Category: Personal Finances

Person holding tablet displaying a credit score of 810 on the screen

Understanding Credit Scores: How to Improve and Maintain Yours

A good credit score is essential for securing loans, getting favorable interest rates, and even renting an apartment. Understanding how credit scores work and how to improve and maintain them can significantly impact your financial health. Here’s a comprehensive guide to help you navigate the world of credit scores.

What is a Credit Score?

A credit score is a numerical representation of your creditworthiness, based on your credit history. Lenders use this score to assess the risk of lending you money. Scores typically range from 300 to 850, with higher scores indicating better creditworthiness.

Factors That Affect Your Credit Score

Several factors contribute to your credit score:

  • Payment History: Your track record of paying bills on time.
  • Credit Utilization: The amount of credit you’re using compared to your credit limit.
  • Length of Credit History: How long you’ve had credit accounts.
  • New Credit: Recent applications for new credit.
  • Credit Mix: The variety of credit accounts you have, such as credit cards, mortgages, and loans.

Checking Your Credit Report

Regularly checking your credit report is crucial for maintaining a good credit score. You can obtain a free copy of your credit report from each of the three major credit bureaus (Equifax, Experian, and TransUnion) once a year. Review your reports for any errors or discrepancies and report them immediately.

Improving Your Score

Improving your credit score takes time and effort, but it’s achievable with these steps:

  • Pay Bills on Time: Consistently paying your bills on time is one of the most significant factors in improving your score.
  • Reduce Debt: Aim to pay down existing debt, especially high-interest credit card balances.
  • Avoid New Credit Inquiries: Limit the number of new credit applications, as each inquiry can temporarily lower your score.
  • Increase Credit Limits: If possible, request a credit limit increase to improve your credit utilization ratio.

Maintaining a Good Score

Once you’ve improved your credit score, it’s essential to maintain it:

  • Monitor Your Credit: Keep an eye on your credit reports and scores regularly.
  • Use Credit Responsibly: Continue to pay bills on time and keep credit card balances low.
  • Stay Informed: Educate yourself about credit and financial management to make informed decisions.

Common Credit Myths

There are many misconceptions about credit scores. For example, closing old accounts can hurt your score, and checking your own credit report does not affect your score. Understanding these myths can help you make better financial decisions.

  1. Myth: Checking your own credit report will lower your score.
    1. Fact: Checking your own credit report is considered a “soft inquiry” and does not affect your credit score. It’s a good practice to review your credit report regularly to ensure accuracy.
  2. Myth: Closing old credit accounts will improve your credit score.
    1. Fact: Closing old accounts can actually hurt your credit score because it reduces your overall available credit and can shorten your credit history, both of which are factors in your credit score.
  3. Myth: You only have one credit score.
    1. Fact: You have multiple credit scores, as different credit bureaus (Experian, Equifax, and TransUnion) and scoring models (FICO, VantageScore) may calculate your score differently based on the information they have.
  4. Myth: Carrying a balance on your credit card improves your credit score.
    1. Fact: Carrying a balance and paying interest does not improve your credit score. It’s better to pay off your balance in full each month to avoid interest charges and maintain a good credit score.
  5. Myth: Your income affects your credit score.
    1. Fact: Your income is not a factor in your credit score. Credit scores are based on your credit history, including payment history, amounts owed, length of credit history, new credit, and types of credit used.
  6. Myth: Paying off a debt will remove it from your credit report.
    1. Fact: Paying off a debt does not remove it from your credit report. The account will be marked as paid, but it will remain on your report for up to seven years from the date of last activity.
  7. Myth: Using a debit card will help build your credit score.
    1. Fact: Debit card usage does not impact your credit score because it is not reported to credit bureaus. Only credit accounts, such as credit cards and loans, are reported and affect your credit score.

Resources and Tools

Take advantage of tools and resources available to help manage and improve your credit scores. Many banks offer credit monitoring services and financial education resources to support your credit health.

By understanding and managing your credit score, you can unlock better financial opportunities and achieve your financial goals. Stay proactive and informed to maintain a healthy credit profile. Visit Peoples Bank & Trust today to learn more about how we can assist you in achieving your financial goals and securing a brighter financial future.

Jar full of cash labeled Emergency Fund with stack of books in the background

How to Build an Emergency Fund: 6 Tips and Strategies

In uncertain times, having an emergency fund can provide peace of mind and financial stability. An emergency fund is a savings account specifically set aside for unexpected expenses, such as medical emergencies, car repairs, or job loss. Here’s how you can start building your emergency fund and ensure you’re prepared for whatever life throws your way.

Why You Need an Emergency Fund

An emergency fund acts as a financial safety net, helping you cover unexpected expenses without resorting to high-interest debt. It can prevent financial stress and provide a sense of security, knowing you have a cushion to fall back on.

6 Tips and Strategies for Building an Emergency Fund

1. Setting a Goal

How much should you aim to save? Financial experts typically recommend having three to six months’ worth of living expenses in your emergency fund. This amount can vary based on your personal circumstances, such as job stability and monthly expenses.

2. Starting Small

If saving several months’ worth of expenses seems daunting, start small. Even setting aside a small amount each month can make a big difference over time. The key is to start now and build gradually.

3. Automating Savings

One of the easiest ways to build your emergency fund is to automate your savings. Set up automatic transfers from your checking account to your savings account. This way, you’re consistently contributing to your fund without having to think about it.

4. Cutting Unnecessary Expenses

Take a close look at your budget and identify areas where you can cut back. Reducing non-essential spending, such as dining out or subscription services, can free up money to put towards your emergency fund.

5. Using Windfalls Wisely

Whenever you receive unexpected income, such as a bonus, tax refund, or gift, consider putting a portion of it into your emergency fund. This can give your savings a significant boost.

6. Choosing the Right Account

Keep your emergency fund in a high-yield savings account. This type of account offers better interest rates than a regular savings account, helping your money grow faster while still being easily accessible when you need it.

Building an emergency fund takes time and discipline, but the peace of mind it provides is well worth the effort. Start today, and you’ll be better prepared for whatever financial challenges come your way. At Peoples Bank & Trust, we’re here to help. Learn more about our savings accounts and other services that can help you effectively build your emergency funds.

Tax Season Tips

Tax Season Tips for 2023 

With the new year comes tax season. As we jump right into tax season, here are some tips to keep you organized, ahead of the game, and prepared to submit your taxes on time.  

Step 1: Remember to Keep ALL Tax Related Documents 

One of the biggest hassles is organizing and finding your information to be prepared for tax season. Whether you do your own taxes or get help from a professional, it is important that you begin to collect and organize the proper documents. This includes last year’s tax return, this year’s W-2s and 1099s, receipts, and so on. Here are some recommendations from TurboTax of what to keep and what NOT to toss:  

  • Print out a tax checklist to help you gather all the tax documents you’ll need to complete your tax return. 
  • Keep all the information that comes in the mail in January, such as W-2s, 1099s, and mortgage interest statements. Be careful not to throw out any tax-related documents, even if they don’t look very important. 
  • Collect receipts and information that you have piled up during the year. 
  • Group similar documents together, putting them in different file folders if there are enough papers. 
  • Make sure you know the price you paid for any stocks or funds you have sold. If you don’t, call your broker before you start to prepare your tax return. 
  • Know the details on income from rental properties. Don’t assume that your tax-free municipal bonds are completely free of taxes. Having this type of information at your fingertips will save you another trip through your files. 

Step 2: Organize Your Documents  

As you begin to receive and gather your documents, find a folder to carefully organize your information. It is easy to throw an envelope into a drawer and forget where it has been placed. You’ll thank yourself as you begin filing that you kept the information needed organized and ready for use. Remember it is important to keep ahold of past year’s documents as well, as those could be needed for filing. If you haven’t already, find an organization method that works for you to begin organizing all records and carry that method on from year to year. The rule of thumb is if you don’t know if you’ll need it, it is safe to go ahead and keep it, just in case.  

Step 3: Itemize Your Tax Deductions  

By itemizing your tax deductions, you could potentially save a substantial amount compared to taking the standard deduction. If you own a home, live in a high-tax area, or are self-employed it may be worth taking extra steps to itemize your deductions.  If your qualified expenses add up to more than the 2022 standard deduction ($12,950 for singles and $25,900 for married couples filing jointly) itemizing your deductions is worth it to take the time to do.  

Some items to consider itemizing:  

  • Mortgage interest 
  • Charitable donations 
  • A portion of medical expenses 
  • Home office  

Step 4: Make a Plan for How You Will File Your Taxes 

If you are filing your taxes and expect a return, filing electronically may be the best and quickest option for you. The IRS processes electronic returns faster than manual paper returns, which means you could expect your refund three to six weeks sooner, especially if you have it set to deposit directly into your bank account.  

Step 5: File Your Return ON TIME 

Do not wait to begin gathering your documents and making your plan for filing your information. If you need assistance, it is important to do your research ahead of time and be proactive so you can file and pay on time.  

If you can’t finish your return on time, make sure you file Form 4868 by April 18, 2023. Form 4868 gives you an extension of the filing deadline until October 16, 2023. On the form, you need to make a reasonable estimate of your tax liability for 2022 and pay any balance due with your request.  Requesting an extension in a timely manner is especially important if you end up owing taxes to the IRS. 

Tax season is a stress to us all. The key is to be organized and proactive in getting ahead of filing and paying your taxes, so you are not late and potentially owe more. If you are curious about the basics of taxes or want to be aware of any changes when filing your 2022 return, visit the IRS website for assistance.  

Peoples Bank & Trust Co.    

Member FDIC    

Equal Housing Lender    

Top 5 Reasons You Need a Debit Card

Make Purchases Simple – Top 5 Reasons You Need a Debit Card 

If you don’t have a debit card, don’t worry these top five reasons will convince you to get one! A debit card is a great asset to your wallet and financial freedom. Keep reading to learn the top ways a debit card makes your purchases simple. 

1. Makes Purchases Convenient and Simple 

Ever reached into your wallet and are short on cash? Having a debit card on hand makes it incredibly easy to either withdraw funds from an ATM or simply use the card to make your purchases instantly. A debit card can truly be your only form of payment wherever you are. A debit card allows you the freedom to make everyday purchases conveniently and you can track your spending instantly from your PB&T mobile app.  

2. Budgeting Made Easy 

When you use your debit card, you are withdrawing money directly from your checking account. If you are working towards improving your budget, a debit card is a great tool to help you do so. When you make a purchase with your debit card you can be notified right away and have a mobile receipt to help keep your budget in line.  

3. Safe Form of Payment  

One of the huge benefits of utilizing a debit card are the safety factors. With a debit card you can make secure purchases and not have to worry about carrying cash. With your debit card you can be notified every time your card makes a purchase, that way if it is a fraudulent purchase, it can be reported through Peoples Bank & Trust immediately. If you lose your card, don’t worry you can cancel it immediately and have it replaced at any of our branch locations.  

4. Debit Cards Can Reward You  

Depending on the debit card you get, you can earn rewards simply by using it! To learn more about the specifics of our debit cards, head over to our website.  

5. Makes Paying Bills Effortless  

One of the huge benefits of using a debit card is the ability to set up your bills to be paid automatically. This will help you avoid a late fee or interest. This is a huge benefit to improving your credit score.  

If you are looking to get started on a debit card, we can help! At Peoples Bank & Trust we are focused on making your day-to-day financial goals effortless and with a debit card payment is made easy, safe, and convenient.  

Peoples Bank & Trust Co.    

Member FDIC    

Equal Housing Lender   

How to Budget Rising Food Prices

How to Budget Rising Food Prices  

It is no secret food prices have risen in the past few months. Food is generally at the top of the list for basic human needs, so how do we go about combating these rising food costs? Keep reading for top tips to fight rising food prices this winter.  

1. Eat Out Less 

Dining out is an extremely expensive option if you opt for it too often, especially if you are already budgeting for a full list of groceries as well.  Many meals you purchase out can be made for a fraction of the cost at home. And while fast food can be a cheaper dining out option, it may be a cost to your overall health – high-calorie and low-quality food is not as nutritional as food you can make at home.  

2. Don’t Shop on An Empty Stomach 

We’ve all been grocery shopping on an empty stomach and can agree that shopping while hungry will only fill your cart with unnecessary purchases. When grocery shopping on an empty stomach there is a likelihood of overspending and veering from your list. Stick to your necessities by grabbing a bite to eat or a small snack before you begin your shopping trip.  

3. Stick to Your List  

If shop without creating or sticking to a list, you may experience sticker shock when you check out your next grocery haul. If you fill your cart with everything that catches your eye, be prepared to spend a lot more than you planned. By creating a list in advance, you have the opportunity to plan out your meals and ingredient list to cohesively put together a plan for the week. This also allows you to plan around any sales the store may have or you may choose to shop elsewhere because there may be a better deal. Avoiding impulse buys is key to fighting these rising food costs. If you stick solely to your list, you won’t be tempted to go down every aisle. Many say all the products you need are on the edge of the store, so avoiding a couple of isles is a win! 

4. Fresh Over Prepared 

In a world that is already a fast-paced society, it is easy to opt for prepared items when shopping at the grocery store. Whether it’s convenience or to simply have on hand, these pre-ready meals are at a premium price tag compared to simply buying the fresh ingredients to make yourself. This same concept also goes for frozen items you may be grabbing. Yes, they absolutely are convenient and last longer, but they often are priced significantly higher than buying fresh ingredients to prepare yourself.  

5. Bulk May Be the Best  

Buying in bulk can save you time and money. It is important to pay attention to prices of family-sized options – if the price per unit is lower it is well worth your money to buy more if you have a place to store it and will use it before it expires. If you have items you go through consistently, it may be well worth the cost to purchase those at a big box bulk retailer such as Costco or Sam’s Club.  

6. Bulk Isn’t Always the Best 

If you find you are not utilizing a membership at a big-box retailer as often as you had thought, consider canceling. Chances are you don’t need nearly as much on hand and are paying for the  bulk items along with the membership price. It is very important to pay attention to your spending habits at these stores as well as your overall consumption. The prices at the big boxes aren’t always a bargain compared to discounts at other stores. In addition, the family-size packaging at these stores could mean you buy more than you need, driving up your grocery bill. 

7. Sign Up for Rewards 

If you are visiting the same stores consistently, it is well worth it to sign up for their rewards program. Some stores may raise their prices when they offer rewards so without the card your bill could be higher. Look into the rewards offered, they may have benefits such as a ham on the holidays or a discount on gas. Take advantage of the benefits at places you are already going to! 

8. Prices Are High, Look Low 

They strategically set up grocery stores to tempt you to spend money. As mentioned earlier, stick to the outsides of the stores. You also can avoid higher priced items by not shopping the end caps or checkout areas. The highest-priced items are placed where it is easy for you to look, such as the middle of the shelf at eye level. If you look down, chances are you’ll find generic and cheaper alternatives.  

9. Substitute the Expensive Items  

If you notice an item you use frequently has a price that is consistently climbing, look into finding a lower-priced alternative. For example, you could swap apple sauce for vegetable oil in recipes to cut the cost nearly in half.  

10. Maintain a Well-Stocked Kitchen 

Shopping infrequently or only when you need to is key to not overspending. If you shop when the best deals are available, you have the ability to stock up and put yourself in the position of only shopping when you need to or when the item is back on sale. 

Food is one of those purchases we simply cannot avoid. Be a careful and well-prepared shopper to minimize the amount you spend at the grocery store.  

Peoples Bank & Trust Co.    

Member FDIC    

Equal Housing Lender    

Financial Resolutions in Check

How to Get Your Financial Resolutions in Check for the New Year

If part of your new year’s resolutions was to reshape your finances and consolidate debt, this is the blog for you. Make your resolutions a reality with these top tips for the year 2023!

Preparing Your Financial Resolutions

If you have created new year’s resolutions, you know it can be extremely hard to stick to them if you don’t implement steps to adequately meet them. When you are identifying areas of your finances you want to improve, it is important to identify goals within your goals to help you stay accountable and committed to them throughout the year and on. 

Resolution 1: Analyze Your Financial Situation and Budget

Before you decide what financial resolutions, you may have that will actually improve your financial habits and situation, it is crucial to do a deep dive into your current financial situation and comb through your budget. Doing this may bring up some areas that you didn’t realize may be affecting your finances negatively as well as find areas you can improve. Tracking your current spending and saving habits are incredibly important for everyone to do, let your financial resolutions be clear and concise by identifying your money moves and behaviors. 

Resolution 2: Define Your Debt

Debt is a tool that depending on how you use and are managing it can inherently be a good or a bad thing. If you have found your debt to be more of a financial burden than a tool, chances are your debt need to be addressed and controlled. Here are a few key points to keep in mind as you address your current debt:

  1. Eliminate any debt that you can. Yes, this can be difficult to do – pay off credit card debt and avoid borrowing depreciating assets as it can add up quickly if you carry a balance. 
  2. Keep your total debt amount manageable. Just because you can borrow it, doesn’t mean you should borrow it. The rule of thumb is to keep your monthly costs below 28% of your pre-tax income and your total monthly debt payments. 
  3. Align your payments with your lifestyle and timing. When you are looking into taking out a loan, be honest with yourself about your time horizons, such as if you don’t plan to dig your roots somewhere consider a shorter maturity loan or an adjustable-rate mortgage over a longer-term loan

Resolution 3: Optimize Your Budget Financial Goals

Once you’ve addressed areas that need to be implemented or improved, you can begin re-working and refreshing your budget as well as carefully molding your plan to meet your financial goals. Tracking your spending and saving can be a useful tool with set guidelines to keep you on track, identify areas of improvement, help you safe more, and point out areas where you could cut back. Here are a few things to factor in when crafting your budget:

  • Fixed expenses
  • Rent/mortgage payments
  • Cell phone 
  • Monthly subscriptions
  • Groceries
  • Eating out 
  • Clothing
  • Entertainment
  • Daycare
  • Holidays 
  • Vacation 

Resolution 4: Create Your Financial Goals 

As you build this list here are a few financial resolutions to consider implementing: 

  • Save more money this year than you did last
  • Better your credit score
  • Better your budget – regardless of how you think your budget, this can always be looked over and changed to fit your lifestyle and goals as they evolve
  • Pay your credit card balance in full each month
  • Check your credit score more frequently
  • Implement a financial checkup as often as you see fit 
  • Improve your debt
  • Check your credit report more often
  • Find a way to build your credit that aligns with your goals
  • Start an emergency fund
  • Analyze your retirement savings
  • Open a savings account
  • Consider a Certificate of Deposit
  • Make a meeting with a financial advisor
  • Discuss your financial situation with your bank

Meeting and sticking to your resolutions can be extremely difficult. Building a strong financial foundation will carry you well now and, in the future, so the best time to put in the hard work is as soon as you can and continue to implement new goals and areas to work through as you become more and more financially literate. If you have questions, we are happy to help! Contact us here.

Peoples Bank & Trust Co.  

Member FDIC  

Equal Housing Lender  

Benefits of Online Bill Pay

Why You Should Be Utilizing Online Bill Pay

The week of February 5th is National Pay Your Bills Week! In honor of this holiday, we wanted to dive deeper into why you should be utilizing Online Bill Pay at Peoples Bank & Trust! Using Online Bill Pay is SIMPLE; keep reading for five reasons you should be using Online Bill Pay. 

1.    Safe and Secure Payment 

Some may be skeptical about paying their bills online. We are here to give you peace of mind that Online bill pay allows you to keep better track of your financial matters as you can set up safe and secure automatic payments from your bank account. 

2.    Save Money Using Bill Pay 

Using online bill pay not only saves you time but saves you money too. All the time and money spent on both postage and late fees can add up quickly.  By enrolling in online bill pay you are utilizing a tool that simplifies paying your bills all from the convenience of your computer. 

3.    Promptly Paid Bills 

If you think about it, mailing in your bills can take significantly longer than setting up automatic online bill pay. Doing so is faster and easier, and eliminates forgetting or procrastinating. Simply set up your monthly payments through online bill pay to make your automatic payments on time each month.

4.    Organized Bill Payment 

Using online bill pay allows you to declutter those bills and financial records in one swoop. Online bill pay is great for those who love organization or could use some tools to become more organized. When you use online bill pay you automatically pay out of the accounts you select on the date you designate. You can set up an online bill calendar to automate your payments and receive alerts once the bill is paid. A great feature in online bill pay is all your charges are kept in your online records, so you can go back and review them at any time. 

5.    Online Bill Pay at PB&T

At PB&T Online Bill Pay is simple and makes paying your bills hassle-free. Automate your payments and enjoy the convenience Online Bill Pay gives you: 

  • Pay monthly bills
  • Make one-time payments
  • Set up recurring payments
  • Make same-day payments to select payees (fees may apply)

If you want more control over your money, our Online Services allow you to not only pay your bills online but access your accounts from anywhere. Enroll today in our Online Banking to:

  • View account balances for checking and savings accounts, as well as loan and CD accounts
  • Make one-time or recurring transfers between your PB&T accounts
  • See images of checks
  • Keep an eye on your transactions
  • Download your account information easily into the financial management software you use
  • Pay bills using Online Bill Pay
  • Make Person to Person Payments using Zelle
  • Receive E-Statements
  • Take your financial management with you wherever you go with Mobile Banking

Learn more about Online Banking at PB&T! If you have any questions regarding Online or Mobile Banking or run into issues with enrollment, please contact Peoples Bank & Trust’s E-Banking Department for help.

The Ultimate Guide to a Roth IRA

The Ultimate Guide to a Roth IRA 

If you’re looking to supplement your 401k offered by your employer or you currently do not have an option for a retirement savings account, a Roth IRA could be the savings option for you. Keep reading to learn the ins and outs of a Roth IRAs so you can decide if Roth IRA is the right option for you! 

What is a Roth IRA?  

Planning for retirement is super important. Whether you’re looking to get started or wanting to incorporate another savings option, a Roth IRA can be a fantastic option for retirement savings. What is a Roth IRA? It is important to understand when it comes to IRA accounts your options are Traditional or Roth. A Roth IRA is an individual retirement account where your money invested has already been taxed. A Traditional or Roth IRA are accounts you open on your own and are not affiliated with an employer.  

The most unique feature of a Roth IRA is how the government taxes it. Unlike a traditional 401(k) or a Traditional IRA, your contributions going in is taxed at that time rather than your earnings when you choose to withdraw them. 

Top Benefits of a Roth IRA 

  1. Tax-Free Income When You Retire 

As we have mentioned, you are paying taxes upfront with a Roth IRA. There could be a chance you are taxed at a lower tax bracket during that time so when you are a retiree you will essentially be avoiding taxes as you take out those funds. 

  1. Great Option If You Don’t Have a 401(k) 

If you don’t have a 401(k) through your employer, as long as you have earned income, you can contribute to a Roth IRA as your saving plan for retirement. 

  1. You Do Not Have to Take Money Out of a Roth IRA 

With a 401(k) or a Traditional IRA, you are required to take out a certain amount once you reach age 72 – this is known as a required minimum distribution (RMD). With a Roth IRA you will not run into this as it has not RMDs, though when you die your account beneficiary may have to take them. 

  1. Roth IRA Contributions Can Be Withdrawn at Any Time 

Since you’ve already paid taxes on your Roth IRA you can withdraw the funds you contributed at any time tax-free as long as you have had a Roth IRA for 5 years. Keep in mind if you withdraw earnings before age 59 ½, you may be penalized by the IRS. 

  1. You May Use a Roth IRA for Certain Life Expenses 

With a Roth IRA you are able to use your contributions for a first-time home purchase. You can withdraw up to $10,000 ($20,000 for married couples) from your Roth IRA penalty free to pay for your first-home purchase. Another life expense you can use your Roth IRA contributions on is to pay for college or higher education for yourself, a child, or even a spouse. You will be able to withdraw penalty free though you will still owe income taxes if earnings are included. 

  1. There Are No Age Limits to a Roth IRA 

With a Traditional IRA you can’t make contributions until age 72, with a Roth IRA there is no age limit for contributing. In 2023, with a Roth IRA you can only contribute $6,500 under the age of 50. The limit goes up to $7,500 once you are 50 or older.  

If you’ve decided a Roth IRA is the option for you or have further questions, we would be happy to help! Contact us today to learn more about our retirement savings options to get you started! 

Peoples Bank & Trust Co.  

Member FDIC  

Equal Housing Lender  

Home Equity Loan vs. Home Equity Line of Credit

Home Equity Loan vs. Home Equity Line of Credit 

A Home Equity Loan and Home Equity Line of Credit are both loans that use your home as collateral. Though they are very similar, they are different loans. Keep reading to learn what a Home Equity Loan and Home Equity Line of Credit are, their differences, and their benefits!

What Are They?

A Home Equity Loan and Home Equity Line of Credit, commonly known as a HELOC, are both loans which use your home as collateral. Both are fantastic options for borrowing money if you’ve paid down a significant portion of your mortgage. 

Home Equity Line of Credit: A HELOC is a line of credit in which the lender will agree to lend a maximum amount within an agreed-upon period and variable interest rate. Essentially, a HELOC uses a percentage of your home’s equity to provide a revolving line of credit, much like a credit card. Your monthly payments with a home equity line of credit will change over time. With a HELOC, disbursement of funds is made on an as-needed basis and repayment is interest-only during the draw period; you repay all the principal and any remaining interest afterward. 

Home Equity Loan: A home equity loan is very similar; however, a home equity loan is a lump sum that is disbursed upfront and paid back in fixed installments. Your monthly payments will be the same each month. With a home equity loan, disbursement of funds is an upfront lump sum and repayment starts as soon as the loan is disbursed. 

The Main Difference

HELOC: A home equity line of credit’s interest rate may vary and therefore your monthly payments on a home equity line of credit may change over time. With a HELOC, disbursement of funds is made as you need them, and repayment is interest-only during the draw period; you repay the principal and any remaining interest afterward.

Home Equity Loan: With a home equity loan your interest rate is fixed and therefore your monthly payments will be the same each month. With a home equity loan, disbursement of funds is an upfront lump sum and repayment starts as soon as the loan is disbursed. 

Pros and Cons

Home Equity Line of Credit (HELOC) 

Pros:

  • You only borrow as much money as you need
  • Flexible repayment
  • Tax deduction
  • May come with little to no fees

Cons:

  • Variable interest rates (changes based on market fluctuation)
  • Not a set repayment plan (can be a pro for some)
  • Maybe more debt to repay as it is a long-term credit option
  • Could lose your home if you default on the HELOC

Home Equity Loan

Pros:

  • Fixed interest rate
  • You borrow a lump sum to use for nearly anything
  • Little to no fees
  • Tax deductible
  • Set repayment plan (could be a con for some)

Cons:

  • Best terms go to those with a good credit score
  • Need a lot of home equity 
  • If property values decline, you owe more than your home is worth
  • Could lose your home if you default on the loan

As you can see, a home equity loan and home equity line of credit are fantastic options for homeowners. Now that you know the benefits and main differences, which is best for you? These loans are a great source of value to access cash for renovations, large purchases, home remodel projects, college tuition, a new vehicle, or nearly any other need. Visit our website to learn more or stop in to talk with a lender!

Peoples Bank & Trust Co.

Member FDIC

Equal Housing Lender

NMLS# 407724