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An Overview of Filial Responsibility Laws

An Overview of Filial Responsibility Laws – SmartAsset

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Taking care of aging parents is something you may need to plan for, especially if you think one or both of them might need long-term care. One thing you may not know is that some states have filial responsibility laws that require adult children to help financially with the cost of nursing home care. Whether these laws affect you or not depends largely on where you live and what financial resources your parents have to cover long-term care. But it’s important to understand how these laws work to avoid any financial surprises as your parents age.

Filial Responsibility Laws, Definition

Filial responsibility laws are legal rules that hold adult children financially responsible for their parents’ medical care when parents are unable to pay. More than half of U.S. states have some type of filial support or responsibility law, including:

  • Alaska
  • Arkansas
  • California
  • Connecticut
  • Delaware
  • Georgia
  • Indiana
  • Iowa
  • Kentucky
  • Louisiana
  • Massachusetts
  • Mississippi
  • Montana
  • Nevada
  • New Jersey
  • North Carolina
  • North Dakota
  • Ohio
  • Oregon
  • Pennsylvania
  • Rhode Island
  • South Dakota
  • Tennessee
  • Utah
  • Vermont
  • Virginia
  • West Virginia

Puerto Rico also has laws regarding filial responsibility. Broadly speaking, these laws require adult children to help pay for things like medical care and basic needs when a parent is impoverished. But the way the laws are applied can vary from state to state. For example, some states may include mental health treatment as a situation requiring children to pay while others don’t. States can also place time limitations on how long adult children are required to pay.

When Do Filial Responsibility Laws Apply?

If you live in a state that has filial responsibility guidelines on the books, it’s important to understand when those laws can be applied.

Generally, you may have an obligation to pay for your parents’ medical care if all of the following apply:

  • One or both parents are receiving some type of state government-sponsored financial support to help pay for food, housing, utilities or other expenses
  • One or both parents has nursing home bills they can’t pay
  • One or both parents qualifies for indigent status, which means their Social Security benefits don’t cover their expenses
  • One or both parents are ineligible for Medicaid help to pay for long-term care
  • It’s established that you have the ability to pay outstanding nursing home bills

If you live in a state with filial responsibility laws, it’s possible that the nursing home providing care to one or both of your parents could come after you personally to collect on any outstanding bills owed. This means the nursing home would have to sue you in small claims court.

If the lawsuit is successful, the nursing home would then be able to take additional collection actions against you. That might include garnishing your wages or levying your bank account, depending on what your state allows.

Whether you’re actually subject to any of those actions or a lawsuit depends on whether the nursing home or care provider believes that you have the ability to pay. If you’re sued by a nursing home, you may be able to avoid further collection actions if you can show that because of your income, liabilities or other circumstances, you’re not able to pay any medical bills owed by your parents.

Filial Responsibility Laws and Medicaid

While Medicare does not pay for long-term care expenses, Medicaid can. Medicaid eligibility guidelines vary from state to state but generally, aging seniors need to be income- and asset-eligible to qualify. If your aging parents are able to get Medicaid to help pay for long-term care, then filial responsibility laws don’t apply. Instead, Medicaid can paid for long-term care costs.

There is, however, a potential wrinkle to be aware of. Medicaid estate recovery laws allow nursing homes and long-term care providers to seek reimbursement for long-term care costs from the deceased person’s estate. Specifically, if your parents transferred assets to a trust then your state’s Medicaid program may be able to recover funds from the trust.

You wouldn’t have to worry about being sued personally in that case. But if your parents used a trust as part of their estate plan, any Medicaid recovery efforts could shrink the pool of assets you stand to inherit.

Talk to Your Parents About Estate Planning and Long-Term Care

If you live in a state with filial responsibility laws (or even if you don’t), it’s important to have an ongoing conversation with your parents about estate planning, end-of-life care and where that fits into your financial plans.

You can start with the basics and discuss what kind of care your parents expect to need and who they want to provide it. For example, they may want or expect you to care for them in your home or be allowed to stay in their own home with the help of a nursing aide. If that’s the case, it’s important to discuss whether that’s feasible financially.

If you believe that a nursing home stay is likely then you may want to talk to them about purchasing long-term care insurance or a hybrid life insurance policy that includes long-term care coverage. A hybrid policy can help pay for long-term care if needed and leave a death benefit for you (and your siblings if you have them) if your parents don’t require nursing home care.

Speaking of siblings, you may also want to discuss shared responsibility for caregiving, financial or otherwise, if you have brothers and sisters. This can help prevent resentment from arising later if one of you is taking on more of the financial or emotional burdens associated with caring for aging parents.

If your parents took out a reverse mortgage to provide income in retirement, it’s also important to discuss the implications of moving to a nursing home. Reverse mortgages generally must be repaid in full if long-term care means moving out of the home. In that instance, you may have to sell the home to repay a reverse mortgage.

The Bottom Line

Filial responsibility laws could hold you responsible for your parents’ medical bills if they’re unable to pay what’s owed. If you live in a state that has these laws, it’s important to know when you may be subject to them. Helping your parents to plan ahead financially for long-term needs can help reduce the possibility of you being on the hook for nursing care costs unexpectedly.

Tips for Estate Planning

  • Consider talking to a financial advisor about what filial responsibility laws could mean for you if you live in a state that enforces them. If you don’t have a financial advisor yet, finding one doesn’t have to be a complicated process. SmartAsset’s financial advisor matching tool can help you connect, in just minutes, with professional advisors in your local area. If you’re ready, get started now.
  • When discussing financial planning with your parents, there are other things you may want to cover in addition to long-term care. For example, you might ask whether they’ve drafted a will yet or if they think they may need a trust for Medicaid planning. Helping them to draft an advance healthcare directive and a power of attorney can ensure that you or another family member has the authority to make medical and financial decisions on your parents’ behalf if they’re unable to do so.

Photo credit: ©iStock.com/Halfpoint, ©iStock.com/byryo, ©iStock.com/Halfpoint

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She’s worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
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A Debt Consolidation Loan Will Not Fix Your Bad Money Habits

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If you have a lot of debt or different types of debt, then a debt consolidation loan might sound like a good idea. However, if you have low credit, you may not have many options.

The good news is, you can still get a debt consolidation loan, even with bad credit. In this article, you will learn about the ins and outs of a debt consolidation loan, the pros and cons of getting one, and what your alternatives are if you aren’t ready to get a debt consolidation loan.

In This Article

What is a Debt Consolidation Loan?

A debt consolidation loan is a new loan that you take out to cover the balance of your other loans. A debt consolidation loan is a single, larger piece of debt, usually with better payoff terms than your original, smaller debts. When you receive a consolidation loan, your other loan balances are paid off. This allows you to make one monthly payment rather than multiple.

For example, if you had one student loan for each semester of your four-year college degree, then you’d have taken out eight loans. This can be cumbersome to manage, so you could take out a debt consolidation loan to pay off all your eight loans and only make one monthly payment instead.

Get A Debt Consolidation Loan with Bad or Average Credit

If you have poor or average credit, then it might be difficult for you to get approved for a consolidation loan or to get a loan with favorable terms. A bad or average credit score is typically anything under 670. You will need to take steps to get a debt consolidation loan for bad credit.

Step 1: Understand Your Credit Score

The first step toward getting a personal loan or a consolidation loan is to understand your financial standing. Your credit score is one of the main factors that a lender will evaluate when deciding to give you a debt consolidation loan. Therefore, take the time to look up your credit score and what events have caused your score. Sometimes, years of bad habits contribute to a low score.

Continue to monitor your score over time. You can learn what contributes to a good score as well as what causes your score to decline, and act accordingly.

Step 2: Shop Around for a Debt Consolidation Loan

If you have a poor credit score, you might be inclined to take the first loan offered to you. However, you may have multiple options for lenders to work with, so be sure to shop around for a good interest rate and term. You might want to investigate online lenders as well as brick and mortar lenders such as your local credit union.

Be sure to carefully review all the fees associated with taking out a personal loan. This might include an origination fee or a penalty for paying back your loan early. Understanding your fees can save you hundreds of dollars over the life of your loan.

Step 3: Consider a Secured Loan

Most personal loans used for debt consolidation are unsecured loans. This means that they do not require collateral. However, if you’re having a tough time getting approved for a loan, you might want to consider a secured loan.

Forms of collateral include a vehicle, home, or another asset. The collateral must be worth the amount of the loan if you default on the loan. Even if you can qualify for an unsecured loan, you may want to compare the interest rates of a secured loan to see if you can get a better rate.

Step 4: Improve Your Credit Score

Finally, if you can’t get a loan right away, you may want to take some time to evaluate your credit score and see where your areas of opportunity lie. If you have small glitches on your score that caused it to decrease significantly, then you might be able to raise your score quickly.

For example, one missed payment or forgotten bill can cause your score to plummet. If this is the case, you may be able to pay off that small bill and raise your credit score quickly.

How to Qualify for a Debt Consolidation Loan

To get a debt consolidation loan, you must be 18 years or older and a legal U.S. resident. You must also have a bank account and not be in bankruptcy or foreclosure. These are the basics of qualifying for a debt consolidation loan.

In addition to these basics, you’ll want to try to improve your financial standing as much as possible. Borrowers with good or excellent credit and a low debt-to-income ratio typically have no problem getting a debt consolidation loan. However, if you have bad credit, you will want to work to improve your credit score and decrease your debt-to-income ratio.

If you have bad credit and are considering a debt consolidation loan, you might already be in a financial rut. This can make it difficult to improve your financial standing. If this is the case, you can search for lenders that specialize in helping people with bad or average credit and be sure to shop around for the best rates and terms that you can get.

Personal Loans for Debt Consolidation

If you have poor credit and need a personal loan, you may want to check out these providers. They will offer high-interest loans to people with poor credit.

Fiona

Fiona is an online marketplace that connects potential borrowers with multiple lenders. Borrowers simply fill out a quick application, and they are matched with the lenders most likely to approve them. This saves time and money, as you can be matched with a lender without needing to visit a bunch of sites.

Fiona is ideal for borrowers with a 580 credit score or higher, and that doesn’t want to have to waste time filling out a bunch of applications. A nice feature of Fiona is their initial application requires just a soft credit check, so making a quick application won’t hurt your credit score.

Since Fiona is a marketplace and not a direct lender, the terms of offers and the number of offers borrowers receive may vary. Some borrowers report being bombarded with offers, which we feel is potentially a benefit as multiple offers help ensure you get the best deal.

LendingPoint

Lending Point will typically lend up to $25,000 with an interest rate of 15.89% to 35.99% APR and a 36-month term. You can check your rate for free on their website. If you qualify, you can receive your personal loan in as little as 24 hours. LendingPoint takes your credit score, job history, and income into consideration when you apply for a loan.

SoFi

SoFi will lend up to $100,000 with an interest rate of up to 17% on a 24-month term. There are no origination fees or early payment penalties and no overdraft fees. You can apply online for free and will typically receive your funds in a few days.

Upstart

Upstart will lend up to $50,000 with an interest rate of 7% to 35.99% on a 36 or 60-month term. Funds are provided as early as the day after approval, but they have a high origination fee of 8%.

OneMain Financial

OneMain will lend up to $20,000 with an interest rate of between 18% and 35.99% on a 24 to 60-month term. They do have small origination fees and late payment fees, but they typically range up to $30 per payment. You can apply for a loan online and have it funded as early as a day after you apply. The company also has almost 1,500 branches across the country for those who prefer to apply for a loan in-person.

Should I Get A Debt Consolidation Loan?

If you’re in a pinch and need to consolidate your loans to make them more manageable, then your best option may be to get a personal loan or a debt consolidation loan.

Pros

There are plenty of benefits of a debt consolidation loan. Some of them are:

  • Simplified finances. When you consolidate your debt, you will pay off multiple debts and only have one loan. This means you’ll make one monthly payment instead of multiple to keep track of.
  • Lower interest rates. If you have a bunch of credit cards or other high-interest debt, the interest rates might vary and be high. Personal loans typically have lower interest rates depending on your credit score, the loan amount, and term length.
  • Fixed repayment schedule. Instead of having multiple payments each month that vary by amount, interest rate, and term, you will have a fixed schedule each month.
  • Boost your credit. By eliminating the risk of forgetting to make payments or letting your loans get away from you, paying a set amount on a consolidated loan can help you to boost your credit score.

Cons

Debt consolidation isn’t for everyone. Be sure that you understand the risks you take on as well. Some of the things to watch out for include:

  • You need to change your behavior with money. A debt consolidation loan won’t fix your bad habits with money. Often taking out a consolidation loan leads to more debt, because many people don’t fix the underlying overspending behaviors, or start a cash saving for emergencies. Not fixing your money behaviors leads to that same old cycle and could cause you to take on more new debt.
  • Upfront costs. Some personal loans have upfront fees, including an origination fee, closing costs, or annual fees. If you pay a lot of fees over time, it might not be beneficial to consolidate your loans.
  • Higher interest rates. If you have poor credit, you will not get a favorable interest rate on your consolidated loan. Therefore, you may have a higher interest rate on your consolidated loan than on your existing loans. If this is the case, it likely will not make sense to consolidate.

The Bottom Line

Having poor credit does not mean that you can’t get a debt consolidation loan. However, it might be more difficult for you to get a loan right away or to get one at a favorable rate. If you decide to apply for a debt consolidation loan, be sure to shop around for the best rates and do your best to improve your credit.

This post originally appeared on Your Money Geek

   

Source: debtdiscipline.com

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How to Manage Your Debt Effectively

Love it or hate it, debt is an integral part of modern life in the United States. And, when you think about it, debt in itself really isn’t a bad thing. Neither are credit cards or loans.

high five

They only become a potentially negative thing when they’re misused or mismanaged. And once they get out of control, they can head down a long spiral and bring you down with them.

The wise use of debt — whether it’s revolving (like credit cards and lines of credit) or fixed (like a secured car loan or mortgage) — is like the skillful use of the right tool at the right time for the right purpose.

So, it’s important to realize that avoiding debt isn’t really the answer. In fact, trying to go through life without incurring any debt or using credit can be unnecessarily difficult and troublesome. It can even impact non-credit-related situations like renting an apartment. The skill Americans truly need to focus on developing is how to manage debt effectively.

Following are 7 tips to help you manage your debt more effectively:

1. Think Before You Sign

Banks, retailers, and many other organizations make credit very easy to obtain if you have a good credit score.

Nearly every department store or specialty shop has its own credit card that you can sign up for instantly while you’re making a purchase, and it often comes with the enticement of an immediate discount off your purchase.

Even if your credit score isn’t very good, there are many lenders who are willing to offer credit at high interest rates, from 25% APR credit cards to 33% payday loans.

The point to keep in mind is that lenders and retailers want you to spend money with them. They’re not concerned in the least with what more debt is going to do to your budget, your lifestyle, or your future.

So, the first tip is simple:

2. Avoid Applying for Credit Impulsively

Don’t sign up for additional credit as an impulse buy or based on desperation. It’s always going to be a bad idea under those circumstances.

However, if you frequent a certain store and routinely spend money there anyway, and you’re confident you can be responsible with a new credit line, it may be beneficial to sign up. The point is, that needs to be a conscious decision, not a second thought for the sake of a one-time 15% discount.

3. Educate Yourself About Your Credit Score

Your credit score is a 3-digit number calculated by credit reporting agencies based on a number of factors, many of which the average American couldn’t even name. While it may seem somewhat arbitrary, that doesn’t change the fact that that 3-digit number can determine:

  • Whether you qualify for a 0% introductory interest rate or have to settle for a rate that fluctuates at “prime plus 23%”.
  • Whether you’re considered financially trustworthy or not, and therefore whether a landlord will rent to you or certain employers will hire you.
  • Whether or not you can afford to buy your own house one day.
  • And much more…

There are numerous situations that are partially or fully out of your control that can result in damage to your credit score. However, much of the damage done could be avoided if consumers simply understood the basic factors that affect their credit score. Then, they could actively work to improve a bad score or maintain a good one.

So, our second tip is: Seek out reliable information about managing debt effectively and educate yourself, so you’re equipped to take strategic action.

4. Assess Your Current Debt Situation

As you learn more about managing debt and understanding your credit score, you’ll begin learning terms like credit utilization ratio and debt-to-income (DTI) ratio. These simple calculations have a huge impact on your score, and on how willing lenders may be to offer you favorable terms or to offer any credit at all.

  • Credit utilization ratio is the percentage of your currently available credit that you’re already using. (A simple example: If you own one credit card with a $1,000 credit limit, and it has a current balance of $200, you have a credit utilization ratio of 20%.)
  • Debt-to-income ratio is the percentage of your monthly or annual income that goes toward paying off debt you’ve already incurred. (Another simple example: If you earn $6,000 per month and the combined total of your existing car loan, mortgage, and minimum credit card payments amount to $2,000, you have a debt-to-income ratio of 33%.)

There are other important factors as well, but these two figures form a significant part of the calculation when determining your credit score. If they’re going to offer you the best possible terms, lenders want to be relatively confident you’re able to easily afford to pay for the credit they’re offering you.

They can make that decision based, in part, on how much of your current reliable income is already going toward other debt you’ve incurred in the past, as well as how much of your available credit you’ve taken advantage of thus far.

5. Keep Your Credit Utilization Ratio Low

If you already have four credit cards and they’re all maxed out, when you apply for a new credit card, it’s a pretty good bet you’re going to max that one out too. You already have a 100% credit utilization ratio.

This shows you’re probably not great at managing debt, and there’s a good chance you’ll eventually overdraw your ability to pay. So, the credit card company may decline your application, or they may offer a lower credit limit and/or a higher interest rate to help mitigate their risk.

Of course, if your income is such that, even with all those maxed-out cards, you’re having no trouble at all making the monthly payments, (your DTI ratio is still low,) they may not worry about your utilization at all. And that’s where debt tends to snowball quickly and dangerously.

To sum up, here’s the tip: To improve your credit score and make sure you’re managing your debt effectively, you should shoot to maintain a credit utilization ratio and a DTI ratio of no more than 30%. In other words, you’re taking advantage of available credit, but you’re coming nowhere near the maximum you can afford to spend on it.

6. Make and Keep a Budget

This one requires very little explanation. Everyone realizes that creating a budget is necessary if you’re going to manage your spending. The more formal your budget, the better.

If you’re currently in good shape, your credit score is high and your debt is low, A strategic budget can help keep it that way while improving important tools like emergency savings and investments.

If you’re on the other end of the spectrum, your credit score is low and/or your debt is getting out of control. A budget can be the lifeline you need to slowly but surely pull yourself out of that downward spiral one penny at a time.

The formula is very simple: Income > Expenses.

Of course, putting it into practice is a little more challenging. There are plenty of tools available, from a pile of envelopes with cash set aside for various expenses to smartphone apps, but the real value of budgeting depends on your own self-discipline and willingness to stick to the plan you create.

So, for this tip: Make a budget that consistently keeps your income above your expenses, and do everything you possibly can to stick to it.

7. Get Professional Help with Credit Repair If It’s Needed

While all of the above tips are self-serve actions you can take right now to make a difference in your debt management, many Americans are already in a situation where it may not be possible to turn it around completely on their own.

For instance, if the loss of a job, divorce, military deployment, or other major life events caused you to unexpectedly rely on credit cards for months, you may be in a desperate situation that isn’t really even your fault.

Likewise, if you’re like so many Americans who grew up, finished school, and left home without ever learning the basics of financial responsibility, you may have gotten in over your head in debt without even realizing that was possible.

No matter what the reason is for your current situation, you don’t have to go it alone.

Hire a Credit Repair Company

Get in touch with a reputable credit repair agency and discuss your situation with a professional who can help. For a small fee, they can take the reins on your situation by:

  • Investigating your credit report to confirm its accuracy and completeness
  • Working with creditors on your behalf to negotiate payment plans or better terms
  • Disputing errors and eliminating inconsistencies on your report
  • Setting up a realistic budget and debt reduction plan
  • Guiding you through the challenges that will inevitably rise as you resolve your situation

So, the final tip is this: If you need help getting out of snowballing debt and getting yourself to the point that you can effectively manage it going forward, don’t hesitate. Get the help you need.

In modern America, completely avoiding debt is not only difficult, it’s potentially harmful. However, incurring debt without managing it effectively can be even worse. Follow the tips above, and you’re sure to get a solid handle on debt and use it skillfully.

Source: crediful.com

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Debt Settlement vs Bankruptcy: Which is Best?

  • Get Out of Debt

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. 

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. 

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. 

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 godsend—a 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. 

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. 

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. 

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. 

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.

Source: pocketyourdollars.com

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How to Stop Spending Money You Don’t Have

So, you want to stop spending money.  That might be easier said than done.  When it comes to managing your money, there are things you need to do.  You know you need to budget, try to get out of debt and control your spending.

stop spending money

stop spending money

The issue is not necessarily that you are spending money on things you don’t have; you just aren’t spending it in the right way.  The issue is not that you don’t make enough money, it is just not having a plan on how to use it once you get it.

That’s what happened to me.  Unfortunately, I didn’t have a plan for my money.  That lead me down a path I did not like.

After years of working without a plan, I found myself on the steps of a courthouse declaring bankruptcy. And, because I did not learn how to make the right changes in managing my money, my husband and I found ourselves in debt a few years later.

The difference with the second time I had debt was that I took responsibility for it.  I owned what happened, and he and I worked together to make changes to not only pay off our debt but never go down that same road again.

If you find yourself in the same situation, you need to make big changes.  To start, you have to stop spending money you don’t have.  Plain and simple.

HOW DO YOU KNOW IF YOU ARE OVERSPENDING?

You’ve maxed out your credit cards

When there is no room to charge anything on your cards, you might have a problem.  In most cases, maxed credit cards signals you are living beyond your means.  If you have to continue to charge because you don’t have money, then you are spending too much.

You can’t find a home for your latest purchase

Your temptation might be electronics or handbags. No matter what you love to buy, you might notice you are running out of room to store things.  When the stuff takes over your home and is causing clutter, it is time to take a long hard look at how you spend money.

Your budget never works

There may be months when you don’t have enough money in your budget to cover your mortgage or food.  When you continually spend money on the wrong things, your budget will not work.

That means if you have just $50 for entertainment, do not spend $75.  That other $25 has to come from another budget line.

You spend more than you earn

Take a look at your credit card balances. You might be paying only the minimum balance because you can’t pay it in full. When you spend more than you make and continue to add more debt, take a look at what you are buying.  It might be time to pull back and stay out of the stores.

HOW TO STOP SPENDING SO MUCH MONEY

Use a budget 

When many people hear the word budget, what they hear is “you don’t get to spend any money.”  That is the opposite of what a budget does.  Your budget is a roadmap.  It shows you where your money should go – including the fun money you want to spend!

Your budget helps you know what you need to do with your money when you get paid.  Look at every penny as an employee of yours.  You get to tell it where it needs to go.  Some of them will go to rent, others to your car payment and still others will go to the into your savings account.

The best part of a budget is that you can allow for fun.  Learn how to budget to have fun and even how to budget if your paychecks are never the same amount.

Related: How to Figure Out How Much to Budget for Groceries

Write down your financial goals

Successful people start planning by having the end in mind.  It may mean taking a backward approach to your finances.

Think about what you want.  Do you want to get that credit card paid off or maybe take that dream vacation?  No matter your goal, figure out what it will take to get there, and that will help you set your goal.

It may mean fewer dinners out or putting in some overtime at work.  Whatever your goal, make sure it is clearly defined and you keep it front and center.  Put it on your refrigerator.  Keep a photo of it in your wallet.  Make sure you see that budget staring you back in the face every time you even think about spending money.  That will usually stop you right in your tracks.

Related:  The Secret Trick I Use to Stick to My Budget

Cash is a Must so that you never overspend

If you are someone who is always saying “I can’t stop spending money,” then you need to use cash.  I’m sure you’ve heard it time and time again. Using cash is one of the simplest tricks to help you stop spending money you don’t have.

It works because it gives you defined money.  If you have $100 to spend at the grocery store, there is no way you can even spend $101.  You don’t have it.  You are forced to spend wisely and think more about every purchase you make.

I know some of you are reading this saying “but if I have cash I just spend it so fast.”  That is because you are not tracking it and taking responsibility for your spending.

You need to use the cash envelope method.

If you have an envelope for groceries with $50 left in it, sure, you can dip into that and grab $20 to spend on lunch.  But, what happens when you need food for your family?  That means you’ve just $30 to buy food – which may not get you much.

Cash forces you to think about every purchase you make.

Related:  How You Can Become Accountable With Your Money

Stop paying for convenience

There is a quick fix for nearly everything.  You can find dinners in boxes, small pre-packaged snacks, etc.  Rather than purchase convenience items, buy the larger size snacks and then re-package yourself into smaller baggies.  You will not only get more out of a box, but you can even control how much you put into each baggie.

There are other ways we pay for convenience.  We pay for someone to iron our shirts, wash our cars and even mow our lawns.  By doing these things ourselves, we can keep much more money and easily stop overspending.

Read more:  How You are Killing Your Grocery Budget

Put away the credit cards to halt spending money

One of the simplest ways to stop spending money is to get out the scissors and cut up those credit cards!!  Or, if you aren’t ready to cut them up, put them on ice.  Literally.  Freeze your credit card in a block of ice.

If you keep spending, you have to cut off the source at its knees.  While I don’t think credit cards are a good fit for everyone, I know they work for some.

If you must use credit cards, never charge more than you have in the bank to pay it off.  That means you can’t charge the amount you believe you will get on your paycheck.  There is never a guarantee that your check will arrive.  Spend only the amount you have, not what you will receive.

Related:  How to Pay off Your Credit Card Debt

Pay your bills on time

We all have bills.  We know when they are due.  When you miss the payment due date, you get assessed a late charge.   Pay them on time, so you don’t pay more than you need to.

In addition to late fees, not paying your bills on time can have an adverse effect on your credit score. Learn how to organize your bills, so you never pay them late again.

Do not live above your means

Few of us would not love new clothes or a new car. We all would like to make more money or get the hottest new device.  The thing is, can you afford it?  Is it a want or is it a need?

If you are using credit or loans to get items that you can not afford, then you are living beyond your means and spending money you don’t have.  Scale back and make sure that you can honestly afford the house or the car and that it doesn’t ruin your budget and cost you too much.

Read more: Defining Your Wants vs. Your Needs

Don’t fall for impulse buys

Stores are sneaky about making us spend money.  They use signs, layout and even scents to lure you into wanting to buy more.  The thing is, if you purchase something you did not intend to, then you are already blowing your budget and probably overspending.

Another way that you are spending too much is when you plan dinner but then decide at the last minute to go out to dinner instead.  Why do that when you have food waiting for you at home (which you’ve already paid for)?

The final reason you may impulse buy is that of emotion.  If you feel a rush because of that new item, you may purchase out of impulse and emotion instead of need.

Read more:  Stopping Impulse Shopping

Plan your meals

One of the most significant changes we made was to menu plan.  It took me some time to put it all together, but now, I can plan our meals in no time at all.  I use the simple menu planning system that I’ve taken time to build over the years.

While this works for me, I remember when I was learning how to menu plan.  It was quite a process, and I relied upon the help of some experts in the field.   One of them I have used is Erin Chases’s $5 Meal Plan.  I loved how simple it was to create our meals each week.

Even the best menu plan won’t work if you aren’t eating what you buy.  Make sure you are not making mistakes with your grocery budget and eat what you buy.  After all, throwing food away is just money in the trash.

Related:  Money Saving Secrets Stores Won’t Tell You

Challenge yourself to spend less 

There is something fun about trying to beat yourself at your own game.  By this I mean, if you have $150 to spend on groceries for the week, try to spend only $130.  That gives you $20 more to spend on something else — or put towards your goal.

Related:  The Yearly Savings Challenge for Kids and Adults

Stay out of the stores so you don’t shop

If you can’t control your spending and continue spending money you don’t have, you have to remove the temptation.  Even something that seems harmless can result in spending money.

Related:  Fun and Frugal Date Night Ideas

Track the money you are spending

Keep track of your spending by adding up the amounts on your phone.  That way, you’ll have no surprises when you get to the checkout lane. You can try Shopping Calculator for Android or Total-Plus Shopping Calculator on iTunes.

When you start to see that total creep up, you realize how much you are spending. That may help you think twice about that extra box of treats you are tempted to toss into the shopping cart.

Use the three-day rule before you spend a dime

The three-day rule is pretty simple.  If you see something you want, wait for three days before you buy it.  Once the third day is up, ask yourself if you still feel it is something you need.

If it is, look at your budget to ensure it works with this month’s spending.  Then, double check the cash to make sure you have enough to pay for it.  If both of these work, you can consider buying it.

The funny thing is that most purchases are impulse buys and the three day waiting period helps you realize you don’t need it.  And had you purchased it, you may even have buyer’s remorse at the three-day mark.

Related:  The Trick To Make Sure You Never Overspend

Don’t use coupons and skip the sales

Sales are very tempting.  They lure you in and often result in making purchases you would not do otherwise.  That is why you nee your list. Stick to it and don’t fall for the sales.

You also need to put away the coupons.  Well, you can use them, but responsibly.  If you would not purchase an item at full price, you should never buy it only because there is a coupon.  A coupon is not a golden ticket to shop.

In addition to this, avoid the clearance aisles and end caps.  These are money spending traps!  You walk by, and your eye is drawn the end cap with the big SALE sign in front of it.  If you don’t need that item, don’t grab it.  Also, don’t walk by the clearance section.  It is very easy to pick up items you don’t really need.  That makes you again spend money you had not planned on.

Instead, shop the sections you need.  If you need detergent, go to that section and grab your item and then go to the next on your list.  Don’t wander through the store as you will be more likely to do “cart tossing.”   This is when you put items in your cart without noticing what you are spending.

I’m not saying not to buy anything on sale.  Just get the things you need that are on sale this week, or that you will need in the next weeks.  You probably need spaghetti noodles, but you don’t need a new pair of shoes.

Related: The Money Traps You Will Fall For

Never shop without a list

Never shop without a grocery list. Ever. Then, force yourself to stick to it.

Some simple ideas include using a timer to limit how long you can be in the store.  If you have only 20 minutes to shop, you will be less likely to grab the items you don’t need and stick with those that are on your list.

Another is to challenge yourself to see how fast you can finish your shopping.  If you have the list and stick to it, you’ll find you spend less time shopping and more time enjoying the things you love.

The best reason to use a list is that you don’t have to worry about forgetting that “one item” you know you need.  When you force yourself to make a shopping list and stick to it, you’ll always have everything you need on hand for dinner.

Keep emotion out of shopping

One tip is never to shop hungry.  When you do, your stomach controls what you buy.  The added benefit is buying the healthy foods you need.

If I am feeling bad about myself, buying something I have been wanting may end up making its way home with me. Spending money to make myself feel better never works.

There are many emotions attached to spending.  You have to identify which one(s) apply to you and find a way to fulfill that need through another method – other than spending money.

Define Needs vs. Wants

There are items we need.  You need food, but do you need the extra box of cookies?  Yes, the sweater is really cute but is it something you need or just something you want.  Ask yourself  “is this a need or a want” with each item you buy.  You’ll soon be on your way to less overspending.

Clean and declutter

When you declutter, you find all of those items you’ve spent money on and no longer need.  It makes you realize where you are spending.  You will also recall how clean your closet now is. Do you really want to fill it back up with more stuff?

The added benefit of decluttering is that it keeps your house clean and organized!  You can find what you need more easily and don’t have so much “stuff” cluttering the house.

Save first, spend later

It is important always to pay yourself first.  Remember that the amount you have to spend is what is left over after you pay your bills and pay yourself.

You should always tell your money where to go instead of it deciding for you.  So many do that the opposite and save after they spend.  If you still save a little, you will quickly build a nice emergency fund and can have less guilt about your spending.

Learn from your mistakes

The most important thing you must do is figure out where you’ve gone wrong in the past.  Your mistakes will be different from everyone else’s.  You may shop out of emotion while someone else does out of boredom.

You also need to keep in mind that you will make mistakes.  There will be months when you fall off the wagon.  Don’t beat yourself up over it.  Use it is a chance to learn from them and do what you can to not repeat them again.

Related:  The Mistakes You Will Make When Getting Out of Debt

Gaining control of your spending is possible.  You just need to have the desire – and the tools – to make it happen.

stop spending

stop spending

Source: pennypinchinmom.com

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How to Build Credit with Fingerhut

  • Raise Credit Score

If you’ve been wanting to make a big purchase, but your credit is less than spectacular, you might have looked into Fingerhut as an option. 

Fingerhut is an online catalog and retailer that showcases a multitude of products. On this website, customers can shop for anything from electronics to home décor to auto parts. Fingerhut offers financing through their own line of credit, making it appealing to shoppers with poor credit or a nonexistent credit history. Many consumers have a better chance of getting approved by Fingerhut, than they might have of getting approved through most other credit card companies. It’s an option worth looking into if you want to improve your credit score through credit utilization.  

The major difference between Fingerhut and credit cards that cater to low credit scores is that Fingerhut credit is exclusively available for use with its own company’s products and authorized partners. You’ll also find that the company’s products are pricier than they would be through most other retailers, while also bearing the weight of higher interest rates. While it might seem like a good idea if you don’t have good credit, it’s best to familiarize yourself with the ins and outs of the company beforehand so that you know what you’re signing up for. 

How Fingerhut credit works

When you apply for a Fingerhut credit account, you can get approved by one of two accounts:

  • WebBank/Fingerhut Advantage Credit Account.
  • Fingerhut FreshStart Installment Loan issued by WebBank.

As it happens, by submitting your application, you are applying for both credit accounts. Applicants will be considered for the Fingerhut FreshStart Installment Loan issued by WebBank as a direct result of being denied for the WebBank/Fingerhut Advantage Credit Account. In other words, you won’t have a way of knowing which one you will be approved for prior to applying. Both credit accounts are issued by WebBank and are set up so that customers can purchase merchandise by paying for them on an installment plan with a 29.99% Annual Percentage Rate (APR). These are the only things that the different Fingerhut credit accounts have in common.

The WebBank/Fingerhut Advantage Credit Account

The WebBank/Fingerhut Advantage Credit Account works very much like an unsecured credit card, except that it’s an account that you can only use it to shop on Fingerhut or through its authorized partners. 

This credit account features:

  •  No annual fee.
  • A 29.99% interest rate.
  • A $38 fee on late or returned payments.
  • A possible down payment; it may or may not be required. You won’t know prior to applying. 

If you get denied for this line of credit, your application will automatically be reviewed for the Fingerhut FreshStart Credit Account issued by WebBank, which is both structured and conditioned differently.

Fingerhut FreshStart Installment Loan issued by WebBank

If you get approved for the Fingerhut FreshStart Installment Loan, you must follow these three steps to activate it:

  • Make a one-time purchase of no less than $50.
  • Put a minimum payment of $30 down on your purchase, and your order will be shipped to you upon receipt of your payment. You may not use a credit card to make down payments, but you can use a debit card, check, or a money order. 
  • Make monthly payments on your balance within a span of six to eight months.

You can become eligible to upgrade to the Fingerhut Advantage Credit Account so long as you are able to pay off your balance during that time frame or sooner without having made any late payments. Keep in mind that paying for the entire balance in full at the time you make your down payment will result in you not qualifying for the loan as well as being ineligible for upgrade. 

How a Fingerhut credit account helps raise your credit score

The fact that it can help you improve your credit is one of the biggest advantages of using a Fingerhut credit account. 

When you make your payments to Fingerhut in full and on-time, the company will report that activity to the three major credit bureaus. This means that your good credit utilization won’t go unnoticed nor unrewarded. If you use Fingerhut to improve your credit score, you will eventually be able to apply for a credit card through a traditional credit card company—one where you can make purchases anywhere, not just at Fingerhut. 

Additional benefits of a Fingerhut credit account

Besides using it as a tool to repair your bad credit, there are a few other benefits to using a WebBank Fingerhut Advantage Credit Account such as:

  • No annual fee.
  • Fingerhut has partnerships with a handful of other retailers, which means you can use your Fingerhut credit line to make purchases through a variety of companies. Fingerhut is partnered with companies that specialize in everything from floral arrangements to insurance plans.
  • There are no penalties on the WebBank Fingerhut Advantage Credit Account when you pay off your balance early.

How to build credit with Fingerhut

Fingerhut credit works the same way as the loans from credit card companies work: in the form of a revolving loan. 

A revolving loan is when you are designated a maximum credit limit by your lender, in which you are allowed to spend. Whatever you spend, you are expected to pay back in full and on-time through a series of monthly payments. This act of borrowing money and paying off bills using your Fingerhut account causes your balances to revolve and fluctuate, hence, its name. 

Your credit activity, good or bad, gets reported to the three major credit bureaus and in turn, will have an effect on your credit report. Revolving loans play a large role in your credit score, affecting approximately 30% of your score through your credit utilization ratio. If your credit utilization ratio, the amount of available revolving credit divided by your amount owed, is too high then your credit score will plummet. 

When using a Fingerhut account, the goal is to try to keep your amounts owed as low as you possibly can so that you can maintain a low utilization ratio, and as a result, have a higher credit score.

Alternatives to Fingerhut

If you’ve done all your research and decided that Fingerhut isn’t the right choice for you, there are other options that might serve you better, even if you have bad credit. There are a variety of secured credit cards that you can apply for such as:

  • The OpenSky Secured Visa Credit Card: You will need a $200 security deposit to qualify for this secured credit card, but you can most likely get approved without a credit check or even a bank account. It can also be used to improve your credit, as this card does report to the three major credit bureaus. While this card does come with an annual $35 fee, you can use it to shop anywhere that will accept a Visa. 
  • Discover it Secured:  For all those opposed to paying an annual fee of any sort, this card might just be the one for you. With a $0 annual fee and the ability to earn rewards through purchases, there’s not much to frown about with this secured credit card. One of the best perks, is that it allows you the chance to upgrade to an unsecured card after only eight months. 
  • Deserve Pro Mastercard: This card is a desirable option for those with a short credit history. There is no annual fee and no security deposit required and, if your credit history isn’t very long-winded, that’s okay. The issuers for this card may use their own process to decide whether or not you qualify for credit, by evaluating other factors such as income and employment. This card is especially nifty because you can get cash-back rewards such as 3% back on every dollar that you spend on travel and entertainment, 2% back on every dollar spent at restaurants, and 1% cash back on every dollar spent on anything else. 

Final Thoughts 

Fingerhut is an option worth looking into for those with bad credit or a short credit history. If you want to use a Fingerhunt credit account to improve your credit score, be sure to use it wisely and make all of your payments on time, just as you would with any other credit card.

Even though it might be easy to get approved, the prices and interest rates on items sold through Fingerhut are set higher than they would be at most other retailers, so it’s important to consider this before applying. 

There are a ton of options available, regardless of what your credit report looks like, if you are trying to improve your credit. If the prices of Fingerhut’s merchandise are enough to scare you away, you might want to consider applying for a secured credit card. 

Source: pocketyourdollars.com

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Budgeting for Beginners: These 5 Steps Will Help You Get Started

Setting up a budget is challenging. Doing it forces you to face your spending habits and then work to change them.

But when you decide to make a budget, it means you’re serious about your money. Maybe you even have some financial goals in mind.

The end result will bring you peace of mind. But if you’re creating a budget for the first time, remember that budgets will vary by individual and family. It’s important to set up a budget that’s a fit for YOU.

Budgeting for Beginners in 5 Painless Steps

Follow these basic steps and tailor them to your needs to create a monthly budget that will set you up for financial success.

Step 1: Set a Financial Goal

First thing’s first: Why do you want a budget?

Your reason will be your anchor and incentive as you create a budget, and it will help you stick to it.

Set a short-term or long-term goal. It can be to pay off debts like student loans, credit cards or a mortgage, or to save for retirement, an emergency fund, a new car, a home down payment or a vacation.

For example, creating a budget is a must for many people trying to buy their first home. But it shouldn’t stop there. Once you’ve bought a home, keep sticking to a budget in order to pay off debt and give yourself some wiggle room for unexpected expenses.

Once one goal is complete, you can move on to another and personalize your budget to fit whatever your needs are.

Step 2: Log Your Income, Expenses and Savings

You’ll want to use a Microsoft Excel spreadsheet or another budget template to track all of your monthly expenses and spending. List out each expense line by line. This list is the foundation for your monthly budget.

Tally Your Monthly Income

Review your pay stubs and determine how much money you and anyone else in your household take home every month. Include any passive income, rental income, child support payments or side gigs.

If your income varies, estimate as best as you can, or use the average of your income for the past three months.

Make a List of Your Mandatory Monthly Expenses

Start with:

  1. Rent or mortgage payment.

  2. Living expenses like utilities (electric, gas and water bills), internet and phone.

  3. Car payment and transportation costs.

  4. Insurance (car, life, health).

  5. Child care.

  6. Groceries.

  7. Debt repayments for things like credit cards, student loans, medical debt, etc.

Anything that will result in a late fee for not paying goes in this category.

List Non-Essential Monthly and Irregular Expenses

Non-essential expenses include entertainment, coffee, subscription and streaming services, memberships, cable TV, gifts, dining out and miscellaneous items.

Don’t forget to account for expenses you don’t incur every month, such as annual fees, taxes, car registration, oil changes and one-time charges. Add them to the month in which they usually occur OR tally up all of your irregular expenses for the year and divide by 12 so you can work them into your monthly budget.

Pro Tip

Review all of your bank account statements for the past 12 months to make sure you don’t miss periodic expenses like quarterly insurance premiums.

A woman with a dog reviews financial docements spread out on the floor.
Getty Images

Don’t Forget Your Savings

Be sure to include a line item for savings in your monthly budget. Use it for those short- or long-term savings goals, building up an emergency fund or investments.

Figure out how much you can afford — no matter how big or small. If you get direct deposit, saving can be simplified with an automated paycheck deduction. Something as little as $10 a week adds up to over $500 in a year.

Step 3: Adjust Your Expenses to Match Your Income

Now, what does your monthly budget look like so far?

Are you living within your income, or spending more money than you make? Either way, it’s time to make some adjustments to meet your goals.

How to Cut Your Expenses

If you are overspending each month, don’t panic. This is a great opportunity to evaluate areas to save money now that you have itemized your spending. Truthfully, this is the exact reason you created a budget!

Here are some ways you can save money each month:

Cut optional outings like happy hours and eating out. Even cutting a $4 daily purchase on weekdays will add up to over $1,000 a year.

Consider pulling the plug on cable TV or a subscription service. The average cost of cable is $1,284 a year, so if you cut the cord and switch to a streaming service, you could save at least $50 a month.

Fine-tune your grocery bill and practice meal prepping. You’ll save money by planning and prepping recipes for the week that use many of the same ingredients. Use the circulars to see what’s on sale, and plan your meals around those sales.

Make homemade gifts for family and friends. Special occasions and holidays happen constantly and can get expensive. Honing in on thoughtful and homemade gifts like framed pictures, magnets and ornaments costs more time and less money.

Consolidate credit cards or transfer high-interest balances. You can consolidate multiple credit card payments into one and lower the amount of interest you’re paying every month by applying for a debt consolidation loan or by taking advantage of a 0% balance-transfer credit card offer. The sooner you pay off that principal balance, the sooner you’ll be out of debt.

Refinance loans. Refinancing your mortgage, student loan or car loan can lower your interest rates and cut your monthly payments. You could save significantly if you’ve improved your credit since you got the original loan.

Get a new quote for car insurance to lower monthly payments. Use a free online service to shop around for new quotes based on your needs. A $20 savings every month is $20 that can go toward savings or debt repayments.

Start small and see how big of a wave it makes.

Oh, and don’t forget to remind yourself of your financial goal when you’re craving Starbucks at 3 p.m. But remember that it’s OK to treat yourself — occasionally.

A couple organize tax-related paperwork.
Lindsey Cox and Jonathan Tuttle dig into income- and expense-related paperwork as they prepare to file their taxes at their home in Temple Terrace, Fla. Tina Russell/The Penny Hoarder

What to Do With Your Extra Cash

If you have money left over after paying for your monthly expenses, prioritize building an emergency fund if you don’t have one.

Having an emergency fund is often what makes it possible to stick to a budget. Because when an unexpected expense crops up, like a broken appliance or a big car repair, you won’t have to borrow money to cover it.

When you do dip into that emergency fund, immediately start building it up again.

Otherwise, you can use any extra money outside your expenses to reach your financial goals.

Here are four questions to ask yourself before dipping into your emergency fund..

Step 4: Choose a Budgeting Method

You have your income, expenses and spending spelled out in a monthly budget, but how do you act on it? Trying out a budgeting method helps manage your money and accommodates your lifestyle.

Living on a budget doesn’t mean you can’t have fun or splurges, and fortunately many budgeting methods account for those things. Here are a few to consider:

  • The Envelope System is a cash-based budgeting system that works well for overspenders. It curbs excess spending on debit and credit cards because you’re forced to withdraw cash and place it into pre-labeled envelopes for your variable expenses (like groceries and clothing) instead of pulling out that plastic. 
  • The 50/20/30 Method is for those with more financial flexibility and who can pay all their bills with 50% of their income. You apply 50% of your income to living expenses, 20% toward savings and/or debt reduction, and 30% to personal spending (vacations, coffee, entertainment). This way, you can have fun and save at the same time. Because your basic needs can only account for 50% of your income, it’s typically not a good fit for those living paycheck to paycheck.
  • The 60/20/20 Budget uses the same concept as the 50/20/30, except you apply 60% of your income to living expenses, 20% toward savings and/or debt reduction, and 20% to personal spending. It’s a good fit for fans of the 50/20/30 Method who need to devote more of their incomes to living costs.
  • The Zero-Based Budget makes you account for all of your income. You budget for your expenses and bills, and then assign any extra money toward your goals. The strict system is good for people trying to pay off debt as fast as possible. It’s also beneficial for those living to paycheck to paycheck.
A hand writes financial-related labels on envelopes.
Tina Russell/The Penny Hoarder

Budgeting Apps

Another money management option is to use a budgeting app. Apps can help you organize and access your personal finances on the go and can alert you of finance charges, late fees and bill payment due dates. Many also offer free credit score monitoring.

Step 5: Follow Through

Budgeting becomes super easy once you get in the groove, but you can’t set it and forget it. You should review your budget monthly to monitor your expenses and spending and adjust accordingly. Review checking and savings account statements for any irregularities even if you set bills to autopay.

Even if your income increases, try to prioritize saving the extra money. That will help you avoid lifestyle inflation, which happens when your spending increases as your income rises.

The thrill of being debt-free or finally having enough money to travel might even inspire you to seek out other financial opportunities or advice. For example, if you’re looking for professional help, set up a consultation with a certified financial planner who can assist you with long-term goals like retirement and savings plans.

Stephanie Bolling is a former staff writer at The Penny Hoarder.



Source: thepennyhoarder.com

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Start-Up Business Loan Options

The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

It can cost a lot of money to start a business, and most individuals don’t have all the capital they need up front, so they turn to a lender for help. Start-up business loans are offered by financial institutions to help business owners with a new business’s costs. While they’re a great concept, start-up business loans can be quite challenging to acquire.

These loans are risky for lenders, so the approval process can be laborious. Luckily, there are many options to consider.

How Can You Fund Your Start-Up?

When it comes to finding a start-up, business owners have several options available to them.

SBA Microloans

The US Small Business Administration (SBA) has a microloan program that offers loans up to $50,000 for small businesses and not-for-profit childcare centers. The average microloan is $13,000.

The SBA provides funds to specially designated nonprofit community-based organizations that act as intermediary lenders. These intermediaries administer the microloan program for eligible business owners. Here’s a list of providers.

Each of these intermediary lenders has its own set of unique requirements for borrowers. Typically, the intermediary lender will require some collateral from the business owner for the loan. These microloans can be used for working capital, inventory, supplies, furniture or fixtures. Microloans can’t be used to pay existing debts or purchase real estate.

Business owners who apply for SBA microloan financing may be required to fulfill training or planning requirements before being considered for the loan. The microloan downside is the “micro” part: Funding may not be sufficient for all borrowers.

The repayment terms on the microloan will vary depending on factors such as the loan amount, the planned use of the funds and the small business owner’s needs. Generally, the interest rates range between eight and 13 percent. Additionally, the maximum repayment term allowed for an SBA microloan is six years.

Other Microlenders

There are nonprofit organizations that are microlenders for small business loans. These microlenders are generally considered an easier route than an SBA microloan, especially for individuals with questionable credit history. A nonprofit microlender usually focuses on offering loans to minority or traditionally disadvantaged small business owners. Additionally, they help out small businesses in communities that are struggling economically.

These microlenders offer good term rates and allow business owners to establish better credit. This can help the business owner get other types of financing later on.

Individuals may consider a nonprofit microlender for a variety of reasons:

  1. Because profit is not their objective, the loan terms are fair and don’t take advantage of people in difficult situations.
  2. In addition to financing, many microlenders offer free consulting and training, helping small business owners make the right decisions to build their credit.

Business Credit Cards

You have a credit card for your personal expenses, so why not for your business expenses? Business credit cards can be an alternative financing solution to start-up business loans. To qualify for a business credit card, the lender will typically look at your personal credit score and combined income (business and personal).

One of the main benefits of a business credit card is that it allows you to, right away, separate your business and personal finances. You will start establishing business credit, which will help you in the future with additional business financing. Additionally, many business credit cards have great sign-up bonuses or rewards, such as cash back.

Some owners may incorrectly assume that it’s a poor decision to rely on a credit card for business expenses. However, having and using a business credit card is much more common than you may realize. In a 2019 survey from the Federal Reserve Banks, it was revealed that 59 percent of small business applicants use credit cards to fund their business.

If your score or income is low, you may have to consider a secured business credit card. Secured credit cards often come with higher interest rates and higher fees, so whenever possible, you’ll want to opt for an unsecured credit card.

Even if you receive an unsecured credit card, a low credit score will mean your interest rates on the card are higher than average. That’s why it’s essential you try to improve your credit before applying for a business credit card.

Personal Funding

You can also consider personal funding options to start up your business. Some examples are personal loans, dipping into your savings or home equity or personal credit cards. However, you should understand the risk of using this type of financing for your business. You will want to do some realistic calculations and ensure the business will be able to stand on its own without relying on further personal funding down the road.

If you use a personal credit card for business expenses, make sure you make payments right away and watch your credit utilization ratio. You should be aware that mistakes can significantly destroy your personal credit score, which will have serious consequences.

If you have a good amount in your personal savings, using this money is smart because you won’t have to pay interest on it. However, you’re ultimately taking a high risk. If your business doesn’t do well for a while, you won’t have savings to tide you over. The same applies to borrowing against your home equity. It will likely be a cheap option, but it comes with a significant risk.

If you do choose to use personal funding to start your business, make sure you take steps to start establishing business credit as quickly as possible. This will allow you to leverage business credit to gain more financing in the future and make the transition from personal financing to business avenues.

Lastly, you may consider branching out and asking friends or family for money. Make sure not to apply too much pressure, and give them the option of declining. 

Grants

Both private foundations and government agencies offer small business grants. These can be quite difficult to get, but it’s worth trying, as it would essentially be free capital.

Grants are often offered for specific groups, such as grants for US veterans or female entrepreneurs.

Venture Capital Investments

If you believe your business idea has the potential for massive growth, you may consider pitching it to venture capitalists. A venture capital investment gives you money in exchange for an ownership share or active role in the company. These investors can be individuals or part of a venture capitalist firm

The benefit of a venture capital investment is that it’s not a loan, so you’re not acquiring debt. Instead, the third party offers capital in return for equity. However, this does mean a higher risk, as you may end up paying them out significantly more if your business yields high returns. You’re also often giving up some control of your company to the investor.

Crowdfunding

Platforms like KickStarter have made crowdfunding an easily accessible and valid option for individuals wanting to start a business. You typically share your business plan and objectives with a public forum and hope people make donations or backings to fund the project.

These campaigns take lots of marketing effort but can get significant funding if they’re successful.

Which Option Is Best for You?

It can be difficult to know which of these options is the right approach for your business. However, we’ve broken down how you can better identify which solution works for you:

  1. First, determine how much funding you’ll need to start. This number will automatically rule out some of the options.
  2. Next, determine your credit score—both your personal score and business score (if applicable). Once again, this may rule out some funding options if your credit score is too low. For your personal consumer credit scoring, consider credit repair services to work on your credit score so you have more funding options available to you in the future.
  3. Understand that some of the business funding options will require collateral. Complete an analysis of your assets and identify if you have any collateral to offer up.
  4. When you apply for most types of financing, you’ll be required to share certain documents. You can have these documents prepared ahead of time. Some of the most common documents needed are a business plan, a business forecast, a business credit report, a personal credit report, tax returns, applicable licenses and registrations and legal contracts, to name a few.
  5. It’s essential that you only borrow an amount you can repay. Sometimes, you’ll be approved for much more than you think you need. Avoid taking it just because it’s offered to you.

More than anything, applying for start-up business loans starts with your credit. You should know your credit score, identify whether it’s low and consider credit repair services if needed. Ultimately, the higher your credit score, the better rates and financing options you’ll receive. Lexington Law can help with all your credit needs, so get started today.


Reviewed by John Heath, Directing Attorney of Lexington Law Firm. Written by Lexington Law.

Born and raised in Salt Lake City, John Heath earned his BA from the University of Utah and his Juris Doctor from Ohio Northern University. John has been the Directing Attorney of Lexington Law Firm since 2004. The firm focuses primarily on consumer credit report repair, but also practices family law, criminal law, general consumer litigation and collection defense on behalf of consumer debtors. John is admitted to practice law in Utah, Colorado, Washington D. C., Georgia, Texas and New York.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.

Source: lexingtonlaw.com

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Ways to Successfully Manage Your Credit Utilization Rate

Managing Credit UtilizationWhen you think of your credit score, you may not consider how this number is calculated or how your actions play a role. Simply put, every credit score is made up of certain criteria, and each criteria can cause an increase or decrease in credit score. With credit utilization being one of the things that can impact your score, it may be time to learn how to manage your credit utilization.

In order to successfully manage your credit utilization rate, you’ll need to understand what it is and how it can negatively or positively impact your life. 

What is credit utilization rate and how is it calculated?

Credit utilization rate is a number used to compare the amount of debt you owe to the amount of credit you have available. By dividing the amount of credit that you use by the amount of credit available, you can determine your credit utilization rate. The more of your available credit you use the higher your credit utilization rate.

For example, if you have several credit cards, one with a credit limit of $500, one with a credit limit of $200, and another with a credit limit of $300, your total available revolving credit amount is $1,000. If you use $400 of the $1,000 of available credit, your credit utilization rate will be 40%. Whereas if you were to use $100 of your available credit, your credit utilization rate would be 10%.

Why does your credit utilization rate matter?

Credit utilization is one of the many factors that can affect your credit score. It actually makes up 30% of your FICO credit score, which means it is one of the most important factors that influence your credit score. Depending on the number, creditors and lenders may or may not approve your application. This is because your credit utilization rate is another way for creditors and lenders to measure your ability to manage your finances.

If you have $2,000 of revolving credit available to you between one or multiple credit cards, in order to keep your credit utilization at or below 30%, you’ll want to use no more than $600 if you don’t want to see your credit score drop significantly.

Managing your credit utilization

Since your credit utilization rate accounts for 30% of your credit score, you want to pay close attention to this number to ensure it doesn’t start to negatively impact your score. This is especially true when you want to improve your score to increase your chances of being approved for things that require good credit such as applying for a home loan or apartment.

You can successfully manage your credit utilization rate by:

  • Increasing your credit card limit
  • Paying your credit balance in full instead of just the minimum balance
  • Keeping credit accounts open even when there is little to no use
  • Pay down debts
  • Actively monitor your credit usage

Keep in mind that the goal of managing your credit utilization rate is to keep it at 30% or less. This doesn’t mean that you have to completely stop accessing your revolving credit, but you want to do so responsibly if you don’t want to see your credit score suffer.

For credit repair assistance and financial advice, contact Credit Absolute today for a free consultation!

Source: creditabsolute.com

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Credit Card Balance Transfers

  • Credit Card Debt

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 won’t 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, we’ll 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

A balance transfer credit card does none of these things. As soon as you accept the transfer offer, you’ll 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, you’ll 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, you’ll repay $5,000 and reduce the debt to $15,000. From that point on, you’ll 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 don’t charge an annual fee at all. 

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 won’t 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 you’ll 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 you’ll have turned a dire situation into a great one.

Con: Will Reduce Credit Score

A new account opening won’t 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 it’s 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 you’re 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. It’s a balancing act for the provider—an 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 it’s worth remembering that credit card companies aren’t interested in offering these cards to current customers. You’ll need to find a new provider and if you have multiple cards with multiple providers, that can be tricky. 

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. 

You’ll 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. Don’t 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 doesn’t 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 freelancer—do 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. 

Sell clothes, electronics, books, games, music—anything 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.

Don’t 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. 

It’s easy to get trapped in a cycle of swapping one debt for another, and it’s 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 can’t 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 it’s one you need to shed if you’re going to transfer a balance.

Instead of focusing on the short term, take a look at the bigger picture. If you can’t afford it now, you probably can’t afford it later; if you can’t repay $10,000 worth of debt this year, you probably can’t 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

It’s an obvious and perhaps even redundant solution, but it’s 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 it’s 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 isn’t 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 can’t 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 you’re 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 don’t 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. What’s 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 they’re 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.

Source: pocketyourdollars.com

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