numbers together. Then take the consolidation offer and do the same, making sure you’re including any consolidation fees. Your consolidated loan needs to beat that number, and ideally beat it by a lot.

If your consolidated loan involves a monthly payment you can’t handle, look for other offers or hold off on consolidation for a bit. You’re better off sticking with what you have than moving to a loan where you’re unable to cover the monthly payments.

Most personal finance choices are simple when you boil them down to the basics. You want to pay less interest, because that keeps money in your pocket, and consolidation should be about lowering the interest you’re paying, otherwise there’s no point. Use that as your litmus test and you’ll be fine.

Good luck.

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This week's top 10 cheap eats

This week's top 10 cheap eats The Moneywise Team Fri, 10/18/2019 - 09:50

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First published on 26 April 2019

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Dear Penny: How Do I Pay Back $80K in Student Loans on a $42K Salary?

Dear H.,

I suspect that you’re overwhelmed because you’re in a time of life when there are so many things you’re supposed to prioritize right now: Get out of debt. Save for retirement and emergencies. Negotiate a decent starting salary, even if your resume is scant.

So often, the advice boils down to: If you just make X move now, you’ll amass great fortune and success, and you’ll never have to worry about money again. 

Sometimes, it’s great advice, though often it comes from people who haven’t lived on an entry-level salary in decades and who have never tried to pay down a student loan balance that’s nearly double their starting salary.

Sometimes, it’s superbly unhelpful. People tell you how you should have never taken out the student loans in the first place, picked a cheaper school or chosen a different major — as if you had access to a time machine.

You can only stretch $42,000 so far, so yes, it’s going to be a challenge to save money while paying off $83,000 debt. But I don’t think your debt is insurmountable.

Consider that your friendly advice columnist here gets letters from people who are approaching retirement with similar amounts of student loan debt. You’re 23. You have time on your side. 

But you need to be strategic about how you pay off debt. First up, your school debt, specifically which student loans to pay off first.

I suggest getting your student loan minimum payments as low as possible so you can knock out the credit card debt first, since credit card interest is significantly higher. Plus, because the balance is fairly low, it’s a “win” you can achieve quickly.

To lower your student loan minimums, start by applying for an income-driven repayment plan at StudentLoans.gov. These plans will cap your monthly payments at 10% to 20% of your discretionary income — but they only apply to your federal loans. They stretch out your monthly payments over 20 or 25 years, instead of the standard 10, and whatever balance you owe at the end will be forgiven.

A single person in the continental U.S. with your salary and a $50,000 federal loan balance at 5% interest could save nearly $350 on their monthly payment.

Of course, there are drawbacks: Obviously, these plans prolong the time you pay on debt, and you often pay more in interest as a result. You’ll also owe income tax on whatever amount is forgiven.

The goal here isn’t loan forgiveness — it’s to lower your monthly payment for now. You can always make extra payments or make more than the minimum.

Once you’ve gotten rid of your credit card balance, keep making minimum payments on your federal loans and focus on paying off your $30,000 in private student loans — not just because the interest is higher, but because you have a lot more protections and flexibility with federal loans. Apply whatever you were paying toward your credit card to your private loans.

Once the private loans are gone, start putting those payments toward your $50,000 federal loans.

As for your other goals: Take advantage of any 401(k) match your new employer offers. Even if your company only matches 25% or 50%, that’s a 25% or 50% return on your investment. I’d also suggest setting up automatic transfers to build an emergency fund, even if you can only afford $50 or $100 a month. 

Once you’re rid of your credit card debt and private student loans, you might want to readjust your priorities and start saving a little more, even if you’re still paying off your federal loans.

In general, the best advice for any recent grad, regardless of whether they have student loans, is to keep living on a student’s budget for as long as possible. That means keeping your cost of living low by splitting rent with roommates or living with family, avoiding a car payment and limiting meals out. 

With the right strategy and budget, you will get rid of this debt — no time machine required.

Robin Hartill is a senior editor at The Penny Hoarder and the voice behind Dear Penny. Send your questions about student loans to AskPenny@thepennyhoarder.com.

This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

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Barclays urged by 124 MPs to reverse its decision to ditch Post Office cash withdrawals

Barclays urged by 124 MPs to reverse its decision to ditch Post Office cash withdrawals

A cross-party group of 124 MPs has written to Barclays denouncing the decision to withdraw banking services from the Post Office

Edmund Greaves Fri, 10/18/2019 - 10:16

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The group, led by Welsh Labour MP Chris Elmore, has accused Barclays of ‘dragging the carpet from under the feet’ of vulnerable customers.

The group has called upon the firm to reverse its decision in a letter to Barclays chief executive Jes Staley.

Barclays recently decided to withdraw the facility for its customers to withdraw cash from Post Offices, in a bid to save £7 million a year.

But Mr Elmore’s letter describes even this simple service as “thin gruel” for customers already battered by a litany of branch closures.

The letter notes that of 3,312 bank branch closures since January 2015, nearly one third (481) were Barclays branches.

Mr Elmore has called on banks to “start taking their responsibility to elderly & vulnerable customers seriously.”

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The letter continues: “Quite simply, amidst the current uncertainty many people face around access to cash and wider banking services, this decision appears to be a retrograde step which will impact your poorest customers hardest.

"It sends a message – rightly or wrongly – that those who cannot properly access the digital economy will have the carpet dragged from under their feet as our high street banks continue to abandon communities that have sustained them for decades.”

As such the group of MPs has called upon the high-street bank to reverse its decision.

Moneywise has contacted Barclays for a response to the letter. A Barclays spokesperson says: “We acknowledge receipt of the letter from Chris Elmore MP, and we are working with him and other MPs to confirm our new commitments that will ensure that no one will be left without access to cash.”

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Fight for your rights: the Moneywise team’s consumer triumphs

Fight for your rights: the Moneywise team’s consumer triumphs Stephen Little Fri, 10/18/2019 - 00:04

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How do we sell our home after we've had subsidence?

How do we sell our home after we've had subsidence?

I need to sell my home and I am worried I won’t find a buyer because we have had subsidence. We have had it treated, but what are the hurdles I'll need to jump in order to convince buyers all is fine and get a sale?

Paula Higgins Fri, 10/18/2019 - 00:01

Just the mention of subsidence can send a shiver down the spine of homebuyers. But it doesn’t mean a house will fall down. Rather, it refers to the fact that the ground the property is built on has sunk, causing the foundations to drop. 

As I’m sure you know, the result can be diagonal cracks that are usually wider at the top than the bottom and located close to windows and doors. Other signs of subsidence include doors and windows that can be difficult to open and close. 

Readers wanting to know more about it can read the HomeOwners Alliance 'Guide to subsidence: what is it, how to spot the signs and what to do' for more details. 

You’ve done the right thing by spotting the problem and having it treated. Too many homeowners put their head in the sand. If you had left the subsidence untreated, the only option for selling your home would be to a cash buyer, such as a property developer. 

Because you’ve had it remedied, you should be able to sell on the open market. It would be wise to take advice from a conveyancing solicitor early on to go through any potential legal problems. This will avoid delays when you come to find a buyer and maximise your chances of a successful sale. 

Don’t be tempted not to tell prospective buyers about the subsidence. Consumer protection regulations dictate that a seller must disclose any pertinent information they have about the property, which might influence the prospective buyer’s decision. Failure to do so can result in a claim of misrepresentation against your estate agent. 

You can reassure potential buyers that the problem has been resolved, with documentation showing the cause and subsequent treatment taken. 

Speak to your estate agent who should be able to raise the issue with buyers at the right time and talk through remediation works in a way that hopefully allays any fears. 

If your home has been underpinned, you will be able to show vendors the completion certificate your received from your local council. For any other repairs, if these were completed by your insurer, you should have a Certificate of Structural Adequacy. 

Your buyer should get their own survey, and their surveyor will likely note that the subsidence was historic but may suggest the buyer gets a further specialist investigation carried out. 

One issue that prospective buyers may have is with insurance. Buildings insurance is key to the prospective buyer being able to get a mortgage – if you cannot get insurance, you cannot get a mortgage. 

Once you have a buyer, your conveyancing solicitor will ask you to complete a seller’s information form (TA6) on which you will have to note any claims you have made on your buildings insurance.

You will also need to declare on the TA6 if you have high amounts of excess on your insurance or the premiums are abnormally high. If you do not, you could be liable at a later stage for misinformation. 

Your prospective buyer may find that their options for getting insurance on your property are more limited and premiums cost more than they would typically. This all depends on how long ago the subsidence occurred and if it has returned.

I’d recommend giving your buyer your insurer’s details – so they can take out insurance with them.

It’s also worth noting that the buyer’s mortgage lender may instruct its own valuation and if historic subsidence is detected they might need a more detailed, specialist report.

The lending decision will hinge on the outcome of that valuation and whether it recommends the property as suitable security for the mortgage.

Your buyer may want to take out indemnity cover – it provides protection for them, the lender and successors.

They may also try to negotiate a drop in price to cover the extra cost of insurance they will incur over the years. 

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Free Wills Month: having a will is essential, so why not get one for free?

Free Wills Month: having a will is essential, so why not get one for free?

It’s Free Wills Month again - having one is essential so don’t waste time without it

Edmund Greaves Wed, 10/16/2019 - 14:01

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Free Wills Month allows anyone over the age of 55 to have a will drafted by a solicitor, free of charge.

The campaign, run in association with a range of leading UK charities is designed to encourage older people to make sure they have a will in place that accurately reflects their wishes.

More than a quarter of over 55s do not have a will in place according to research from wealth management firm Tilney. More widely among the public, around 58% do not according to Tilney’s research.

The most common reason why people say they don’t have one is simply that they “haven’t gotten around to it.”

Ian Dyall, head of estate planning at Tilney, comments: “There seems to be the perception that your estate will automatically go to whom you want upon your death. This is far from the truth.

“A worrying number of people have not made a will seemingly out of pure apathy and even when they have one, many do not review these regularly.

“If you do not leave a will, you simply leave problems for your loved ones including delays and confusions as to where you want your money to go and potentially someone who you would not wish to receive your assets will land a windfall.

“There are also instances where the windfall could cause a problem, such as an elderly parent who has been gifting money to avoid inheritance tax.”

To sign up for a free will go to freewillsmonth.org.uk and enter your details. You’ll then be matched with participating charities and solicitors in your area.

Four financial considerations when planning your will

 Tilney has four important considerations to think about when planning your will and other elements of legal protection for your estate:

1. The importance of a will

Having a will in place will help your loved ones know what you want to happen to your money and possessions after you die. Alongside a Lasting Power of Attorney, it can play an important part in making sure your wishes are carried out.

If, for example, you don’t have a will and are diagnosed with dementia, you may still be able to make one if you can understand and make decisions about your will.

2. Do you have a Lasting Power of Attorney?

A Lasting Power of Attorney is an important legal document giving someone permission to manage your money if you can’t or don’t want to.

If you have an accident or develop an illness – such as dementia – and don’t have one, it’s difficult for those around you to deal with your finances.

3. Generation to generation

So called ‘inter-generational planning’ can help ensure wealth is successfully passed from one generation to the next. It involves your financial planner working closely with you and your beneficiaries to ensure a consistency in your family financial planning and a smooth transfer of your wealth, in line with your wishes.

This gives you the peace of mind that your money will end up in the right hands after you’re gone – and it can also help you to save tax.

4. Avoiding a large tax bill

Another reason to plan properly is to ensure you don’t end up leaving a bigger tax bill than is necessary. Inheritance Tax has been described as a voluntary tax because there are so many ways to reduce the amount that must be paid, but you need to plan and work with your beneficiaries to do it successfully.

If you fail to act or leave it too late, you could end up passing more money to the taxman than to the children in your life.

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