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Can I Inherit Debt?
When someone passes away leaving debts behind, you might be wondering if you have any personal liability to pay them. If you have aging parents, for instance, you may be worried about having to assume responsibility for their mortgage payments, credit cards or other debts. If youâve asked yourself, âCan I inherit debt?â the answer is typically no, even though those debts donât automatically disappear. But there are situations in which you may have to deal with a loved oneâs creditors after theyâre gone.
How Debts Are Handled When Someone Passes Away
Debts, just like assets, are considered part of a personâs estate. When that person passes away, their estate is responsible for paying any and all remaining debts. The money to pay those debts comes from the asset side of the estate.
In terms of who is responsible for making sure the estateâs debts are paid, this is typically done by an executor. An executor performs a number of duties to wrap up a personâs estate after death, including:
- Getting a copy of the deceased personâs will if they had one and filing it with the probate court
- Notifying creditors and other entities of the personâs death (for example, the Social Security Administration would need to be notified so any Social Security benefits could be stopped)
- Completing an inventory of the deceased personâs assets and their value
- Liquidating those assets as needed to pay off any debts owed by the estate
- Distributing the remaining assets to the people or organizations named in the deceased personâs will if they had one or according to inheritance laws if they did not
In terms of debt repayment, executors are required to give notice to creditors who may have a claim against the estate. Creditors are then giving a certain window of time, according to state laws, in which to make a financial claim against the estateâs assets for repayment of debts.
If a creditor doesnât follow state guidelines for making a claim, then those debts wonât be paid from the estateâs assets. But if creditors are less than reputable, they may try to come after the deceased personâs spouse, children or other family members to collect whatâs owed.
Not all assets in an estate may be used to repay debts owed by a deceased person. Any assets that already have a named beneficiary, such as a life insurance policy, a 401(k), individual retirement account, payable on death accounts or annuity, would be transferred to that beneficiary automatically.
Can I Inherit Debt From My Parents?
This is an important question to ask if your parents are carrying high amounts of debt and youâre worried about having to pay those bills when they pass away. Again, the short answer is usually no. You generally donât inherit debts belonging to someone else the way you might inherit property or other assets from them. So even if a debt collector attempts to request payment from you, thereâd be no legal obligation to pay.
The catch is that any debts left outstanding would be deducted from the estateâs assets. If your parents were substantially in debt when they passed away, repaying them from the estate may leave little or no assets for you to inherit.
But you should know that you can inherit debt that you were already legally responsible for while your parents were alive. For instance, if you cosigned a loan with them or opened a joint credit card account or line of credit, those debts are legally yours just as much as they are your parents. So, once they pass away, youâd be solely responsible for repaying them.
And itâs also important to understand what responsibility you may have for covering long-term care costs incurred by your parents while they were alive. Many states have filial responsibility laws that require children to cover nursing home bills, though they arenât always enforced. Talking to your parents about long-term care planning can help you avoid situations where you may end up with an unexpected debt to pay.
Can I Inherit Debt From My Children?
The same rules that apply to inheriting debt from parents typically apply to inheriting debts from children. Any debts remaining would be paid using assets from their state.
Otherwise, unless you cosigned for the debt, then you wouldnât be obligated to pay. On the other hand, if you cosigned private student loans, a car loan or a mortgage for your adult child who then passed away, as cosigner youâd technically have a legal responsibility to pay them. Federal student loans are an exception.
If your parents took out a PLUS loan to pay for your higher education costs and something happens to you, the Department of Education can discharge that debt due to death. And vice versa, if your parents pass away then any PLUS loans they took out on your behalf could also be discharged.
Can I Inherit Debts From My Spouse?
When marriage and money mix, the lines on inherited debt can get a little blurred. The same basic rule that applies to other situations applies here: if you cosigned or took out a joint loan or line of credit together, then youâre both equally responsible for the debt. If one of you passes away, the surviving spouse would still have to pay.
But what about debts that are in one spouseâs name only? Thatâs where itâs important to understand how living in a community property state can affect your liability for marital debts. If you live in a community property state, debts incurred after the marriage by one spouse can be treated as a shared financial obligation. So if your spouse opened up a credit card or took out a business loan, then passed away you could still be responsible for paying it. On the other hand, debts incurred by either party before the marriage wouldnât be considered community debt.
Consider Getting Help If You Need It
If a parent, spouse, sibling or other family member passes away, it can be helpful to talk to an attorney if youâre being pressured by debt collectors to pay. An attorney who understands debt collection laws and estate planning can help you determine what your responsibilities are for repaying debts and how to handle creditors.
The Bottom Line
Whether or not youâll inherit debt from your parents, child, spouse or anyone else largely hinges on whether you cosigned for that debt or live in a community property state in the case of married couples. If youâre concerned about inheriting debts, consider talking to your parents, children or spouse about how those financial obligations would be handled if they were to pass away. Likewise, you can also discuss what financial safety nets you have in place to clear any debts you may leave behind, such as life insurance.
Tips for Estate Planning
- Consider talking to a financial advisor about how to manage and pay off debts you owe or any debts you might inherit from someone else. If you donât have a financial advisor yet, finding one doesnât have to be difficult. SmartAssetâs financial advisor matching tool can help you connect with an advisor in your local area. It takes just a few minutes to get your personalized advisor recommendations online. If youâre ready, get started now.
- The Fair Debt Collection Practices Act caps the statute of limitations for unpaid debt collections at a maximum of six years, although most states specify a much shorter time frame. However, some debt collectors buy so-called zombie debts for pennies on the dollar and then â unscrupulously â try to collect on them. Hereâs how to deal with such operators.
Photo credit: ©iStock.com/NiseriN, ©iStock.com/AndreyPopov, ©iStock.com/FatCamera
The post Can I Inherit Debt? appeared first on SmartAsset Blog.
Source: smartasset.com
Debt In The United States
This page may include affiliate links. Please see the disclosure page for more information. Let’s face it, debt in the United States is a problem. From our national debt, student loan debt, and consumer debt. Debt in the United States is a problem on all levels. Why is that? I’m a firm believer that it starts with…
The post Debt In The United States appeared first on Debt Discipline.
Debt In The United States was first posted on November 18, 2019 at 6:00 am.
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Debt Consolidation Loans for Bad Credit – Our Top 5 Picks
Top 5 Debt Consolidation Loan Companies The specifics of your debt consolidation loan will depend on your creditworthiness at the time of your application. With that said, the following companies offer some of the best…
The post Debt Consolidation Loans for Bad Credit – Our Top 5 Picks appeared first on Crediful.
Source: crediful.com
Debt Settlement vs Bankruptcy: Which is Best?
You’ve tried debt payoff strategies, balance transfers, consolidation, and even debt management; you’ve begged your creditors, liquidated your assets, and pestered your friends and families for any money they can afford, but after all of that, you still have more debt than you can handle.
Now what?
Once you reach the end of your rope, the options that remain are not as forgiving as debt management and they’ll do much more damage to your credit score than debt payoff strategies. However, if you’ve tried other forms of debt relief and nothing seems to work, all that remains is to consider debt settlement and bankruptcy.
Debt settlement is a very good way to clear your debt. It’s one of the cheapest and most complete ways to eradicate credit card debt and can help with most other forms of unsecured debt as well. Bankruptcy, on the other hand, is a last resort option for debtors who can’t meet those monthly payments and have exhausted all other possibilities.
But which option is right for you, should you be looking for a debt settlement company or a bankruptcy attorney?
Similarities Between Bankruptcy and Debt Settlement
Firstly, let’s look at the similarities between bankruptcy and debt settlement, which are actually few and far between. In fact, beyond the fact that they are both debt relief options that can clear your debt, there are very few similarities, with the main one being that they both impact your credit score quite heavily.
A bankruptcy can stay on your credit report for up to 10 years and do a lot of damage when it is applied. It may take several years before you can successfully apply for loans and high credit lines again, and it will continue to impact your score for years to come.
Debt settlement is not quite as destructive, but it can reduce your credit score in a similar way and last for up to 7 years. Accounts do not disappear in the same way as when you pay them in full, so future creditors will know that the accounts were settled for less than the balance and this may scare them away.
In both cases, you could lose a couple hundred points off your credit score, but it all depends on how high your score is to begin with, as well as how many accounts you have on your credit report and how extensive the settlement/bankruptcy process is.
Differences Between Bankruptcy and Debt Settlement
The main two types of bankruptcy are Chapter 7 and Chapter 13. The former liquidates assets and uses the funds generated from this liquidation to pay creditors. The latter creates a repayment plan with a goal of repaying all debts within a fixed period of time using an installment plan that suits the filer.
Debt settlement, on the other hand, is more of a personal process, the goal of which is to offer a reduced settlement sum to creditors and debt collectors, clearing the debts with a lump sum payment that is significantly less than the balance.
Chapter 7 Bankruptcy and Chapter 13 Bankruptcy
When people think of bankruptcy, it’s often a Chapter 7 that they have in mind. With a Chapter 7 bankruptcy, all non-exempt assets will be sold, and the money then used to pay lenders. There are filing costs and it’s advised that you hire a bankruptcy attorney to ensure the process runs smoothly.
Chapter 7 bankruptcy is quick and complete, typically finishing in 6 months and clearing most unsecured debts in this time. There is no repayment plan to follow and no lawsuits or wage garnishment to worry about.
Chapter 13, on the other hand, focuses on a repayment plan that typically spans up to 5 years. The debts are not wiped clear but are instead restructured in a way that the debtor can handle. This method of bankruptcy is typically more expensive, but only worthwhile for debtors who can afford to repay their debts.
Filing for bankruptcy is not easy and there is no guarantee you will be successful. There are strict bankruptcy laws to follow and the bankruptcy court must determine that you have exhausted all other options and have no choice but to file.
Bankruptcy will require you to see a credit counselor, which helps to ensure that you don’t make the same mistakes in the future. This can feel like a pointless and demeaning requirement, as many debtors understand the rights and wrongs and got into a mess because of uncontrollable circumstances and not reckless spending, but sessions are short, cheap, and shouldn’t cause much stress.
How Debt Settlement Works
The goal of debt settlement is to get creditors to agree to a settlement offer. This can be performed by the debtor directly, but it’s often done with help from a debt settlement company.
The debt specialist may request that you stop making payments on your debts every month. This has two big benefits:
1. More Money
You will have more money in your account every month, which means you’ll have more funds to go towards debt settlement offers.Â
The idea of making large lump sum payments can seem alien to someone who has a lot of debt. After all, if you’re struggling to make $400 debt payments every month on over $20,000 worth of debt, how can you ever hope to get the $5,000 to $15,000 you need to clear those debts in full?
But if you stop making all payments and instead move that money to a secured account, you’ll have $4,800 extra at the end of the year, which should be enough to start making those offers and getting those debts cleared.
2. Creditor Panic
Another aspect of the debt settlement process that confuses debtors is the idea that creditors would be willing to accept reduced offers. If you have a debt worth $20,000 and are paying large amounts of interest every month, why would they accept a lump sum and potentially take a loss overall?
The truth is, if you keep making monthly payments, creditors will be reluctant to accept a settled debt offer. But as soon as you start missing those payments, the risk increases, and the creditor faces the very real possibility that they will need to sell that debt to a collection agency. If you have a debt of $20,000, it may be sold for as little as $20 to $200, so if you come in with an offer of $10,000 before it reaches that point, they’ll snap your hand off!
Types of Debt
A debt settlement program works best when dealing with credit card debt, but it can also help to clear loan debt, medical bills, and more. Providing it’s not government debt or secured debt, it will work.Â
With government debt, you need specific tax relief services, and, in most cases, there is no way to avoid it. With secured debt, the lender will simply take your asset as soon as you default.
Debt settlement companies may place some demanding restrictions on you, and in the short term, this will increase your total debt and worsen your financial situation. In addition to requesting that you stop making monthly payments, they may ask that you place yourself on a budget, stop spending money on luxuries, stop acquiring new debt, and start putting every penny you have towards the settlement.
It can have a negative impact on your life, but the end goal is usually worth it, as you’ll be debt-free within 5 years.
Pros and Cons of Debt Settlement and Bankruptcy
Neither of these processes are free or easy. With bankruptcy, you may pay up to $2,000 for Chapter 7 and $4,000 for Chapter 13 (including filing fees and legal fees) while debt settlement is charged as a fixed percentage of the debt or the money saved.Â
As mentioned already, both methods can also damage your credit score. But ultimately, they will clear your debts and the responsibilities that go with them. If you’ve been losing sleep because of your debt, this can feel like a godsendâa massive weight lifted off your shoulders.
It’s also worth noting that scams exist for both options, so whether you’re filing bankruptcy or choosing a debt settlement plan, make sure you’re dealing with a reputable company/lawyer and are not being asked to pay unreasonable upfront fees. Reputable debt settlement companies will provide you with a free consultation in the first instance, and you can use the NACBA directory to find a suitable lawyer.
Bankruptcy and Debt Settlement: The End Goal
For all the ways that these two options differ, there is one important similarity: They give you a chance to make a fresh start. You can never underestimate the benefits of this, even if it comes with a reduced credit score and a derogatory mark that will remain on your credit report for years to come.
If you’re heavily in debt, it can feel like your money isn’t your own, your life isn’t secure, and your future is not certain. With bankruptcy and debt settlement, your credit score and finances may suffer temporarily, but it gives you a chance to wipe the slate clean and start again.
What’s more, this process may take several years to complete and in the case of bankruptcy, it comes with credit counseling. Once you make it through all of this, you’ll be more knowledgeable about debt, you’ll have a better grip on your finances, and your impulse control.Â
And even if you don’t, you’ll be forced to adopt a little restraint after the process ends as your credit score will be too low for you to apply for new personal loans and high limit cards.
Other Options for Last Ditch Debt Relief
Many debtors preparing for debt settlement or bankruptcy may actually have more options than they think. For instance, bankruptcy is often seen as a get-out-of-jail-free card, an easy escape that you can use to your advantage whenever you have debts you don’t want to pay.
But that’s simply not the case and unless you have tried all other options and can prove that none of them have worked, your case may be thrown out. If that happens, you’ll waste money on legal and filing fees and will be sent back to the drawing board.
So, regardless of the amount of debt you have, make sure you’ve looked into the following debt relief options before you focus on debt settlement or bankruptcy.Â
Debt Consolidation
A debt consolidation loan is provided by a specialized lender. They pay off all your existing debts and give you a single large loan in return, one that has a lower interest rate and a lower monthly payment.Â
Your debt-to-income ratio will improve, and you’ll have more money in your pocket at the end of the month. However, in exchange, you’ll be given a much longer-term, which means you’ll pay more interest over the life of the loan.
A Debt Management Plan
Debt management combines counseling services with debt consolidation. A debt management plan requires you to continue making your monthly payment, only this will go to the debt management company and not directly to the creditors. They will then distribute the money to your creditors.
You’ll be given a monthly payment that you can manage, along with the budgeting advice you need to keep meeting those payments. In exchange, however, you’ll be asked to close all but one credit card (which can hurt your credit score) and if you miss a payment then your creditors may back out of the agreement.
Balance Transfer Card
If all your debts are tied into credit cards, you can use a balance transfer credit card to make everything more manageable. With a balance transfer credit card, you move one or more debts onto a new card, one that offers a 0% APR for a fixed period.Â
The idea is that you continue making your monthly payment, only because there is no interest, all the money goes towards the principal.
Home Equity Loans
If you have built substantial equity in your home then you can look into home equity loans and lines of credit. These are secured loans, which means there is a risk of repossession if you fail to keep up your payments, but for this, you’ll get a greatly reduced interest rate and a sum large enough to clear your debts.
Bottom Line: The Best Option
Debt settlement and bankruptcy are both considered to be last resort debt-relief options, but they couldn’t be more different from one another. Generally speaking, we would always recommend debt settlement first, especially if you have a lot of money tied up in credit card debt.
If not, and you can’t bear the idea of spending several months ignoring your creditors, missing payments, and accumulating late fees, it might be time to consider bankruptcy. In any case, make sure you exhaust all other possibilities first.
Debt Settlement vs Bankruptcy: Which is Best? is a post from Pocket Your Dollars.
Source: pocketyourdollars.com
The Best Student Loan Companies For Refinancing
Refinancing your student loans can make good financial sense, and thatâs especially true if your current loans are stuck at a high-interest rate. With a new loan at a lower APR, you could save a bundle of money on interest each month and ultimately pay your student debt off faster. Consolidating several loans into one new one can also simplify your financial life and make keeping up with bills a lot easier.
College Ave and Earnest topped our list, but since student loan refinancing is an incredibly competitive space, youâll also want to spend time comparing student loan companies to see who offers the best deal. Many lenders in this space offer incredibly low APRs, flexible payment options, borrower incentives, and more. This means itâs more important than ever to shop around so you wind up with the best student loan for your needs.
What You Should Know About Refinancing Federal Student Loans with a Private Lender
The lenders on this list can help you consolidate and refinance both federal student loans and private student loans. However, there are a few details to be aware of before you refinance federal loans with a private lender.
Switching federal loans to private means giving up federal protections like deferment and forbearance. You also give up your chance to qualify for income-driven repayment plans like Pay As You Earn (PAYE) or Income Based Repayment (IBR). Income-driven repayment plans let you pay a percentage of your discretionary income for 20 to 25 years before ultimately forgiving your remaining loan balances, so this perk isnât one you should give up without careful thought and consideration.
Best Student Loan Refinancing Companies of 2021
As you start your search to find the best student loan for your lifestyle, take the time to compare lenders and all they offer their customers. While there are a ton of reputable companies offering high-quality student loan refinancing products on the market today, there are also companies you should probably steer clear of.
To make your search easier, we took the time to compare most of the top lenders in this space in terms of interest rates offered, fees, borrower benefits, and more. The following student loan companies are the cream of the crop, so you should start your search here.
Our Top Picks:
- Splash Financial
- College Ave
- Earnest
- SoFi
- CommonBond
- LendKey
- Wells Fargo
- PenFed Credit Union
Student Loan Refinancing Company Reviews
1. Splash Financial
Splash Financial may be a newer company in the student loan refinancing space, but their offerings are competitive. This company lets you check your rate online without a hard inquiry on your credit report, and their variable rates currently start at just 2.25% APR.
Not only are interest rates offered by Splash Financial industry-leading, but the company has a 95% customer satisfaction rate so far. Their cutting-edge technology also lets you apply for your loan and complete the loan process online, meaning less hassle and stress for you as the borrower.
Check Out Splash Financialâs Low Rates
2. College Ave
College Ave offers student loan refinancing products that can be tailored to your needs. They offer low fixed and variable interest rates, for example, and youâll never pay an application fee or an origination fee. You can even qualify for a discount if you set your loan up on autopay, and a wide range of repayment schedules are available.
College Ave also offers a wide range of online calculators and tools that can help you figure out how much student loan refinancing could help you save and whether the move would be worth it in the end. Considering their low variable rates start at just 2.74% APR, thereâs a good chance you could save money by refinancing if you have excellent credit or a cosigner with great credit.
Get Started with College Ave
3. Earnest
Earnest is another online lender that focuses most of its efforts on offering high-quality student loans. This company lets you consolidate debt at a lower interest rate than you might find elsewhere, and you get the option to pick a monthly payment and repayment period that works with your budget and your lifestyle.
While youâll need excellent credit to qualify for the lowest interest rates, loans from Earnest come with variable APRs starting at 1.81% and low fixed rates starting at just 3.45%. To qualify for student loan refinancing with Earnest, youâll need a minimum credit score of 650 and a strong employment and income history. You also need to be current on all your bills and cannot have a bankruptcy on your credit profile.
Refinance and Save with Earnest
4. SoFi
Also make sure to check out student loan refinancing company SoFi as you continue your search. This online lender offers some of the best student loan refinancing products available today, including loans with no application fee, origination fee, or hidden fees.
SoFi lets you apply for and complete the entire loan process online, and they offer live customer support 7 days a week. You can also check your rate online without a hard inquiry on your credit report, which makes it easier to see how much you could save before you commit.
Get Pre-Approved with SoFi in Less than 2 Minutes
5. Commonbond
Commonbond is another online student lender who lets you check your rate online without a hard inquiry on your credit report. With student loan refinancing from Commonbond, you could easily save thousands of dollars on interest with a new fixed interest rate as low as 3.21%. Repayment terms are offered for 5 to 20 years as well, letting you choose a new monthly payment and repayment timeline that works for your needs.
You can apply for your new loan online and note that these loans donât come with an origination fee or any prepayment penalties. Your loan could also qualify for forbearance, which means having up to 24 months without payments during times of financial hardship.
Apply Online with Commonbond
6. LendKey
LendKey offers private student loans and flexible student loan refinancing options to serve a variety of needs. You can repay your loan between 5 and 20 years, and their refinance loans donât charge an origination fee.
You can use this companyâs online interface to check your rate without a hard inquiry on your credit report, and variable APRs start at just 2.01% for graduates with excellent credit. LendKey loans also receive 9.3 out of 10 possible stars in recent reviews, meaning their customers are mostly happy with their decision to go with this company.
Save Thousands by Refinancing with LendKey
7. Wells Fargo
While Wells Fargo is mostly popular for their banking products, home mortgage products, and personal loans, this bank also offers student loan refinancing products. These loans let you consolidate student debts into a new loan with a low variable or fixed interest rate, and you can even score a discount for setting your loan up on autopay.
Terms for Wells Fargo loans are available anywhere from 5 to 20 years, meaning you can choose a repayment schedule and monthly payment that suits your needs. Wells Fargo also lets you check your rate online without a hard inquiry on your credit report.
Get Started with Wells Fargo
8. PenFed Credit Union
PenFed Credit Union offers unique student loan products powered by Purefy. You might be able to qualify for a lower interest rate that could lead to enormous interest savings over time, and PenFed lets you choose a repayment term and monthly payment that fits with your budget and lifestyle.
You can apply for student loan refinancing on your own, but PenFed Credit Union also allows cosigners. Low fixed interest rates start at just 3.48% APR, and you can check your rate online without a hard inquiry on your credit report.
Learn More about PenFed Credit Union
What To Look For When Refinancing
If you decide you want to refinance your student loans, youâll be happy to know the refinancing market is more robust than ever. A variety of lenders offer insanely attractive loan options for those who can qualify, although you should know that student loan companies tend to be very finicky about your credit score. Some also wonât let you refinance if you didnât graduate from college, or even if you graduated from an âunapprovedâ school.
While you should be aware of any lender-specific eligibility requirements before you apply with any student loan company, there are plenty of other factors to look out for. Hereâs everything you should look for in a student loan refinancing company before you decide to trust them with your loans.
Low Interest Rate
Obviously, the main reason youâre probably thinking of refinancing your loans is the potential to save money on interest. Lenders who offer the lowest rates available today can potentially help you save more, although itâs important to consider that you may not qualify for the lowest rates available if you donât have excellent credit.
Cosigner Requirements
Also consider that most lenders will offer better rates and loan terms if you have a cosigner with better credit than you have. This is especially true if your credit isnât great, so make sure to ask family members if theyâre willing to cosign on your new student loan if you hope to get the best rate. Just remember that your cosigner will be jointly liable for repayment, meaning you could quickly damage your relationship if you default on your loan and leave them holding the bag.
Low Fees or No Fees
Student loans are like any other loan in the fact that some charge higher fees or more fees than others. Since many student loans come with an application fee or an origination fee, youâll want to look for lenders that donât charge these fees. Also check for hidden fees like prepayment penalties.
Discounts Available
Some student loan companies let you qualify for discounts, the most popular of which is a discount for using autopay. If youâre able and willing to set up automatic payments on your credit card, you could save .25% or .50% off your interest rate depending on the lender you go with.
Rate Check Option
Many of the top student loan refinancing companies on this list make it possible to check your interest rate online without a hard inquiry on your credit report. This is a huge benefit since knowing your rate can help you figure out if refinancing is even worth it before you take the time to fill out a full loan application.
Flexible Repayment Plan
Also make sure any lender you go with offers some flexibility in your repayment plan and your monthly payment. Youâll want to make sure refinancing aligns with your long-term financial goals and your monthly budget, and itâs crucial to choose a new loan with a monthly payment you can live with.
Most lenders in this space offer repayment timelines of up to 20 years, which means you could spread your payments over several decades to get a monthly payment that makes sense with your income. Keep in mind, however, that youâll pay more interest over the life of your loan when you take a long time to pay it off, so you may want to consider prioritizing a faster payment plan.
The Bottom Line
Student loan refinancing may not sound like a lot of fun. However, taking the time to consider all your loan options could easily save you thousands of dollars. This is especially true if you have a lot of debt at a high interest rate. By consolidating all your student loans into a new one with a lower APR, you could make loan repayment easier with a single payment and save a ton of money that would otherwise go to straight to interest without helping you pay off your loans.
The first step of the loan process is the hardest, however, and thatâs choosing a student loan refinancing company that you trust. The lenders on this list are highly rated, but they also offer some of the best loan products on the market today.
- Work with College Ave, our top pick, to refinance your student loan.
Start your search here and youâre bound to wind up with a student loan you can live with. At the very least, you’ll have a better idea of the loans that are available and how much you might save if you decide to refinance later on.
The post The Best Student Loan Companies For Refinancing appeared first on Good Financial Cents®.
Source: goodfinancialcents.com
The Chilling Truth About Debt Settlement Programs
The post The Chilling Truth About Debt Settlement Programs appeared first on Penny Pinchin' Mom.
Debt is a very touchy subject for most people. Feeling the stress of overwhelming monthly payments, many people just look for what seems to be the easiest way out. This is when the salesmen tend to strike. Â The reason is a good deal of your financial information can be considered public knowledge.
Every day, many in debt get phone calls from high energy salesmen talking about the miraculous debt settlement concept. So, I’m going to start by saying, one great lesson we all learn young in life is, âIf it sounds too good to be true, it probably is!â
I made this mistake myself. Â I was so far in debt that I was drowning. In an act of desperation, I used a debt settlement company. Â Turns out, they did nothing to help me. It only made the situation much worse.
Here are a few chilling facts that you should know about debt settlement programs. Â These may just prove that the concept is too good to be true!
Fact #1: You May Be Sued For Not Paying Debts Even As You Make Payments
Did you know the payments you make may not go to your lenders? Â Yep! Â When working with a debt settlement company, your payments are not sent in on a monthly basis. Â Instead, these companies hold the funds from your payments. In most cases, the money is held in special purpose savings accounts until it has reached enough to pay off a debt. Once one debt is paid off, the savings process is started for the next.
Therefore, the last lender or two may wait 3, 4 or even 5 years before they see the next payment. The truth is, if you look at it from their perspective, it’s cheaper to take you to court. They will get the money faster through a settlement because they can garnish your wages. Also, in many cases, you will have to pay the court costs as well!
Fact #2: Your Credit Will Be Destroyed
While talking to a debt settlement agent, you will find that their last interest is in your credit score. Also, if you bring up the topic, they may try to downplay the effects of debt settlement on consumer credit scores. With that said, I’m not going to downplay it at all for you! Here is the truth…Because lenders are not being paid for long periods of time, your debts will be charged off.
One collections agency will sell it to the next and each time, it will damage your credit score! This is why I generally advise against this option if the consumer has good or excellent credit scores. The effects of credit card debt settlement programs will not pass in 6 months either! They will last throughout the term of your settlement and at least a year and a half to 2 years afterwords.
Fact #3: Debt Settlement Costs Thousands Of Dollars In Most Cases
The truth is, if you are going to settle your debts, with a little bit of online research, you can do it on your own. However, when you higher a debt settlement company, chances are, you will pay a percentage of the total amount owed, somewhere around 15%. That means if you have the minimum amount of debt that most companies accept, $10,000.00, your fee will be $1,500.00 minimum in most cases.
This does not include the cost of a special purpose savings account which, usually runs about $25 per month. Add in the cost of paying an attorney when you get taken to curt and, you will now find yourself paying just as much as you did before you hired the debt settlement company in the first place!
Every Dark Cloud Has A Silver Lining
Although debt settlement may not be the option for most, always remember, there is an option for you. As a matter of fact, I recently wrote an article that included a few great options called DIY Alternatives To Debt Consolidation. Trust me, those alternatives only begin to touch the tip of the iceberg when it comes to great, legitimate ways to get out of debt!
This article was written by Joshua Rodriguez, proud owner and founder of CNA Finance and avid personal finance journalist. Join the discussion about this article on facebook and Google+!
The post The Chilling Truth About Debt Settlement Programs appeared first on Penny Pinchin' Mom.
Source: pennypinchinmom.com
What Is a Recourse Loan?
In borrowing, there are two types of debts, recourse and nonrecourse. Recourse debt holds the person borrowing money personally liable for the debt. If you default on a recourse loan, the lender will have license, or recourse, to go after your personal assets if the collateralâs value doesnât cover the remaining amount of the loan that is due. Recourse loans are often used to finance construction or invest in real estate. Hereâs what you need to know about recourse loans, how they work and how they differ from other types of loans.
What Is a Recourse Loan?
A recourse loan is a type of loan that allows the lender to go after any of a borrowerâs assets if that borrower defaults on the loan. The first choice of any lender is to seize the asset that is collateral for the loan. For example, if someone stops making payments on an auto loan, the lender would take back the car and sell it.
However, if someone defaults on a hard money loan, which is a type of recourse loan, the lender might seize the borrowerâs home or other assets. Then, the lender would sell it to recover the balance of the principal due. Recourse loans also allow lenders to garnish wages or access bank accounts if the full debt obligation isnât fulfilled.
Essentially, recourse loans help lenders recover their investments if borrowers fail to pay off their loans and the collateral value attached to those loans is not enough to cover the balance due.
How Recourse Loans Work
When a borrower takes out debt, he typically has several options. Most hard money loans are recourse loans. In other words, if the borrower fails to make payments, the lender can seize the borrowerâs other assets such as his home or car and sell it to recover the money borrowed for the loan.
Lenders can go after a borrowerâs other assets or take legal action against a borrower. Other assets that a lender can seize might include savings accounts and checking accounts. Depending on the situation, they may also be able to garnish a borrowerâs wages or take further legal action.
When a lender writes a loanâs terms and conditions, what types of assets the lender can pursue if a debtor fails to make debt payments are listed. If you are at risk of defaulting on your loan, you may want to look at the language in your loan to see what your lender might pursue and what your options are.
Recourse Loans vs. Nonrecourse Loans
Nonrecourse loans are also secured loans, but rather than being secured by all a personâs assets, nonrecourse loans are only secured by the asset involved as collateral. For example, a mortgage is typically a nonrecourse loan, because the lender will only go after the home if a borrower stops making payments. Similarly, most auto loans are nonrecourse loans, and the bank or lender will only be able to seize the car if the borrower stops making payments.
Nonrecourse loans are riskier for lenders because they will have fewer options for getting their money back. Therefore, most lenders will only offer nonrecourse loans to people with exceedingly high credit scores.
Types of Recourse Loans
There are several types of recourse loans that you should be aware of before taking on debt. Some of the most common recourse loans are:
- Hard money loans. Even if someone uses their hard money loan, also known as hard cash loan, to buy a property, these types of loans are typically recourse loans.
- Auto loans. Because cars depreciate, most auto loans are recourse loans to ensure the lender receive full debt payments.
Recourse Loans Pros and Cons
For borrowers, recourse loans have both pros and and at least one con. You should evaluate each before deciding to take out a recourse loan.
Pros
Although they may seem riskier upfront, recourse loans are still attractive to borrowers.
- Easier underwriting and approval. Because a recourse loan is less risky for lenders, the underwriting and approval process is more manageable for borrowers to navigate.
- Lower credit score. Itâs easier for people with lower credit scores to get approved for a recourse loan. This is because more collateral is available to the lender if the borrower defaults on the loan.
- Lower interest rate. Recourse loans typically have lower interest rates than nonrecourse loans.
Con
The one major disadvantage of a recourse loan is the risk involved. With a recourse loan, the borrower is held personally liable. This means that if the borrower does default, more than just the loanâs collateral could be at stake.
The Takeaway
Loans can be divided into two types, recourse loans and nonrecourse loans. Recourse loans, such as hard money loans, allow the lender to pursue more than what is listed as collateral in the loan agreement if a borrower defaults on the loan. Be sure to check your stateâs laws about determining when a loan is in default. While there are advantages to recourse loans, which are often used to finance construction, buy vehicles or invest in real estate, such as lower interest rates and a more straightforward approval process, they carry more risk than nonrecourse loans.
Tips on Borrowing
- Borrowing money from a lender is a significant commitment. Consider talking to a financial advisor before you take that step to be completely clear about how it will impact your finances. Finding a financial advisor doesnât have to be difficult. In just a few minutes our financial advisor search tool can help you find a professional in your area to work with. If youâre ready, get started now.
- For many people, taking out a mortgage is the biggest debt they incur. Our mortgage calculator will tell you how much your monthly payments will be, based on the principal, interest rate, type of mortgage and length of the term.
Photo credit: ©iStock.com/aee_werawan, ©iStock.com/PictureLake, ©iStock.com/designer491
The post What Is a Recourse Loan? appeared first on SmartAsset Blog.
Source: smartasset.com
Does Paying the Minimum Hurt Your Credit Score
Credit card bills can be confusing. If everything was straightforward and clear, credit card debt wouldn’t be such a big issue. But it’s not clear, and debt is a massive issue for millions of consumers.Â
One of the most confusing aspects is the minimum payment, with few consumers understanding how this works, how much damage (if any) it does to their credit score, and why it’s important to pay more than the minimum.
We’ll address all of those things and more in this guide, looking at how minimum credit card payments can impact your FICO score and your credit report.
What is a Credit Card Minimum Payment?
The minimum payment is the lowest amount you need to pay during any given month. It’s often fixed as a fraction of your total balance and includes fees and interest. Â
If you fail to make this minimum payment, you may be hit with late fees and if you still haven’t paid after 30 days, your creditor will report your activity to the major credit bureaus and your credit score will take a hit.
When this happens, you could lose up to 100 points and gain a derogatory mark that remains on your credit report for up to 7 years. Making minimum payments will not result in a derogatory mark, but it can indirectly affect your credit score and we’ll discuss that a little later.
Firstly, it’s important to understand why you’re being asked to pay a minimum amount and how you can avoid it.
How Much is a Minimum Credit Card Payment?
Prior to 2004, monthly payments could be as low as 2% of the balance. This caused all kinds of problems as most of your monthly payment is interest and will, therefore, inflate every month so that every time you reduce the balance it grows back.Â
Regulators forced a change when they realized that some users were being locked into a cycle of credit card debt, one that could see them repaying thousands more than the balance and taking many years to repay in full.
These days, a minimum payment must be at least 1% of the balance plus all interest and fees that have accumulated during that month, ensuring the balance decreases by at least 1% if only the minimum payment is met.
Do I Need to Make the Minimum Payment?
If you have a rolling balance, you need to make the minimum monthly payment to avoid derogatory marks. If you fail to do so and keep missing those payments, your account will eventually default and cause all kinds of issues.
However, you can avoid the minimum payment by clearing your balance in full.
Let’s assume that you have a brand-new credit card and you spend $2,000 in the first billing cycle. In the next cycle, you will be required to pay this balance in full. However, you will also be offered a minimum payment, which will likely be anywhere from $30 to $100. If this is all that you pay, the issuer will start charging you interest on your balance and your problems will begin.
If you spend $2,000 in the next billing cycle, you have just doubled your debt (minus whatever principal the minimum payment cleared) and your problems.
This is a cycle that many consumers get locked into. They do what they can to pay off their balance in full, but then they have a difficult month and that minimum payment begins to look very tempting. They convince themselves that one month won’t hurt and they’ll repay the balance in full next month, but by that point they’ve spent more, it has grown more, and they just don’t have the funds.
To avoid falling into this trap, try the following tips:
- Only Spend What You Have: A credit card should be used to spend money you have now or will have in the future. Don’t spend in the hope you’ll somehow come into some money before the billing period ends and the credit card balance rolls over.
- Get an Introductory Interest Rate: Many credit card issuers offer a 0% intro APR for a fixed period of time, allowing you to accumulate debt without interest. This can help if you need to make some essential purchases, but it’s important not to abuse this as you’ll still need to clear the full balance before the intro period ends.
- Use a Balance Transfer: If you’re in too deep and the intro rate is coming to an end, consider a balance transfer credit card. These cards allow you to move your full balance from one card (or cards) to another, taking advantage of yet another 0% APR and essentially extending the one you have.
- Pay the Minimum: If you can’t pay the balance in full, make sure you at least pay the minimum. A missed payment or late payment can incur fees and may hurt your credit score.Â
Why Pay More Than the Minimum?
You may have heard experts recommending that you pay more than the minimum every month, but why? If you’re locked into a cycle of credit card debt, it can seem counterproductive. After all, if you have a debt of $10,000 that’s costing you $400 a month, what’s the point of taking an extra $100 out of your budget?
Your interest and fees are covered by your minimum payment and account for a sizeable percentage of that minimum payment. By adding just 50% more, you could be doubling and even tripling the amount of the principal that you repay every month.
What’s more, your interest accumulates every single day and this interest compounds. Imagine, for instance, that you have a balance of $10,000 today and with interest, this grows to $10,040. The next day, the interest will be calculated based on that $10,040 figure, which means it could grow to $10,081, which will then become the new balance for the next day.Â
This continues every single day, and the larger your balance is, the more interest will compound and the greater the amount will be due over the term. By paying more than your minimum payment when you can, you’re reducing the balance and slowing things down.
Does Paying the Minimum Hurt My Credit Score?
Paying the minimum amount every month ensures you are doing the bare minimum to avoid hurting your credit history or accumulating fees. However, it can indirectly reduce your score via your credit utilization ratio.
Your credit utilization ratio is a score that compares the credit limit of all available credit cards to the total debt on those cards. It accounts for 30% of your credit score and is, therefore, a very important aspect of the credit scoring process.
The more credit card debt you accumulate, the lower your credit utilization rate will be and the more your score will be impacted. If you only pay the minimum, this rate will become stagnant and may take years to improve. By increasing the payment amount, however, you can bring that ratio down and improve your credit score.
You can calculate your credit utilization score by adding together the total amount of credit limits and debts and then comparing the latter to the former. A combined credit limit of $10,000 and a balance of $5,000, for instance, would equate to a 50% ratio, which is on the high side.
Can Credit Card Fees Hurt My Credit Score?
As with interest charges, credit card fees will not directly reduce your score but may have an indirect effect. Cash advance fees, for instance, can be substantial, with many credit card companies (including Capital One) charging 3% with a $10 minimum charge. This means that every time you withdraw cash, you’re paying at least $10, even if you’re only withdrawing $10.
What many consumers don’t realize is that these fees are also charged every time you buy casino chips or pay for some other form of gambling, and every time you purchase money orders and other cash products.Â
Along with foreign transaction fees and penalty fees, these can increase your balance and your minimum payment, making it harder to make on time payments and thus increasing the risk of a late payment.
Does Paying the Minimum Hurt Your Credit Score is a post from Pocket Your Dollars.
Source: pocketyourdollars.com
Credit Card Balance Transfers
Credit card balances are crippling households across the United States, giving them insurmountable debts that just keep on growing and never seem to go away. But there is some good news, as this problem has spawned a multitude of debt relief options, one of which is a credit card balance transfer.
Balance transfers are a similar and widely available option for all debtors to clear their credit card balances, reduce their interest rate, and potentially save thousands of dollars.
How Credit Card Balance Transfers Work
A balance transfer credit card allows you to transfer a balance from one or more cards to another, reducing credit card debt and all its obligations. These cards are offered by most credit card companies and come with a 0% APR on balance transfers for the first 6, 12 or 18 months.
Consumers can use this balance transfer offer to reduce interest payments, and if they continue to pay the same sum every month, all of it will go towards the principal. Without interest to eat into their monthly payment, the balance will clear quickly and cheaply.
There are a few downsides to transferring a balance, including late fees, a transfer fee and, in some cases, an annual fee.
What Happens When You Transfer a Balance on Credit Cards?
When you transfer a balance, your new lender repays your credit card debt and moves the funds onto a new card. You may incur a transfer fee and pay an annual fee, which can increase the total debt, but transferring a balance in this way allows you to take advantage of a 0% introductory APR. While this introductory period lasts, you wonât pay any interest on your debt and can focus on clearing your credit card debt step by step.
Why are Balance Transfers Beneficial?
A little later, weâll discuss some alternatives to a balance transfer offer, all of which can help you clear your debt. However, the majority of these methods will increase your debt in the short term, prolong the time it takes to repay it or reduce your credit score.Â
A balance transfer credit card does none of these things. As soon as you accept the transfer offer, youâll have a 0% introductory APR that you can use to eliminate your debt. The balance transfer may increase your debt liabilities slightly by adding a transfer fee and an annual fee, but generally speaking, this is one of the best ways to clear your debt.
To understand why this is the case, you need to know how credit card interest works. If you have a debt of $20,000 with a variable APR rate of 20% and a minimum monthly payment of $500, youâll repay the debt in 67 months at a cost of over $13,000 in interest.
If you move that debt to a card with a balance transfer offer of 0% APR for 12 months, and you continue to meet the $500 minimum payment, youâll repay $5,000 and reduce the debt to $15,000. From that point on, youâll have a smaller balance to clear, less interest to worry about, and can clear the debt completely in just a few more years.
Of course, the transfer fee will increase your balance somewhat, but this fee is minimal when compared to the money you can save. The same applies to the annual fee that these cards charge and, in many cases, you can find cards that donât charge an annual fee at all.Â
You can even find no-fee balance transfer cards, although these are rare. The BankAmericard credit card once provided a no fee transfer offer to all applicants, in addition to a $0 annual fee. However, they changed their rules in 2018 and made the card much less appealing to the average user.
Pros and Cons of Credit Card Balance Transfers
From credit score and credit limit issues to a high variable APR, late fees, and cash advance fees, there are numerous issues with these cards. However, there are just as many pros as there are cons, including the fact that they can be one of the cheapest and fastest ways to clear debt.
Pro: 0% Introductory APR
The 0% APR on balance transfers is the best thing about these credit cards and the reason they are so beneficial. However, many cards also offer 0% APR on purchases. This means that if you continue to use your card after the transfer has taken place, you wonât be charged any interest on the new credit.
With most cards, the 0% APR on purchases runs for the same length of time as the balance transfer offer. This ensures that all credit you accumulate upon opening the account will be subject to the same benefits. Of course, accumulating additional credit is not wise as it will prolong the time it takes you to repay the debt.
Pro: Can Still Get Cash Rewards
While cash rewards are rare on balance transfer cards, some of the better cards still offer them. Discover It is a great example of this. You can earn cash back every time you spend, even after initiating a balance transfer. The cash rewards scheme is one of the best in the industry and there is also a 0% APR on balance transfers during an introductory period that lasts up to 18 months.
Pro: High Credit Limit
A balance transfer card may offer you a high credit limit, one that is large enough to cover your credit card debt. You will need a good credit score to get this rate, of course, but once you do your credit card debt will clear, you can repay it, and then youâll have a card with a high credit limit and no balance.
Throw a rewards scheme into the mix (as with the Discover It rewards card) and youâll have turned a dire situation into a great one.
Con: Will Reduce Credit Score
A new account opening wonât impact your credit score as heavily as you may have been led to believe. In fact, the impact of a new credit card or loan is minimal at best and any effects usually disappear after just a few months. However, a balance transfer card is a different story and there are a few ways it can impact your score.
Firstly, it could reduce your credit utilization ratio. This is the amount of credit you have compared to the amount of debt you have. If you have four credit cards each with a credit limit of $20,000 and a debt of $10,000 then your score will be 50%. If you close all of these and swap them for a single card where your credit limit matches your debt, your score will be 100%.
Your credit utilization ratio points for 30% of your total FICO score and can, therefore, do some serious damage to your credit score.
Secondly, although FICO has yet to disclose specifics, a maxed-out credit card can also reduce your score. By its very nature, a balance transfer card will be maxed out or close to being maxed out, as itâs a card opened with the sole purpose of covering this debt.
Finally, if you close multiple accounts and open a new one, your account age will decrease, thus reduce your credit score further.
Con: Transfer Free
The transfer fee is a small issue, but one worth mentioning, nonetheless. This is often charged at between 3% and 5% of the total balance, but there are also minimum amounts of between $5 and $10, and you will pay the greater of the two.
This can sound like a lot. After all, for a balance transfer of $10,000, 5% will be $500. However, when you consider how much you can save over the course of the introductory period, that fee begins to look nominal.
There may also be an annual fee to consider, but if your score is high enough and you choose one of the cards listed in this guide, you can avoid this fee.
Con: Late Fees and Other Penalties
In truth, all credit cards will charge you a fee if youâre late and you will also be charged a fee every time you make a cash advance. However, the fees may be higher with balance transfer cards, especially if those cards offer generous benefits and rewards elsewhere. Itâs a balancing act for the providerâan advantage here means a disadvantage there.
Con: High APR on Purchases
While many balance transfer cards offer a 0% APR on purchases for a fixed period, this rate may increase when the introductory period ends. The resulting variable APR will often be a lot larger than what you were paying before the transfer, with many credit cards charging over 25% or more on purchases.
Which Credit Cards are Best for Clearing Credit Card Debt?
Many credit card issuers have some kind of balance transfer card, but itâs worth remembering that credit card companies arenât interested in offering these cards to current customers. Youâll need to find a new provider and if you have multiple cards with multiple providers, that can be tricky.Â
Run some comparisons, check the offers against your financial situation, and pay close attention to late fees, APR on purchases, cash rewards, and the length of the 0% introductory APR rate.Â
Youâll also need to find a card with a credit limit high enough to cover your current debt, and one that accepts customers with your credit score. This can be tricky, but if you shop around, you should find something. If not, focus on increasing your credit score before seeking to apply again.
Here are a few options to help you begin your search for the most suitable balance transfer card:
Discover It
- Balance Transfer Offer: 18 Months
- Transfer Fee: 3% on transfers
- Purchases APR: 0% for 6 months
- Annual Fee: $0
- Rate: Up To 24.49% Variable APR
- Rewards: Yes
Chase Freedom Unlimited
- Balance Transfer Offer: 15 Months
- Transfer Fee: 5% on transfers
- Purchases APR: 0% for 15 months
- Annual Fee: $0
- Rate: Up To 25.24% Variable APR
- Rewards: Yes
Citi Simplicity
- Balance Transfer Offer: 21 Months
- Transfer Fee: 5% on transfers
- Purchases APR: 0% for 12 months
- Annual Fee: $0
- Rate: Up To 26.24% Variable APR
- Rewards: No
Bank of America Cash Rewards
- Balance Transfer Offer: 15 Months
- Transfer Fee: 3% on transfers
- Purchases APR: 0% for 15 months
- Annual Fee: $0
- Rate: Up To 25.49% Variable APR
- Rewards: No
Capital One Quicksilver
- Balance Transfer Offer: 15 Months
- Transfer Fee: 3% on transfers
- Purchases APR: 0% for 15 months
- Annual Fee: $0
- Rate: Up To 25.49% Variable APR
- Rewards: No
Blue Cash Everyday Card from American Express
- Balance Transfer Offer: 15 Months
- Transfer Fee: 3% on transfers
- Purchases APR: 0% for 15 months
- Annual Fee: $0
- Rate: Up To 25.49% Variable APR
- Rewards: No
Capital One SavorOne
- Balance Transfer Offer: 15 Months
- Transfer Fee: 3% on transfers
- Purchases APR: 0% for 15 months
- Annual Fee: $0
- Rate: Up To 25.49% Variable APR
- Rewards: Yes
How to Clear Debt with a Balance Transfer Card
From the point of the account opening to the point that the introductory period ends, you need to focus on clearing as much of the balance as possible. Donât concern yourself with a variable APR rate, annual fee or other issues and avoid additional APR on purchases by not using the card. Just put all extra cash you have towards the debt and reduce it one step at a time.
Here are a few tips to help you clear debt after you transfer a balance:
Meet the Monthly Payment
First things first, always meet your minimum payment obligations. The 0% APR on balance transfers protects you against additional interest, but it doesnât eliminate your repayments altogether. If you fail to meet these payments, you could find yourself in some serious hot water and may negate the balance transfer offer.
Increase Payment Frequency
It may be easier for you to repay $250 every two weeks as opposed to $500 every month. This will also allow you to use any extra funds when you have them, thus preventing you from wasting cash on luxury purchases and ensuring it goes towards your debt.
Earn More
Ask for a pay rise, take on a part-time job, work as a freelancerâdo whatever it takes to earn extra cash during this period. If you commit everything you have for just 12 to 18 months you can get your troublesome debt cleared and start looking forward to a future without debt and complications, one where you have more money and more freedom.
Sell Up
It has never been easier to sell your unwanted belongings. Many apps can help you with this and you can also sell on big platforms like Facebook, eBay, and Amazon.Â
Sell clothes, electronics, books, games, musicâanything you no longer need that could earn you a few extra dollars. It all goes towards your debt and can help you to clear it while your introductory APR is active.
Donât Take out a Personal Loan
While you might be tempted to use a loan to cover your debt, this is never a good idea. You should avoid using low-interest debt to replace high-interest debt, even if the latter is currently under a 0% introductory APR.Â
Itâs easy to get trapped in a cycle of swapping one debt for another, and itâs a cycle that ultimately leads to some high fees and even higher interest rates.
Focus on the Bigger Picture
Debt exists because we focus too much on the short-term. Rather than dismissing the idea of buying a brand-new computer we canât afford, we fool ourselves into believing we can deal with it later and then pay for it with a credit card. This attitude can lead to persistent debt and trap you in an inescapable cycle and itâs one you need to shed if youâre going to transfer a balance.
Instead of focusing on the short term, take a look at the bigger picture. If you canât afford it now, you probably canât afford it later; if you canât repay $10,000 worth of debt this year, you probably canât handle $20,000 next year.
Alternatives to Credit Card Balance Transfers
If you have the cash and the commitment to pay your credit card debt, a balance transfer card is perfect. However, if you have a low credit score and use the card just to accumulate additional debt and buy yourself more time, it will do more harm than good. In that case, debt relief may be the better option.
These programs are designed to help you pay your debt through any means possible. There are several options available and all these are offered by specialist companies and providers, including banks and credit unions. As with balance transfer cards, however, you should do your research in advance and consider your options carefully before making a decision.
Pay More Than the Minimum
Itâs an obvious and perhaps even redundant solution, but itâs one that needs to be mentioned, nonetheless. We live in a credit hungry society, one built on impulsive purchases and a buy-now-care-later attitude. A balance transfer card, in many ways, is part of this, as itâs a quick and easy solution to a long and difficult problem. And like all quick patches, it can burst at the seams if the problem isnât controlled.
The best option, therefore, is to try and clear your debts without creating any new accounts. Do everything you can to increase your minimum payment every month. This will ensure that you pay more of the principal, with the minimum payment covering your interest obligations and everything else going towards the actual balance.
Only when this fails, when you genuinely canât cover more than the minimum, should you look into opening a new card.
Debt Consolidation
Balance transfers are actually a form of debt consolidation, but ones that are specifically tailored to credit card debt. If you have multiple types of debt, including medical bills, student loans, and personal loans, you can use a consolidation loan to clear it.
This loan will pay off all of your debts and then give you a new one with a new provider. The provider will reduce your monthly payment and may even reduce your interest rate, allowing you to pay less and to feel like youâre getting a good deal. However, this is at the expense of a greatly increased loan term, which means you will pay considerably more over the duration of the loan.
As with everything else, a debt consolidation loan is dependent on you having a good credit score and the better your financial situation is, the better the loan rates will be.
Debt Management
Debt management can help if you donât have the credit history required for debt consolidation. Debt management plans are provided by companies that work with your creditors to repay your debts in a way that suits you and them. You pay the debt management company, they pass your money on, and in return, they request that you abide by many strict terms and conditions, including not using your credit cards.
Many debt management programs will actually request that you close all but one of your credit cards and only use that one card in emergencies. This can greatly reduce your credit score by impacting your credit utilization ratio. Whatâs more, if you miss any payments your creditors may renege on their promises and revert back to the original monthly payments.
Debt Settlement
The more extreme and cheaper option of the three, but also the riskiest. Debt settlement works well with sizeable credit card debt and is even more effective if you have a history of missed payments, defaults or collections. A debt specialist may request that you stop making payments on your accounts and instead put your money into a secured account run by a third-party provider.
They will then contact your creditors and negotiate a settlement amount. This process can take several years as theyâre not always successful on the first attempt but the longer they wait, the more desperate your creditors will become and the more likely they will be to accept a settlement.
Debt settlement is one of the few options that allows you to pay all your debt for much less than the original balance. However, it can harm your credit score while these debts are being repaid and this may impact your chances of getting a mortgage or a car loan for a few years.
Credit Card Balance Transfers is a post from Pocket Your Dollars.
Source: pocketyourdollars.com
Why You Should Not Buy a Credit Privacy Number (CPN)
If youâre looking to repair your credit, you may have come across websites that advertise a credit privacy number, credit protection number or CPN. These numbers are nine digits like a Social Security number (SSN), and sellers claim that you can use them instead of your SSN. However, these CPNs are often actual SSNs lifted from real people, reportedly children, prison inmates and the deceased â and you can never legally buy a new SSN. In other words, a CPN is no solution to your credit rating problem. Under no circumstances should you try to buy a CPN.
Why a CPN is No Credit Fix
Websites have sprung up all over the internet, offering CPNs to people with bad credit or low credit scores. They advertise that this number can serve as a âget out of jail freeâ card for your bad credit. In theory, you can use a CPN instead of your SSN on credit applications to hide the poor credit associated with your personal SSN. If you have bad credit but still need a credit card or loan, this can seem like the solution, assuming you can pay anywhere from hundreds to thousands of dollars.
That price might seem worth it for a chance to wipe the slate clean. However, these offers are essentially a big scam. The CPNs you can buy online are not legally assigned credit protection numbers. Instead, they are usually stolen Social Security numbers, taken from children, the deceased or inmates.
Also, using a purchased CPN puts you in some hot water, too. Credit agencies can easily spot discrepancies if you try to use a CPN on an application instead of your SSN. Not only will this fail to help your credit, but itâs also committing fraud which is punishable by jail time.
How to Avoid CPN Scams
If youâre dealing with some bad credit, donât turn to a CPN. Only scammers sell CPNs, and they in turn may cheat you out of your personal information as well as hundreds or thousands of dollars. Using a purchased CPN can also put you in jail, even if you didnât know the number was fraudulent. This is why itâs important to be aware of this popular scam.
If you really need a CPN or new SSN, it will be free. The process will go through the Social Security Administration Office, since a new number would be tied to your old SSN. That said, it is very hard to qualify to receive a new number. Having bad credit is never a qualifying reason.
How to Get a Legal CPN
With so many fraudulent websites and companies trying to sell you a way to reset your credit, itâs hard to know how to get a legal CPN. Unfortunately, thereâs a lot of misinformation out there. Some experts say that you can speak with an attorney to obtain a legal CPN. The attorney can then contact the Social Security Administration Office on your behalf. However, others maintain that all CPNs are illegal.
Generally, it seems that you cannot get a legal CPN unless you actually need one. These situations include celebrities, government officials and people under witness protection. You can also apply in other specific instances, like if youâre a victim of abuse, stalking or identity theft. A real CPN would be attached to your SSN, so itâs still not an escape from the credit tied to your SSN.
You may also stumble upon offers to obtain an EIN, or Employer Identification Number. The IRS does issue EINs, but only businesses can use them for business costs. This means that you cannot legally obtain an EIN as an individual looking to improve your credit. You also cannot make up a home business, apply for an EIN and use that new number for a credit reset. It is a federal crime to obtain an EIN under false pretenses. In any case, the credit profile for your EIN is still tied to your SSN.
Bottom Line
You shouldnât ever, under any circumstances, try to purchase a CPN. These offers are fraudulent and donât provide any credit repair or relief. At the very least, buying a CPN wastes money you should put towards repaying your loans in the first place. At worst, you could go to jail for fraud. There are better, more constructive ways to repair your credit. If youâre truly in a situation that calls for a CPN, contact your lawyer for assistance.
Tips on Rebuilding Your Credit
- Of course, the best way to legally clean up your credit is to pay back your debts and improve your credit practices. A good place to start is to pay off your credit card debt with the highest interest.
- Sometimes youâll just have to wait for your bad history to fall off your record. Generally, negative info stays on your credit report for seven years. If you canât get a debt collection removed from your credit report, for example, itâll stay there for seven years. However, as time goes on, the toll it takes on your report lessens.
- Donât go it alone. If you have a good income, but youâre just bad at managing your money, a financial advisor can help. With guidance, you can make smarter choices â and even start growing your wealth. To find an advisor, use our free, no-obligation matching tool. It will connect you with up to three advisors in your area.
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The post Why You Should Not Buy a Credit Privacy Number (CPN) appeared first on SmartAsset Blog.
Source: smartasset.com