Margin Call Meaning – What It Is, Causes & How to Handle One

Margins are a commonly used tool among investors, especially those who take part in day trading. Margins allow traders to increase their buying power with borrowed funds using a mix of their own money and loans from their brokers in a process known as margin trading.

Although margin loans provide an opportunity for substantially larger gains, there’s also potential for substantially larger losses should things go in the wrong direction.

Margin traders also have to worry about the dreaded margin call, which takes place when their account value falls below minimum margin requirements, which could ultimately lead to forced liquidation within their portfolios.

What is a margin call and how does it work? Read on to learn about margin calls and your options should one happen to you.

What Is a Margin Call?

Traders who use margins must maintain a minimum margin requirement, or a minimum amount of value in unborrowed cash and equities in their accounts. This requirement ensures the brokers aren’t left holding the bag on bad trades should things go wrong.

Maintenance margin requirements vary from one brokerage to another, but the minimum requirement will be at least 25% — a requirement set by both the New York Stock Exchange and the Financial Industry Regulatory Authority (FINRA). However, some brokers charge as much as 40% of the amount you borrow.

What’s all of this mean?

When trading on margins, traders take out margin loans to cover a percentage of the value of the securities they are purchasing. For example, you might use $5,000 of your own money and $5,000 of the broker’s money through a margin loan to purchase stock, giving you a total of $10,000 in stock.

In this example, $5,000 of the investment is not your money — it’s borrowed from your broker.

Now imagine your $10,000 investment dropped to $6,250. At this price, after subtracting the $5,000 you borrowed, your personal equity in the investment is down to $1,250.

Because $1,250 represents 25% of the $5,000 margin loan, if the price falls below this point, a margin call would be triggered because the trader’s equity in the investment would fall below the 25% margin requirement threshold.

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Types of Margin Calls

There are two different types of margin calls traders should consider before trading on margins. They include:

Maintenance Margin Calls

Maintenance margin calls take place when the account value falls below the minimum margin requirement with the broker. This is the type of margin call that’s described above. Each broker has a different minimum margin requirement, but the floor for this requirement is 25% of the borrowed amount that you must maintain in your account.

Federal Margin Calls

Federal margin calls are a bit different. While a maintenance-related call has to do with an investment that has already been placed, a federal margin call — often referred to as a fed call — takes place when a margin trade is being initiated.

According to the United States Federal Reserve’s regulation T, margin trades can be placed using a maximum of 50% borrowed money. This is known as the initial margin requirement. For example, if you’re planning on buying $10,000 worth of stock in a margin trade, you’ll have to have at least $5,000 of your own money to put up for that trade.

If you attempt to make a margin trade without having the 50% required to appease the Federal Reserve, a federal margin call will take place, which will lead to one of two outcomes:

  1. The Trade Will Be Blocked. With most brokers, if you attempt to make a margin trade without meeting the initial margin requirement, the trade will be blocked and cancelled, and you’ll have to set up another trade within the parameters set forth by regulation T.
  2. Other Securities Liquidated. In some cases, your broker may force the liquidation of other securities in your portfolio to free up the cash needed to make the trade viable.

Either way, the outcome isn’t what investors want.


How to Calculate at What Price a Margin Call Takes Place

Most traders would prefer taking a loss to triggering a margin call. After all, when a margin call is triggered, it means the loss on the investment was so large that it made the trade fall below the minimum requirements.

Most traders calculate at what price a margin call would take place, giving them a baseline of where to close the trade before prices decline to that point.

To determine at what price a margin would happen, follow this formula:

((Margin Loan Amount X Minimum Margin Requirement) + Margin Loan Amount) ÷ Number of Shares = Call Price

For example, let’s say your brokerage firm has a maintenance margin requirement of 30%. You want to buy $10,000 worth of stock with $5,000 of your own money and a $5,000 loan. The stock is worth $50 per share at the moment, meaning that you’ll purchase 200 shares.

Plugging these figures into the formula above would result in the following:

(($5,000 X 0.30) + $5,000) / 200 = $32.50

In this example, if the price of the stock you purchased for $50 per share fell to a market value of $32.50 per share, a call would be triggered, forcing the trader to respond.

Pro tip: Before you add any stocks to your portfolio, make sure you’re choosing the best possible companies. Stock screeners like Trade Ideas can help you narrow down the choices to companies that meet your individual requirements. Learn more about our favorite stock screeners.


What Are Your Options When You Get a Margin Call?

When you log into your brokerage account and see that a call has taken place, it may be a bit overwhelming. The good news is that you have three options to consider to remedy the situation before a forced liquidation takes place:

  1. Deposit Additional Funds. The best option is to deposit additional cash into your margin account to bring the cash and equity value of the account up to the minimum requirements. Of course, this only works if you have additional money outside the account that you can afford to add.
  2. Deposit Securities. The minimum requirements take both cash and the value of securities into account. If you have securities held elsewhere, you can deposit those securities into your margin account to bring the total value of the account up to the minimum requirement.
  3. Liquidate Stock. Finally, you have the option to liquidate shares of stock within your account, using the funds generated through the liquidation to bring your account value back up to par with minimum requirements.

How to Respond to a Margin Call

Returning to the example above, you know that a margin call will be triggered if the price of the stock falls below $32.50. For this example, let’s say the value of the stock fell to $30 per share. That means the current value of your 200 shares works out to $6,000. However, a call triggers as soon as the value of the investment falls below $6,500, meaning that the margin call is for $500.

At this point, you can choose one of three options:

Deposit Funds

First, you can choose to deposit at least $500 into your account to bring the account’s value after the margin loan back up to $1,500, or 30% of the total value of the margin loan. This requires adding $500 of new cash into your account, but you don’t need to move or sell any shares.

Deposit Shares of Stock

You also have the option to deposit shares of stock into your account. Say you have another brokerage account where you own $500 worth of stock. By transferring those shares into your margin account, you’ll bring its total value above the minimum margin requirement, bringing your account back into good standing.

Liquidate

Finally, you have the option to liquidate a portion or all of your holdings in the margin trade. Through the liquidation of a portion of your holdings in the investment, you can balance out the minimum requirement and eradicate the issue altogether.

For example, you could choose to liquidate 100 of your 200 shares, the sale of which would result in $3,000 cash at the current share price. These funds would be used to pay back $3,000 of the $5,000 margin loan.

You’re left with $3,000 worth of stock — $1,000 of your own money and $2,000 left of the margin loan — still invested. Your remaining $1,000 holdings are 50% of the remaining $2,000 loan — more than enough to cover your minimum requirement. However, you’ll have realized a substantial loss.


Final Word

A margin call is nothing that any trader wants to deal with, but if you make the decision to use margins, it will always be a possibility. While margins can expand profitability, they can also result in larger losses, and investors who use them need to consider the extent of these potential losses before getting involved.

Nonetheless, if the risk is worth the reward for you, and you end up with a margin call, don’t panic. Instead, consider which of the three possible remedies to use to bring your account back in line with requirements.

Moreover, if you’re going to trade on margins, treat the trade like any other loan and make sure that you never borrow more money than you can afford to return. In doing so, if and when a margin call does take place, you’ll have the ability to cover the cost if you decide to stay in the investment and await a recovery.

Source: moneycrashers.com

Amazon Prime Day 2021: How to Get the Best Deals

In typical years, Amazon Prime Day falls in mid-July, perfectly placed to interrupt the midsummer retail doldrums.

But 2021 is not a typical year.

The ongoing COVID-19 pandemic continues to disrupt global supply chains in an echo of 2020 when Amazon temporarily refocused its energies on essential business lines like food and personal care products. Prime Day 2020 didn’t happen until October, ahead of a nasty second wave of the pandemic that upended global trade again.

To complicate things further, the arrival of reliable vaccines in early 2021 spurred millions of Americans to make ambitious summer plans. Many people who’d normally jump at the opportunity to capture once-a-year deals in July might not be anywhere near a computer at that time.

That could be why Amazon has decided to move Prime Day 2021 to June.

When Is Amazon Prime Day 2021?

Amazon Prime Day 2021 will take place on Monday, June 21 and Tuesday, June 22.

Be forewarned that Prime Day deals aren’t guaranteed to last the entire 48-hour span. When they’re gone, they’re gone.

Despite its new position on the calendar, Prime Day 2021 is shaping up to be no different from past Prime Days in at least one crucial respect: offering a vast array of attractive deals and discounts on sought-after consumer goods, household products, and small-business essentials.

In the past, Prime Day shoppers have enjoyed discounts of 50% or more on high-demand products. According to Amazon, Prime Day shoppers collectively saved about $1.4 billion in 2020, equivalent to 700 million pairs of socks.

This year, they’ll get in on the action early. Amazon has already announced a slew of pre-Prime Day sales that could be gone before the main event begins.

Best Amazon Prime Day Deals for 2021

What can shoppers expect from Amazon Prime Day 2021? Its Prime Day 2021 flyer offers some tantalizing clues.

The retail giant has already instituted some stealth price drops on popular items like the Fitbit Sense, Instant Pot multicooker, Apple products like iPads and AirPods, and Amazon-branded daily essentials like multivitamins and nonperishable food staples.

It’s also promoted specific early deals on the Amazon Halo wellness band ($69.99, down from $99.99) and the controller for Amazon’s all-new Luna gaming device ($48.99, down from $69.99).

Other early Prime Day 2021 deals include:

And on Prime Day 2021 itself? Prime members can look forward to a host of category- and product-specific deals like:

A general word of advice: Don’t wait to jump on specific Prime Day deals. Once inventory runs out, the deal is gone for good.

Tips to Prepare for Amazon Prime Day & Maximize Your Savings

Want to save as much as possible on Amazon Prime Day without impulse-buying items that you don’t really need? Careful preparation is key to a successful, budget-friendly Prime Day shopping experience.

That means becoming an Amazon Prime member (if you’re not one already), making and sticking to a concise shopping list, and using the proper payment method.

1. Join Amazon Prime

Prime Day deals are only for Amazon Prime members.

That means becoming a Prime member is an essential prerequisite for anyone with big Amazon Prime Day shopping plans — and anyone interested in taking advantage of the $119-per-year subscription’s considerable benefits during the rest of the year.

These benefits include:

  • Free two-day shipping on all eligible Amazon purchases
  • Free one-day or two-hour delivery on eligible purchases in select areas
  • Free no-rush shipping with bonus reward credits against eligible future Amazon purchases
  • Free grocery delivery through Amazon Fresh in select areas
  • Access to Amazon Prime Video’s library of thousands of movies and shows, including exclusive features and series not available anywhere else
  • Unlimited e-books through Kindle Unlimited
  • Unlimited access to more than 2 million digital songs through Amazon Music
  • Free games, in-game content, and subscription to Twitch.tv through Amazon Gaming
  • Exclusive savings (and delivery in select cities) from Whole Foods Market
  • Deals and discounts up to 20% on select products (such as diapers) through Amazon Family

If you’re a first-time Amazon Prime subscriber, opt into the 30-day free trial right before Prime Day. If you’re not satisfied with the service, you can always cancel after Prime Day and before the trial expires, paying nothing for the trouble.

That said, Prime membership is definitely worth the cost for frequent Amazon shoppers able to take advantage of its content and delivery perks.

For additional savings, read up on more tips to save shopping on Amazon.

2. Familiarize Yourself With Last Year’s Deals

Use actual examples from last year to familiarize yourself with the sorts of deals Amazon is likely to offer on the big day.

For example, CNET highlighted a slew of deals on electronics and home goods, some of which remain available (albeit at different price points) in 2021:

Prior-year availability won’t predict with 100% accuracy what Amazon has up its sleeve this year, especially in light of the ongoing pandemic-related supply chain disruptions that delayed Prime Day 2020. But it can and should form the basis of informed guesswork.

3. Set a Reasonable Shopping Budget

Next, set a reasonable Prime Day shopping budget. It’s essential you do so before compiling your shopping list. Otherwise, the temptation to overspend on things you desperately want but don’t need becomes too powerful to resist.

As you likely know from budgeting for Black Friday and Cyber Monday, your retail holiday budget — in this case, your Prime Day budget — should fit neatly into your larger discretionary budget. Avoid the temptation to use Prime Day as an excuse to expand it.

For example, if you typically earmark $500 per month to spend on luxuries or nice-to-haves like restaurant meals and electronics, don’t spend $700 on Prime Day.

In fact, unless you’re willing to go without any other luxuries that month, you need to spend considerably less — perhaps $250 or $300 in this example.

4. Make & Stick to a Needs-Based Shopping List

Making a list is a vital step to take ahead of planned shopping events of any significance, not just Prime Day. The objective is clear: avoiding impulsive purchases you don’t need and could regret in hindsight.

Using clues gleaned from prior Amazon Prime Day deals, your list should include everything you both plan to buy before the end of the year (or, if you prefer and your shopping budget allows, within the next six months) and those reasonably likely to be discounted on Prime Day.

On Prime Day, stay disciplined and condition your purchases on value. If a particular item on your list isn’t discounted for Prime Day, don’t buy it. You’ll likely find better deals later in the year.

5. Use a Browser Extension to Find a Better Deal

Before Amazon Prime Day 2021, add Capital One Shopping, a free browser extension that automatically searches competing merchants’ inventories for a better price when you shop Amazon.

If Capital One Shopping can’t find a better price elsewhere, simply complete your Prime Day purchase as planned. If another retailer has a better price, shop with them instead.

Capital One Shopping isn’t the only browser extension that can save you money on online purchases you’d make anyway. It’s one of the best around, but legitimate and potentially lucrative alternatives abound.

Capital One Shopping compensates us when you get the browser extension using the links provided.

6. Ask Alexa for the Best Deals

Fair warning: This is an easy way to blow through your Prime Day budget. But it’s also incredibly convenient.

If you have an Alexa-enabled device like the Echo Show 5, wake up early on June 21, 2021, and pop the question: “Alexa, what are my Prime Day deals?” Just resist the temptation to purchase them all in one go.

7. Shop Early

Amazon makes no guarantees that any given Prime Day merchandise will remain available for the event’s duration. Quantities are always finite, and unexpectedly high demand for specific products could cause certain deals to sell out sooner than expected.

Your best bet is to shop early, logging on right away on Prime Day morning and getting as much of your shopping list out of the way as possible before the day begins.

You can always return later to complete your list or take advantage of last-minute deals (known as lightning deals) as your budget allows.

8. Look for Prime Day Badges

If you happen to be browsing Amazon anyway during the Prime Day period, look for the little blue badges denoting Prime Day deals. These highlight limited-time opportunities that aren’t likely to remain after June 22.

9. Download the Amazon App for Mobile Purchases

Amazon’s main website works just fine on desktop and mobile devices, but don’t overlook its user-friendly app.

The app is especially useful for shoppers stuck at work during Prime Day’s peak hours, as many employers frown on workers shopping (or conducting any personal business at all) on work-issued devices.

Beyond the obvious perks of a crisper shopping experience in a smaller package, Amazon’s mobile app offers:

  • Voice-assisted shopping using the Amazon Alexa assistant
  • Real-time order tracking and notifications
  • Direct chat support from Amazon’s customer assistance team
  • Single-tap shopping with your smartphone camera

10. Use a Rewards Credit Card (Preferably the Amazon Prime Rewards Visa Signature Card)

The Amazon Prime Rewards Visa Signature card is the best cash-back credit card for frequent Amazon patrons, period. Its three-tier cash-back program earns:

  • 5% cash back on qualifying Amazon and Whole Foods purchases with an eligible Prime membership
  • 2% cash back on eligible purchases at gas stations, restaurants, and drugstores
  • 1% cash back on all other eligible purchases

If you’re not an Amazon Prime member, the otherwise identical Amazon Rewards Visa Signature card earns 3% cash back on Amazon and Whole Foods purchases.

Of course, Prime Day sales are for Prime members only, so you must become a Prime member before the big event. But if you already have the Amazon Rewards Visa Signature card, you don’t need to reapply for the Prime Rewards card — the upgrade is automatic and immediate.

But if you have no interest in applying for an Amazon card or don’t qualify, use one or more of these Prime Day-friendly credit cards if you can:

Final Word

Amazon and Whole Foods aren’t the only retailers worth patronizing on Prime Day. Many big-name sellers — Walmart and Target among them — slash prices to compete with Prime Day deals and offer price-match guarantees that may cover Amazon Prime Day deals (though be sure to read the fine print on these policies carefully).

If you play your cards right, your Prime Day shopfest could turn into a multi-retailer blowout that saves you hundreds on purchases you planned to make anyway while supporting your favorite non-Amazon merchants. Talk about a great way to get everything you need for less.

You can make your purchases count by joining the Amazon Smile program before the big day. Shop through the Amazon Smile site — not Amazon’s main site — to ensure Amazon donates 0.5% of eligible purchases to the charity of your choice.

You can also purchase actual products to give to thousands of registered Amazon Smile charities using the Charity Lists feature. It lets you buy frequently needed products, such as paper towels and cleaning supplies, preselected by participating charities, which are then shipped directly to them, putting your dollars to work right where charities need them most.

Source: moneycrashers.com

Top 4 Things I Love About Dave Ramsey Baby Steps (And 4 Things I’d Change)

Dave Ramsey has helped thousands of people around the world through the 7 Baby Steps for financial peace and freedom.

The process works.

His book titled the Total Money Makeover has had some impressive sales numbers. The book has sold over 5 million copies and has been on the Wall Street Journal Best-Selling list for over 500 weeks. (That data is from August 2017, over 4 years ago, so it’s sold more by now.)

So, we know that the 7 Baby Steps work. There’s a lot to love above the process, and we will address 4 of those attributes here. We will also cover 4 things that we think could be updated this year (as it has been almost 30 years since the Baby Steps were created).

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7 Baby Steps really do work. There are three great reasons why the plan actual works:

a. The Baby Steps Force You To Get Gazelle Intense When It Comes To Paying Off Debt

I’ll mention this later, but I really appreciate that Dave Ramsey keeps the emergency fund smaller to force you to be gazelle intense. Having such a small emergency fund of $1000 really does force you to get out of debt faster because having too much money in the bank can cause you to stagnate. 

b. Dave Strongly Encourages Your Behavior Modification

Too many financial gurus don’t give it to you straight. They may tell you that you need to invest in real estate or cryptocurrency.  It often feels like a lie that you can achieve financial freedom without putting in a lot of work.

Dave Ramsey comes off as blunt many times, but he forces people to confront that the debt is often our fault (with some exceptions). His bluntness, along with the Baby Steps, forces you to self-reflect.

c. The Plan Is Simple And Shows How You Need To Focus On One Step At A Time

I’ll mention this more below, but it’s evident that his focused intensity on the Baby Steps plan helps you stay focused on the task. You complete the first 3 steps consecutively and the following 4 steps concurrently in a prioritized order. 

You don’t have to multitask. Also, you don’t need to think about another step. You just need to focus on the step at hand.

2) Dave Ramsey Is Right That You Need A Plan

Dave Ramsey has many helpful quotes. One of my favorite of Dave Ramsey’s quotes is, “You must plan your work and then work your plan”. 

Too often we go through life without a plan, but we expect that everything is going to work out just fine. I remember the first time I budgeted.  I thought that I spent a certain amount of money on eating out each month, only to realize that number was much higher.

We need plans. It could be a debt payoff plan to stay on top of your debt. It could also be a budget to understand your income and expenses. Or it could be a plan to pay off your home early as per Baby Step 6.

Dave Ramsey understood that which is why the Baby Steps plan is so useful. You stick to the plan and you get out of debt. Voila.

3) The Baby Steps Get Progressively More Challenging

One thing I noticed early was that the Baby Steps seems to get progressively more challenging. This helps build momentum. It is much easier to save $1000 than to pay off your house early. By starting and taking baby steps, the baby steps themselves actually don’t feel very babyish. 

Paying off your home early per Baby Step 6 feels much more like a big kid step, but it’s still just a Baby Step like the others. It’s impressive how Dave structured these baby steps.

4) The Community Around Dave Ramsey Baby Steps Is Incredible

You don’t have to look far to realize that the community around Dave Ramsey is incredible. You can take a Financial Peace University class at your local church. These classes are excellent to encourage you and help keep you accountable while you eliminate debt. You’ll learn the baby steps inside and out with others in your community. 

You can also be a part of a vibrant Dave Ramsey Facebook Community. Personally, I am a part of many of these communities where I receive a ton of encouragement when sharing wins and losses in the process of debt elimination.

There’s a lot to love about the Dave Ramsey Baby Step method.

Now, let’s cover a few things that could use a refresh.

1) Can Creating A Budget Be Baby Step #1?

I am a budget fanatic. I would love to see a Baby Step dedicated to budgeting. Why? Because budgeting helps you understand where every dollar goes. I used “every dollar” like that on purpose because Dave Ramsey himself created a budget app called EveryDollar for that very purpose.

What better way to understand how much money you have to put towards your emergency fund than starting with a budget.

I am not sure why Dave doesn’t start with a budget, but I would be keen to start the Baby Steps with creating one.

2) Dave Ramsey’s Emergency Fund May Need A Refresh

Dave Ramsey’s emergency fund calls you to save $1,000 in Baby Step 1. Is $1,000 enough? It really depends. 

First, adjusted for inflation, $1,000 in 1990 is now worth $2,043.26 per the US Inflation Calculator.

Dave Ramsey's emergency fund needs to be larger due to inflation

There’s a plethora of questions you can ask yourself when considering whether the emergency fund is big enough, such as:

  1. How much debt do you have to pay off?
  2. Do you own a home?
  3. How old is your car?
  4. How many kids do you have?
  5. Do you have insurance?

Another question I like to ask is, “where do you live?”. Personally, my family and I live in the Bay Area, California where the cost of living tends to be quite high. $1,000 wouldn’t get us very far.

3) Is The Snowball Method The Best Way To Pay Off Debt?

As a refresh, the debt snowball method means that you line up your debts from smallest to largest and pay your monthly extra to your smallest debt first then snowball into higher debts. The debt avalanche method is where you line up your debts from the highest interest rate and use your monthly extra to pay off the highest interest first. The savvy debt method is where you pay off 1-2 of your smallest balances first via snowball before reverting to the avalanche method to save the most in interest.

Dave Ramsey loves the debt snowball method. It has worked for many people, so why wouldn’t he? He feels the opposite for the debt avalanche where he mentions that it doesn’t work.

The challenge is that you could lose thousands in interest if your smallest debts also have the smallest interest rates. This can be possible because higher debt amounts carry a higher risk to the lenders, meaning potentially higher interest rates.

You can see how much the snowball method loses in comparison through this debt payoff calculator which compares interest paid from snowball to savvy methods. For reference, we are comparing 4 debts: $23,000 at 22%, $18,000 at 19%, $12,000 at 9% and $8,000 at 7% interest rate. The monthly payment is $1,825.00

debt snowball versus other debt payoff methods

In this example, you would lose over $3,500 in interest by choosing the snowball method.

Does that mean that the snowball method is always worse? Absolutely not. The snowball method may provide the psychological benefit that you need to exterminate your debt.

You choose the debt payoff app and debt payoff method that is best for you.

4) Should You Follow Dave Ramsey’s Advice And Pay Off Your House Early Or Invest?

Dave Ramsey loves mutual funds and paying off your home early. My question is what if your mutual funds are making so much more in interest than paying off your home would save you?

Wouldn’t the prudent thing be to continue to pay off your home and then get the higher interest from investing in mutual funds?  It’s not a one size fits all solution, but it is something to consider.

There are also often benefits of not paying off your home early such as interest paid being tax-deductible. That said, you would really need to determine whether you would make more money from mutual funds than saving from interest payments to determine what’s best for you.

What Do You Think About The Baby Steps?

The Dave Ramsey Baby Steps have helped thousands around the globe. What do you like about the Baby Steps? Do you agree or disagree with what we would change in 2021?

4 things I love about Dave Ramsey's baby steps and 4 things I'd change

Top 4 Things I Love About Dave Ramsey Baby Steps (And 4 Things I'd Change)

Source: biblemoneymatters.com

Is it Wise to Use Personal Credit for Business Finances?

Whether you want to start a business or to finance one that is already functioning, you may find your financing options reduced to taking a loan. In such a case, you have the option of taking either a personal or a business loan.

Given the unpredictable nature of businesses, it may not be wise to mix your personal and business finances. This advice notwithstanding, there are some circumstances in which using personal credit for business finances makes sense.

When to use personal credit for business finance

Starting a BusinessStarting a BusinessWhen your personal credit is more attractive

Credit score is among the main factors that determine the amount and rate of a loan. If your venture hasn’t established a good credit, a business loan may not be advisable.

Such a loan will probably be denied or approved under restrictive terms and high rates. On the other hand, you can still access finances by going for a personal loan if your credit score is more attractive.

When you are setting up

Lenders will require proof of the revenue generated by the business to determine its capability in repaying the loan. This requirement puts you at a disadvantage when you’re setting up. Without any experience or books to show, a personal loan maybe the only way to go.

When you have no collateral

Business loans are mostly offered as secured loans. This means that collateral is required before approval. When starting a business you probably have no asset that can be tied to the loan or may not want to risk other existing assets due to the risk associated with businesses.  In such a scenario, a personal loan will do since it requires no collateral.

When the loan is within personal credit limit

Business loans attract higher interest rates than personal credit. However, personal credit comes with a lower limit compared to that of a business. The question you should ask yourself is; how much do you need and what will it cost you?

When the amount you need can be covered by personal credit, then go for it. You will avoid paying heftier interest that could run into thousands of dollar if you were to take a business loan.

When you don’t have a business plan

Another requirement for a business loan is an elaborate business plan. That’s easier said than done. The passion and hard work that you are ready to put into your venture cannot be captured on paper. What lenders want to see is an actionable plan that shows how capital will be utilized and the expected returns; to the last dollar!

In addition to this, lenders set stringent measures on how a business loan is to be utilized. Instead of allowing these requirements and terms to curtail your venture, you can tap into your personal credit as you get a feel of the business environment.

That said,

Personal credit might be cheaper and a good alternative to a business loan, but there are a few things to consider;

The major drive of setting up of a business is to generate profit. You inject part of the returns back into the business, and with time it grows into greater heights. If successful; what started out as a small business will one day grow into a huge venture.

To achieve that major boost, you may find yourself in need of a sizable amount. When self-funding can’t cover this, you may have to turn to lenders for a business loan.

Lenders will be more willing to finance your business if they have taken part in its growth. The point here is that, your bank needs to recognize your business as separate entity.

This kind of recognition is only possible if you take and manage business loans with them. Not only will this push your loan applications to the top of the pile, but you will get financial advice from the bank.

Final Take

Using personal credit for business finances is wise if it makes business sense to your specific venture. If it comes down to letting your business go under or abandoning your dream business for lack of financing, you have a winner. However, you should also be aware that personal credit does not elevate your business credit, something which may come in handy for future financial needs.

Source: creditabsolute.com

6 of the Worst Things to Buy at Aldi

ALDI food market branch in St. Louis.
ZirePhotos / Shutterstock.com

Aldi is quietly becoming one of the most respected grocery chains in America.

In its latest ranking of grocery stores, Consumer Reports awarded Aldi 84 of 100 possible points for overall satisfaction. That puts it just behind some of the nation’s most beloved grocers. Trader Joe’s, for comparison, earned an 87 and Costco received an 86.

Every retailer has strengths and weaknesses. Don’t buy a laptop at Walmart if price matters, for example, and Trader Joe’s is not the best for low-priced meat and seafood.

The “no frills” Aldi — which currently serves the Eastern seaboard, Midwest, Arizona and California — earns a perfect CR score of 5 out of 5 for competitive prices. CR also points to the chain’s store cleanliness, for which Aldi earned a 4 out of 5.

Aldi falls down, however, in the following areas, based on Consumer Reports’ findings or our own.

1. Store-prepared fresh foods

Woman shopping for groceries at Aldi
defotoberg / Shutterstock.com

Aldi earns a rock-bottom low grade from Consumer Reports — only 1 of 5 possible points — for its store-prepared fresh foods.

That can include, for instance, freshly made salads, deli sandwiches and whole roast chickens prepared in stores. The chain says it has increased its fresh food offerings since 2018, but Consumer Reports, in its 2019 assessment, wasn’t impressed.

For better bets, check out “My 7 Favorite Things to Buy at Aldi.”

2. Avocado oil

Avocado oil
Lecic / Shutterstock.com

The reputation of the avocado as a healthy food might make you crave avocado oil, a relatively new grocery product. It’s full of minerals, vitamins and healthy fats.

But in a recent review of seven brands by ConsumerLab.com, Aldi’s Simply Nature 100% Pure Avocado Oil was the only one that didn’t earn ConsumerLab.com’s approval. The company, which independently tests the quality of health and nutrition products, said of Aldi’s brand:

“[I]ts fatty acid profile did not fully match that of avocado oil, suggesting adulteration with another oil.”

3. Sandwich bags

bagged lunch
Hannamariah / Shutterstock.com

We’ve done the math on Aldi’s sandwich bags so you don’t have to.

“Every time I have done the per-unit math, Walmart’s Great Value sandwich bags have been cheaper than Aldi’s Boulder sandwich bags,” says Money Talks News managing editor Karla Bowsher.

Walmart’s bags are cheaper even than the ones Costco sells, she reported in “7 Things I Never Buy at Costco.”

4. Name brands

Kellogg's name brand breakfast cereals
Steve Cukrov / Shutterstock.com

Store brands typically offer more for your money, and more than 90% of Aldi’s products are house (or “private-label”) brands.

“One reason [Aldi’s] prices are so low is that a majority of the groceries it carries are private-label,” affirms Business Insider.

However, shop beyond these private-label products and you might end up digging more deeply into your purse or wallet.

At Aldi, “not only are these [name brands] usually over-priced, you can’t use coupons on them to save more money,” says blogger MoneySavingMom.

5. Disposable shopping bags

Aldi shopping bag
monticello / Shutterstock.com

Unlike many stores, Aldi doesn’t give shoppers free bags at checkout. You bring your own or buy disposable or reusable shopping bags.

Aldi’s FAQ explains that “we not only save our customers money — by avoiding adding the cost of the bag to our prices — but also precious resources.”

Don’t get stuck paying for a disposable grocery bag, though. Plan ahead and bring your own for free. Or, if you don’t own reusable shopping bags, buy some reusable bags at Aldi rather than paying for disposable bags that aren’t made to last.

6. Locally produced products

Aldi produce department
Ilze_Lucero / Shutterstock.com

Shopping for locally grown and crafted goods? Try local food cooperatives, farm stands and farmers markets. A sore point for Aldi in Consumer Reports’ ranking was its score — just 1 of 5 possible points — for its selection of locally produced products.

Aldi shines, however — earning 4 of 5 possible points — for its prices on organic products.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Source: moneytalksnews.com

Which Bills to Pay Off First (or Cancel) When Money Runs Tight

Whether it’s from job loss due to a recession, a drop in income, or an unexpected major expense, there may come a time when you struggle to pay your bills. What can you do when your income and expenses don’t match up?

It’s essential you prioritize your bill payments and what you owe, paying the most important bills first.

Bills to Prioritize When You’re Low on Money

The most important bills are those that cover the necessities: shelter, food, water, and heat, for example.

The next most important are bills that cover things that make it possible for you to get where you need to go, such as your vehicle expenses.

Last on the list are bills that can ding your credit history, but not much else, if you fall behind on them.

Although you can make some adjustments to the order you pay bills based on your circumstances, it’s usually best to focus on paying your housing bills first, then paying what you can with the money you have remaining.

1. Mortgage or Rent

If you fall behind on mortgage payments, you risk having the lender foreclose on your home. If you fall behind on rent, your landlord can evict you.

Even though the foreclosure or eviction process can take months, it’s not something you want to risk happening. Keeping up with your housing payments is a must if you want to stay in your home.

When money is really tight and you’re not sure you can pull together enough to make a payment one month, the best thing to do is talk to your landlord or lender.

Many mortgage lenders have programs in place to help homeowners who are facing financial hardship. Your lender can review your options, such as forbearance or loan modification, with you.

During forbearance, you stop making payments on your loan, but interest continues to accrue. If a lender agrees to modify your loan, they adjust your interest rate or otherwise make changes to lower your monthly payment.

The United States Department of Housing and Urban Development (HUD) also has programs available to homeowners struggling with their mortgage payments. You can contact HUD to connect with an approved counseling agency. The counselor can work with you to create a plan to help you avoid foreclosure.

If you’re a renter, talk to your landlord as soon as you know you’ll have difficulty paying rent. Explain the situation to them in detail, including whether you think you’ll be late with payment, won’t be able to pay all your monthly rent, or won’t be able to pay at all.

Many landlords are willing to work with you to come up with a solution. You can help the situation by suggesting solutions.

For example, if you’re going to pay late, tell the landlord when you plan to make the payment. If you can’t pay the full amount this month, tell the landlord how you’ll make up the difference. For example, you can add an extra $100 or so to subsequent payments until you pay off the balance.

If you’re renting and your landlord can’t or won’t be flexible about payments, you might have more wiggle room than a homeowner.

Depending on how much time you have left on the lease, you can simply wait it out, then look for a less expensive place to live. Another option is to try to find someone to take over your lease so you can move somewhere that costs less.

2. Utilities

After your mortgage or rent payment, the next most important bills are your utility bills: gas, water and sewage, and electricity. Although some people count TV and the Internet as utilities, those services aren’t essential for everyone.

Fortunately, many programs exist to help people who need emergency financial assistance paying bills. The first place to look is your local utility provider. Many utility companies have programs to help people pay their bills.

Another option is the Low Income Home Energy Assistance Program (LIHEAP), a federally funded program that provides financial assistance to help people pay energy bills. LIHEAP has specific income requirements and is grant-funded, meaning only a set amount of money is available each year.

If you think you qualify for LIHEAP, the sooner you apply for it, the better your chances of receiving aid.

3. Insurance Premiums

Having insurance is always a good idea, as it provides financial protection against the worst things life can throw your way, such as illness, fire, or accidents. Paying your insurance premiums even when money is tight is a smart move. Without insurance, medical bills can easily add up.

If you’re struggling to afford your premiums, you do have some options, particularly when it comes to health insurance.

If you purchased a plan from the Healthcare.gov marketplace, you qualify for a special enrollment period if you’ve recently lost your job and associated coverage, if you’ve had a change in income, if you’ve gotten divorced, and for a few other reasons.

During the special enrollment period, you can apply for Medicaid or CHIP if your income is below the threshold or a credit on your insurance premiums based on your income. Doing so can lower the cost of your health insurance considerably.

4. Food & Household Necessities

Food, soap, and paper products are up there with shelter, heat, and hot water on the list of essentials.

Luckily, you have more wiggle room when it comes to adapting your food and household supply costs compared to your mortgage or rent payments and utility bills.

When money’s tight, there are many ways you can trim your food and supplies bill:

  • Limit Shopping Trips. Plan your meals for the week, make a list of the ingredients you need, and go to the store once. The more you go to the store, the more likely you are to buy things you don’t need.
  • Buy Store-Brand Items. Store-brand products usually taste the same as or similar to their brand-name counterparts, but they cost a lot less. If you typically purchase branded foods and supplies, try switching to the store brand. It’s likely the only place you’ll notice a difference is in your wallet.
  • Limit Packaged Products. Packaged foods, such as grated cheese, bagged salads, and prechopped vegetables are convenient, but that convenience comes at a cost. You can save a lot if you buy whole, unprocessed foods and prepare them at home.
  • Skip Bottled Water. If you live in the U.S., it’s highly likely your tap water is safe to drink. According to the CDC, the U.S.’s water supply is among the safest in the world. Bottled water is expensive and terrible for the environment and is often little more than repackaged municipal water.
  • Buy In-Season Produce. Pay attention to seasons when shopping for fresh produce. Fruits like strawberries and blueberries are usually in season and inexpensive during the summer but cost more in the winter. You can cut your grocery costs if you buy what’s in season.
  • Grow Your Own. Another way to cut your food bill is to grow your own fruits and vegetables. Herbs and green vegetables are usually the most cost-effective edible plants to grow, as you can get an entire plant for the price of a handful of herbs or greens at the grocery store. You don’t need a ton of outdoor space to start a garden. You can grow plants in containers on a small balcony or patio.
  • Use Your Freezer. Frozen vegetables and fruit often cost less than fresh, so it pays to purchase those when money is tight. You can also prep double batches of meals to freeze for later. That way, if you run out of money before the end of the month, you have a supply of ready-to-eat meals waiting for you.

Note too that depending on your income, you can qualify for financial assistance with groceries. The Supplemental Nutrition Assistance Program, aka food stamps, helps to cover the cost of groceries for people with income below certain thresholds.

Pro tip: Make sure you’re saving as much money as possible on your grocery trip. Apps like Fetch Rewards and Ibotta allow you to save money on purchases by simply scanning and uploading your receipts.

5. Car Loan & Other Expenses

Your car gets you to and from work and other important places, such as your kids’ school, the grocery store, and the doctor. If you have a monthly car payment, it’s crucial to find a way to pay it.

Just as you can call your mortgage company to work out a deal, you can call the lender behind your car loan to see if you can come to an agreement. Like mortgage companies, these lenders can also offer you loan modifications, refinancing, or forbearance.

Loan modification or refinance can lower the amount of your monthly payments, making it easier for you to afford the car. Forbearance means you don’t make payments for a set period.

Another option is to sell your current vehicle, use the proceeds to pay off the loan, then purchase a less expensive model. If you decide to sell, look for a replacement car that has a low cost of ownership to keep your expenses low. Some vehicles are more reliable than others, meaning you don’t have to worry about expensive repair or maintenance bills.

6. Unsecured Debts

Although you should make every effort to repay your debts, when money is tight, unsecured debt, such as credit card debt and personal loans, should move to the back burner. While these debts typically have the highest interest rates, they also have the lowest impact on your daily life.

You don’t go hungry if you miss a credit card payment, nor can your credit card company take your home or car if you pay late.

That said, it’s still best to pay what you can toward unsecured debts, such as the minimum due on a credit card. If even that is too much for you right now, contact the card company or lender. Sometimes, credit card companies are willing to work with you to create a debt repayment plan or let you temporarily pause payments.

7. Student Loans

While you should make every effort to pay your student loans when money’s tight, the loans often have the most flexibility when it comes to repayment, particularly federal loans.

If you have federal student loans and you’re struggling to keep up with payments, you have multiple options. You can request a deferment or forbearance from your loan servicer, or you can switch to an income-driven repayment plan, which adjusts the amount you pay each month based on your income.

The situation with private student loans is a bit different, as they don’t have the same protections as the federal student loan program.

If you’re having trouble affording private student loan payments, your best option is to contact the lender to see if it offers forbearance, repayment plans, or loan modification.


What to Cancel When Money Is Tight

While some monthly bills are essential, others are considerably less so. Budgeting often involves deciding what you need to spend money on and what you can live without.

When it’s a struggle to make ends meet, here’s what you can consider cutting:

Subscription Services

Netflix, print or digital newspapers, and meal kits are all things that can go. In many cases, you can find free alternatives to the subscriptions you were paying for. For example, some local libraries give you access to streaming movies and local or national newspapers for free.

Make sure you don’t miss any subscriptions that you might have forgotten about. Services like Truebill will find subscriptions and either cancel them or negotiate lower rates for you.

Cable and Internet Service

You may not want to disconnect your Internet completely, but see if you can switch to a slower, less expensive plan.

If you have data on your phone, some providers, like Xfinity Mobile, let you use your phone as a hotspot to get online. In this case, you wouldn’t need a separate home Internet plan.

Phone Service

While you do need your phone to stay connected, you most likely don’t need both a landline and a cellphone. You probably don’t need the most expensive cellphone plan, either.

Shop around with companies like Mint Mobile or Ting to see if you can get a better deal.

Gym Memberships and Wellness Services

Maintaining your well-being is important, especially when money is tight. But if you’re worried about having enough money to pay your most important bills, you shouldn’t have to worry about paying for a monthly gym membership or studio pass.

There are plenty of ways to work out for free from the comfort of your home. For example, you can find workouts available for free on YouTube.


Final Word

When money is tight, it’s vital you focus on paying for the things that can help you sustain your life and well-being, such as food and shelter, when times are tight.

While a missed payment can affect your credit history, in desperate situations, your health and safety are more important than your credit score.

Along with prioritizing your monthly bills, talk to your lenders and service providers. Many companies have programs in place to keep you from sinking deeper into debt and to help you avoid repossession of your home or vehicle. Keep the lines of communication open, and remember you’ll get through it.

Source: moneycrashers.com