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.

In a major shift away from traditional internal combustion engines, a growing number of states are adopting rules that will effectively ban the sale of new gasoline-powered cars and light trucks by 2035. The states are following California's lead with its Advanced Clean Cars II (ACCII) regulation, which sets yearly increasing quotas for automakers to sell more zero-emission vehicles like electric cars.

So far, eight states have officially adopted the ACCII rules for light-duty vehicles: Maryland, Massachusetts, New Jersey, New York, Oregon, Rhode Island, Washington, Virginia, plus Washington D.C. Three additional states—Connecticut, Maine, and New Mexico—are also considering adoption of the ACCII standards.

Under the ACCII mandates, 35% of new vehicle sales in these states must be fully electric or other zero-emission vehicles by 2026. This percentage then ramps up year-over-year until hitting 100% by 2035, at which point sales of new gas-only cars and trucks would be prohibited.

Several other states like Colorado, Delaware, and Minnesota have opted to adopt only portions of the ACCII regulation so far. But more could join in phasing out gas vehicles as the momentum toward vehicle electrification accelerates.

What this means for gas car owners

The new rules do not impact existing vehicles, so owners of gasoline-powered cars and trucks can continue driving them and even reselling them on the used market in these states. The bans only restrict what new car models can be sold by automakers and dealers.

However, down the road, owning an older gasoline vehicle may become more inconvenient and costly if public charging infrastructure prioritizes electric vehicles and if gasoline prices rise due to lower demand.

Still, with the typical vehicle lifespan of 12-15 years currently, most gas-powered cars on the roads today will be ready for replacement by the time the bans fully take effect in 2035.

More states could follow

While roughly a quarter of states have now signed on to ACCII's gas car phaseouts, it remains to be seen how quickly others will adopt similar policies aimed at accelerating electric vehicle adoption. Politics, infrastructure readiness, and economic factors could impact how rapidly the remaining states move to restrict gasoline cars.

But with the federal government also incentivizing EV production and state-level emission reduction goals, it appears to be more a matter of when—not if—the rest of the country will be set on a path toward eliminating sales of new gas-powered light vehicles over the coming decades. For more, check out our guide to the costs of EVs.

When shopping for any type of insurance policy, it's important to consider the financial strength of the insurance companies themselves—after all, the whole point of buying insurance is having the peace of mind that you'll have access to funds you've been promised when you need them. One way to assess an insurer's financial health is by looking at their AM Best rating. Here's how AM Best ratings work and why they matter for any prospective insurance buyers.

What are AM Best ratings?

AM Best is a credit rating agency that specializes in rating insurance companies. Their ratings represent an independent opinion of an insurer's financial strength, operating performance, and ability to meet its ongoing obligations to policyholders.

The AM Best rating scale runs from A++ (Superior) on the high end down to D (Poor) on the low end, with ratings from A++ to B+ considered "Secure" and ratings below that deemed "Vulnerable." Some of the key factors AM Best analyzes include:

• Balance sheet strength (level of risks vs. capitalization)

• Operating performance (profitability, business profile)

• Business profile (diversification, operating strategy)

• Enterprise risk management

• Financial flexibility and liquidity

An insurance company with a high AM Best rating, such as A or A+, is considered to have a superior ability to meet its ongoing insurance policy and contract obligations. An insurer with a low rating like B or below may struggle to pay claims, especially during challenging economic periods.

Why do AM best ratings matter?

An insurance policy is a promise to pay covered claims and losses at some point in the future. If the insurance company doesn't have the financial strength to fulfill that promise when you need them most, your coverage won't provide the protection you expected. That's why it's crucial to select an insurer that has the resources and capital to reliably pay claims.

While AM Best ratings aren't the only factor to consider when choosing an insurance company, they do provide a valuable independent assessment of an insurer's financial strength and ability to meet its obligations. A high AM Best rating serves as validation that the insurance company is financially stable and well-positioned to pay claims. This can help give consumers more confidence in the protection provided by their policies.

When shopping for any type of insurance, take the time to research and understand the AM Best ratings of the companies you are evaluating. While price is certainly a key consideration, you'll want to balance that with the financial strength ratings to select a stable, secure insurer that you can count on when you need to file a claim.

Having good credit is essential for qualifying for loans, getting approved for rentals, and even getting hired for some jobs. However, building credit can seem like a catch-22: You need credit to get credit. Credit cards are a common way to get started, but that may not be an option for you for a variety of reasons.

The good news is that there are several strategies you can employ to build a solid credit history without relying on having credit cards of your own. Here are some tips:

Get a credit-builder loan

With a credit-builder loan, you borrow an amount like $500 or $1,000 and make fixed payments over 6-24 months. The lender deposits the borrowed amount into a locked savings account, and once you've completed the loan payments the money is unlocked and given to you. These loans are designed solely for building credit history.

Become an authorized user

See if a family member or spouse with good credit will add you as an authorized user on their credit card account. The account history can get reported on your credit report, helping establish a track record for you.

Get a co-signer

Having a credit-worthy co-signer on an installment loan, like an auto loan, personal loan or student loan, allows you to piggyback off their good credit while building yours. Just be sure to make all payments on time.

Report rent and utilities

There are services that allow you to opt to have your rent payments and utility bills reported to the major credit bureaus. This helps create a record of timely payments. Look into getting your landlord to enroll in a rent-reporting service like Piñata (which is free to use). Otherwise, here's my guide on how to report your rent to the credit bureaus.

Apply for a secured credit card

With a secured card, you place a refundable security deposit that typically becomes your credit limit. Make small charges and pay on time to build positive payment history.

Give it time

Establishing good credit takes time, so don't get discouraged. Make all minimum payments early or on time, keep credit utilization low, and avoid situations that create negative credit events. Practicing good financial habits consistently is key to building an excellent credit score.

Building credit without credit cards does require some creativity, but it's definitely possible. With responsible management of loans, bills and low credit limits, you can develop a strong credit profile over time.

Earlier this month the Federal Reserve hit the pause button on interest rate hikes, providing a window of opportunity for savers to take advantage of elevated returns on deposit accounts.

At its meeting on May 1, the Federal Open Market Committee (FOMC) decided to keep the federal funds rate unchanged at a range of 5.25% to 5.5%. This follows a string of 10 consecutive rate increases dating back to March 2022 in an effort to cool inflation. Here's what to know about the Fed's rate pause, and what it means for your savings.

What the Fed's rate pause means for you

While mortgage rates and loan payments have risen sharply as a result of the Fed's actions, savers have been big beneficiaries. Banks and credit unions have been forced to raise yields on savings accounts, money market accounts, and certificates of deposit (CDs) to attract and retain deposits.

The FOMC meets approximately every six weeks to assess economic conditions and determine if adjustments to the federal funds rate are warranted. The Fed signaled this is likely the peak for rates on savings vehicles like high-yield accounts and CDs.

Tips for savers

Here are ways savers can take advantage of current interest rates and maximize returns on their savings:

• Shop around for the highest rates from online bank and credit unions. Rates can vary widely, so it pays to compare.

• Consider building a CD ladder by buying CDs of different maturity terms like 6 months, 1 year, 18 months, etc. This allows you to capitalize on rising rates.

• Look into money market accounts, which often have slightly higher yields than standard savings accounts.

• Evaluate annual percentage yields (APYs) rather than just stated interest rates to understand the actual return factoring in compounding interest.

With this rate pause, now is an ideal time for savers to lock in attractive yields on their deposits before rates inevitably start trending lower again.

The Education Department announced an extension on a key student loan forgiveness deadline: Borrowers now have through June 30, previously April 30, to consolidate certain types of federal student loans to qualify for the one-time income-driven repayment (IDR) account adjustment. The account adjustment, previously slated to wrap up by July 1, is now set to be implemented sometime in September 2024.

The Biden administration has already forgiven over $45 billion in student loans for nearly one million borrowers through a one-time account adjustment to income-driven repayment (IDR) plans. If you've been faithfully repaying your student loans for at least 10 years, you could be next in line for this substantial relief—but you'll need to act fast.

What is the student loan forgiveness deadline?

The Education Department has now announced June 30, 2024 as the cutoff to consolidate certain types of federal loans and enroll in an IDR plan in order to maximize the benefits of this one-time account adjustment. Borrowers who miss this deadline may still receive some credit for past payments, but will not get the full forgiveness that's possible by meeting the June 30 consolidation requirement.

Specifically, borrowers with commercially held FFEL, Perkins, or HEAL loans, as well as those with a mix of loan types, will need to consolidate into a new Direct Consolidation Loan by the deadline. This ensures their repayment history on the oldest underlying loans is fully counted toward forgiveness.

The IDR account adjustment only applies to loans consolidated into a Direct Consolidation Loan. These types of loans require immediate consolidation to qualify for this upcoming IDR account adjustment:

• Commercially held FFELP loans

• Commercially held Perkins loans

• HEAL loans

• Parent PLUS loans in repayment for less than 25 years (or less than 10 years, if eligible for Public Service Loan Forgiveness)

• Direct loans with different past payment counts

If your loans aren’t on this list, you probably don’t need to take action right now. If your loans are on the list above, read on to learn what steps you should take ASAP.

How to get loan forgiveness this year

To access the application, go to StudentAid.gov/loan-consolidation. The online form should automatically populate most borrowers’ contact and loan information. Just be sure to confirm which loan types you have, select the ones you want to consolidate, choose an IDR plan, and provide some basic personal information. Depending on your situation, you may need to provide additional documentation, such as proof of economic hardship or disability. Be sure to respond promptly to any requests from your loan servicer.

The entire process should take less than 30 minutes, according to the Federal Student Aid Office. For assistance or to apply for consolidation over the phone, contact the Federal Student Aid Information Center at 800-433-3243.

Generally, you can’t consolidate an existing consolidation loan unless you’re applying to PSLF or adding another loan to the mix, like a Perkins loan that you didn’t previously consolidate.

The bottom line

Borrowers who miss the new June 30 deadline won't be completely out of luck, as they may still receive partial credit for their past IDR payments. But to maximize the forgiveness you're eligible for, it's crucial to get your loans consolidated by the end of next month. Don't delay—take action now to put yourself in the best position to get significant student debt relief this year.

While the extended deadlines may provide some relief to borrowers, the constant shifts underscore the complexity and fluidity of the student loan landscape. As the saga continues to unfold, borrowers are left to navigate these ever-changing waters, hoping for clarity and resolution on the horizon.

This post was originally published in April 15 when the deadline was April 30, 2024, and was and was updated on May 21, 2024 to reflect the new June 30 timeline.

You may have seen the term "spaving" pop up on social media lately as a supposed money-saving hack. But despite its (sort of) catchy name, spaving is just a rebranded version of an old bad habit: overspending to save money. And as always: TikTok is never going to bring you the financial freedom you seek.

What is spaving?

Spaving refers to the practice of spending more money upfront in order to supposedly save more in the long run. For example, buying in bulk, choosing premium products instead of cheaper options, or splurging on an annual membership to get a discount.

While some of these tactics can make sense in moderation, spaving takes it to an extreme. Paying $100 for an annual streaming subscription to save $8 per month is smart. But spending $500 extra on a premium appliance you can't really afford in hopes of lower energy bills is spaving.

The spaving trap

The core problem with spaving is that you're still overspending and likely spending more than you're really saving. It's easy to rationalize spaving as a way to be frugal, when in reality it's just mentally tricking yourself into buying more than you truly need or can comfortably afford.

Smarter spending strategies

Whether you deliberately ignore certain bad spending habits or you’ve fallen prey to a larger trend of lifestyle creep, most of us have a general goal of "spend less, save more." Rather than falling for spending gimmicks like spaving, focus on sticking to a realistic budget and scaling back recurring costs. Look for ways to economize that don't require shelling out extra cash.

One place to start with your specific spending goals is to physically write down the things you want to buy before you buy them. Use those bank statements to inform what items make your official “to-buy list.” When you read over items on this list, you’ll be able to make a more thoughtful decision as to what you really need.

The bottom line

Spaving puts the emphasis on spending over saving. Don't get lured in by the faulty logic that you need to spend more to save more. True financial discipline comes from living within your means, curbing impulsive spending, and finding smart ways to cut costs—not rationalizing going over-budget.

If you thought the frenzy around GameStop and other so-called "meme stocks" was over after the rollercoaster ride of 2021, think again: GameStop's stock (ticker GME) has surged over 500% in just the last month, fueled by a spike in trading volume. But as of this week, the so-called mania for "meme stocks" may already be waning.

This week's rollercoaster is reminiscent of early 2021, when members of the Reddit investing community r/WallStreetBets rallied together to purchase GameStop and other struggling companies' stocks, like AMC. Their goal? To squeeze out hedge funds and other institutional investors who had shorted those stocks, betting their prices would fall.

While GameStop was the leader, other meme stocks like AMC Entertainment and Bed Bath & Beyond have also seen big share price jumps in recent days, as the Reddit crowd appears to be reassembling their troops.

So what does this mean for everyday investors? A few key points:

1. Meme stocks are extremely volatile and risky. The frenzy investing is based more on online sentiment than underlying company fundamentals. Prices can swing wildly in either direction.

2. Don't invest money you can't afford to lose. Given the unpredictable and speculative nature of meme stock trading, investors need to have a high risk tolerance.

3. Understand what you're getting into. While the prospect of getting in early on a meme stock run-up is enticing, these are not normal market conditions. Like in 2021, manipulation by coordinated online investment groups is suspected.

While the current meme stock rally (and comedown) may be exciting to watch, for most investors, it will be better observed from the sidelines. Those who do jump in should do so with open eyes about the extraordinary risks involved. Catching the next meme stock wave could pay off, but trying to surf these volatile market manias is not for the faint of heart. You're safer putting the money in an index fund.

In today's world of rampant identity theft and data breaches, protecting your credit has become vitally important. Two of the main tools you can use to safeguard your information are credit freezes and credit locks. While both restrict access to your credit file, there are some key differences to understand.

What is a credit freeze?

A credit freeze, also known as a security freeze, allows you to seal your credit reports at the three major credit bureaus—Equifax, Experian and TransUnion. No one can view your credit file or credit score until you temporarily lift or permanently remove the freeze. This makes it extremely difficult for identity thieves to open new credit accounts in your name.

How credit freezes work

• Freezes are governed by federal law and are completely free for everyone to place, lift, or remove.

• You must contact each credit bureau individually to freeze your report with that bureau.

• Freezes remain in place permanently unless you lift or remove them.

• You can temporarily lift freezes when you need to apply for new credit by providing a PIN.

• Freezes don't affect your credit score or existing creditor access.

What is a credit lock?

A credit lock is a credit monitoring tool offered by each credit bureau that lets you quickly lock and unlock access to your credit report. Like freezes, locks prevent lenders from viewing your report and opening new accounts. But there are some major differences.

How credit locks work

• Locks are programs offered by credit bureaus, not controlled by federal law.

• Locks may be free initially but often require a paid subscription for continued use.

• The process to lock and unlock your report is faster than freezes.

• Locks may automatically re-lock after a specified period of time.

• Credit locks don't have the same legal protections as freezes under some state laws.

When to use freezes vs. locks

So in what situations are freezes or locks most appropriate? Freezes offer the highest level of security and legal protection from identity theft and credit fraud. They're a great option for most consumers, especially those who don't plan to open new credit accounts frequently.

Credit locks can provide added convenience by allowing you to quickly lock and unlock your reports. They may be suited for those who need to apply for new credit more often and are willing to pay for the service. However, locks don't have the same legal backing as freezes in some states.

The best practice may be to freeze your credit reports and only unlock them when you plan to open a new line of credit. For instances where you need to repeatedly lock and unlock over a short period, a lock could make sense. But for maximum security and legal protection, freezes are still the recommended route for most. For more, here's how to "thaw" your credit instead of a full freeze or unfreeze.

In an era when employer-sponsored retirement plans like 401(k)s have become the norm, pensions are becoming an endangered species. A pension is a retirement plan that guarantees a steady income stream to retirees for life, with the employer bearing the investment risk. In contrast, 401(k) and 403(b) plans are defined contribution plans where employees shoulder the investment risk and must carefully manage their retirement savings.

While pensions were once prevalent across industries, economic pressures and accounting rule changes have led many private companies to freeze or terminate their pension plans. However, there are still a few bastions where traditional pensions survive. Here are some of the jobs that still offer this coveted retirement benefit.

Government jobs

If pensions are your priority, government jobs are the way to go. Many government jobs at the federal, state, and local levels still provide pension plans for their employees. This includes roles like public school teachers, police officers, firefighters, and other civil servants. The retirement benefits are usually part of the compensation package negotiated by public employee unions.

Utilities

Utility companies like electric, gas, and water providers frequently still have pension plans. The regulated nature of utilities has allowed some to maintain their defined benefit pension plans.

Unions

Jobs covered by union labor agreements, particularly in industries like transportation, manufacturing, or construction, are more likely to include a pension as a hard-won benefit.

Military

After serving for 20 years or more, members of the armed forces are eligible for a military pension that pays lifetime retired pay.

Some corporate giants

While rarer than in previous decades, a small number of large corporations still offer pension plans. These include some automotive companies, airlines, and other legacy companies with a heavily unionized workforce.

The appeal of pensions is obvious—they provide retirees with a dependable income stream not tethered to market returns. But the costs and risks associated with paying pension benefits have led to their decline. For most workers today, a 401(k), IRA, or similar defined contribution plan is their primary employer-sponsored retirement vessel, putting investment responsibility on their shoulders. Pensions, while fading, do still exist for certain professions, particularly in the public sector.

Car insurance is a necessity, but it's not one-size fits all. There's a minimum coverage required by your state, but that may not be enough to fully protect you financially. Purchasing more robust insurance with higher limits will provide greater peace of mind that you're covered if something goes wrong on the road. So, how much car insurance do you truly need? And are there any optional coverages that are recommended? Let's explore.

Types of coverage you need

First off, when it comes to car insurance coverage, you need to fulfill the minimum requirements set by your state. With the exception of Virginia and some remote regions of Alaska, all states mandate drivers to have car insurance.

The cornerstone of this is liability coverage, which doesn't actually protect your ride. Instead, it foots the bill for any injuries, fatalities, or property damage you inflict on others, up to the limit specified in your policy. These limits are typically presented in a "25/50/15" format, meaning your insurer will cough up $25,000 per person, $50,000 per incident for bodily harm you cause, and up to $15,000 for wrecking someone else's property.

Here's the catch—in some states, the minimum bodily injury limit can be as paltry as $15,000. But a serious smash-up can easily rack up medical expenses that blow past that number. If your liability coverage falls short of covering the other party's costs, you could find yourself in legal trouble, forced to empty your pockets to make amends.

How much coverage is enough?

So, how do you determine if you've purchased adequate car insurance? Begin by considering your net worth and the frequency of your driving when deciding on your auto policy's liability limits. If you don't have enough coverage to compensate for injuries or property damage you cause, you could face a lawsuit amounting to tens of thousands of dollars.

After all, the primary purpose of car insurance is to provide a financial safety net tailored to your situation. Let's say you rear-end another vehicle, injuring the driver and passenger. If the other car is worth $20,000 and the medical bills soar to $40,000 per person, you're on the hook for a cool $100,000. Without sufficient insurance to cover that sum, the injured parties could take you to court to recoup their losses.

It's essential to remember that car insurance is designed to protect your financial security. Obtaining insurance equal to your net worth means your policy should be able to cover the full cost of an accident without putting your home and other assets at risk.

Most insurers cap the liability coverage you can purchase, but if you've maxed out and still want more, you can supplement with an umbrella policy. These policies bolster liability protection for both your car and home, typically in $1 million increments. If you don't have any assets to protect besides your car, you're probably fine with purchasing minimal liability coverage.

Getting full coverage car insurance

Liability coverage is great for covering others' expenses when you're at fault, but what about repairs to your own ride? What if your car gets totaled, and you need $20,000 to replace it? This is when full coverage car insurance could be worth considering.

"Full coverage" typically refers to a policy packing liability coverage plus collision and comprehensive protection. These two coverages pay for damage to your vehicle, regardless of who's at fault. Collision coverage kicks in when your car collides with another object, while comprehensive coverage handles situations beyond your control, like vandalism, theft, or a run-in with Bambi.

If you opt for collision and comprehensive coverage, pay close attention to the deductible—the amount you'll need to fork over before your insurer starts pitching in. Deductibles usually range from $250 to $1,000, but can climb higher, so choose an amount you can comfortably afford in a pinch.

Rounding out your protection

Insurers offer plenty of additional coverage options that could prove handy:

• Glass coverage repairs or replaces damaged windshields and windows, ideal if you find yourself on the receiving end of a rogue pebble.

• Medical payments coverage helps cover your own medical expenses, or those of your passengers, after a crash, which can be useful for covering health insurance deductibles.

• Roadside assistance sends help if you find yourself stranded, in need of a tow or jump start, though some companies may charge extra for these services.

Keeping costs in check

State-mandated minimums like 25/50 won't cut it in the event of serious injuries or vehicle replacements. If you can swing it, opt for higher limits. Here are some tips to keep your insurance premiums from breaking the bank:

• Bundle your auto policy with your home and life insurance for potential discounts.

• Take advantage of discounts for being claim-free or a good student.

• Shop around and compare rates every one to two years to snag the best deal.

• Increase your deductible to lower your monthly payments.

The right coverage levels depend on your comfort level with risk, but buying only minimums could leave you dangerously underinsured. Do your homework upfront, so you don't get stuck with surprise out-of-pocket costs after an accident reveals gaps in your policy.