LOQBOX launched in the UK in 2017 and opened to US consumers in 43 states in September 2020. It’s similar to a credit-builder loan, but there’s no interest. If you release your savings into a new account with a partner bank you won’t even pay any fees: LOQBOX makes its money from a commission paid by the partner bank.

LOQBOX looks like a solid, reliable, and debt-free credit building solution. It’s secure, the cost is low, and it can be combined with other credit-building strategies for an even faster credit boost.

It’s still a relatively new service in the US, so it remains difficult to assess effectiveness or customer service.

How Does LOQBOX Work?

The service works like a credit-builder loan, with some differences. Instead of applying for a specified loan amount with a monthly payment fixed by the lender, you set a savings target for the year. LOQBOX puts that money in a secure account, and you pay it off in installments.

LOQBOX reports your payments to Equifax, Experian, and TransUnion, building your credit, and when the amount is paid up you get the money, which builds your savings.

If you withdraw the sum to your own bank account, you’ll pay a $40 fee. If you set up an account with a LOQBOX partner bank and draw the sum into that account, the entire process will be absolutely free.

As the name implies, your account acts like a locked box to protect your savings while building credit. At the end of a 12-month period, you can unlock your account and access the savings. You can unlock early without penalty. LOQBOX is easy to set up in a few minutes. There’s no interest, no hidden fees, and there’s no credit check.

You can select any monthly payment between $20 and $200 (in $5 increments). The sum you withdraw at the end of the year will be from $240 to $2,400.

For Example

Suppose you decide to save $100 a month. You’ll get a 0% APR loan for $1,200. You’ll receive a cash-redeemable voucher.

Each month, you’ll pay $100. You can make the monthly payments either by direct debit from your bank account or by debit card payments. 

LOQBOX reports these monthly on-time payments to the three main credit bureaus: Equifax, Experian and TransUnion. This builds credit history and payment history, as long as you don’t miss a payment or make a late payment.

At the end of each 12-month period, you have the choice to transfer your funds to one of LOQBOX’s partner savings accounts, or to your personal checking or savings account for a $40 fee. You can withdraw early without penalty.

How is LOQBOX Different From a Loan?

LOQBOX is different from a loan in several respects. A few key differences are:

• No credit checks
• No interest

You do not receive the cash value of a loan. Instead, you buy a cash redeemable saving voucher and finance the purchase with a loan.  

LOQBOX Features

Here are some of the key features of LOQBOX.

Reporting period

LOQBOX reports payments monthly. The initial loan might lead to a temporary credit score dip: this often happens when you first open a new credit account. You should see improvements in your credit score within three to four months. 

Savings Limits

You can save between $20 and $200 per month. That means the maximum 12-month savings limit is $2400 and the minimum is $240. 

Unlocking Early

If you choose to unlock early, you will receive everything you have saved until that point. You can choose to open a new savings account with one of LOQBOX’s list of partners or use the Flexi Unlock feature ($40) to have the funds transferred to any bank account. 

If you unlock within the first 3-4 months you will probably not see a noticeable improvement in your credit.

Late Payments

LOQBOX will report late payments, which can hurt your credit. The Company recommends that if you’re having trouble making payments, you should close your account and withdraw your money. You won’t get the full credit-building benefit, but late payments will hurt more than keeping the account open will help.

Payment Date

When you sign up, you can select any payment date for the monthly automatic account deduction or debit payment. Choose this date carefully, as you will not be allowed to change and any late payments will hurt your credit score. After the first month, you can change the payment date within the same calendar month, as long as it is not in the past. 

Customer Reviews

As with any credit-building product. LOQBX reviews cannot be taken as an absolute indicator, either positive or negative. Many negative reviews of credit-building products indicate a poor understanding of the service, its limitations, or the realities of building credit. Some companies may also seed positive reviews.

Within those constraints, how does LOQBOX look in the review process?

Because the service is quite new in the USA, most online reviews are from the UK. The UK reviews, with the largest number hosted on Trustpilot, are generally good. The Company gets an average of 4.6 out of 5 stars from 16,305 reviews.

In the US reviews are less impressive, though the number of reviews is too small to reach any clear conclusion.

At this point, we’d say that there are not enough LOQBOX reviews from US customers to reach a conclusion about the Company.

LOQBOX vs Self

Self credit-building loans work on the same principle as LOQBOX. You are approved for a loan amount between $520 and $3,076, and you make monthly payments until that loan amount is paid in full. You don’t receive any cash, but build savings to cover the loan. After the designated savings period, the funds are transferred to your bank account. 

While the credit-building formula is similar, there are key differences to be aware of. Here is our Self vs. LOQBOX review:

Fees

LOQBOX doesn’t charge any fees for their basic service, while Self does. 

Self’s fees are: 

• $9 administrative fee for account setup.
• $0.30 + 2.99% convenience fee for payments by debit card. On $100, that would be $3.29.
• Maximum early account closing fee of $5.

In contrast, LOQBOX charges a fee of $40 only if you choose to deposit the funds into a bank account that is not one of their savings partners. Even if you unlock early, you can do it fee-free by opening an account with a partner bank.

Credit Checks

While neither Self nor LOQBOX performs a hard inquiry credit check, Self partners with ChexSystem to determine eligibility and to access banking history. Self states that they don’t turn down applicants based only on credit scores, but that implies that credit scores could contribute to a decision to turn down applicants.

LOQBOX does not perform any credit checks and doesn’t turn down customers based on credit scores. 

LOQBOX does not perform any #credit check and doesn’t turn down customers based on credit score . 

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Length of Savings Period

With Self, you can choose between 12-months or 24-months repayment options on the “loan”. With LOQBOX, at present, there is only a 12-month option. You can, of course, choose to take a second 12-month LOQBOX to extend the 12 months to a 24-month period. 

Monthly Payment Amounts

Self gives you four different monthly payment options: $25, $35, $48, or $150. In contrast, LOQBOX lets you select any monthly payment amount between $20 and $200 in $5 increments.

Accessibility

Self is available in all 50 states, while LOQBOX is only available in 43 states. The service is not available in Alabama, California, Delaware, Georgia, Idaho, Indiana, Louisiana, Mississippi, Missouri, Nevada, New Mexico, North Dakota, Rhode Island, or South Dakota. 

Credit Bureau Reporting

Both Self and LOQBOX report to all three credit bureaus.

FAQs

The post LOQBOX Review (2024): One of the Cheapest Ways to Build Credit appeared first on FinMasters.

Best Credit-Building Debit Cards

Here’s what you need to know to evaluate the top credit-building debit cards:

1. Extra
2. Sequin
3. Sesame Cash

1. Extra Debit Card

The Extra debit card was the first debit card to offer credit-building features. With Extra, you keep your money in your current bank account but link and use the Extra debit card to build credit. Extra has 10,000+ banks in their US network. 

Extra offers all the usual perks of a debit card: no credit check to open, no interest, and no hidden fees. With the Rewards Plus Credit Building plan they also offer 1% rewards on everyday purchases. These rewards can be cashed in for gift cards or offers in their rewards store.

Extra Debit Card Fees

Extra offers two payment options. The first option is to pay for the debit card yearly:

• $149 per year for the Credit Building plan (works out to $12.42 per month).
• $199 per year for the Rewards plus Credit Building plan (works out to $16.58 per month).

There’s also the option to pay for the Extra Debit Card monthly:

• $20 per month for the Credit Building plan (works out to $240 per year).
• $25 per month for the Rewards plus Credit Building plan (works out to $300 per year).

If you don’t expect to spend a minimum of $5000 on your debit card in a year to earn rewards equal to the extra $50 that you’re paying it is best to stick with the Credit Building plan.

Extra Debit Card Pros & Cons

Here are the main pros and cons of the Extra debit card.

Pros

The main advantage of the Extra debit card is that it builds credit with every purchase you make. All purchases are tallied and sent to two credit bureaus – Experian and Equifax – every month. 

You can set daily limits to protect your funds in case the card is lost or stolen. Your banking information remains private and is not stored with Extra. There are no hidden fees or interest. 

Cons

The main con of the Extra debit card is the annual fee. The other disadvantage is that you cannot use the debit card to access cash at ATMs, although you can use your regular bank debit card for this. 

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Read our full Extra debit card review

2. Sequin Debit Card

Sequin is a credit-building debit card designed by women, for women. Women and minority groups are often given lower credit limits on credit accounts, which can lead to higher credit utilization and lower credit scores. Sequin aims to “break the cash ceiling” by giving credit for every debit purchase you make. 

While Sequin is the newcomer in the debit card-that-builds-credit space, it is also rapidly growing. It uses the same formula as Extra: Sequin fronts the money and reimburses themselves a day or so later. There is no interest, no late fee, and no credit check. 

Sequin Debit Card Fees

Sequin has two membership plans for you to choose from.

The Monthly Plan is $13 a month (works out to $156 a year).

The Annual Plan is $130 a year (that means it’s 17% cheaper than the Monthly Plan)

Sequin Debit Card Pros & Cons

Let’s take a look at the main advantages and disadvantages of the Sequing debit card.

Pros

Sequin claims to give you the best of both worlds: the simplicity of a debit card with the credit-building power of a credit card. It reports monthly and has an intuitive app. 

There is no limit (other than your account balance) to the credit limit you set. The higher the credit limit, the more repayment history Sequin can report.

Sequin reports to all three major credit bureaus.

Cons

The main cons of Sequin stem from the fact that it is new and developing. For example, right now, the card is only virtual. There is no physical card. You can pay online anywhere that Visa is accepted.

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3. Sesame Cash Debit Card

The Sesame Cash debit card was also designed to help consumers build credit history. The model is slightly different from that used by Extra and Sequin. With Sesame Cash your account balance will not be your credit limit. You have to allocate a set amount of cash each month as a security deposit for a virtual secured credit card. 

When you make a Sesame Cash debit purchase, behind the scenes there is an identical balance created on your virtual secured credit card, and the money is allocated to pay it off. 

Whatever monthly amount you set, Sesame Cash will allow debit purchases within that amount.  

Warning: Sesame Cash also reports both the credit utilization ratio and the payment history. For this reason, you will want to avoid spending more than 30% of the monthly security deposit. Keeping your credit utilization low will help your credit.

If you can’t afford to allocate more than a small amount, you may need to keep your purchases very low in order to maintain a good credit utilization rate.

Sesame Cash Fees

Sesame Cash does not charge fees.  

Sesame Cash Pros & Cons

Here are the main pros and cons of Sesame Cash

Pros

The main advantage of the Sesame Cash debit card is that it builds credit through both payment history and credit utilization reported to the credit bureaus every month. 

Other pros include:

• See your credit score daily (with a minimum account balance of $25).
• Sesame Cash pays you to improve your credit. You earn a $10 bonus every time you add 10-99 points to your credit score; earn $100 if you add 100 points or more. 
• You’ll get $500 annual theft and damage protection on electronic devices. Read the fine print on this to make sure your device qualifies. 
• With a direct deposit setup, you can get your salary up to two days early. 
• You can withdraw cash from more than 55,000 ATMs.
• No hidden fees, overdraft fees, or foreign transaction fees.
• Add the Sesame Cash card to Apple Pay and other digital wallets. 

Taken together, there are a lot of pros for Sesame Cash. It is a simple and inexpensive solution to increase your credit score.  

Cons

The main disadvantage of Sesame Cash is that in order to get a Sesame Cash debit card, you need to open a standard Credit Sesame bank account. They have partnered with the Community Federal Savings Bank (CFSB), an FDIC insured bank.

Once the account is open, you’ll link another bank account to make the security deposit for the Sesame Cash debit card. Keep in mind that at the moment you can only have one other linked account at a time. For some, that complication is a big disadvantage.

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Read our full Sesame Cash review

How Do You Build Credit?

You build a credit score by building a positive credit history. You build a positive credit history by using credit wisely.

When a lending institution gives you a set amount of funds that you pay back over time, you’re using credit. Examples of credit are student loans, auto loans, a mortgage, or a credit card. You cannot build credit unless someone lends you money. Using your own money won’t build credit.

Look at a credit card, when you make a purchase, the card issuer pays the merchant. You pay the card issuer back, in a single sum or in installments. You pay interest for using the card issuer’s money.

Yes, You Can Build Credit with a Debit Card. Here's How!

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It is not that different from asking your friend if you can borrow $100 and pay them back at a later date. 

There’s one big difference between borrowing from a lender or credit card issuer and borrowing from a friend. A credit card issuer or lender will report your loan or credit card and your payments to the three major credit bureaus: Experian, Equifax, and TransUnion. That builds your credit history.

The credit card issuer will report your purchases and payments to the credit bureaus, and they will become part of your credit record.

So How Can You Build Credit With a Debit Card?

Several new debit cards are changing the idea that debit cannot build credit history. These cards work by linking to your existing bank account. The credit limit will be based on your account balance unless you specify a lower credit limit. These cards add a “credit-building layer” to your existing bank account. 

When you make a purchase, these credit-building debit cards will “spot you” the funds, and reimburse themselves directly from your bank account the next day. They are essentially giving you a one-day credit line that can be reported to credit bureaus monthly.

With a debit card that builds credit, you don’t take on debt while building your credit score. That means these cards remove the risk of overspending. It also eliminates the risk of taking on too much debt, which can hurt your credit score by increasing your credit utilization ratio. 

These credit-building debit cards are relatively new, and they are in the process of expanding features and access. This includes links to Apple Pay, physical cards, and reporting to all credit bureaus.

Why Can’t You Build Credit with a Traditional Debit Card?

With a traditional debit card, every purchase made is debited directly from your bank account. The bank doesn’t lend you money or offer a line of credit. You pay what you have available at the moment of purchase. You’re using your own money, not borrowing.

The debit transaction is not reported to any of the three main credit bureaus: Experian, Equifax, or TransUnion.

A Simple Credit-Building Solution

Over 100 million Americans don’t have or don’t want a credit card. If you’re one of them, these three debit cards offer a realistic way to safely build credit history without hassle or risk.

If you don’t have anything in your credit file and you need to start building credit, these debit cards can help.

There is no reason to keep a thin credit file. With these cards, you can start building your credit history so that when you want to apply for a mortgage or loan you’ll get the best rate available.

Want to consider other ways to build credit history? Check out the 11 best ways to build credit, the best rent reporting companies to further boost your credit history, and how you can build credit by paying your utility bills.

The post Yes, You Can Build Credit with a Debit Card. Here’s How! appeared first on FinMasters.

Microsavings apps, as the name implies, help consumers increase their savings in small, incremental amounts. These apps will round up transactions, transfer small amounts from checking to savings regularly, help cancel unused subscriptions, and more. Many have no minimum fees and no withdrawal limits.

Fact: Right now, 21% of Americans say that they would have to borrow money if they had an unexpected $400 expense. Microsaving can help you prepare for unexpected events. 

While low-income households are the target market for most microsavings apps, young people and savvy consumers of all income levels can use microsavings apps to save $1000 or more annually.

Here’s how microsavings apps work, and how you can use them to reach your savings goals.

How Microsavings Apps Work

Most microsavings apps make small transfers from your checking account to a savings account. The most common feature is a round-up feature in which the app automatically takes the spare change from each transaction and saves it in an account. If your latte is $4.57 with tax, the app will use $5 to pay for the transaction and transfer the remaining $0.43 into a savings account. 

Other common features include: 

• Automatic transfers of a specified amount with each paycheck.
• Overdraft protection to stop automatic transfers if your balance is too low or a large payment, like a credit card or student loan payment, is scheduled. 
• Some, like Acorn, offer investment in exchange-traded funds (ETFs).
• Most are FDIC insured up to $250,000 or $500,000.
• Bonus incentives for recommending the app.
• Customized savings accounts for specific goals.

Microsavings apps save money, but they also build motivation and encouragement to reach bigger savings goals. You won’t save enough to retire on, but you’ll establish the habit of saving and budgeting resources. That can set you up to meet bigger savings goals. 

Microsavings apps save money, but they also build motivation and encouragement to reach bigger #savings goals.

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Why Microsavings?

Microsavings apps aim to address inertia or confusion about saving while building consumers’ confidence. Apps like Acorns, Tip Yourself, Qapital, and Digit aim to turn small savings wins into bigger savings goals. 

Noteworthy: The average American household saved between 5% and 10% of their income from 2010 to 2020. That’s not enough to create security for retirement and future goals. Add inflation rates of 2-3% and the average American household is only actually saving a small amount of what they will need for the future. 

Microsavings aim to rectify this indirectly.  Most people won’t be able to put aside an extra $1000 a month, but a microsavings app might help them save $100 a month. Microsavings apps can be an effective way to build the habit of saving, especially for lower-income families.

Long-Term Financial Goals

Even small savings can lead to big financial gains. A 25-year-old who starts with just $100 and places $100 per month in exchange-traded funds or other investment accounts with an average rate of return of 6% will have over $16,000 in 10 years and nearly $200,000 at age 65. 

Microsavings apps help set habits that can bring wealth through small changes. Even if you start saving $200 per month at age 40, you can have $136,000 at age 65. That might not be enough to fund retirement, but it is certainly enough for an added cushion and security. 

Who Can Use Microsavings Apps?

There is no age limit on microsavings apps. Whether you just got your first job or have already passed retirement, microsavings apps are a way to have fun while saving money. Awards and motivation – including watching your savings grow – will keep you motivated. 

Students

Students and recent graduates are the ideal target market for microsavings apps. You learn about money and savings, and you have the most time until retirement to leverage those savings. Even $200 saved when you are 20 will become over $2700 by retirement with 6% interest, and without any additional contributions. 

Families

Setting up microsavings apps for the whole family can be a fun way to learn about savings together. Show your kids how much you save from each purchase, and reconsider whether you need that extra latte or meal out. You can also turn it into a savings competition as you work towards shared goals such as a vacation, house upgrades, or a special meal out. 

Setting up microsavings apps for the whole family can be a fun way to learn about #savings together.

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Professionals

These apps automate savings. With so many other responsibilities, setting up microsavings apps to manage your savings means you don’t have to think about it. Some apps will have upper limits, while others let you send a percentage of every deposit into a savings account. With so many other responsibilities, setting an app to transfer 10% for savings can feel liberating. 

Advantages of Microsavings Apps 

Microsavings apps aim to remove barriers to entry. You can open microsavings accounts with even $1. That makes saving an achievable goal for anyone. With low (or no) minimum deposit and lower fees than many traditional savings accounts, microsavings apps make it easier to save, even for low-income families or on a tight budget. 

The benefits of microsavings apps are:

• Ease of use
• Automatic savings
• Low costs and fees
• No minimum deposit

Microsavings apps are good for anyone who struggles to save regularly. They are psychologically appealing as you can see how small amounts add up to real savings over weeks or months. The momentum built through small savings can inspire other savings habits. 

Microsavings apps make saving a part of your daily routine, gradually setting new systems in place that allow for greater savings. They are a way to build your emergency fund, save for a special goal, or save for retirement. 

Microsavings apps can help low-income families to take steps to build savings. The first step is often the hardest, and removing obstacles with microsavings apps can help families save more over time. 

Disadvantages of Microsavings Apps 

Microsavings apps come under criticism for their low potential impact. Saving $10 a week will not be enough for retirement, or even for an emergency fund. Another potential downside is accessibility: these apps require a smartphone that is compatible with the app, something that is out of reach for some low-income families. 

Not all microsavings apps are created equal. Whether you can save, FDIC insurance coverage for your savings, and investment opportunities all vary by app. Fees also vary widely. Some microsavings apps don’t pay interest, reducing total savings advantages.

Taken together, microsavings apps have a lot of advantages for most people, but research to select the best app for your needs is important. 

Best Microsavings Apps

You can get started using microsavings apps by exploring the ones listed below.

Qapital

Qapital was founded by Katherine Salisbury and George Friedman, who wanted savings and cash allocation capabilities their bank didn’t offer. A behavioral economist, Dan Areily, joined them, and the result is Qapital.

The Payday Divvy function automatically splits your paycheck into savings, bills, and daily expenses. 

The app also allows you to set savings rules. You can specify weekly savings amounts, and you can round up your purchases so that your “spare change” goes to savings. A “guilty pleasure” setting creates a savings deposit every time you buy at one of your favorite shops, and you can allocate money to pay taxes on freelance income. 

The budgeting tool helps you manage monthly needs and budget for special events such as weddings. You can also invest by placing your money in any of five portfolios ranked from “conservative” to “very aggressive.”

There are three plans. “Basic” costs $3 per month, and “Complete” costs $6 per month. The “Master” plan costs $12 per month. You choose your plan based on the features you want. 

There are no minimum account balances for any of the plans. 

Oportun (formerly Digit)

In November 2021 Digit, an established microsavings app, was acquired by Oportun, a broader company providing a range of financial services, including loans, credit cards, investment services, and the savings functions formerly provided by Digit.

Oportun personal loan borrowers have free access to the savings functions. You can also sign up for the app without a loan. 

The Oportun saving function works in three steps.

• You link your bank account to your Oportun account. Oportun uses this link to analyze your spending habits.
• You set your savings goals.
• Oportun automatically sets aside a small percentage of each of your transactions to help you meet your goals.

The focus is on knowing how much you can spend on any given day, given your bills, savings, and investments. In short, you set up your expenditures based on paying yourself first. 

Also, you can invest in a portfolio based on your investment goals. Digit moves the money for you daily. 

Accounts are insured up to $250,000 by the FDIC. You can withdraw funds at 55,000 ATMs.

Oportun costs only $5 per month. The app works on both iPhone and Android phones.  

SmartyPig 

The focus of SmartyPig is on getting a good rate on your savings. The site offers higher-than-usual interest rates. You more you save, the better your rate. The idea is to increase your savings by adding interest. Note that interest rates change as the market fluctuates, so your initial rate may rise or fall. 

You can set a savings amount you want to deposit regularly. In other words, “set it and forget it” so you automatically save money. You withdraw money by transferring it to your bank account.

There are no fees for opening an account or withdrawing money. You can also set up multiple accounts for multiple projects or goals.

Money on deposit is held by the Sallie Mae Bank and is insured by the FDIC.

Guac

Guac uses what it calls “auto-tip technology” to build savings. Each time you spend, the app adds a “tip” to your expense and moves it to an FDIC-insured savings account.

You can set the percentage you want to save and set different savings goals with different target dates. You can also earn cashback on purchases from within Guac’s own marketplace.

Guac imposes no monthly fees, minimum balances, or withdrawal limits. Deposits are automatic and immediate, and setup is quick and easy. There’s even an analytics function to keep you up to date on your progress. A free trial is available, and you can earn rewards by inviting friends.

Guac describes itself as the “best savings app in the market”. They have a vested interest in believing that, but the features do seem worth a close look if you’re shopping for a savings app.

Apps Where Savings Are Not the Primary Feature

You can find other savings opportunities by looking at apps whose main focus is not savings but do offer a savings option. 

Take a look at these:

• Revoult
• Chime
• Current
• Keep the Change

Micro-investing Apps 

Some apps put your money in the stock market or other investments. Here are a few to explore. 

• Acorns
• Stash
• Moneybox

Each of these apps offers different features and priorities. Choose the one that best fits your needs!

How We Chose the Best Microsavings Apps

Microsavings apps come with a variety of options, interest and savings choices, price points and fees, and other unique features. Here are the main factors we used to evaluate them:

1. Minimum deposit. Most microsavings apps will allow you to start with even $1.

2. Interest rate. If the app’s interest rate is less than the rate paid by your bank’s high-yield savings account, consider transferring savings to your bank or investment account instead. 

3. Investment options. Many microsavings apps offer the option to invest the money you save in ETFs. If there is no investment option, consider transferring savings to an investment account at regular intervals. 

4. FDIC Insurance. Is the app’s savings account FDIC insured, and up to what amount? FDIC-insured accounts of up to $250,000 or $500,000 are standard for microsavings apps. 

5. Fees. How much are the monthly fees, and how are they charged? If you choose an app with a fee, be sure the features or extra savings justify the fee.

6. Number of accounts. Many apps will allow you to have multiple savings accounts for an emergency fund, retirement, a new house, etc. Some will also allow you to choose whether to hold the funds in savings or invest in ETFs. 

7. Savings Rules. Many apps allow you to set savings triggers like, “Save $1 every time I make a purchase at Starbucks” or “Save $2 with every restaurant purchase”.

A microsavings app can jumpstart your desire to save and show you new ways to save more in even a month. Each of the top apps offers a balance of automated features, security, and automatic savings options to help you reach your personal savings goals. 

Once you get in the habit of saving, you can set bigger goals. It’s even possible to save $10,000 in six months! It all starts with making saving a regular part of your life, and a microsaving app can help you do that.

The post 11 Best Microsavings Apps Of 2024: Save Money Effortlessly appeared first on FinMasters.

In this article, we’ll explore everything you need to know to determine if the Chime Credit Builder Visa® Card is the right choice for you.

In this post:

• ​How Does Chime Credit Builder Work?
• Chime Credit Builder vs. Traditional Secured Card
• Reporting Period
• Credit Limit
• Credit Utilization and Your Chime Card
• Chime Credit Builder Card Pros & Cons
• How to Sign Up for Chime Credit Builder
• Final Thoughts
• FAQs

What is Chime? Chime is a banking app that provides fee-free savings accounts, spending accounts, and the Chime Credit Builder. They are known for their “Spot Me” feature, which allows users to advance up to $200 against their next paycheck. Chime is not a bank: banking services are provided by The Bancorp Bank or Stride Bank. Learn more about Chime on their website

​How Does Chime Credit Builder Work?

There are significant differences between the Chime Credit Builder Visa® Card and a conventional secured credit card.

Here are some of the things that make Chime credit builder really stand out from similar credit building products.

• No interest. Since you pay from your Chime account, you don’t pay interest on what you spend, ever. 
• No annual fees. That saves you money
• No security deposit. Unlike other secured cards, the Chime Credit Builder Visa® card is secured with your Chime account, so it doesn’t require a security deposit. 
• No credit check to apply. The Chime Credit Builder Card can help improve your credit score, even if you start with low or no credit. 

There is No Deposit

Most secured cards require a deposit. That deposit becomes your credit limit.

The Chime Credit Builder Visa® Card does not require a security deposit. Instead, each month you select the amount of money from your Chime Spending Account that you want to allocate to your Credit Builder account.

You can set up automatic monthly transfers, or manually transfer funds when you need. Whatever amount you transfer to the card is the maximum amount you can spend on the card in that month.

You can transfer money back to your spending account, as long as you haven’t spent more than your remaining balance after the transfer.

Be aware. You cannot spend more than the designated funds on your Credit Builder Card. This protects from overspending. You also are charged no interest because you are not borrowing money.

This makes the Chime Credit Builder Visa® Card a hybrid between a secured credit card and a debit card. Unlike a debit card, the Credit Builder Card reports payment history to all three main credit bureaus to build credit history. 

It’s a Charge Card

The Chime Credit Builder Visa® Card is a charge card. You must pay your balance in full by the end of each statement period. You can’t carry a balance into the next statement period.

If you fail to pay your balance by the end of the statement period, Chime will deduct the payment from your allocated funds. If this happens they may suspend your account.

No Missed Payments

The Chime Credit Builder Visa® Card is one of the safest ways to build credit without going into debt.

You can select an autopay feature, called Safer Credit Building, to allocate funds for each purchase as soon as it is made to avoid overspending or paying late. That means you can’t miss a payment.

Chime Credit Builder vs. Traditional Secured Card

The primary difference between the Chime Credit Builder Visa® Card and a traditional secured card is the security deposit.

With a traditional secured credit card, you make a security deposit to guarantee your credit line in case of late or missed payments. That money is tied up for as long as you have the card.

With the Chime Credit Builder Visa® Card, you don’t have to make a security deposit.

Instead, you must have a Chime account. The security deposit is then transferred either automatically or manually from the standard spend account to act as the security deposit for the Chime Credit Builder Visa® Card.

The money you allocate is tied up for that month, but you can vary it from month to month. If you need more money in a month, allocate less to your card. You won’t be able to spend as much with the card, but you can still use it.

If you’re not sure how a secured card works, here’s a quick guide.

Reporting Period

Chime reports payments at the beginning of each month to the three main credit bureaus: Experian, TransUnion, and Equifax. You should see the entry on your credit report within 14 days.

That means that each month of on-time payments will help to build your credit history and improve your credit score. Note that since the card doesn’t offer a line of credit, only on-time payments are reported. 

Chime Credit Builder Card Limit

Unlike other credit cards, the Chime Credit Builder Visa® Card doesn’t have an upper limit based on credit history. Instead, the limit is based on the amount you choose to put on the card.

The maximum upper limit on purchases for the Chime credit builder card is $7,500 per day. That’s more than enough for most users.

Credit Utilization and Your Chime Card

Credit utilization is often an issue for secured card users. This is the percentage of your credit limit that you actually use. If your credit limit is $1000 and your balance is $300, your credit utilization is 30%

Most secured credit cards have low credit limits, so it’s easy to push your credit utilization to a high level with only a few purchases.

Chime doesn’t report credit utilization on this card. Your credit won’t be hurt if you have to set a low credit limit for a few months.

That also means that keeping your credit utilization low can’t help your credit, but overall we’d rate that a positive point. Credit utilization is more likely to hurt than help the average secured card user.

Chime Credit Builder Visa® Card Pros & Cons

The Pros

• Low-risk, debt-free way to build credit history with everyday purchases.
• No credit score is required.
• Easy to open an account: get started in minutes.
• Control spending and better manage your budget with pre-assigned spend amounts.
• The Safer Credit Building feature protects you against late payments.
• You can easily make purchases or withdraw cash.
• Credit utilization is not reported.
• 24/7 live customer support via the Chime app.
• No annual fees and no interest.
• FDIC Insured.

The Cons

• The card is only available if you have a Chime spending account.
• You can’t carry a balance to the next payment period.
• You can’t upgrade to a regular credit card.
• If you’re looking to earn cash back, airline points, or other credit card rewards, it’s best to consider another secured credit card or traditional credit card.
• While there are no monthly or annual fees, and no fees for the 60,000 ATMs within the Chime network, for all other ATMs you will incur a fee, usually about $2.50 per transaction. There may be fees for deposits at certain ATMs. 
• You will incur currency conversion fees and other fees if you use your card overseas. 
• If you prefer face-to-face customer support, this card isn’t a good fit. Support is available by phone and online via the Chime app only. 

Be aware. Consumer advocate ProPublica has claimed that some Chime customers have been locked out of their accounts, sometimes without adequate notice. This appears to be a result of fraud screening software. Chime claims to be resolving the problem, but it’s an issue to watch.

How to Sign Up for Chime Credit Builder

If this Chime Credit Builder Card review makes you want to go ahead risk-free, there are only two steps:

1. Open a Chime Checking Account.
2. Make a qualifying direct deposit of at least $200*.
3. Apply for a Credit Builder Account.

*If you already have a Chime account, you will need to have at least one direct deposit of $200 in the last year.

That’s it! With just a few minutes to set up the account and the $200 you would spend on everyday purchases, you are ready to start building a better credit score.

Visit Chime

Final Thoughts

For someone with a good credit score accustomed to responsibly managing expenses, a credit card with bonuses might offer more benefits.

For anyone looking to build credit history, the Chime Credit Builder has far more pros than cons, especially if you are a Chime customer or you are considering a Chime account.

FAQs

The post Chime Credit Builder Visa® Card Review (2024) appeared first on FinMasters.

Here’s what you need to know to decide if buy here, pay here financing is the right choice for you.

In this post:

• How Buy Here Pay Here Financing Works
• Pros of Buy Here Pay Here Financing
• Cons of Buy Here Pay Here Financing
• Alternatives to Buy Here, Pay Here Financing
• FAQs

How Buy Here Pay Here Financing Works

Traditional car dealers offer financing packages from other lenders. Buy here, pay here car dealerships offering in-house financing, often without a credit check. They may add incentives like no interest for the first six months or no money down. 

To compensate for the additional risk, buy here, pay here dealers have extra security measures in place, including a strong plan to repossess the vehicle in case of a missed payment. They also charge much higher interest rates than conventional lenders.

Buy here, pay here dealerships will calculate the maximum amount you can borrow based on proof of income and current offers. On the basis of that assessment, they will show you cars that fit within that budget.

Buy here, pay here financing makes sense if you have no credit or want to avoid a hard inquiry on your credit report, but you often pay for the greater flexibility in higher interest rates, higher total costs, and/or tracking and control. 

Pros of Buy Here Pay Here Financing

Buy here pay here financing makes the most sense for someone who has poor credit or no credit. You might also consider this type of auto financing if you don’t’ want a hard inquiry on your credit report, or you only need to borrow a small amount for a short time. Here are the main advantages of buy here, pay here financing:

Less Hassle

Applying for credit at the dealership is simple and hassle-free. The process of purchase and securing financing is all part of one package. There is minimal paperwork required, and all future payments will be made directly to the dealership.

Immediate Decision

When you apply for auto financing, you do not always receive an immediate decision. If you have a lower credit score, no credit history, or lack adequate proof of income, this is especially true. With buy here, pay here dealerships, you will know immediately if you are approved for a loan and the amount of the loan approval. 

Little or No Money Down

Many buy here, pay here loans require little to no money down. You can secure this type of loan with as little as $100. If you dream about affording a car but don’t have the resources to save up the funds for it, this is a solution. Some dealers will even offer specials with no money down. 

Be alert that dealerships have to make up for their risk somewhere. If a dealership requires no money down, they will often charge higher interest rates to mitigate the cost. 

No or Low Credit Accepted

The biggest advantage of buy here, pay here financing is that they don’t look at your credit history or credit score. You won’t be denied a loan for no credit history or a low credit score.

With proof of address and proof of income, you can secure financing for the car of your dreams. While buy here, pay here dealerships usually sell used lower-end cars, you can find a variety of makes and models, including newer cars. 

Cons of Buy Here Pay Here Financing

Buy here, pay here financing makes sense in certain circumstances, but it is not always the best financial choice. You pay for the convenience with higher interest rates, higher total car cost, tracking devices, and more.

Interest Rates

The average interest rate for a buy here, pay here financing option is around 20%. Compare that to the average interest rate for a bank auto loan – 4.42% to 6.61% – and it’s clear that you could pay thousands of dollars more for the same car. 

Total Car Costs

Buy here, pay here dealers sometimes charge higher total car costs. If you’re not careful, you might end up borrowing more than the vehicle’s value. For example, if a car’s market value is $6000, a buy here pay here dealer might charge $7000, knowing that you won’t be able to get financing at another dealer. 

Negative Equity

If you take out a loan with no money down, you will almost certainly owe more than your car is worth. This is negative equity, often called being upside down or underwater on your loan.

If you have negative equity, the dealer will require expensive “gap insurance” to cover the difference between the car’s value and the amount of the loan if the car is lost or destroyed. It will be difficult and expensive to sell the car or trade it in.

Tracking Devices and Repossession

Many buy here, pay here dealerships will install tracking or other controls into vehicles. This includes everything from a simple GPS tracking device to a remotely controlled device that prevents the vehicle from starting. 

You also run the risk of faster repossession with this type of loan. Conventional dealers may give you a chance to catch up on your payments or even restructure your loan. That’s less likely with a buy here pay here dealer. To avoid repossession, you’ll want to be sure not to be late on a payment. 

No Credit Boost

One of the biggest advantages of taking an auto loan is the boost it gives to your credit score. Since credit diversity is one of the key influences on your overall credit score, adding an auto loan to the mix – and making payments on time – can help you improve your credit score over time.

However, since these dealerships don’t report the loan to any credit bureaus, the loan cannot be used to improve your credit diversity. 

Buy Here Pay Here Financing: How It Works, Pros, Cons & Alternatives

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Inconvenient Payments

Many buy here pay here dealerships require weekly or bi-weekly payments. While this can be a convenient option if you are paid weekly, it can also be an extra hassle to remember to pay weekly. Dealerships will also sometimes have limited options of how you can pay, so you’ll want to make sure that you can meet their expected payment method (check, phone, bank transfer, Venmo, etc.). 

Alternatives to Buy Here Pay Here Financing

Even without a credit history, you can get better interest rates and terms with other financing options. Here are the best alternatives to finance a vehicle purchase:

• Look for conventional financing. Car loans are secured loans, so many lenders are willing to lend to borrowers with weak credit. More and more lenders are willing to consider factors like income and bank records in lending decisions. Credit unions are often more willing to approve applicants with low credit scores. They also often offer the lowest interest rates.
• Find a co-signer. If you have no credit history or a low credit score, you can get someone with a higher credit score to be a co-signer. Approval will be easier, but if you fail to pay your co-signer will be liable for the balance of the loan. You and the co-signer should be fully aware of the risks and responsibilities.
• Increase the down payment. Even with a low credit score, a large down payment can get a loan approved. To increase your success, aim to have at least a 20% down payment ready.
• Pay cash. The lowest interest rate is no interest rate. If you can save up enough to pay for the car in cash, you avoid the hassle of auto loans entirely. You have freedom to shop at any new or used car dealership to get the best price on the car of your choice. 

If you don’t need the car immediately, consider taking some time to build your credit if you don’t have a credit score or rebuild your credit if it’s damaged. You’ll get a much better deal on car financing and on almost any other financial product.

FAQs

The post Buy Here Pay Here Financing: How It Works, Pros, Cons & Alternatives appeared first on FinMasters.

Collection companies often buy bundles of old debt. They pay an average of four cents for every dollar of debt they buy, so anything they collect above that is profit. These debts often have incomplete records. The statute of limitations on these debts may have passed. They may not even be yours.

While zombie debt seems scary, the power to defeat it is in your hands. Here is what you need to know to deal with zombie debt and prevent it from becoming an apocalypse.

In this post:

• Most Common Type of Zombie Debt
• Other Types of Zombie Debt
• How Debt Collectors Acquire Zombie Debt
• What To Do About Zombie Debt
• When to Ignore Zombie Debt
• When to Settle Zombie Debt
• How to Protect Yourself

Most Common Type of Zombie Debt

The statute of limitations defines the time limit for legal action. You can successfully defend yourself against a collection lawsuit simply by proving that the statute of limitations on the debt has expired. When the statute of limitations expires the debt is said to be time-barred.

Time-barred debt is one of the most common forms of zombie debt.

The statute of limitations varies from state to state. If a collector is demanding payment of an old debt you should learn about the statute of limitations in your state.

The statute of limitations will defend you against legal action. The collector can still try to collect. If you acknowledge the debt or offer to pay part of it, it can reset the statute of limitations. This opens the possibility of court proceedings.

Prior to November 20, 2021, a debt collector could still sue you after the statute of limitations expires. If you showed up in court and proved that the statute of limitations has expired, the judge would dismiss the case. If you failed to show up, the judge could still issue a summary judgment against you.

This practice is now illegal. Regulation F, a sweeping reform of debt collection practices that took effect on Nov. 20, 2021, states that a collector can not sue or threaten to sue over a time-barred debt.

Other Types of Zombie Debt

Zombie debt can show up even if you’ve already paid and settled the debt. Sometimes it never was your debt, in the case of mistaken identity or identity theft. Zombie debt may or may not have any direct correlation to your financial situation. It can emerge at any time.

Previously Settled Debts

If you have already paid off an account but payments were late or delayed, it might reappear as zombie debt. This is also true if you filed for Chapter 7 bankruptcy and had debts discharged.

You should keep written documentation of any debt that is paid, settled, or discharged in bankruptcy. You’ll need it if the debt rises from the dead. 

Someone Else’s Debt

Some collectors will contact you about someone else’s zombie debt. This happens in the case of an address change, a new phone number, and also in the case of identity theft or fraudulent charges in your name.

If a collector contacts you about a debt that is not yours, insist that they validate the debt. If it really isn’t yours they will not be able to do it. You can also dispute any entry the collection company has placed on your credit report.

If you suspect identity theft you will need to act immediately. Your first stop should be the Federal Trade Commission’s identity theft portal, where you can report the theft and get a personalized recovery plan.

How Debt Collectors Acquire Zombie Debt

If an original creditor cannot collect a debt, they sell it to a debt collector. If the debt collector fails to collect, they may sell it to another collector, often as part of a large bundle of debt.

Debt collectors acquire zombie debt by buying bundles of old debts from another owner. This is often another debt collector. This can include delinquent debt or bundles of debt from customers with low credit scores. The older the debt, the less expensive it is. 

Debt collectors purchase debt for an average of four cents for every dollar of debt that they buy. Older debts are even cheaper. If they collect even a small percentage of the debt, they can make a profit.

Many zombie debts have passed through multiple collectors. Documentation may be lost in the process, so errors are common.

What To Do About Zombie Debt

If a debt zombie comes after you, don’t ignore it. Take action.

• Check the Notice of Debt. A debt collector must send you a written Notice of Debt within five days of their first contact with you. The notice must include the amount of the debt, the indentity of the creditor, and a statement that you have 30 days to contest the debt.
• Use a Debt Validation Letter. You can respond with a debt validation letter asking for more information. This will help you determine whether the debt is time-barred and wjhether it is really yours. Learn about how to communicate with debt collectors before you need to do it!
• Check if it is time-barred. Even if the debt belongs to you, it might have passed your state’s statute of limitations. The collector will have to provide you with the date of the original delinquency. If you believe the debt may have passed the statute of limitations, do not pay the debt or acknowledge that you owe it.  
• Locate the debt on your credit report. Note when the debt was added and when it will drop off the credit report, if it hasn’t already. Most debts will stay on your credit report for seven years. 
• Know what questions to ask. The Fair Debt Collection Practices Act (FDCPA) defines your rights . It’s a good idea to know your rights and prepare to respond to debt collectors.

If the debt is legitimately yours and the statute of limitations has not expired, consider a debt settlement. In some cases, you might also be able to wait for the debt to pass the statute of limitations, depending on how close the statute is to expiring and how aggressively the collector tries to collect. 

When to Ignore Zombie Debt

If the debt is time-barred, your best recourse will be to ignore the collector. If the debt no longer appears on your credit report and has also passed the statute of limitations, then there is no reason to act on it. You can safely ignore this type of zombie debt.

You can write to the debt collector and instruct them not to contact you. They have to comply.

Zombie Debt: What Is It and What to Do if It Comes Back to Haunt You

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When to Settle Zombie Debt

If the debt is legitimately yours, still appears on your credit report, or is not yet time-barred, a settlement could be your best option.

Debt collectors acquire these debts for small amounts and may be willing to settle at any profitable level. Debt settlement is a way to clear the debt and remove the stain on your credit score. 

When you settle debt, you pay a smaller, agreed-upon amount in exchange for confirmation in writing that the debt is cleared. The debt collector gets a profit and you get the zombie away from your door.

How to Protect Yourself

The best way to protect yourself from zombie debt is to clear all past debts and to carefully track any new debt you take on. If you already have debt that is nearing the statute of limitations, you can choose to leave it, or pay it off if you can. 

For zombie debts that reappear, remember that you have the power to question or negotiate the debts.

You can safely ignore time-barred debts. If the debt is not yours you can inform that collector that it’s not yours and you will not pay it and dispute any entry on your credit record. If the debt is yours and not time-barred you can offer a settlement.

In each of these cases, you need to take the initiative, make a decision, and execute your decision. You have the power and you should use it!

The post What Is Zombie Debt and What to Do if It Starts Haunting You appeared first on FinMasters.

Either way, selling your shares is not as straightforward as selling stock in publicly held companies. Private company stock is offered exclusively and in limited amounts, usually only to employees and a small investor group. Unlike public stocks, the sale of privately held stock must be approved by the issuing company.

In this post:

• How Stock Options in a Private Company Work
• How Private Companies Issue Stock to Raise Capital
• The Difference Between Private Company Stocks and Public Company Stocks
• How to Value Stock Options in a Private Company
• How to Sell Stock in a Private Company
• Steps to Sell Private Company Stocks
• FAQs

How Stock Options in a Private Company Work

Stock options in a private company are an incentive to employees during the startup phase. Stock options give the employee the right to purchase the stock for significantly less than the market value. The stock options are usually valid for a set period of time and may be contingent on the employee continuing at the company. 

How Private Companies Issue Stock to Raise Capital

Private companies issue stock to raise funds. In this case, the company will sell stock to private investors. Many also give stock to employees to promote loyalty to the company.

For investors, the primary incentive is that the startup funds can grow at a high rate of return. If the company holds a successful IPO the stock can see significant gains. For employees, stock can compensate for long hours or a low starting salary.

While private stock options are available in startups, they are also available in relatively large privately-held companies such as Ola Cabs, whose last round estimated valuation was $4.44 billion, and FormEnergy, with an estimated valuation of $1.23 billion. 

Interested in pre-IPO Investing? Learn how it works, can you purchase pre-IPO shares as a retail investor, and whether or not you should:
Pre-IPO Investing: How It Works, Can (And Should) You Do It?

The Difference Between Private Company Stocks and Public Company Stocks

Both private and public company stocks represent ownership of a small fraction of a company. There are still many differences. These include:

• Private companies don’t have to to issue quarterly and annual financial reports to investors and the public.
• Private companies are usually significantly smaller than publicly-traded companies, which means fewer total shares of stock are available.
• Public stock exchanges like NASDAQ or the New York Stock Exchange don’t sell private stocks. 
• Private stocks are usually less liquid and more difficult to sell.
• Fewer brokers will work to help you sell private company stocks. 
• The company to which the stock belongs must approve the sale. 

Shares in privately held companies are not registered with the Securities and Exchange Commission (SEC). However, the purchase and sale of private stocks are governed by the same SEC regulations as public stocks. 

All of these factors, taken together, mean that investors are less likely to choose to hold private company stock unless it is a company they are personally involved in as an owner, an employee, or as a seed investor.

If you need to sell private company stock, you’ll need to value the stock and then consider sale options. 

How to Value Stock Options in a Private Company

There are different ways to value private company stocks. If you have stock options in a company, you will want to value the stock before purchase.

Private company stocks do not trade on a public exchange, so the market has not established a value. The most common valuation method is to compare the value ratios of a comparable publicly-traded company. This gives a realistic stock valuation in most cases. 

If the company has recently sold shares to a venture capital investor, the per-share value of that investment can help to establish a valuation.

Other methods to value private company stocks include internal rate of return (IRR) and discounted cash flow analysis.

IRR analysis, commonly used in oil and gas companies as well as many private equity firms, uses many complex factors. This includes the company’s debt and leverage as well as its business performance, the strength of the economy, and the project’s positioning within the market.

Discounted cash flow analysis to value private company stock involves complex math and financial modeling to determine the current value of a stock based on its return in the future. The complex nature of this model means it’s not the best choice to value private company stock unless a company provides the discounted cash flow analysis.

Once you have the stock value, you can choose whether to exercise stock options in a company. If the company shows good long term-growth and the stock options are priced below the current market value, it may be a good investment, especially if the company intends to go public.

How to Sell Stock in a Private Company

In order to sell stock in a private company, you will need permission from the company. Depending on the company structure, some employees may feel pressure to hold onto their stock as a demonstration of loyalty. However, in the case of exceptional reasons, like downpayment of a house or family emergency, it is often possible to get permission to sell privately-held stock even as an employee of the company. 

If you’re ready to sell stock in a private company, you will need to find a buyer along with getting the company to agree to the sale. That means you act as a broker of the transaction, locating both the buyer and getting company approval. The challenge in locating a buyer is that company information is not publicly available, making it difficult for potential investors to research the company and understand its current valuation. 

Even with the valuation methods above, unless the buyer has inside knowledge of the company, such as a fellow employee or investor wanting to purchase additional shares, it can be difficult to find a buyer, especially if the company is not widely known.

Some companies do offer a stock buyback program in which they will agree to buy a predetermined number of shares of the stock at a fair price. 

Pre Initial Public Offering (Pre-IPO)

A company that plans to go public will sometimes raise cash through a pre-IPO offering. This can be a large and lucrative venture capital market, with investors clamoring to get in before the IPO if the company is well known and the IPO is widely anticipated.

If the private company stock you hold is in a company that plans to go public, you can sell your shares on a number of brokerages that connect investors and sellers of pre-IPO stocks. Here are a few brokers to look into:

• Forge Global
• EquityZen
• Nasdaq Private Market
• Pre-IPO
• SecFi
• HudsonPoint Capital

Buyback Program

For companies that have no plans to go public, your best option is a buyback program, selling the stock to an employee or original investor.

How to Sell Stock in a Private Company

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Steps to Sell Private Company Stocks

Here is the checklist to follow if you want to sell private company stocks:

1. Is there stock valuation? If not, you will need to obtain valuation either with the company or through private analysis.
2. Is there a buyback program? If so, you could consider selling your stock back to the company at a fair price.
3. Do you know any interested investors? Maybe a co-worker wants more shares, or a friend has been excited about the company for years. Try to locate a buyer yourself.
4. Get the company to agree. Whether you plan to sell to another private individual, back to the company, or online, you will need to speak with the company about your desire to sell and obtain their permission for each specific type of sale.
5. Consider pre-IPO marketplaces. If the company approves, you can contact any of the pre-IPO marketplaces listed above about selling the private company stock to an investor through their site. 

These steps should help you to sell private company stock. Depending on the company, the number of shares, and financial details, this could be as simple as a one-step buyback program, or it could be a more involved process. Private company stocks can be a valuable asset, and when it is time to liquidate the stock, with a little time and attention you can obtain their full value. 

Interested in buying stock in a private company? See all the ways in which you can acquire shares in companies with high potential at bargain prices: How to Buy Pre-IPO Stock

FAQs

The post How to Sell Stock in a Private Company appeared first on FinMasters.

This prescriptive period is designed to protect consumers from legal action against old dues.

Once the statute of limitations on debt expires, the debt is then considered time-barred – a collector cannot bring lawsuits against you.

This doesn’t mean the debt is expunged from your record. You are still liable for the debt, you just can’t be sued.

Credit bureaus are not governed by the statute of limitations. The debt can remain on your credit record for 7 years from the date when the debt first went into arrears and was not subsequently brought up to date.

The statute of limitations on debt varies by state, with the average time ranging from three to six years. Here is what you need to know.

In this post:

• Why the Statute of Limitations on Debt Is Important
• The Statute of Limitations on Debt in Every State
• How the Statute of Limitations is Calculated on Debt
• Your Credit Score and the Statute of Limitations on Debt
• How to Tell If Your Debt is Time-Barred

The Statute of Limitations on Debt in Every State

Below you will find a list of the current statute of limitations for different types of debt in all 50 states.

Written debt refers to an installment loan, while open-ended debt includes credit cards and other revolving lines of credit. Oral debt is less common but refers to agreements spoken but not written down.

Note that if the statute of limitations is three years, in most cases that means that if your first missed payment was on August 15, 2018, the statute of limitations expires on August 15, 2021.

Here’s what the statute of limitation on debt is in each of the 50 states:

This table makes it clear that the statute of limitations on your debt is influenced by not only the state you reside in, but also by the type of debt. It can vary from 3 years to 15 years. In Ohio, for example, the statute of limitations on open-ended credit card debt is only six years, while for written or oral debt it is 15 years. 

Some creditors may take the statute of limitation from the state of their main office or headquarters, which may not be the state in which you reside. Be sure to read the fine print of your debt contract to understand the laws that apply to your debt. 

Why the Statute of Limitations on Debt Is Important

If you have not paid a debt, creditors have the right to sue you for repayment. For this reason, debtors should also be careful to collect on debt before the statute of limitations comes into effect.

Up until November 30, 2021, many collectors would file suits even though the statute of limitations had expired. If the debtor didn’t respond, many judges would rule in the collector’s favor, even if the statute of limitations had expired.

This practice is now illegal. Regulation F, a sweeping reform of debt collection practices, came into effect on Nov. 30, 2021. One of its provisions is that collectors may no longer sue or threaten suit over a debt if the statute of limitations has expired.

In today’s world, you cannot be sent to jail for failure to pay consumer debt. Despite this, some people are still finding themselves facing – and even serving – jail time for unpaid debts.

Find out how it happens and how you can avoid it: Can You Go To Jail For Debt?

How the Statute of Limitations is Calculated on Debt

The statute of limitations is calculated from your last activity on a debt account or contract. That means that it can be counted from the moment the contract is finalized, or from your last payment. Most often, the clock on the statute of limitations starts from the first missed payment, or when the missed payment is reported after 30 days.

Even after the statute of limitations has passed, the debt is not cleared. Creditors can continue to contact you and try to collect or ask you to pay. You can request that the collector stop contacting you and they will have to comply. 

Because of the ambiguity around the type of debt, state of collection, and start point for the statute of limitations, it’s important to get legal advice about your situation if you have old debt and are unsure about your situation. 

In some states, resuming payments on old debt or even acknowledging that you owe it is enough to reset the statute of limitations. Even if the original statute of limitations has passed you could be liable for the debt and a new statute of limitations activated. 

Actions That Reset the Statute of Limitations

The statute of limitations is reset on debt for a variety of reasons, including something as simple as acknowledging that you owe the debt. Here are ways the statute of limitations could be reset on your debt:

• A payment of any amount.
• Accepting a settlement offer.
• Responding to collectors and acknowledging your debt.
• Any recognition of the debt owed.
• Agreeing to a payment plan.
• Stating that you will pay off some of the debt.
• Making any changes to the debt account, including linked bank accounts or name changes.

Based on this list, it is clear that if you believe that the statute of limitations on your debt may have expired, it is better not to do anything until speaking to a lawyer or trusted legal advisor on the best plan of action. Even actions that appear to demonstrate goodwill, such as entering a payment plan or paying off part of the debt, can open you up to new lawsuits from the creditor.

If you can’t afford a lawyer, look into how to get free legal help.

Your Credit Score and the Statute of Limitations on Debt

The statute of limitations is not the same as the credit reporting time. Even after the statute of limitations has passed, unpaid debt can stay on your credit reports from all three credit bureaus.

The Statute of Limitations on Debt: Everything You Need to Know

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The usual period for late payments and unpaid debt to be reported is seven years, but this can vary in certain situations. If you think your debt should no longer be reported but still appears on your credit report, you can contact the credit bureau and request a correction. 

How to Tell If Your Debt is Time-Barred

Once the statute of limitations has expired, the debt is called time-barred debt. Creditors are barred from legal action because too much time has passed. 

To find out if your debt is time-barred you have options:

• The Attorney General’s office can provide free legal information.
• A local legal aid can also provide information and answer questions regarding your specific debt situation.
• An attorney, although more expensive, can give you quick, personalized advice when needed.

All of these options are available to you whether or not the debt is time-barred. Although the Attorney General’s office or a local legal aid may be difficult to contact, they are inexpensive or free options open to anyone. 

Keep in mind that just because the debt is time-barred does not mean it is cleared from your name. It can remain on your credit record. You still owe the debt. Time-barred debt just means you cannot be sued for it. 

Information to Get From the Collector

In addition to legal advice, you have the right to ask certain questions of the debt collector. You can ask them if the debt is time-barred and the date of the last payment. While they can choose not to answer whether the debt is time-barred, they are required to disclose the date of the last payment either verbally or in writing. 

If you ask them if the debt is time-barred and they fail to answer, look into it yourself. There’s a good chance that the statute of limitations has expired.

A debt collector is required to send you a letter within five days of their first contact with you. The letter must include the date of last payment, the amount owed, the original creditor, and the name of the collector. 

In addition, you have the right to ask the debt collector to only contact you within certain hours or at home. You can send a registered letter to the debt collection company requesting them to stop contact.  

If you have multiple debts and you want to prioritize your payments, you may wish to put debts that have passed the statute of limitations or are close to passing it at the bottom of your list, even if you intend to pay them.

The post The Statute of Limitations on Debt by Type & State appeared first on FinMasters.

How the Debt Avalanche Method Works

To apply the debt avalanche method, you’ll pay off the debt with the highest interest rate first, then move on to the debt with the next highest interest rate, until all debts are paid off. Logically, it is simple, but it will take some planning to keep track of your interest rates.

Steps of the Debt Avalanche Method

To apply the debt avalanche method follow these steps:

1. Make a list of your debts.
2. Arrange the list by interest rate or APR, with the highest rates first.
3. Pay the minimum on all debts except the one with the highest interest rate or APR.
4. Pay the remaining funds you have available to the highest-interest debt.

Once the first debt is cleared, move on to the debt with the second-highest interest rate, and continue until you have paid off all debts. 

How to check interest rates and APR

Be sure to check the current annual percentage rate (APR) and any possible changes to APR. The easiest way to check the APR is to call the credit card company or lender and ask. You can also find the rates online or in your personal online banking portal.
Be sure to read the fine print! 

Some credit cards will have an introductory APR of 0% for a limited time, but then the APR will change to some higher amount. Credit cards will also sometimes have a variable APR based on your total debt, credit score, or income. You will also need to check the APR or interest rate for all other debts. 

How to Apply the Debt Avalanche

Once you know the APR or interest rate of each debt, follow the steps listed above and create a list from highest interest rate to lowest. Don’t include a mortgage in the list. A sample list might look like this:

• Credit card 1: 21.99%
• Credit card 2: 18.99%
• Personal loan: 10%
• Auto loan: 7%
• Student loan: 4%

With this list, you would start by paying off the credit card with the highest APR first, while paying the minimum monthly payments on all other debts. Once the first credit card is paid off, focus on the second credit card, and keep moving down the list until all debts are cleared. 

Advantages of the Debt Avalanche Method

The primary advantage of the debt avalanche method is that you will be able to save money on interest and pay off all debts more quickly. By prioritizing the highest interest rates, you pay less in interest as the months go by. As you see the high-interest charges reduced each month, you can apply those savings to pay off additional debts. 

From a financial perspective, the debt avalanche method is the most intelligent way to pay off debt. 

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Disadvantages of the Debt Avalanche Method

While logically the debt avalanche method makes financial sense, it can be discouraging if the debt with the highest interest rate is also large. It could be months or years before the first debt is paid off with this method. 

It can be a challenge to maintain motivation when you don’t feel you’re seeing progress. Some people choose other debt payment strategies, such as the debt snowball method, because it is psychologically motivating.

Ultimately, the best strategy to pay off debt is one you stick with. 

How to Make the Debt Avalanche Work For You

If you want to use the debt avalanche method but are worried about motivation to stick with it, consider listing debts in a spreadsheet and totaling the debt each month. In the example above, the total debt for the three credit cards, plus the auto and student loans would be $39,000. Update the spreadsheet after you make payments each month to see the total debt reduced. 

There Is No “Best” Strategy to Pay Off Debt

There are several established strategies to pay off debt. Any of them will work. You need to choose the strategy that best fits your individual needs and situation. Just make sure that you have a conscious strategy that can keep you focused on the goal of getting out of debt.

The post Debt Avalanche Method: A Step-by-Step Guide With Examples appeared first on FinMasters.

With this method, you have a clear strategy to pay off multiple debts. You’ll focus on the smallest debts first. Just like a snowball rolling downhill, as you pay off small debts, you gain momentum to tackle the larger debts. 

Many finance experts say the debt snowball method is the fastest way to get out of debt for good. With consistency, the debt snowball method can be a path to clearing all debts and building a life of financial freedom. 

Here is how to apply the debt snowball method to your personal debt:

How to Apply the Debt Snowball Method

The first step in the debt snowball method is simply to list all of your debts. You cannot prioritize debt payments if you don’t know everything you have.

Next, you will organize the list in order from smallest to largest. 

To apply the debt snowball you will make minimum payments on all but the smallest debt and will pay as much as you can on the smallest debt until it is paid off.

Then you will move on to the next smallest debt, and continue like that until all debts are paid off.

The advantage of the debt snowball method is the psychological relief of clearing debts more quickly. When you see the smallest debts paid off, it encourages you to keep working and saving to pay off the larger debts.

Steps of the Debt Snowball Method

To apply the debt snowball method, all you have to do is:

1. List all debts.
2. Rearrange the list from smallest to largest, excluding mortgages.
3. Calculate how much you will need for minimum payments.
4. Budget to pay off as much as possible each month.
5. Pay the minimum on all but the smallest debt. Pay as much as you can there.
6. Once the smallest debt is cleared, move on to paying as much as possible on the next smallest debt.
7. Continue until you are debt-free.

These simple steps can be repeated and applied whenever you have a debt. It requires only a few minutes each month to set your priorities and start clearing debt. 

Keys to the Debt Snowball

To be successful with the debt snowball method, you need to set a realistic budget and plan. If you continue to take on additional debt, it will defeat the purpose of this method, and you might find debt growing rather than shrinking.

In addition, it requires focus and consistency to build the momentum and enthusiasm to pay off debts. 

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Advantages of the Debt Snowball

The main advantage of the debt snowball method is the psychological relief of seeing debts cleared. That motivation helps you to stick with your goals and continue to build momentum.

The other advantage is the ease of implementation. You don’t need to worry about interest rates or annual percentage rates (APR). All you need to know is how much you owe on each account. With a simple list, you are ready to start. 

Disadvantages of the Debt Snowball

The main disadvantage of the debt snowball method is that it doesn’t take interest rates into account, so you might end up paying more in interest on larger debts. This is especially true if one of your larger debts is credit card debt, which typically has much higher interest rates.

In our example above, since the auto loan was smaller, you would pay it off first. But that $6000 in credit card debt could be building at an APR of 20% or more. In the six months required to pay off the auto loan, you could incur interest of up to $600 or more. 

If your goal is to save money on interest and pay off all debts more quickly then the debt avalanche method might be a better fit for you.

Consolidate or Refinance Debt

If you plan to use the debt snowball method, it can be worthwhile to consolidate or refinance your debt. Many credit cards offer 0% APR for the first 12 to 18 months on balance transfers. If you have other debts to pay off first, moving your credit card debt to a card with 0% APR can be a smart move.

If your credit card debt is large and you won’t be able to pay it off quickly, this can save you hundreds of dollars in interest.  Keep in mind that there are transfer fees of 2-3%, so this strategy only makes sense if you know the credit card debt will not be paid off for several months or longer.

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