Target-date funds have become an increasingly popular investment choice, especially for retirement accounts like 401(k)s and IRAs. Their main appeal lies in their simplicity and hands-off approach to managing your retirement portfolio. These funds are not a perfect solution, however—and it's essential to understand their pros and cons before deciding if they align with your investment goals and risk tolerance.

How target-date funds work

Target-date funds are designed to provide a diversified and professionally managed portfolio that automatically adjusts its asset allocation over time. The "target date" in the fund's name refers to the approximate year when an investor plans to retire. The fund starts with a more aggressive asset allocation, heavily weighted towards stocks, and gradually becomes more conservative by increasing its bond allocation as the target date approaches.

The pros: convenience and automatic rebalancing

One of the primary advantages of target-date funds is their convenience. These funds essentially put your retirement portfolio on autopilot, eliminating the need for constant monitoring and rebalancing. As you get closer to retirement, the fund automatically shifts its asset allocation to become more conservative, reducing your overall risk exposure.

Additionally, target-date funds offer diversification across various asset classes, such as stocks, bonds, and sometimes alternative investments like real estate or commodities. This built-in diversification can help mitigate risk and volatility.

The cons: lack of customization and potential misalignment

While the convenience of target-date funds is appealing, it comes at the cost of flexibility and customization. These funds follow a predetermined asset allocation glide path, which may not align perfectly with your individual risk tolerance, investment objectives, or retirement timeline.

Furthermore, target-date funds often have higher fees compared to individual index funds or ETFs, as you're paying for the professional management and automatic rebalancing.

Another potential drawback is the lack of transparency regarding the fund's underlying holdings. Some target-date funds may invest in actively managed funds or employ complex strategies, which can make it challenging to understand and evaluate the fund's true risk exposure.

Are target-date funds right for you?

Target-date funds can be an excellent choice for investors who value simplicity and prefer a hands-off approach to managing their retirement portfolio. They can also be a good starting point for those new to investing or those who lack the time or expertise to actively manage their investments.

However, investors with more complex financial situations, specific investment preferences, or a desire for greater control over their portfolio may find target-date funds too restrictive. In such cases, building a diversified portfolio using individual index funds or ETFs and periodically rebalancing it may be a better option.

Ultimately, the decision to invest in a target-date fund should be based on a thorough understanding of your financial goals, risk tolerance, and investment knowledge. It's essential to carefully review the fund's prospectus, underlying holdings, and fees before making a decision.

Remember, target-date funds are not a one-size-fits-all solution, and their suitability depends on your individual circumstances. If you're unsure, consulting a qualified financial advisor can help you determine the best investment strategy for your retirement planning.

When you're dealing with multiple sources of outstanding debt, consolidating those debts into a single payment can seem like an attractive solution. Debt consolidation is the process of combining multiple credit card balances, or other types of debt, into a single new loan (or a single credit card) with a lower interest rate.

The goal of consolidation is to simplify your monthly payments and potentially save you money on interest charges. However, it's crucial to understand when consolidation makes sense and when it doesn't, as well as the steps involved in the process.

When debt consolidation could be a good idea

One of the biggest advantages of consolidating your debts is the simplicity it provides. Having to deal with a single monthly payment rather than keeping track of several different ones with varying due dates can make it much easier to stay organized and avoid missed or late payments. This increased convenience reduces stress and the likelihood of accumulating additional fees and penalties.

Here are some signs that debt consolidation is the right move for you:

1. You have multiple credit card balances with high-interest rates, making it difficult to manage payments and pay down the principal.

2. You have a good credit score, which can help you qualify for a lower interest rate on a consolidation loan or balance transfer credit card.

3. You're committed to changing your spending habits and avoiding accruing new debt while paying off the consolidated balance.

When debt consolidation is not the right move

Debt consolidation sounds like a tempting opportunity, but it’s not perfect. In more cases than not, debt consolidation loans don’t make sense. Your average five-year (60-month) debt consolidation loan, even at a lower interest rate than your credit card, may cost more over the long haul than if you just paid your cards down faster.

If these are your reasons for debt consolidation, think twice before acting:

1. You have a low credit score, which could result in higher interest rates on consolidation loans, negating potential savings.

2. You're consolidating debt to free up room on your credit card limits, with the intention of accruing more debt.

3. You're struggling with overspending habits, as consolidation alone won't address the root cause of your debt accumulation.

Steps to consolidate your debt

If you've decided that debt consolidation is the right choice for your financial situation, here are some tips to help you make the most of it:

1. Shop around for the best rates and terms: Don't settle for the first consolidation loan or balance transfer credit card offer you receive. Compare interest rates, fees, and repayment terms from multiple lenders to find the most favorable option. Even a slight difference in the interest rate can result in significant savings over the life of the loan.

2. Create a realistic repayment plan: Once you've consolidated your debt, create a detailed repayment plan that fits your budget. Aim to pay more than the minimum payment each month to accelerate the repayment process and save on interest charges. Consider setting up automatic payments to ensure you never miss a due date.

3. Cut unnecessary expenses: With your debt consolidated into a single payment, take advantage of the opportunity to free up cash flow by reducing unnecessary expenses. Review your budget and identify areas where you can trim costs, such as dining out less, canceling subscriptions you don't use, or negotiating lower rates for services like cable or insurance.

4. Avoid accruing new debt: Consolidating your debt won't provide long-term relief if you continue to accumulate new debt. Change your spending habits and avoid using credit cards or taking on new loans while you're paying off your consolidated debt.

5. Monitor your progress: Regularly review your consolidated debt balance and track your progress towards becoming debt-free. Celebrate small victories along the way, such as paying off a certain percentage of the debt or reaching a specific milestone.

6. Consider debt counseling or financial education: If you're struggling with overspending habits or managing your finances, consider seeking help from a non-profit credit counseling agency or taking a financial education course. These resources can provide valuable guidance and help you develop healthy money management skills.

7. Stay motivated: Paying off debt can be a long and challenging process, but it's important to stay motivated and focused on your goal. Remind yourself of the benefits of being debt-free, such as reduced stress, improved credit score, and more financial freedom.

Consolidated debt is still debt

One of the biggest problems with debt consolidation loans is that they do nothing to change the behaviors that got you into debt in the first place. Instead, they add another creditor to your pile, as you're essentially going into debt to pay off your debt.

While consolidating your debt can provide relief and make repayment more manageable, it's essential to approach it with caution. The sense of accomplishment you may feel after consolidating your debt could lead to a false sense of security, causing you to ease up on your debt repayment efforts. Think about it like this: Debt consolidation loans are financial products, which means financial institutions wouldn’t offer them to you if they didn’t make money from them.

Remember, consolidated debt is still debt that needs to be paid off as quickly as possible. Failing to maintain a disciplined approach to repayment could result in accumulating new debt on top of your consolidated balance, ultimately leaving you in a worse financial situation. The last thing you want is to take out a loan, pay off your cards, and then charge up your cards again while you're still paying off the loan. That does nothing but dig your hole twice as deep.

Consolidation should be a stepping stone, not a destination. Use the opportunity to develop better financial habits, such as creating a budget, cutting unnecessary expenses, and avoiding accruing new debt. Ultimately, the goal should be to become debt-free, not just to reorganize your debt.

The bottom line

In most cases, debt consolidation shouldn't be necessary. Still, debt consolidation makes sense if you can save money over the long term by securing a better interest rate, or if streamlining will make the difference between paying your bills on time and accruing late fees and penalties.

The key is making sure consolidation is part of a larger plan to get yourself out of debt. Consolidating debts into a single loan may simplify things, but it's not a solution to underlying financial struggles.

Amazon's biggest sale of the year—and arguably the biggest sale of any retailer—is right around the corner, set to take place in July. Amazon's Prime Day sales event is a tempting time to take advantage of major discounts and do some shopping. But one payment option you'll want to avoid is "buy now, pay later" financing. While these plans can allow you to pay for purchases in installments without interest, they come with significant risks and downsides that make them unsuitable for Prime Day splurges. Nearly 20% of consumers using BNPL have missed payments, and 30% have overspent, according to a Bankrate survey. Let's take a look at the hidden costs of "buy now, pay later," and why you're better off paying upfront for all your Prime Day deals.

High late fees

The biggest danger with buy now, pay later is missing one of the recurring payments. If you fail to make an installment on time, you'll typically be hit with a late fee of $7 or more from the lender. And those fees can really add up quickly if you miss multiple payments. Suddenly that discounted Prime Day deal doesn't look so affordable after expensive late fees get tacked on.

Unexpected interest charges

Buy now, pay later plans are marketed as interest-free financing. However, in many cases, that 0% interest offer only applies if you pay off the full balance by a specific due date. If you have even $1 remaining after that cutoff, interest starts accruing at rates that can exceed 25% in some cases. So buyer beware—it's easy to inadvertently end up with interest charges if you're not vigilant about paying off the balance before the promotional period ends.

Impact on credit scores

Even though buy now, pay later isn't a traditional credit card or loan, the lenders do report payment activity to the credit bureaus. So if you miss payments or default on the installment plan, it can cause damage to your credit score that makes it harder to get approved for mortgages, auto loans, credit cards, and other financing down the road. Using buy now, pay later irresponsibly can easily offset any of your upfront Prime Day savings.

Limited purchase protections

When you use a credit card, you get valuable purchase protections like extended warranty coverage, price protection, and the ability to dispute fraudulent charges. Buy now, pay later plans generally don't come with these safeguards. So you're on the hook if something goes wrong with the Prime Day purchase or the retailer doesn't make things right. The smarter move is to only buy what you can afford to pay for outright using cash, debit card or a low-interest credit card during Amazon's Prime Day event.

Although buy now, pay later plans are helpful if you really need to finance something big, it’s best to avoid taking on debt for everyday expenses. A little patience and fiscal responsibility will serve you better than getting in over your head with these financing options.

Keep checking back for more Lifehacker coverage of Prime Day to get the best deals available—plus the ones you should stay away from.

Amazon’s biggest sale of the year, Prime Day, will take place in July. Although the exact dates aren't set yet, you can expect early deals to roll in soon. And to take advantage of everything the sale has to offer, you’re going to need to be a Prime Member.

Millions of Amazon Prime users currently pay $14.99 per month or $139 per year for their memberships. For frequent Amazon shoppers, Prime can pay for itself quickly—mostly thanks to the shipping perks. But it may not make financial sense for infrequent users. If you’re on the fence about signing up for (or renewing) your Prime membership, here’s how to judge whether or not the benefits outweigh the $139 cost for you.

The benefits of Amazon Prime

Before we do the math, here are the main perks of Amazon Prime that make it worth the cost for so many users.

• Free two-day shipping on millions of items: This is the main draw of Prime. If you shop frequently on Amazon and want quick free delivery, the shipping perks alone may make Prime worthwhile. Prime members also get free same-day delivery on over 3 million items in eligible areas. The ultra-fast (and morally dubious) shipping usually costs $9.99 per order for non-members.

• Access to Prime Video: Prime includes unlimited streaming of movies, TV shows, and Amazon Originals. If you ask me, the content library isn’t as robust as Netflix or Hulu, but could still add value.

• Other Prime benefits: You also get Prime Music for streaming songs, Prime Reading for ebooks and magazines, Prime gaming, free photo storage, and discounts/deals.

• Amazon Prime Rewards Visa card: Cardholders get 5% back on Amazon/Whole Foods purchases. So Prime members who use this card extensively can earn rewards that offset the annual fee.

• Number of users: Prime benefits can be shared with other members of your household. The more users, the more value per person.

Doing the math

Browsing around on my non-shared, non-Prime Amazon account, I see that shipping costs typically run around six dollars per item. Of course, shipping costs will vary depending on the item and how quickly you want it, but let’s compare the cost to the appeal of Prime’s two-day shipping option. So, we have the cost of individual online orders (around six bucks a pop) compared to the free delivery that comes with an $139 annual fee. This means the costs you’d save on shipping become worth the the cost of Prime so long as you order online more than two dozen times a year.

Important note: You can get free shipping from Amazon without a Prime membership when your order has $25-35 or more of eligible items; however, your order will take five to eight days to be delivered.

The bottom line

Prime tends to provide good value for those who shop frequently on Amazon (over 23 times per year) or regularly use the other Prime perks like video streaming. Conversely, it may not be worthwhile for those who rarely shop on Amazon or won’t use the other benefits. Consider your usage and compare the $139 annual fee to the value you’d get from the free shipping and other Prime features.

Of course, you can always sign up now and then cancel your membership after Prime day is over—but Amazon doesn't make it easy on you. For more information about deals and discounts, keep an eye on all of Lifehacker’s Amazon Prime Day coverage.

If you're struggling with overwhelming debts and bills, it can be difficult to get your finances back on track on your own. That's where debt counseling services and credit counselors can provide invaluable assistance and advice.

Credit counseling organizations are typically non-profit groups that provide a range of money management services and educational resources to consumers. Their counselors are certified professionals who can give you expert, unbiased guidance on how to handle your specific financial situation. All the money you pay goes directly toward your debts, but there may be costs to use such a program. There’s often a setup fee of up to $75 and an ongoing monthly fee of between $25 and $75. Here are some of the main services that credit counseling agencies offer.

Working with a credit counselor

Credit counselors can review your income, expenses, debts, and overall financial picture to help you create a personalized budget and spending plan. This can make managing your money much easier and get you on the path to financial stability. By law, anyone considering bankruptcy must receive credit counseling from an approved agency first. The counselor will go over your options and provide an unbiased perspective on whether bankruptcy could be the best solution for your situation.

If you have multiple debts with high interest rates, a credit counselor may recommend enrolling in a debt management plan (DMP). With a DMP, you make a single monthly payment to the agency, which then distributes funds to each of your creditors. The agency also negotiates to get your interest rates reduced. DMPs allow you to pay off your debt more quickly at a lower cost.

Another avenue to consider is credit counseling groups, which offer a wealth of free personal finance workshops, guidebooks, online tools, and other educational resources to help consumers build better money skills.

When credit counseling is right for you

So when exactly should you reach out to a credit counseling agency? Here are some signs that you could benefit from their services:

• You're constantly late paying bills or missing payments entirely

• You're only making minimum payments and your debt levels aren't going down

• You're getting calls and letters from debt collectors

• You're using credit cards to pay for basic necessities like food and utilities

• You're unable to save any money for emergencies

• You're considering bankruptcy but want to explore alternatives

The biggest advantage of working with a credit counseling agency is that you'll receive free or low-cost expert advice from an objective third party. The counselors aren't trying to sell you anything—their role is simply to educate you and help you regain control over your finances.

The bottom line

Don't let debt become an overwhelming burden. If you're struggling to keep up with what you owe, consider reaching out to a qualified (crucially, non-profit) credit counseling agency. They can put you on a debt management plan where they negotiate with your creditors for lower interest rates and fees.

Most credit counseling agencies have a legal obligation to provide consumers with truly independent guidance. However, it's still wise to do some research on any organization before enlisting their services. Look into qualified non-profit credit counseling agencies here.

Active trading, which involves buying and selling securities frequently in an attempt to outperform the overall market, may seem appealing to some investors. However, for most individuals, active trading is not the best approach due to the significant risks and challenges involved.

What to know about active trading

"Most people are active in the way they earn income and passive in the way they invest, which statistically is a good thing," says Matthew Chancey, CFP. He explains that to be an active investor, "you have to have a higher appetite for risk and be more emotionally fortified than every investor sentiment survey has ever suggested that passive investors can be."

Active trading is often touted as a way to generate higher returns by taking advantage of short-term market movements and price fluctuations. While this is true, it's important to understand that active trading is a high-risk, high-reward strategy that requires a significant amount of time, effort, and expertise. Chancey advices that successful traders "have to learn how to let winners run, limit losses, properly position size, hedge when possible, learn quickly, and have a short memory—all at the same time."

Pros of active trading

There are some attractive reasons why the savvy investor might prefer active trading to safer, more passive approaches.

Potential for higher returns: Active traders aim to capitalize on market inefficiencies and price movements, potentially generating higher returns than passive investing strategies.

Flexibility: Active traders can quickly adapt to changing market conditions and adjust their positions accordingly.

Control: Active trading allows investors to have more control over their investment decisions and timing.

Cons of active trading

While active trading can potentially yield higher returns, it's important to consider some significant risks and drawbacks.

High risk: Active trading exposes investors to increased market volatility and the potential for significant losses if trades go against them.

Time (and effort) intensive: Active trading requires constant monitoring of the markets, analyzing financial data, and making frequent buy and sell decisions. It's challenging for even professional traders to consistently outperform the overall market over the long term.

Emotional stress: The fast-paced nature of active trading can lead to emotional stress and decision-making influenced by fear, greed, or overconfidence. After all, you're not as objective as you think—here some tips so that you don't lose money over it.

Higher transaction costs: Frequent trading incurs higher brokerage fees and commissions, which can eat into potential profits.

The bottom line

"Having the skill to be an active investor is one thing, but having the emotional fortitude is something else that most people lack. Without both," Chancey explains, "the odds of active trading working out in the long term are slim and none." For most individual investors, passive investing strategies, such as index funds or exchange-traded funds (ETFs), are often more suitable. These strategies aim to track the performance of a specific market index or sector, rather than trying to beat the market through active trading.

There are two main reasons why people consider paying their mortgage with a credit card: either to earn credit card rewards or because they're struggling to afford the mortgage payment. But while it may seem like a convenient option, the ability to pay your mortgage with a credit card depends on several factors, including the policies of your credit card issuer, mortgage lender, and the credit card network. And even if you can, it's important to carefully consider the potential risks and drawbacks.

You can't use a credit card directly

First things first: Most mortgage lenders do not directly accept credit cards as a payment method for monthly mortgage payments. This is because there are processing fees of around 3% that the lender would have to pay to the card issuer, making it uneconomical.

Third-party bill payment providers, like Plastiq, allow you to pay your mortgage using a credit card, but they charge convenience fees of around 2.5%-3.5% of the total payment amount. This fee will most likely negate any rewards or bonus points you may earn.

Getting a cash advance from your credit card and using it to pay your mortgage is another option. However, cash advances typically come with upfront fees and higher interest rates than normal purchases, making it an expensive option.

The interest rate is most likely higher on a credit card

If you're unable to pay off the mortgage payment in full when your credit card statement is due, you'll be subject to high interest rates, which can quickly undo any rewards or points you've earned. Not to mention, putting a large mortgage payment on your credit card can significantly increase your credit utilization ratio (the amount of credit you're using compared to your total credit limit), which can negatively impact your credit score.

If you're struggling to afford your mortgage payment, putting it on a credit card may only exacerbate the problem by adding to your overall debt load and making it more difficult to keep up with payments.

When it makes sense

Paying your mortgage by credit card may make sense in limited situations:

1. To earn a huge sign-up bonus or equivalent in points by meeting a card's minimum spending requirement

2. If you're struggling with cash flow one month and need to pay the mortgage before your next paycheck

3. To take advantage of an extended 0% APR period by converting mortgage payments to that low interest rate via balance transfer or balance transfer checks

However, in these cases, you must have a plan to pay off the credit card balance quickly to avoid costly interest charges.

How to use your credit card to pay your mortgage (without a hefty fee)

For those looking to earn credit card rewards, paying your mortgage with a credit card can be an attractive option. After all, mortgage payments are typically one of the largest recurring expenses for homeowners, and the potential to earn rewards points or cash back on such a substantial payment could be lucrative. If you're determined to pay your mortgage with a credit card and want to avoid fees, there are a few potential strategies to consider:

1. Use a credit card that offers a 0% introductory APR on purchases: Some credit cards offer a 0% introductory APR on purchases for a limited time (typically 12-18 months). If you can pay off the mortgage payment before the introductory period ends, you may be able to avoid interest charges.

2. Use a third-party service: Like I mentioned above, there are third-party services, such as Plastiq, that allow you to pay your mortgage with a credit card for a fee. While these services charge a fee (typically around 2.5%), it may be lower than the convenience fee charged by your mortgage lender.

3. Negotiate with your mortgage lender: Some mortgage lenders may be willing to waive or reduce the convenience fee for credit card payments, especially if you have a good payment history or a long-standing relationship with the lender.

The bottom line

The biggest risk is going into excessive debt if you cannot pay off the credit card bill in full each month. Mortgage payments are large, recurring expenses that can spiral into unmanageable debt if paid by credit card long-term. Interest charges on revolving credit card balances are also extremely high compared to mortgage interest rates.

In general, avoid paying your mortgage with a credit card unless you have a coherent, short-term strategy and plan to aggressively pay off the card balance. Otherwise, the costs and risks tend to outweigh any potential rewards or cent point value for most homeowners.

Walmart+ is the retail giant's subscription service that offers free shipping, fuel discounts, and more. Compared to Amazon Prime's $139 annual cost, Walmart+ does provide a more affordable option for quick delivery and other membership perks. Walmart+ offers some enticing perks and benefits, but are they valuable enough to justify the cost? Let's break it down.

How much does Walmart+ cost?

Walmart+ has a price tag of $98 per year or $12.95 per month ($155.40 per year if you were to pay monthly). For comparison, Amazon Prime charges $139 per year or $14.99 per month ($179.88 per year if you were to pay monthly). Both services have a 30-day free trial.

What does a Walmart+ membership include?

Free unlimited delivery

One of the biggest draws of Walmart+ is free unlimited delivery from Walmart stores. This includes same-day delivery on groceries and other essentials from your local Walmart store with no per-delivery fees. If you frequently order online from Walmart, this perk could easily cover the cost of membership.

Fuel discounts

Walmart+ members get 10¢ off per gallon at Exxon & Mobil stations, up to 10¢ off at select Walmart & Murphy stations, and member prices at Sam's Club fuel centers. For the average driver who fills up once a week, this discount could lead to around $100 in annual fuel savings.

Mobile Scan & Go

The ability to scan items with your phone as you shop and pay quickly through the Walmart app can save you significant time versus waiting in checkout lines. It's a convenient perk akin to Amazon's shopping experience.

Early access to deals

Walmart+ members get early access to special promotions, product releases, and Black Friday events before they're available to the public. This could help secure hot-ticket items.

How Walmart+ compares to Amazon Prime 

Free delivery may be Amazon Prime’s standout perk, but the membership service does include other benefits that Walmart+ doesn’t currently offer. As each program stands, you may have access to free delivery on more items—without Walmart's $35 minimum order—through Amazon Prime, and Amazon Prime offers free access to Prime Video, Prime Music, Prime Photos, and Prime Wardrobe.

On the other hand, Walmart+ offers membership for $41 cheaper per year. And although Walmart+ requires a $35 minimum order for free grocery delivery, you may see lower grocery prices in general from Walmart.

Is Walmart+ worth it for you?

The value proposition comes down to how frequently you order from and visit Walmart stores. If you're a weekly Walmart shopper who also regularly fills up on gas, Walmart+ could easily pay for itself through delivery and fuel savings alone. Occasional shoppers will have to weigh the convenience against the $98 annual fee.

Compared to Amazon Prime's $139 annual cost, Walmart+ does provide a more affordable option for quick delivery and other membership perks. But it remains to be seen if Walmart+ can truly compete with Amazon on merchandise selection and shipping speeds. Only you can decide if the savings and perks outweigh the annual membership fee based on your typical shopping habits.

If you carry a balance on your credit card from month to month, you're probably paying interest charges. First things first: It's best to avoid being charged that interest in the first place. Otherwise, understanding how this interest is calculated can help you better manage the costs of using credit.

The interest rate

Credit card interest rates are typically expressed as an annual percentage rate (APR). This is the rate used to calculate how much interest you'll be charged over the course of a year based on your average daily balance. The higher the APR, the more you'll end up paying in interest charges.

Average daily balance

Most credit card issuers use the average daily balance method to determine interest charges. This takes into account your balance for each day of the billing cycle.

For example, let's say you had a $1,000 balance for 15 days, then paid it down to $500 for the remaining 15 days of a 30-day billing cycle. Your average daily balance would be $750 (($1,000 x 15 days) + ($500 x 15 days) / 30 days).

Calculating interest

To calculate your actual interest charged, the credit card company uses this formula:

Interest Charged = (Annual Percentage Rate / 12) x Average Daily Balance

So if your APR is 18% and your average daily balance is $750, the math would be:

(0.18 / 12) x $750 = $11.25 in interest for that billing cycle

Compounding interest

One costly factor is that unpaid interest from previous cycles gets added to your balance, meaning you end up paying interest on interest over time. What is magic for your savings is devastating for your debt. This snowball effect is why it's best to pay off credit card balances quickly.

The grace period

Luckily, you can minimize interest fees by understanding your card's grace period. If you pay your statement balance in full every month during the grace period, you won't be charged any interest on new purchases for that billing cycle. The interest calculation only applies when you carry a balance past the due date.

By understanding the methods used, you can see how reducing your average daily balance and taking advantage of interest-free grace periods can minimize the amount of interest paid on your credit card balances.

Carrying a growing balance on high-interest credit cards can put a huge financial strain on your monthly budget. Whether it's an unexpected expense—like a car repair or medical bill—or you're going through a period of reduced income, being saddled with credit card debt can make it feel impossible to get ahead financially. If you're struggling to make a dent in your credit card debt, here are some of the best ways to create a plan to become debt-free once and for all.

The debt snowball method

The debt snowball method focuses on paying off your debts in order of smallest balance to largest. You make minimum payments on every debt except the smallest, where you pay as much extra as possible until it's paid off. The idea is that getting "wins" by paying off smaller debts quickly can provide much-needed motivation to keep going. However, this method typically results in paying more in interest over time. Here's my guide to deciding if the debt snowball is right for you.

The debt avalanche method

Compared to the snowball method, the avalanche method involves listing out all your debts from highest interest rate to lowest interest rate. You make minimum payments on every debt except the highest interest rate one, where you throw all extra money until it's paid off. This is the fastest mathematical way to get out of debt while paying the least amount of interest charges. This can be especially helpful if you have one or two debts with significantly higher interest rates than the others. The downside is you may not see entire debts paid off for a while, which may sap a bit of your motivation.

The debt snowball method is often recommended for individuals who need the psychological motivation of quick wins to stay motivated in their debt repayment journey. The debt avalanche method, on the other hand, is considered the most cost-effective approach from a pure numbers perspective, as it minimizes the amount of interest paid over time.

Debt consolidation loan

Debt consolidation can look like an easy solution if you have multiple loans or credit cards and are struggling to keep up with all the separate payments. Taking out one loan with a lower interest rate to pay off all your credit card balances at once can streamline the repayment process to a single payment.

You may qualify for a much better interest rate than your cards through a bank, credit union, or online lender with a debt consolidation loan or personal loan. Balance transfer credit cards that offer 0% interest for 12-18 months can provide breathing room if you can pay off the full balance during that period—more on that below. But first, keep in mind: Debt consolidation loans aren't necessary in many cases. At the end of the day, debt consolidation loans are financial products, which means financial institutions wouldn’t offer them to you if they didn’t make money from them.

Balance transfer

With a balance transfer, you move your existing credit card balance(s) over to a new credit card that offers an introductory 0% APR promotion for a set period of time, usually 12-18 months. If executed properly, you can use those months to aggressively pay down the debt without accruing additional interest charges. The key is to have a plan to pay off as much of the balance as possible before the 0% APR period expires. Many balance transfer cards charge a 3-5% fee on the amount transferred, but this is usually still less expensive than the interest you'd pay without the transfer. Here are some of the best balance transfer credit cards to explore.

Debt management plan

If you're having trouble managing payments to multiple creditors, consider reaching out to a non-profit credit counseling agency. A qualified (crucially, non-profit) credit counseling agency will give you free debt analysis. And by law, they must serve your best interests and recommend a debt solution that works for you, not them. They can put you on a debt management plan where they negotiate with your creditors for lower interest rates and fees. All the money you pay goes directly toward your debts, but there may be costs to use such a program. There’s often a setup fee of up to $75 and an ongoing monthly fee of between $25 and $75. Look into qualified non-profit credit counseling agencies here.

Borrowing from friends and family

Now, I'm not suggesting you create an untenable—not to mention uncomfortable—situation with your loved ones. But if your circumstances allow, one option to avoid high interest rates is borrowing money interest-free from a loved one. If exploring this route, be sure to clearly document the repayment terms and amounts in writing to protect the personal relationship.

No matter which method you choose, review your full financial situation and make a plan you can stick with until you're debt free. Seeking professional guidance can help determine the right debt repayment strategy for your unique circumstances.

If you're looking for ways to generate income without actively trading your time for money, you're not alone. According to Ben Johnston, COO of lending platform Kapitus, we can thank a combination of "a trend toward remote work, a tight labor market with greater work flexibility, and a greater ability to reach consumers through online markets." For many, passive income streams are the ultimate goal—it's the promise of earning money while you sleep, travel, or pursue other interests. While it takes some initial effort to set up passive income sources, the long-term benefits can be life-changing. Here are some of the best ways to create a passive income stream.

Rental income

One of the most classic examples of passive income is rental real estate. Johnston explains how "with the advent of rental aggregation sites such as Airbnb and VRBO, even more real estate owners are now able to generate passive income buy renting out what they already own, from unused vacation homes to unused bedrooms in a primary residence."

By purchasing a property and renting it out to tenants, you can collect monthly rent payments with relatively little ongoing work besides property maintenance and management. Johnston also points out how this income stream benefits from tax deductions for mortgage interest, depreciation of the property, and the cost of managing and maintaining the property. Buy strategically in areas with solid rental markets and property values that are likely to appreciate over time.

Of course, this is all easier said than done. Buying—and properly maintaining—property is a daunting financial feat.

Dividend stocks

Investing in stocks that pay dividends allows you to earn passive income simply from owning the shares. Companies that offer dividends provide investors with a regular income as the stock price moves up and down in the market, and you can reinvest dividends to grow your income stream through compounding over time.

If you invest enough money in a dividend-issuing company, you could earn some serious income every quarter. Most of us don’t have enough to invest to make it that lucrative, but theoretically, it’s possible. Check out companies with a solid history of paying consistent dividends. For more, here's our beginner's guide to dividend investing.

Affiliate marketing

If you have a website, blog, or social media following, you can earn passive income through affiliate marketing. This involves earning a commission by promoting other company's products and services. Amazon Associates is one popular affiliate program, but there are affiliates for all types of products and niches.

Online courses and e-books

Develop and sell digital information products like online courses or e-books. After the initial creation effort, you can continue earning revenue from each purchase with no additional work required on your part. Promote through your own platforms or on online marketplaces.

Peer-to-peer lending

Act as the bank by lending money to other individuals through peer-to-peer lending platforms. With sites like Prosper or Funding Circle, you can earn interest on the payments from borrowers, spreading your investment across many different loans to mitigate risk.

Dropshipping

Dropshipping allows you to sell products without holding any inventory. When an order is placed through your online store—or, say, selling through Amazon—it gets forwarded to the supplier who handles the shipping. You keep the difference between the retail and wholesale price.

This model can come at a cost—especially when it comes to customer experience. Sure, there's low overhead; there are also lower returns. If you're curious if dropshipping could still work for you, Amazon has a pros and cons guide here.

Gig work

Johnston also points out how ride sharing apps like Uber and Lyft, and freelancing apps such as Fiverr and Upwork, allow you to source jobs in your spare time. "While this isn’t strictly passive income," Johnston recognizes, "it does allow workers to pick up extra income during otherwise idle time." Many ride share drivers pickup rides during their own commute to the office, allowing them to earn income during otherwise idle time. Other professionals, like graphic artists and accountants, may moonlight on nights and weekends using freelancing sites to earn extra cash, while holding down a steady 9-5 job.

Tips for making the most of your side hustle

Some of the most successful entrepreneurs start their businesses as a “side hustle" that takes off as a full-time business. As Johnston puts it, "exploring a new market while earning income from another source allows an entrepreneur to make mistakes and try new ideas, without risking the business if they fail." Trial and error is part of the process: You should have the discipline to be a planner, but also the flexibility to update the plan—or abandon it entirely—when the market shows that a change is needed. 

With investment properties specifically, Johnston says "success involves having the discipline to buy the property at the right price and securing a mortgage that can be more than covered by the cashflow of the rental income net of maintenance and management expenses." A good rule of thumb is that you will need to charge monthly rent of between 1% and 2% of the purchase price in order to consistently turn a profit on a real estate investment. 

As far as what to avoid? Johnston warns of multi-level marketing schemes circulating in the market. "While early adopters of these models can make money," Johnston says, "the later you are to the game, the fewer economics are available, and the startup costs may ultimately out way any potential for profit." Keep a safe distance from scams like selling home cleaning supplies, cosmetics, or cookware. 

For more ideas, check out some of the best side hustles with little or no start-up costs.

If you're struggling to make your monthly mortgage payments due to financial hardship, a loan modification could provide much-needed relief. A mortgage loan modification is a permanent change to your loan terms that is agreed to by your lender in order to make the payments more affordable and help you avoid foreclosure.

What does mortgage loan modification look like?

Common ways a loan can be modified include:

• Reducing the interest rate, even if only temporarily

• Extending the loan term to spread costs over more years

• Adding missed payments to the loan balance

• Switching to a different loan program or type

The end goal of a modification is to get you into a more affordable payment based on your current financial situation. Lenders are often willing to modify loans for borrowers facing legitimate hardships, rather than go through an expensive foreclosure process.

What qualifies as a hardship?

To be eligible for a mortgage modification, you'll need to prove you are facing a real financial hardship that is impacting your ability to pay. Hardships that may qualify include:

• Job loss or income reduction

• Unmanageable increase in housing expenses

• Excessive debt or monthly obligations

• Divorce or death of a spouse

• Serious illness or disability

Your lender will require documentation of your hardship circumstances as well as detailed information on your income, assets, expenses, and other debts. Having missed mortgage payments already often strengthens the case for modification.

How to apply for a loan modification

The first step is to contact your mortgage servicer (the company you make monthly payments to), and specifically inquire about their loan modification programs. Many participating in government-sponsored programs, which have specific eligibility criteria.

You'll need to fill out a modification application package with detailed documentation on your hardship, income, assets, and any other requested information. Be prepared to provide evidence with documents like tax returns, pay stubs, bank statements, bills, and more.

Your servicer will run the numbers to determine the most affordable modified payment plan they are willing to offer based on your specific situation and loan characteristics. You may be required to do credit counseling or go through a trial payment period successfully before the modification is made permanent.

If approved, the new modified terms will be documented and made permanent. While your credit will take a hit, a loan modification is better than foreclosure or bankruptcy for your credit score in the long run.

Even if you're not yet behind on payments but see financial challenges ahead, it's better to work with your servicer proactively on a solution rather than get behind. Being transparent about your hardship and exploring modification options early can help you avoid further setbacks and keep you in your home long-term.

When you apply for a loan, credit card, or apartment, you'll likely see references to "hard inquiries" and "soft inquiries" to your credit report. The differences may seem negligible as a consumer (after all, the companies do the work, while you don't have to do much of anything), but it's important to understand the difference between them: One can potentially impact your credit scores, and the other one doesn't.

What is a soft credit inquiry?

A soft inquiry, or "soft pull," refers to when your credit report is checked, but it's not tied to an application for new credit or a loan. Soft inquiries have no effect on your credit scores. Some common examples of soft inquiries include:

• Checking your own credit report

• An employer checking your credit for employment purposes

• Credit card companies checking for promotional offers

• Lenders giving you pre-approved credit offers

Since soft inquiries don't impact your scoring, you don't have to worry about how many accumulate on your credit reports over time.

What is a hard credit inquiry?

A hard credit inquiry occurs when a lender, credit card issuer, or other financial company checks your credit report because you have formally applied for new credit or a loan product with them. Examples of hard pulls include:

• Applying for a new credit card, mortgage, auto loan, student loan, etc.

• Applying to rent an apartment or home

• Requesting a credit limit increase from an existing lender

Unlike soft inquiries, hard inquiries can potentially cause a small, temporary drop in your credit scores, typically around five points or less. However, the impact diminishes over time as the inquiries get older.

Hard inquiry impact and limits

While a single hard inquiry likely won't lead to a huge credit score drop, it's still wise to minimize them as much as possible. Applying for multiple credit products in a short period can lead to several hard inquiries stacking up, which can then significantly impact your scores. Most credit scoring models look at inquiries from the last 12 months when calculating your scores. Additionally, multiple inquiries for mortgage, auto, or student loans within a short period (14-45 days typically) may be counted as a single inquiry to allow for rate shopping.

The bottom line

Soft inquiries have no impact on credit scores, while hard inquiries can cause a small, temporary scoring drop. Before applying for new credit, check your credit reports to monitor your inquiries, and try to avoid unnecessary applications and credit checks, when possible.

Can you get a credit card without a credit score? Having no credit history can make it more challenging to get approved for a credit card, but it's not impossible. In fact, there are certain cards designed specifically for those who don't have a credit score or have very limited credit history. While you may face some obstacles trying to qualify with major banks and lenders, here are some good options for getting your first credit card without you needing prior credit.

Apply for a secured credit card

One of the best ways to build credit from scratch is with a secured credit card. With a secured card, you place a refundable security deposit, typically $200 or more, that becomes your credit limit. Since the deposit reduces the risk for the lender, secured cards are much easier to get approved for when you don't have a credit history. You can shop around for card options on creditcardsexplained.com. Of course, be sure to make all of your payments on time and keep your balance low. After 12-18 months of responsible usage, you can often upgrade to a regular unsecured card and get your initial deposit back.

Get a student credit card

If you're a college student, look into student credit cards from major issuers like Discover, Capital One, and Bank of America. These cards are designed for students with little or no credit history, though you may need to show proof of income from a job or other sources.

Become an authorized user on someone else's credit card

Another option is to become an authorized user on someone else's credit card with a long, positive credit history and low balances. It's essentially piggybacking on their credit history, and their good habits will contribute to building your credit score. See if a parent, spouse, or other trusted person will add you as an authorized user on their credit card account.

Consider a retail store card, if you must

While not ideal in the long run, retail store credit cards can help establish your credit. Brands like Target, Kohl's, and others may have less stringent approval requirements. Just beware of lower credit limits and higher interest rates on retail cards. Use them sparingly, and consider cutting them up altogether once your credit is in good shape.

Ask a close family member to be your co-signer

Some major credit card issuers allow applicants with limited or no credit to have a co-signer. A co-signer is someone with good credit who agrees to share responsibility for the debt if you fail to pay it. This can help you get approved, but comes with risks for both parties.

Before you apply, be ready for the responsibility

Before applying for any credit card, do your research on the card's features, fees, APRs, and approval requirements. Make sure you understand its annual fees, interest rates, and credit limits. Many student and secured cards have fewer fees and perks, so set realistic expectations. Once you're approved for a card, the key is to use it responsibly. Make payments on time every month, keep credit utilization low, and avoid maxing out your available credit. Treat your first credit card as a tool to establish a solid credit history through good financial habits.

Getting approved for your first credit card absolutely is possible, even with no credit history. Shop around strategically to get started, be a responsible borrower, and be patient as your credit history builds over time.