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Best Credit Cards for Bad Credit
When it comes to excuses consumers give for their poor credit scores, banks and lenders have heard it all.Â
Maybe you lost your job and couldnât pay your student loan payment for a few months. Or perhaps you thought youâd gotten a deferment but were too busy job hunting to find out for sure.Â
Maybe you thought you paid your credit card bill but itâs actually sitting on your kitchen counter waiting for the mail.
Whatever the reason for your low credit score, one thing is for certain â lenders donât care.
In fact, banks and other lenders lean on your credit score and other factors to determine whether they should approve you for a credit card or a loan â and thatâs about it. Your personal situation is never considered, nor should it be.
It would be wonderful if credit card companies understood that âlife happensâ and made special exceptions to help people out, but that’s not the world we live in. As most of us already know, thatâs not typically how credit works. Credit cards are backed by banks, and banks have rules for a reason.
Now, hereâs the good news: Credit cards can help rebuild your credit, earn cash back for each dollar you spend, make travel easier, and serve as an emergency fund if youâre stuck paying a huge bill at the last minute. This is true even if you have poor credit, although the selection of credit cards you can qualify for may be somewhat limited.Â
Keep reading to learn about the best credit cards for bad credit, how they work, and how you can get approved.
Best Cards for Bad Credit This Year
Before you give up on building credit, you should check out all the credit cards that are available to consumers who need some help. Our list of the best credit cards for bad credit includes some of the top offers with the lowest fees and fair terms.
- Total Visa®
- Discover it® Secured
- Credit One Bank® Visa® Credit Card
- Secured Mastercard® from Capital One®
- Milestone® Gold Mastercard®
- Credit One Bank® Unsecured Visa® with Cash Back Rewards
#1: Total Visa®
The Total Visa® is one of the easiest credit cards to get approved for in today’s market, and itâs easy to use all over the world since itâs a true Visa credit card. However, this card does come with high rates and fees since itâs available to consumers with poor credit or a limited credit history.
Processing your application will cost $89, which is extremely high when you consider the fact that most credit cards donât charge an application fee. Youâll also pay an initial annual fee of $75 and a $48 annual fee for each year thereafter.
Once you sign up, youâll be able to pick your preferred card design and your credit card payments will be reported to all three credit reporting agencies â Experian, Equifax, and TransUnion. This is the main benefit of this card since your on-time payments can easily help boost your credit score over time.Â
For the most part, the Total Visa® is best for consumers who donât mind paying a few fees to access an unsecured line of credit. Since this card doesnât dole out rewards, however, there are few cardholder perks to look forward to.Â
- APR: 35.99% APR
- Fees: Application fee and annual fee
- Minimum Credit Score: Not specified
- Rewards: No
#2: Discover it® Secured
While secured cards donât offer an unsecured line of credit like unsecured credit cards do, they are extremely easy to qualify for. The Discover it® Secured may not be ideal for everyone, but it does offer a simple online application process and the ability to get approved with little to no credit history.
Keep in mind, however, that secured cards do work differently than traditional credit cards. With a secured credit card, youâre required to put down a cash deposit upfront as collateral. However, you will get your cash deposit back when you close your account in good standing.
Amazingly, the Discover it® Secured lets you earn rewards with no annual fee. Youâll start by earning 2% back on up to $1,000 spent each quarter in dining and gas. Youâll also earn an unlimited 1% back on everything else you buy.
The Discover it® Secured doesnât charge an application fee or an annual fee, although youâll need to come up with the cash for your initial deposit upfront. For the most part, this card is best for consumers who have little to no credit and want to build their credit history while earning rewards.
- APR: 24.74%
- Fees: No annual fee or monthly fees
- Minimum Credit Score: Not specified
- Rewards: Yes
#3: Credit One Bank® Visa® Credit Card
The Credit One Bank® Visa® Credit Card is another credit card for bad credit that lets you earn rewards on your everyday spending. Youâll earn a flat 1% cash back for every dollar you spend with this credit card, and since itâs unsecured, you donât have to put down a cash deposit to get started.
Other benefits include the fact you can get pre-qualified for this card online without a hard inquiry on your credit report â and that you get a free copy of your Experian credit score on your online account management page.
You may be required to pay an annual fee up to $95 for this card for the first year, but it depends on your creditworthiness. After that, your annual fee could be between $0 and $99.
- APR: 19.99% to 25.99%
- Fees: Annual fee up to $95 the first year depending on creditworthiness; after that $0 to $99
- Minimum Credit Score: Not specified
- Rewards: Yes
#4: Secured Mastercard® from Capital One®
The Secured Mastercard® from Capital One® is another secured credit card that extends a line of credit to consumers who can put down a cash deposit as collateral. This card is geared to people with bad credit or no credit history, so itâs easy to get approved for. One downside, however, is that your initial line of credit will likely be just $200 â and that doesn’t give you much to work with.Â
On the upside, this card doesnât charge an annual fee or any application fees. That makes it a good option if you donât want to pay any fees you wonât get back.
Youâll also get access to 24/7 customer service, $0 fraud liability, and other cardholder perks.
- APR: 26.49%
- Fees: No ongoing fees
- Minimum Credit Score: Not specified
- Rewards: No
#5: Milestone® Gold Mastercard®
The Milestone® Gold Mastercard® is an unsecured credit card that lets you get pre-qualified online without a hard inquiry on your credit report. You wonât earn any rewards on your purchases, but you do get benefits like the ability to select your cardâs design, chip and pin technology, and easy online account access.
You will have to pay a one-time fee of $25 to open your account, and thereâs an annual fee of $50 the first year and $99 for each year after that.
- APR: 24.90%
- Fees: Account opening fee and annual fees
- Minimum Credit Score: Not specified
- Rewards: No
#6: Credit One Bank® Unsecured Visa® with Cash Back Rewards
The Credit One Bank® Unsecured Visa® with Cash Back Rewards lets you earn 1% back on every purchase you make with no limits or exclusions. Thereâs no annual fee or application fee either, which makes this card a winner for consumers who donât want to get hit with a lot of out-of-pocket costs.
As a cardholder, youâll get free access to your Experian credit score, zero fraud liability, and access to a mobile app that makes tracking your purchases and rewards a breeze. You can also get pre-qualified online without a hard inquiry on your credit report.
- APR: 25.99%
- Fees: No annual fee or application fee
- Minimum Credit Score: Not specified
- Rewards: Yes
The Downside of Credit Cards with Bad Credit
While your odds of getting approved for one of the credit cards for bad credit listed above are high, you should be aware that there are plenty of pitfalls to be aware of. Here are the major downsides youâll find with these credit cards for bad credit and others comparable cards:
- Higher fees: While someone with excellent credit can shop around for credit cards without any fees, this isnât the case of you have bad credit. If your credit score is poor or you have a thin credit profile, you should expect to pay higher fees and more of them.
- Higher interest rates: While some credit cards come with 0% interest for a limited time or lower interest rates overall, consumers with poor credit typically have to pay the highest interest rates available today. Some credit cards for bad credit even come with APRs as high as 35%.
- No perks: Looking for cardholder benefits like cash back on purchases or points toward airfare or movie tickets? Youâll need to wait until your credit score climbs back into âgoodâ or âgreatâ territory. Even if you can find a card for applicants with bad credit that offers cash back, your rewards may not make up for the higher fees.
- No balance transfers: If youâre looking for relief from other out-of-control credit card balances, look elsewhere. Credit cards for bad credit typically donât offer balance transfers. If they do, the terms make them cost-prohibitive.
- Low credit limits: Credit cards for bad credit tend to offer initial credit limits in the $300 to $500 range with the possibility of increasing to $2,000 after a year of on-time monthly payments. If you need to borrow a lot more than that, youâll have to consider other options.
- Security deposit requirement: Secured credit cards require you to put down a cash deposit to secure your line of credit. While this shouldnât necessarily be a deal-breaker â and it may be required if you canât get approved for an unsecured credit card â youâll need to come up with a few hundred dollars before you apply.
- Checking account requirement: Most new credit card accounts now require cardholders to pay bills online, which means youâll need a checking account. If youâre mostly âunbanked,â you may need to open a traditional bank account before you apply.
Benefits of Improving Your Credit Score
People with bad credit often consider their personal finances a lost cause. The road to better credit can seem long and stressful, and itâs sometimes easier to give up then it is to try to fix credit mistakes youâve made in the past.
But, there are some real advantages that come with having at least âgoodâ credit, which typically means any FICO score of 670 or above. Here are some of the real-life benefits better credit can mean for your life and your lifestyle:
- Higher credit limits: The higher your credit score goes, the more money banks are typically willing to lend. With good credit, youâll have a better chance at qualifying for a car loan, taking out a personal loan, or getting a credit card with a reasonable limit.
- Lower interest rates: A higher credit score tells lenders youâre not as risky as a borrower âa sign that typically translates into lower interest rates. When you pay a lower APR each time you borrow, you can save huge amounts of money on interest over time.
- Lower payments: Borrowing money with a lower interest rate typically means you can usually get lower payments all your loans, including a home loan or a car loan.
- Ability to shop around: When youâre an ideal candidate for a loan, you can shop around to get the best deals on credit cards, mortgages, personal loans, and more.
- Ability to help others: If your kid wants to buy a car but doesnât have any credit history, better credit puts you in the position to help him or her out. If your credit is poor, you wonât be in the position to help anyone.
- More options in life: Your credit score can also impact your ability to open a bank account or rent a new apartment. Since employers can request to see a modified version of your credit report before they hire you, excellent credit can also give you a leg up when it comes to beating out other candidates for a job.Â
In addition to the benefits listed above, most insurance companies now consider your credit score when you apply for coverage. For that reason, life, auto, and home insurance rates tend to be lower for people with higher credit scores.
This may seem unfair, but you have to remember that research has shown people with high credit scores tend to file fewer insurance claims.
How to Improve Your Credit: Slow and Steady
When you have a low credit score, there are two ways to handle it. If you don’t mind the consequences of poor credit enough to do anything about it, you can wait a decade until the bad marks age off your credit report. Depending on when your creditors give up and write off your debt, you may not even need to wait that long.
If you donât like the idea of letting your credit decay while you wait it out, you can also try to fix your past credit mistakes. This typically means paying off debt â and especially delinquent debts â but it can also mean applying for new loan products that are geared to people who need to repair their credit.
If you decide to take actionable steps to build credit fast, the credit cards on this page can help. Theyâll give you an opportunity to show the credit bureaus that youâve changed your ways.
Before you take steps to improve your credit score, however, keep in mind all the different factors used to determine your standing in the first place. The FICO scoring method considers the following factors when assigning your score:
- On-time payments: Paying all your bills on time, including credit cards, makes up 35% of your FICO score. For that reason, paying all your bills early or on time is absolutely essential.
- Outstanding debts: How much you owe matters, which is why paying off your credit cards each month or as often as possible helps your score. According to myFICO.com, the amounts you owe in relation to your credit limits make up another 30% of your FICO score.
- New credit: Apply for too many new cards or accounts at once can impact your score in a negative way. In fact, this determinant makes up another 10% of your FICO score.
- Credit mix: Having a variety of open accounts impresses the credit bureau algorithm Gods. If all you have are personal loans right now, mixing in a credit card can help. If you already have four or five credit cards, it may be wise to back off a little.
- Length of credit history: The length of your credit history also plays a role in your score. The longer your credit history, the better off you are.
If you want to improve your credit score, consider all the factors above and how you can change your behavior to score higher in each category. Itâs pretty easy to see how paying all your bills early or on time and paying off debt could make a big positive impact on your credit score when you consider that these two factors alone make up 65% of your FICO score.
If you want a way to track your progress, also look into an app like Credit Karma, one of my favorite tools. This app lets you monitor your credit progress over time and even receive notifications when your score has changed. Best of all, itâs free.
Should You Use a Credit Card to Rebuild Your Credit Score?
If youâre on the fence about picking up a credit card for bad credit, your first step should be thinking over your goals. What exactly are you trying to accomplish?
If youâre looking for spending power, the cards on this list probably wonât help. Some are secured cards, meaning you need a cash deposit to put down as collateral. Others offer low credit limits and high fees and interest rates, making them costly to use over the long-term.
If you really want to start over from scratch and repair credit mistakes made in the past, on the other hand, one of these cards may be exactly what you need. If youâre determined to improve your score, they can speed things along.
You may pay higher fees and interest rates along the way, but itâs important to remember that none of the cards on this list need to be your top card forever. Ideally, youâll use a credit card for poor credit to rebuild your credit and boost your score. Once youâve reached your goal, you can upgrade to a new card with better benefits and terms.
The post Best Credit Cards for Bad Credit appeared first on Good Financial Cents®.
Source: goodfinancialcents.com
20-Year vs. 30-Year Mortgages: Get a Lower Rate?
Itâs time for a new mortgage match-up. Since paying down the mortgage early seems to be so en vogue these days, it makes sense to compare â20-year mortgages vs. 30-year mortgages.â The most common type of mortgage is the 30-year fixed. It amortizes over 30-years and the mortgage rate never changes during that time. Each [&hellip
The post 20-Year vs. 30-Year Mortgages: Get a Lower Rate? first appeared on The Truth About Mortgage.
Source: thetruthaboutmortgage.com
Different Types of Debt

Debt comes in all shapes and sizes. You can owe money to utility companies, banks, credit card providers, and the government. Thereâs student loan debt, credit card debt, mortgage debt, and much more. But what are the official categories of debt and how do the payoff strategies for these debts differ?
Categories of Debt
Debt is generally categorized into two simple forms: Secured and Unsecured. The former is secured against an asset, such as a car or loan, and means the lender can seize the asset if you fail to meet your obligations. Unsecured is not secured against anything, reducing the creditorâs control and limiting their options if the repayment terms are not met.
A secured debt provides the lender with some assurances and collateral, which means they are often prepared to provide better interest rates and terms. This is one of the reasons youâre charged astronomical rates for credit cards and short-term loans but are generally offered very favorable rates for home loans and car loans.
If the debtor fails to make payments on an unsecured debt, such as a credit card, then the debtor may file a judgment with the courts or sell it to a collection agency. In the first instance, itâs a lot of hassle without any guarantee. In the second, theyâre selling the debts for cents on the dollar and losing a lot of money. In either case, itâs not ideal, and to offset this they charge much higher interest rates and these rates climb for debtors with a poorer track record.
There is also something known as revolving debt, which can be both unsecured and secured. Revolving debt is anything that offers a continuous cycle of credit and repayment, such as a credit card or a home equity line of credit.Â
Mortgages and federal student loans may also be grouped into separate debts. In the case of mortgages, these are substantial secured loans that use the purchase as collateral. As for federal student loans, they are provided by the government to fund education. They are unsecured and there are many forgiveness programs and options to clear them before the repayment date.
What is a Collection Account?
As discussed above, if payments are missed for several months then the account may be sold to a debt collection agency. This agency will then assume control of the debt, contacting the debtor to try and settle for as much as they can. At this point, the debt can often be settled for a fraction of the amount, as the collection agency likely bought it very cheaply and will make a profit even if it is sold for 30% of its original balance.
Debt collectors are persistent as thatâs their job. They will do everything in their power to collect, whether that means contacting you at work or contacting your family. There are cases when they are not allowed to do this, but in the first instance, they can, especially if theyâre using these methods to track you down and they donât discuss your debts with anyone else.
No one wants the debt collectors after them, but generally, you have more power than they do and unless they sue you, thereâs very little they can do. If this happens to you, we recommend discussing the debts with them and trying to come to an arrangement. Assuming, that is, the debt has not passed the statute of limitations. If it has, then negotiating with them could invalidate that and make you legally responsible for the debt all over again.
Take a look at our guide to the statute of limitations in your state to learn more.
As scary as it can be to have an account in collections, itâs also common. A few years ago, a study found that there are over 70 million accounts in collections, with an average balance of just over $5,000.
Can Bankruptcy Discharge all Debts?
Bankruptcy can help you if you have more debts than you can repay. But itâs not as all-encompassing as many debtors believe.
Chapter 7 bankruptcy will discharge most of your debts, but it wonât touch child support, alimony or tax debt. It also wonât help you with secured debts as the lender will simply repossess or foreclose, taking back their money by cashing in the collateral. Chapter 13 bankruptcy works a little differently and is geared towards repayment as opposed to discharge. You get to keep more of your assets and in exchange you agree to a payment plan that repays your creditors over 3 to 5 years.
However, as with Chapter 7, you canât clear tax debts and you will still need to pay child support and alimony. Most debts, including private student loans, credit card debt, and unsecured loan debt will be discharged with bankruptcy.
Bankruptcy can seriously reduce your credit score in the short term and can remain on your credit report for up to 10 years, so itâs not something to be taken lightly. Your case will also be dismissed if you canât show that you have exhausted all other options.
Differences in Reducing Each Type of Debt
The United States has some of the highest consumer debt in the world. It has become a common part of modern life, but at the same time, we have better options for credit and debt relief, which helps to balance things out a little. Some of the debt relief options at your disposal have been discussed below in relation to each particular type of long-term debt.
The Best Methods for Reducing Loans
If youâre struggling with high-interest loans, debt consolidation can help. A debt consolidation company will provide you with a loan large enough to cover all your debts and in return, they will give you a single long-term debt. This will often have a smaller interest rate and a lower monthly payment, but the term will be much longer, which means youâll pay much more interest overall.
Debt management works in a similar way, only you work directly with a credit union or credit counseling agency and they do all the work for you, before accepting your money and then distributing it to your creditors.
Both forms of debt relief can also help with other unsecured debts. They bring down your debt-to-income ratio, leave you with more disposable income, and allow you to restructure your finances and get your life back on track.
The Best Methods for Reducing Credit Cards
Debt settlement is the ultimate debt relief option and can help you clear all unsecured debt, with many companies specializing in credit card debt.Â
Debt settlement works best when you have lots of derogatory marks and collections, as this is when creditors are more likely to settle. They can negotiate with your creditors for you and clear your debts by an average of 40% to 60%. You just need to pay the full settlement amount and the debt will clear, with the debt settlement company not taking their cut until the entire process has been finalized.
A balance transfer can also help with credit card debt. A balance transfer credit card gives you a 0% APR on all transfers for between 6 and 18 months. Simply move all of your credit card balances into a new balance transfer card and then every cent of your monthly payment will go towards the principal.
The Best Methods for Reducing Secured Debts
Secured debt is a different beast, as your lender can seize the asset if they want to. This makes them much less susceptible to settlement offers and refinancing. However, they will still be keen to avoid the costly foreclosure/repossession process, so contact them as soon as youâre struggling and see if they can offer you anything by way of a grace period or reduced payment.
Most lenders have some form of hardship program and are willing to be flexible if it increases their chances of being repaid in full.
Different Types of Debt is a post from Pocket Your Dollars.
Source: pocketyourdollars.com
How to Avoid a Prepayment Penalty When Paying Off a Loan
Look at you, so responsible. You received a financial windfall â stimulus check, tax refund, work bonus, inheritance, whatever â and youâre using it to pay off one of your debts years ahead of schedule.
Good for you! Except⦠make sure you donât get charged a prepayment penalty.
Now wait just a minute, you say. Iâm paying the money back early â early! â and my lender thanks me by charging me a fee?
Well, in some cases, yes.
A prepayment penalty is a fee lenders use to recoup the money theyâll lose when youâre no longer paying interest on the loan. That interest is how they make their money.
But you can avoid the trap â or at least a big payout if youâve already signed the loan contract. Weâll explain.
What Is a Loan Prepayment Penalty?
A prepayment penalty is a fee lenders charge if you pay off all or part of your loan early.
Typically, a prepayment penalty only applies if you pay off the entire balance â for example, because you sold your car or are refinancing your mortgage â within a specific timeframe (usually within three years of when you accepted the loan).
In some cases, a prepayment penalty could apply if you pay off a large amount of your loan all at once.
Prepayment penalties do not normally apply if you pay extra principal in small chunks at a time, but itâs always a good idea to double check with the lender and your loan agreement.
What Loans Have Prepayment Penalties?
Most loans do not include a prepayment penalty. They are typically applied to larger loans, like mortgages and sometimes auto loans â although personal loans can also include this sneaky fee.
Credit unions and banks are your best options for avoiding loans that include prepayment penalties, according to Charles Gallagher, a consumer law attorney in St. Petersburg, Florida.
Unfortunately, if you have bad credit and canât get a loan from traditional lenders, private loan alternatives are the most likely to include the prepayment penalty.
If your loan includes a prepayment penalty, the contract should state the time period when it may be imposed, the maximum penalty and the lenderâs contact information.
âThe more opportunistic and less fair lenders would be the ones who would probably be assessing [prepayment penalties] as part of their loan terms,â he said, âI wouldnât say loan sharking⦠but you have to search down the list for a less preferable lender.â
Prepayment Penalties for Mortgages
Although youâll find prepayment penalties in auto and personal loans, a more common place to find them is in home loans. Why? Because a lender who agrees to a 30-year mortgage term is banking on earning years worth of interest to make money off the amount itâs loaning you.
That prepayment penalty can apply if you want to pay off your loan early, sell your house or even refinance, depending on the terms of your mortgage.
However, if there is a prepayment penalty in the contract for a more recent mortgage, there are rules about how long it can be in effect and how much you can owe.
The Consumer Financial Protection Bureau ruled that for mortgages made after Jan. 10, 2014, the maximum prepayment penalty a lender can charge is 2% of the loan balance. And prepayment penalties are only allowed in mortgages if all of the following are true:
- The loan has a fixed interest rate.
- The loan is considered a âqualified mortgageâ (meaning it canât have features like negative amortization or interest-only payments).
- The loanâs annual percentage rate canât be higher than the Average Prime Offer Rate (also known as a higher-priced mortgage).
So suppose you bought a house last year and then wanted to sell your home. If your mortgage meets all of the above criteria and has a prepayment penalty clause in the mortgage contract, you could end up paying a penalty of 2% on the remaining balance â for a loan you still owe $200,000 on, that comes out to an extra $4,000.
Prepayment penalties apply for only the first few years of a mortgage â the CFPBâs rule allows for a maximum of three years. But again, check your mortgage agreement for your exact terms.
The prepayment penalty wonât apply to FHA, VA or USDA loans but can apply to conventional mortgages â although the penalty is much less common than it was before the CFPBâs ruling.
âItâs more of private loans â loans for people whoâve maybe had some struggles and canât qualify for a Fannie or Freddie loan,â Gallagher said. âThat block of lending is the one going to be most hit by this.â
How to Find Out If a Loan Will Have a Prepayment Penalty
The best way to avoid a prepayment penalty is to read your contract â or better yet, have a professional (like an attorney or CPA) who understands the terminology, review it.
âYou should read the entirety of the loan, as painful as that sounds, because lenders may try to hide it,â Gallagher said. âGenerally, it would be under repayment terms or the language that deals with the payoff of the loan or selling your house.â
Gallagher rattled off a list of alternative terms a lender could use in the contract, including:
- Sale before a certain timeframe.
- Refinance before a term.
- Prepayment prior to maturity.
âThey avoid using the word âpenalty,â obviously, because that would give a reader of the note, mortgage or the loan some alarm,â he said.
If youâre negotiating the terms â as say, with an auto loan â donât let a salesperson try to pressure you into signing a contract without agreeing to a simple interest contract with no prepayment penalty. Better yet, start by applying for a pre-approved auto loan so you can get a pro to review any contracts before you sign.
Do you have less-than-sterling credit? Watch out for pre-computed loans, in which interest is front-loaded, ensuring the lender collects more in interest no matter how quickly you pay off the loan.
If your lender presents you with a contract that includes a prepayment penalty, request a loan that does not include a prepayment penalty. The new contract may have other terms that make that loan less advantageous (like a higher interest rate), but youâll at least be able to compare your options.
How Can You Find Out if Your Current Loan Has a Prepayment Penalty?
If a loan has a prepayment penalty, the servicer must include information about the penalty on either your monthly statement or in your loan coupon book (the slips of paper you send with your payment every month).
You can also ask your lender about the terms regarding your penalty by calling the number on your monthly billing statement or read the documents you signed when you closed the loan â look for the same terms mentioned above.
What to Do if Youâre Stuck in a Loan With Prepayment Penalty
If you do discover that your loan includes a prepayment penalty, you still have some options.
First, check your contract.
If youâll incur a fee for paying off your loan early within the first few years, consider holding onto the money until the penalty period expires.
If you donât have a loan with a prepayment penalty, contact your lender before sending additional money to ensure your payment is going toward principal â not interest or fees.
Additionally, although you may get socked with a penalty for paying off the loan balance early, itâs likely you can still make extra payments toward the balance. Review your contract or ask your lender what amount will trigger the penalty, Gallagher said.
If youâre paying off multiple types of debt, consider paying off the accounts that do not trigger prepayment penalties â credit cards and federal student loans donât charge prepayment penalties.
By using techniques like the debt avalanche, debt snowball and debt lasso methods, you can tackle your other debts while giving yourself time to let a prepayment penalty period expire.
Tiffany Wendeln Connors is a staff writer/editor at The Penny Hoarder. Read her bio and other work here, then catch her on Twitter @TiffanyWendeln.
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
Source: thepennyhoarder.com
Spouse Has Bad Credit? How It Affects You.
Spouse Has Bad Credit? How It Affects You
It wasnât until a few months after my husband and I got married that I decided to check both our credit scores. While my husbandâs credit score wasnât horrible, it certainly didnât qualify as âexcellent.â This got me thinking about how newlywedsâ financial histories can affect both spousesâ finances moving forward, and how critical it is to acknowledge this realityâideally before getting hitched.
Why Itâs Important to Have a Good Credit Score
Manisha Thakor cuts right to the chase in her book On My Own Two Feet: âYour credit score is essentially your financial reputation in numeric form.â
Aiming for an excellent credit scoreâgenerally defined as 750 or moreâis a worthy goal, owing to the range of ways in which it can save you money. Credit scores are critical when applying for loansâfor instance, car loans and mortgages. In addition, many employers consider prospective employeesâ credit scores during the hiring process.
A high credit score means you can access lower interest rates when borrowing, because creditors will view you as reliable. The perceived risk that youâll default on your loan is lower compared to those with poor credit scores. Lower interest rates, especially on large amounts borrowed over significant timeframes, can save you thousands and thousands of dollars!
A poor credit score can indirectly hurt your financial efforts as well; consider the fact that when youâre paying over the odds in debt repayments, youâre committing fewer dollars to saving and retirement planning.
photo credit: LendingMemo via photopin cc
Till Debt Do Us Part
Marriage makes you one combined financial unit.
However, that doesnât mean your credit scores are merged; your credit history continues to be maintained on an individual basis. One spouseâs poor credit cannot directly damage the individual score of the other spouse.
That being said, if you apply for a loan as a married couple, creditors look at both your credit scores to determine your eligibility and terms. So, if one of you has the credit of an angel whereas the otherâs credit history is limited or even littered with missed payments and liens, you may find your application is denied.
But, this is not just about loan applicationsâpoor credit can belie more than just a few bad credit card habits. Other financial follies, like paying taxes late, not focusing on saving, and day-to-day overspending, could be lurking in the closet.
What Do You Do After Youâve Said I Do?
While bad credit isnât good news, itâs not necessarily a reason not to get married. And, itâs not necessarily the precursor to divorce! It is, however, an alarm signaling that it is time to get clear on your joint financial situation and start communicating. Make sure you do this respectfully and compassionately to minimize blame and financial stress. (If youâre the type of person whoâd like to know this information from prospective partners before things get serious, there are now dating sites catering just to you.)
Once youâve identified that one of you has less-than-optimal credit, itâs time to take action. Here are four top tips for taking immediate action:
1. Check your credit report for mistakes: Errors are, unfortunately, pretty common and can be really detrimental. Check your report at least once per year.
2. Make payments on time: Yes, this is stating the obvious, but it needs to be said! Mary Beth Storjohann of Workable Wealth says, â35% of your credit score is based on how you pay your bills (making this the biggest determining factor for your score)! Are you often late of missing payments? The impact of just one 90-day late payment goes way beyond the three months you took to pay, so set up automatic bill payments.â
3. Lower your debt-to-credit ratio:Â This is how much debt you have as a proportion of your overall credit limits. 30% of your credit score is based on the amount of money you owe versus the amount of credit available to you. The higher the amount of credit youâre utilizing, the more negative the impact on your score. Keep the debt level as low as possible (30% of your limits, or less).
4. Pay down your debt faster:Â Make more than the minimum payments wherever possible by utilizing the snowball method or targeting the balance with the highest interest rate to pay down first.
photo credit: natloans via photopin cc
Alongside these tips, itâs super important to remember that improving your credit score wonât happen overnight. The length of time it takes for your score to improve is directly related to reasons for the drop. It can take anywhere from a few months to several years for your credit report to reflect the positive changes youâre making. As Mary Beth notes, âThe most important thing is to be proactive in clearing up any issues.â In addition, two of the criteria factored into your score are the length of your overall credit history and the average age of your accounts.
So, donât be discouragedâbe patient and give it time.
And, Finally, Some Tips on What Not to Do!
There are always two sides to every coin so, while youâre following the tips above, make sure that youâre not unwittingly hurting your score and negating your good work.
Be mindful of the following ways that you could be hurting your credit score:
1. Opening too many new accounts:Â This comes back to the point that the average age of your accounts is a key factor. Opening lots of new accounts reduces that average.
2. Closing too many old accounts:Â Older accounts indicate that you have managed payments for a long time and increase the average age of your accounts. When you close credit card accounts, this also decreases the amount of credit available to you, which can reflect negatively if you have other accounts that are still carrying high balances (it essentially increases your debt to credit ratio).
3. Signing up for lots of retail incentive programs:Â Every time you apply for credit, the company issuing the credit will request information about you from the credit bureaus. Too many of these requests can reduce your score.
4. Over-utilizing your credit. Mary Beth advises, âIf youâre depending on your credit cards to fund your daily expenses and lifestyle needs, but arenât able to pay them off in full at the end of each month, something needs to change. Start tracking your spending and get a handle on your expenses.â
In summary, start taking positive steps, be aware of actions that can hurt your credit, and focus on building solid financial foundations for the future.
This post was written by Erika Torres of GoGirl Finance. GoGirl Finance is a fast-growing community of women seeking and providing financial wisdom across money management, lifestyle, family and career. For more finance tips, follow GoGirl Finance on Twitter @GoGirlFinance
The post Spouse Has Bad Credit? How It Affects You. appeared first on MintLife Blog.
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Mortgage Impounds vs. Paying Taxes and Insurance Yourself
If youâve been researching mortgages, or are in the process of taking out a home loan, youâve probably come across the term âimpoundsâ or âescrows.â When you hear these seemingly scary words, the loan officer or mortgage broker is referring to an impound account, also known as an escrow account. You may even be told [&hellip
The post Mortgage Impounds vs. Paying Taxes and Insurance Yourself first appeared on The Truth About Mortgage.
Source: thetruthaboutmortgage.com
How to Get Debt Consolidation Loans When You Have Bad Credit

Debt consolidation is one of the most effective ways to effectively manage debt. It can greatly improve your debt-to-income ratio and help you get back on your feet. You will have more money in your pocket and less debt to worry about, and while your options are a little more limited if you have bad credit, you can still get a consolidation loan.
In this guide, weâll look at the ways that a debt consolidation loan will impact your credit score, while also showing you the best ways to consolidate credit card payments and find a credit card consolidation plan that suits your needs.
What is a Debt Consolidation Loan and How Does it Work?
A debt consolidation loan can help you to manage credit card debt and other unsecured debts by consolidating them into one, manageable monthly payment. You get a large loan and use this to clear all your current debts, swapping several high-interest debts for one low-interest loan.
Youâll consolidate multiple payments into a single monthly payment, and, in most cases, this will be much less than what youâre paying right now.
The problem is, creditors arenât in the business of helping you during your time of need. Theyâre there to make money, and in exchange for your reduced monthly payment, youâll get a loan that extends your debt by several years. So, while you may pay a few hundred dollars less per month, you could pay several thousand dollars more over the lifetime of the loan.
Why Consider Debt Consolidation for Bad Credit?
You can use a debt consolidation loan to consolidate credit card debt, clear your obligations, reduce the risk of penalties and fees, and ultimately improve your credit score. Whatâs more, you may still be accepted for a debt consolidation loan even if you have a poor credit score and a credit report with several derogatory marks.
Itâs an option that was tailormade for borrowers with lots of unsecured debt, and it stands to reason that anyone with a lot of debt will have a reduced credit score. Of course, it still helps if you have a high credit score as that will increase your chances of getting a low-interest debt consolidation loan, but even with bad credit, you can get a loan that will reduce your monthly payment.
How Does Debt Consolidation Affect Your Credit Score?
A debt consolidation loan can impact your credit score in a number of ways, all of which will depend on what option you choose:
- A balance transfer can reduce your score temporarily due to the maxed-out credit card and a new account.
- If you use a consolidation loan to clear credit card balances, you will diversify your credit report, which can benefit up to 10% of your credit score.
- If you continue to use your credit cards after clearing them, your credit utilization will drop, and your credit score will suffer.
- A new consolidation loan account will reduce your credit score because itâs a new account and because the average age of your accounts has decreased.
- Debt management will reduce your credit utilization score by requiring you to cancel credit cards. This accounts for 30% of your total credit score.
The good news is that all of these are minor, and the short-term reductions should offset in the long-term. After all, youâre clearing multiple debts, and that can only be a good thing.
A debt consolidation loan will not impact your score in the same way as debt settlement or bankruptcy.
Alternatives to a Debt Consolidation Loan
A debt consolidation loan isnât your only option for escaping debt. There are numerous options for bad credit and good credit, all of which work in a similar way to a debt consolidation loan.
These may be preferable to working with a consolidation loan company, especially if you have a lot of unpaid credit card balances or youâre suffering from financial hardship.
How Does a Debt Management Program Work?
Debt management is provided by credit unions and credit counseling agencies and offered to individuals suffering financial hardship and struggling to repay their debts. A debt management plan typically lasts three to five years and works with unsecured debt only, which includes medical debt, private student loans, and credit cards, but not mortgages or car loans.
A debt management plan ties you to a credit counseling agency, which acts as the middleman between you and your creditors. The agency will help to find a monthly payment you can afford and then negotiate with your creditors. You make your monthly payment through the debt management program and they distribute this to your creditors.
Debt management specialists are experts in negotiation and know how to get creditors to bend to their ways. They understand that lenders just want their money and are keen to avoid defaults and collections, so they remind them that failing to negotiate may increase the risk of such outcomes.
Debt management programs are not free. You will be charged a small up-front fee in addition to a monthly fee. However, the amount of time and money they save you is often worth the small charge.
The only real downsides to a debt management plan is that youâll be required to cancel most of your credit cards, which will impact your credit score, and if you miss a single payment then creditors will revert to previous terms and your progression will be lost.
A Balance Transfer
You donât need a debt consolidation loan to consolidate your debt. You can also use something known as a balance transfer credit card.
A balance transfer allows you to consolidate credit card debt onto a single card. These cards offer you 0% interest for up to 18 months and allow you to transfer multiple credit card balances.
As an example, letâs assume that you have the following credit card balances:
- Card 1 = $5,000
- Card 2 = $2,000
- Card 3 = $3,000
- Card 4 = $5,000
That gives you a total credit card balance of $15,000. If we assume an APR of 20% and a minimum payment of $500, you will repay over $20,000 in 42 months, with close to $6,000 covering interest alone.
If you use a balance transfer credit card, you will be charged an initial balance transfer rate of between 3% and 5%, after which you will not be required to pay any interest for up to 18 months. Continue making those same monthly payments, and youâll repay $9,000 before that introductory period ends, which means your debt will be reduced to just $6,000 and can be cleared in 14 months with less than $800 in total interest.
This is a fantastic option if you have a strong credit score, otherwise, you may struggle to find a credit limit high enough to cover your debts. However, itâs worth noting that:
- Your credit score may take an initial hit due to the new account and maxed-out credit card.
- The interest rate may be higher, so itâs important to clear as much of the balance as you can before the introductory period ends.
- You may be charged high penalty fees for late payments.
- You canât move credit card debt from cards owned by the same provider.
What About Debt Settlement?
Debt settlement works in a similar way to debt management, in that other companies work on your behalf to negotiate with your creditors. However, this is pretty much where the similarities end.
A debt settlement specialist will request several things from you:
- You pay a fee (charged upon settlement).
- You move money to a secure third-party account.
- You stop meeting your monthly payments.
They ask you to stop making payments for two reasons. Firstly, it will ensure you have more money to move to the third-party account, which is what they use to negotiate with creditors. They will offer those creditors a lump sum payment in exchange for discharging the debt, potentially saving as much as 90%, on top of which they will charge their fee.
Secondly, the more payments you miss, the more unlikely it is that your account will be settled in full, at which point the lender will be more inclined to accept a sizable settlement.
Debt settlement is not without its issues. It can reduce your credit score, increase the risk of litigation and take several years to complete. However, itâs the cheapest way to clear your debts without resorting to bankruptcy.
You can do debt settlement yourself by contacting your creditors and negotiating reduced sums, but you will need to have a large sum of cash prepared to pay these settlements and youâll also need a lot of patience and persistence. There are also companies like National Debt Relief that can help, as well a huge number of lesser-known but equally reputable options.
Who is Eligible for a Personal Loan for Debt Consolidation?
In theory, you can use a personal loan as a debt consolidation loan. In other words, instead of working with a debt consolidation company and allowing them to set the rates and find suitable terms, you just apply for a personal loan, use it to pay off your debts, and then focus your attention on repaying that loan.
This can work very well if youâre using it to repay credit card debt. The average credit card APR in the US is 16% to 20%, while the average personal loan rate is closer to 6%. A personal loan acquired for this purpose will give you more control over the total interest and repayment term.
However, while you may pay less over the term, itâs unlikely that youâll reduce your monthly payments. A debt consolidation loan is designed to provide an extended-term so that the monthly payment will be reduced, and unless you choose a loan with a long term, you wonât get the same benefits.
The biggest issue, however, is that you need a very good credit score to get a loan that is big enough to cover your debts and has interest that is low enough to make it a viable option. This is easier said than done, and if youâre drowning in debt thereâs a good chance your credit score will not be high enough to make this feasible.
Is it Time for Bankruptcy?
If you have mounting credit card debt, personal loan debt, and private student loans, and youâre struggling to make the repayments or clear more than the minimum amount, you may want to consider bankruptcy.
It should always be seen as the last resort, as it can have a seriously negative impact on your credit score and make it difficult to get a home loan, car loan, or low-interest credit card for many years. However, if youâre not confident that debt settlement will work for you and believe youâre too far gone for debt management and consolidation, speak with a credit counselor and discuss whether bankruptcy is the right option.
You can learn more about this process in our guides to Filing for Bankruptcy and Rebuilding your Credit After Bankruptcy.
Debt Consolidation for Bad Credit Homeowners
If you own your home, you have a few more options for debt consolidation. When you use your home as collateral against a loan itâs known as a secured debt. It means the lender can repossess your home if you fail to meet the repayments. This also eliminates some of the risks associated with lending, which means they offer more favorable interest rates and terms.
Home Equity Loan and HELOC
An equity loan is a large personal loan secured against the value tied-up in your home. You can acquire an equity loan when you own a large share of your property, in which case youâre using that share as collateral.
Interest rates are very favorable, and you can receive a consolidation loan that clears all your debts and leaves only a small monthly payment and easily manageable debt in their place.
A home equity line of credit (HELOC), works in much the same way, only this time youâre given a line of credit similar to what youâd get with a credit card. You can use this credit to repay your debts, after which you just need to focus on repaying the HELOC.
An equity loan and a HELOC provide the lowest possible interest rates of any debt consolidation loan. However, failure to meet your monthly payments will damage your credit score and place your home at risk.
Cash-Out Refinancing for Consolidation
Cash-Out refinancing replaces your current mortgage with a new, larger mortgage. The difference between these two home loans is then released to you as a cash sum, allowing you to clear your debts in one fell swoop.
Cash-Out refinancing is often used to fund a childâs college education or a new business, but itâs becoming increasingly common as a form of debt consolidation, helping American homeowners to clear credit card debt and other unsecured debts.
Reverse Mortgages
Reverse mortgages work in a similar way to home equity loans, but with a few key differences. Firstly, they are only offered to homeowners aged 62 or older. Secondly, there is no monthly payment and no other recurring obligations.
A reverse mortgage is only repaid when you sell the home or die. There are also some obligations with regards to maintaining the home and living in it full time, but you donât need to pay any fees and can use the money gained from this mortgage to clear your debts.
Summary: Consider Your Options
A debt consolidation loan is a great option if youâre struggling with debt. You can try a debt management plan if you have bad credit, a balance transfer if you have great credit, and debt consolidation companies if youâre somewhere in the middle.
But as discussed already, these are not the only options. The debt relief industry is vast and caters for every type and size of debt. Do your research, take your time, and make sure you understand the pros and cons of each option before you decide.
How to Get Debt Consolidation Loans When You Have Bad Credit is a post from Pocket Your Dollars.
Source: pocketyourdollars.com