Let’s take a closer look at refinancing and when it makes sense to refinance student loans. 

In this post:

• What is Refinancing?
  • How Refinancing Can Help
  • Refinancing vs Consolidation
• Refinancing Federal Student Loans
  • Types of Federal Student Loans
  • Benefits of Federal Student Loans
  • Consolidating Federal Student Loans
  • Should I Ever Refinance Federal Student Loans?
• Refinancing Private Student Loans
• When Should I Refinance My Student Loans?
• How Much Can I Save by Refinancing My Student Loans?
• What Are the Average Student Loan Refinance Rates?
• FAQs

What is Refinancing?

Refinancing is replacing a current loan with a new one. You take out a new loan and use it to pay off the old loan. You can get your new loan from your old lender or a new lender.

How Refinancing Can Help

Under the right circumstances, refinancing can deliver several benefits:

• A lower interest rate: if your credit score and financial status have improved since you got your old loan, you may be able to get a new loan at a significantly lower interest rate.
• Lower monthly payments: if your new loan has a longer term than your old one, your monthly payment could be lower. This can be an advantage if your payments are causing serious stress or you need to lower your debt-to-income ratio, but a longer term can also mean you pay more in interest over the life of the loan, even at a lower interest rate.
• Shorten your loan term: if you can afford larger monthly payments, a shorter loan term can help you retire your debt faster and cut your total interest cost.
• Remove a co-signer: If you have a co-signer on your old loan, getting a new one can free your cosigner from their obligation.
• New lender, which means new relationship: if you have a difficult relationship with your lender or you don’t like their customer service, refinancing can move your loan to a lender you like better. 

Before you choose to refinance you should understand exactly what benefits you intend to gain. Don’t sign for a new loan until you’re sure that it will deliver the advantages you’re looking for.

Refinancing vs Consolidation

You often hear consolidation and refinancing discussed in the same conversation. It’s important to understand the similarities and differences. 

Debt consolidation is a type of refinancing. If you use your refinancing loan to pay off more than one existing loan, you are consolidating your loans. Consolidation can help you simplify your financial life by replacing several payments with one. If you’re having trouble keeping track of your payments, that can be a big plus.

Consolidation can also bring all of the advantages of refinancing, but only if your new loan has better terms than the loans you’re paying off. That won’t always happen with student loans, as we’ll see later!

Use our debt consolidation calculator to see how much you can save with a debt consolidation loan.

Refinancing Federal Student Loans

Loans from the federal government account for 92% of all US student debt^[1]. The federal government does not refinance loans at a lower interest rate. If you want to refinance federal student loans at a lower interest rate you’ll have to do it with a private loan, and that will mean losing many of the advantages that federal loans offer.

Types of Federal Student Loans

There are two basic types of federal loans. Before you consider refinancing, you should know what type of loans you have.

Subsidized Loans

Direct Subsidized Loans are federal loans available to undergraduate students who demonstrate financial need.

Interest does not accrue while you are in school, deferment, forbearance, and any other grace period. The U.S. Department of Education pays the interest during these periods.

If you have subsidized federal loans, refinancing is generally not a worthwhile option. It’s almost impossible to get a new loan with better terms than you’d get from a subsidized federal loan.

Unsubsidized Loans

Unsubsidized loans are available to both undergraduate and graduate students and there is no requirement to demonstrate financial need.

Interest accrues on these loans while you are in school, deferment, forbearance, and any other grace period. If you have an unsubsidized loan, you’re responsible for paying the interest at all times during your repayment period.

There may be some circumstances where it would be advantageous to refinance an unsubsidized federal loan, but you should think very carefully before making that decision. The decision to refinance is permanent and irreversible, and you will lose the benefits offered by federal loans.

Benefits of Federal Student Loans

These are some of the benefits you will lose if you refinance a federal student loan with a private loan.

• Student loan forgiveness with the Public Service Loan Forgiveness (PSLF) program is for federal loans only. After 10 years or 120 loan payments, you may qualify to have the remaining balance of your federal loans forgiven if you work for a qualifying employer, including government organizations and non-profits.
• Income-based repayment plans, such as PAYE and REPAYE. These programs set your payments as a percentage of your income, which means your payment is lower during your “lean” years. As you earn more, your payment increases. 
• Fixed interest rates. Interest rates on all federal student loans are fixed. Many private loans have variable rates.  
• Forbearance and deferment options. If you hit hard times and can’t make your payments, federal student loans offer relatively liberal forbearance and deferment options. 
• Repayment grace period. A six-month grace period after finishing school is available to students with federal student loans.
• Longer default period: Default on a federal student loan occurs after 90 days of missed payments. Private lenders are generally much quicker to declare you in default.
• Loans can be discharged. If a borrower passes away or is permanently disabled, the government will discharge the loans.
• Poor credit is allowed for consolidation. Unlike consolidation with a private lender, no credit check is required for consolidation. 
• Future benefits. There is currently an active debate in Washington DC over forgiving some federal student loans. There’s no assurance that actual forgiveness will happen, but it will probably only apply to federal student loans if it does.

These advantages are significant, and it’s critical to weigh the benefits carefully before choosing to refinance with a private loan.

Consolidating Federal Student Loans

The federal government does allow the consolidation of federal loans with another federal loan through the Direct Consolidation Loan program. Direct Consolidation Loans come with all the benefits associated with federal loans, such as eligibility for deferment and forbearance and multiple flexible repayment programs. There are no credit checks, and you won’t need a cosigner. If your parents took out federal loans to fund your education, you can include those loans in your Direct Consolidation Loan.

You will have to consolidate your federal student loans in order to qualify for government loan forgiveness programs, such as Public Loan Service Forgiveness (PSLF), or to pursue an income-based repayment plan such as PAYE or REPAYE. 

Consolidating federal loans will not change your interest rate. The rate of your new loan will be based on the rates of your old loans. If the consolidation loan has a longer term than your old loans your total interest payment may increase.

Be sure to study the advantages and disadvantages of Direct Consolidation Loans before deciding to use the program. There are many types of federal loans and you could lose some benefits associated with specific loan types.

Should I Ever Refinance Federal Student Loans?

Most borrowers will not want to refinance federal student loans. Since federal student loans are a large majority of the total outstanding student loans, that means most student loan borrowers will probably not want to refinance.

#StudentLoan Refinancing: Your Most Common Questions Answered

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Most of the benefits that go with federal student loans are designed to help people who are having trouble paying their student loans. If you are not having any problems paying and don’t expect any change in your circumstances, those benefits may not be important to you. There are a few circumstances in which you might want to consider refinancing unsubsidized federal student loans.

If you have a large, secure income, a low debt-to-income ratio, and very good to excellent credit, it may make sense to refinance all or some of your unsubsidized federal loans. You might be able to get a significantly lower rate and you might be able to get terms that help you to get out of debt faster and with less cost.

You don’t have to refinance all of your federal loans. For example, if you used federal PLUS loans to finance graduate school, you are probably paying a higher rate on those loans than you are paying for your undergraduate loans. You might consider refinancing only the more expensive PLUS loans.

If you are considering refinancing federal student loans you should consider your options very carefully and be absolutely sure that the advantages you gain are worth more to you than the benefits you will lose.

Refinancing Private Student Loans

Private student loans are made by banks, credit unions, and online lenders. Unlike the federal government, these lenders are out to make a profit. They base your interest rate on your credit score, income, debt-to-income ratio, and other financial indicators. Most students don’t have great credit, so they will have to pay high rates or get a cosigner to get a private student loan.

These features make private loans good candidates for refinancing. If your credit has improved since you got your loan, you may be able to get a significantly lower rate on a new loan. There are many competing lenders, and if you shop carefully you may be able to get a new loan with terms that suit your needs better.

There are three key steps to making refinancing work for you.

• Know what you want to accomplish. You can’t get what you want if you don’t know what you want. Before you begin looking at lenders you should have a very clear idea of what you hope to achieve by refinancing.
• Shop around. This is true of all loans, but that doesn’t make it any less important. There are lots of lenders out there and the terms they offer may vary considerably.
• Compare your offers to your existing loans. If your best offer is not substantially better than your existing terms, or if it would not achieve the goals you’ve set, student loan refinancing may not be worth the effort.

Refinancing student loans is not much different than refinancing a mortgage or a car loan. In each case you’re looking to achieve specific goals related to your loan. If you’re offered a loan that achieves those goals, refinancing is probably a good move.

Use the student loan refinancing calculator below to see how much you can save if you choose to refinance your student loans:

Go to the full page to view and use the calculator.

When Should I Refinance My Student Loans?

There is no defined time for you to refinance student loans, but there are times when it makes more sense to consider it.

• You have graduated from school.
• Your credit score has improved since you got your old loan.
• You are confident that your finances and employment are secure.
• You have a full-time job.
• Your debt-to-income ratio is low.

It’s important to remember that considering student loan refinancing doesn’t commit you to anything. If you think you might benefit, it’s worth looking into the possibility and getting the information you need to make a fully informed decision.

Just be sure that if you apply to multiple lenders to compare rates, you keep your applications within a 15-day period. The credit reporting bureaus will recognize that you are loan shopping and they will only record one hard inquiry on your credit report.

If it doesn’t look like refinancing student loans will help you, there are other things you can do. Check out these tips for paying off student loan debt.

How Much Can I Save by Refinancing My Student Loans?

Your mileage may vary, but lowering your interest rate by even a single percentage point can save you thousands of dollars. And that’s to say nothing of the increased spending (and saving!) power gained by lowering your monthly payments.

Admittedly, the difference isn’t terribly dramatic. But for some borrowers, any possible advantage can help tremendously. And if you can improve your credit score, you might be able to secure an even greater drop in your interest rates.

What Are the Average Student Loan Refinance Rates?

There are numerous lenders competing for your business. That competition is good for you, and so is the relatively low interest rate environment that prevails at this time (February 2021).

Student loan refinancing rates range from 1.12% up to 8.49% or higher, with variable or fixed rate options available^[2]. The rates you are offered will depend on a number of factors, including your income and your credit score.

Remember that there are ways to earn discounts on your interest rate. Many lenders offer incentives if you select automatic payments each month. They may also give discounts if you have multiple accounts, such as an auto loan or checking account, with the same institution.

FAQs

Refinancing student loans is a major decision and it shouldn’t be taken lightly. If you have private loans – or in some circumstances unsubsidized federal loans – it may be worth considering. If you have a clear understanding of what you hope to gain, you have shopped for the best deal, and it’s clear that you’re being offered a better deal than you have now, it can be a very useful option.

The post What Is Student Loan Refinancing and How Does It Work appeared first on FinMasters.

Beware of any claims promising to remove legitimate entries from your credit report or achieve fast, dramatic improvements in your credit score. These are often signs of a credit repair scam.

There are three stages to repairing credit: understanding your credit report, dealing with (and possibly correcting) negative entries that are already on your report, and forming a new, positive credit record to improve your score.

Let’s break that down into eight actionable steps.

8 Steps to Rebuild Credit:

1. Understand Your Credit Report
2. Fix Any Errors
3. Check Your Negative Entries
4. Pay Your Bills on Time
5. Watch Your Credit Utilization
6. Use Credit Wisely
7. Manage Your Accounts
8. Use Credit-Boosting Services

1. Understand Your Credit Report

Start by pulling your most recent credit report. All consumers can request one free report every year from each of the three major credit reporting bureaus: Experian, Equifax, and TransUnion.

For more information on free credit reports, see our guide on where to get your free credit report.

Not all creditors report to all three bureaus, so your credit reports may be slightly different. You can get all three simultaneously, but many people prefer to get one every four months, which allows you to monitor your credit at regular intervals throughout the year.

It’s critical to review all of the information reported. There’s a lot of information packed into them and no small amount of financial jargon. So before you start, it might be a good idea to familiarize yourself with how to read a credit report. Some of it may surprise you, and you may have forgotten some of the entries. You may also find mistakes in your credit reports.

You may be terrified of what you’ll see on your credit report. Many people are. Don’t let the fear stop you from taking control. Credit reports can be ugly, but they can also be improved.

You can’t rebuild damaged credit if you don’t understand the damage. Knowing what’s on your report is the first step toward dealing with your score head-on.

2. Fix Any Errors

One of the fastest ways to improve your score is to correct errors on your credit reports. Over a third of all credit reports contain errors, most of them being related to their personal and account information.

There’s a wide range of possible mistakes. The discrepancy could be:

• The wrong name, address or phone number.
• Accounts on your profile that don’t belong to you.
• Incorrect debt information.
• Wrong balance information or credit limit reported.
• More than one listing for the same debt.
• Discrepancies in late payment information.
• An account is listed as closed, when it’s open, or vice versa.
• Other incorrect information.

In other words, there is a lot of room for error on your credit report, and these errors can do real damage to your score.

If you notice any discrepancies, look on your credit report for instructions on how to report them. You can submit disputes online or through the mail, but it is your responsibility to call attention to mistakes. If you don’t, they will go unnoticed.

You do not have to pay anyone or get help to report a mistake on your credit report. You can learn how to dispute a credit report entry and do it yourself. The credit bureaus are required by law to investigate any error you report and inform you of the outcome.

3. Check Your Negative Entries

Unpaid debts and accounts that have been sent to collection agencies can do serious damage to your credit score. You cannot remove a legitimate negative entry from your credit report, but you may be able to reduce the impact these accounts have on your credit. Here are some things to try.

• Pay or settle your debt. If you pay your debt or reach a debt settlement, the entry will still be on your credit report. Closed accounts have less impact on your credit than open ones and some newer scoring models downgrade the impact of paid and settled collection accounts.
• Ask for a goodwill deletion. If you have a single negative entry with an otherwise good credit record, or if your record with a creditor was previously good, you can ask the creditor to delete the entry. They may not agree to do it, but it can’t hurt to ask.
• Pay for delete. Some collection agencies will accept a pay for delete agreement, meaning that they will delete a record in exchange for a payment. You’ll need to get an agreement in writing.

These methods may not be able to remove all records of an account from your record, but they may be able to reduce its impact.

Older entries on your credit report have less impact on your credit score than newer entries, so as time goes by those old black marks will do less and less damage.

Once you’ve done all you can to resolve your credit report issues, it’s time to build up a positive record to offset the history that damaged your score.

4.  Pay Your Bills on Time

Debt can hurt your credit score, but it can also help your credit score. The single most important component of your credit score is payment history: your record of paying debts and bills on time.

Making payments late or missing payments harms your credit score. Making payments on time helps your credit score. It may be a struggle, but making every payment on time will help you get out of debt and is the single most important thing you can do to boost your credit.

If you’re having trouble keeping up with your payments and you’re not sure what to do about it, you can try some of these methods of getting out of debt.

5. Watch Your Credit Utilization

Credit utilization is the percentage of your available credit that you are actually using. It is a major factor in calculating your score: it’s worth about 30% of your credit score in some scoring models^[2]. You can improve your credit utilization by using less than 30% of your credit limit on all credit cards. If you can use less it will help more.

Keeping credit card balances low helps you in more than one way. If your balance is low you are more likely to pay it off in full on or before the due date. That means less money going to interest payments and more money in your pocket.

Quickly determine your credit utilization ratio using the calculator below:

Go to the full page to view and use the calculator.

6. Use Credit Wisely

You need to use credit to build credit. If you’re recovering from bankruptcy or completing a debt management plan, you may have closed credit accounts, and you may not qualify for new ones. If you’re in that position, consider these alternatives:

• Use a secured credit card. A secured credit card is issued to you with a credit line that is equal to the amount you pay in a security deposit. For instance, if you secure a credit card with $500, then your credit line will remain at $500. Keep your balance below 30% of that, pay it off in full every month, and you’ll be building a positive credit history.
• Use a credit builder loan. Many banks and credit unions offer credit builder loans. The lender holds the loan proceeds in an account, you make the payments, and you get the lump sum when the payments are complete. Your credit report will show an installment loan. Lenders take minimal risk so they are willing to lend to people with impaired credit.

These alternatives will provide you with credit accounts that will be reflected on your credit report. Make every payment on time and you’ll build up a positive payment history.

Remember that your credit mix affects your score. Keeping both revolving accounts (like credit cards) and installment accounts (like a student loan, car loan, or credit builder loan) open will improve your credit mix.

7. Manage Your Accounts

You will want to avoid closing old accounts and opening too many new accounts. You might think closing an account would look better on your credit profile, but the opposite is true. Closing an account will reduce your number of open accounts and could shorten the average age of your open accounts. Closing an account will also lower your total credit limit, which raises your credit utilization.

Opening new accounts can also affect your score. Each time you open an account a hard inquiry is recorded on your profile. The impact of one hard inquiry is minimal, but if those inquiries add up it looks like you’re desperate for credit, and that can hit your score.

8. Use Credit-Boosting Services

Many of the bills you pay are not normally reported to the credit bureaus, so they do not help your credit. Several services are emerging that close this gap. 

Experian offers the Experian BOOST program, which synchronizes with your bank account and reports your on-time utility and mobile phone payments. If you have a positive payment history, your credit score may improve.

Experian BOOST is specifically for utility and cell phone payments, but there is a similar program for regular rent payments. If your property manager participates in the Experian RentBureau program, you receive credit for rent payments.

Experian’s programs only affect your Experian credit report.

TransUnion offers a similar credit-boosting program called eCredAble Lift, giving you the ability to affect another one of your credit reports. 

Grow Credit places streaming service bills on your credit report.

If you rent your house or apartment, you can get a big credit score boost by reporting your rent. Companies like Boom and Rent Reporters will report your rent to the credit bureaus.

We’ve reviewed 12 of the best rent reporting services, and if you’re considering rent reporting the review is a great place to start.

How Long Do Negative Items Stay on Your Credit Report

The process of rebuilding credit can feel unbearably slow, but time eventually works in your favor. Negative entries on your credit report drop off within specific time frames. Here is a snapshot of how long negative marks stay on your profile:

• Late payments are reported for seven years from the first missed payment.
• Public record items also remain on your report for seven years.
• Bankruptcies are on your report for 7 to 10 years.
• Hard Inquiries remain for up to two years.

In each case the impact of the entry on your credit score will decline as the entry ages.

To summarize, rebuilding credit requires several steps.

• You’ll need to understand your credit reports and the way that your credit score is generated.
• You’ll need to spot and dispute any inaccuracies and discrepancies and do what you can to resolve negative accounts.
• You’ll need to follow up by making positive changes going forward, managing your finances in a way that boosts your credit score.

These strategies will slowly but surely improve your score. You’re also likely to find that you’re improving the overall state of your finances. That combination of benefits is worth the time and effort!

The post How to Rebuild Credit: 8 No-Nonsense Strategies That Work appeared first on FinMasters.

How to Build Credit at 18

There are many ways to start building credit at 18, and you can start sooner than you think. Use these tactics to help you establish your credit, and you’ll be ready for all the adulting you can handle.

Using a credit card is one of the fastest ways to build your credit, but getting a conventional card is a bit tricky when you don’t have a credit score.

Credit card issuers understand this, and they have designed ways for you to build the credit you need. They want new customers and it’s in their interest to help you build the credit you need.

Your credit mix contributes to your credit score. You’ll build credit faster with a mix of revolving credit, like credit cards, and installment credit, like a student loan. A loan can help you finance critical expenses and build credit at the same time. 

1. Become an Authorized User

If you don’t think you’re ready for a credit card of your own, consider becoming an authorized user on someone else’s card. Typically you ask to be an authorized user on a family member’s card.

Be careful. When you’re connected to someone else’s account, the risks go both ways. It’s great if your cosigner pays on time and consistently each month. If they miss a payment or can’t pay in full then your credit could be affected. If you miss payments or spend more than you can afford to pay, your cosigner’s credit could be affected.

To get the maximum benefit as an authorized user, confirm that the credit card issuer reports the payment history to all three credit bureaus for anyone with access to the card. Some issuers don’t report authorized user activity, so confirming this is essential. If the card issuer does report to all three, then being an authorized user will start building your credit file.  

2. Student Credit Cards

As the name implies, a student credit card is designed for college students or young people of college age. Most card issuers offer these products and they are a great choice when trying to build your credit. Some cards may require that you be an enrolled student; others may not.

Student credit cards are geared towards people 18 years of age or older. Some may only be available if you’re over 21. If you do not have income then a co-signer for your card may be required.

Look for student credit cards with reward programs and cash back opportunities. You won’t have to pay a deposit and the card works the way a typical credit card does.

Your credit limit will probably be low and you should be careful to keep your balance below 30% of your limit.

3. Secured Credit Cards 

If you don’t meet the criteria for a student credit card, consider a secured credit card. You’ll pay a deposit and the amount you deposit becomes your credit limit. You are free to use the card anywhere, in the same way you would any other credit card. 

Typically secured credit cards have higher interest rates, but the benefits are still worth it. Remember that if you pay your balance in full on or before the due date every month, you will pay no interest at all.

Some secured cards offer no or low annual fees, and some even offer reward programs. Look for a card that reports your payment information to all three credit bureaus (Experian, Equifax, and TransUnion). That will help you to build your credit faster.

Many issuers will convert a secured card to a regular card if you establish a good payment record.

We’ve reviewed 6 of the best secured credit cards, and if you’re considering taking out one this review is a great place to start your research.

4. Store Credit Cards

If you often use a particular retail store, consider a store credit card.

Qualification is usually relatively easy. These cards will help you build credit, but they tend to have higher interest rates and lower credit limits than other cards, and you can only use them in the store that issued the card. Some of these cards do report to the credit bureaus, so you will start building a credit record.

5. Student Loans

Student loans, whether federal or private, are reported to the credit bureaus.

Of the two, Federal loans do not require a credit check, which makes them an easier place to start. Even if you don’t need a loan to finance your education, it may be worth taking out a small federal loan just to help you build credit. The current interest rate on undergraduate federal student loans is under 3%^[1], and that interest rate with no credit check is a deal you won’t find anywhere else.

Private loans require a credit check and proof of income, so it may be harder to qualify without a co-signer. Your payment record on both federal and private loans will be reported and will show on your credit report within a few months of loan activation.

Making loan payments on time will build your credit, but late or missed payments can harm your credit. Make every possible effort to pay your loans on time.

6. Credit-Builder Loans

Another loan option is a credit-builder loan. Many banks and credit unions offer these products.

The lender places the money in an interest-bearing account. You make the payments, and the lender reports them to the credit reporting agencies. When the loan is fully paid, you get the entire sum with any interest it has accumulated. That lump sum is a great incentive to make the payments!

Credit builder loans involve little or no risk to the lender because the lender holds the money until the loan is fully paid. Because there’s so little risk, lenders may approve these loans even for clients with no credit score, especially if the client is an existing customer. Ask at your bank or credit union.

We’ve reviewed 5 of the best credit builder loans, and if you’re considering taking out one this review is a great place to start your research.

7. Get a Co-Signer

If you have a hard time getting approved for a credit card or loan, a co-signer can swing the deal in your favor. A co-signer is a person with established credit, often a parent, who agrees to take responsibility for any part of the debt you do not pay.

Be sure that both you and your prospective cosigner understand the responsibilities and potential implications of consigning.

Research indicates that 40% of cosigners end up paying some portion of the debt they sign for^[2]. If you mismanage your loan or credit card your cosigner’s credit could be affected, and even if you don’t, your debt will be included in your cosigner’s debt-to-income ratio, which could affect their creditworthiness.

Cosigning can place a relationship under serious stress if things don’t go well, so it’s important for all parties to know what they’re getting into.

8. Get Credit for What You Pay

Another way to build credit is to have payments you make on a regular basis added to your credit profile. You may be able to get regular expenses like your mobile phone bill, rent, and utilities included in your credit report. You have to pay them anyway, so you might as well gain from them. 

A good example of this is the popular Experian BOOST program. It connects to your bank account to look for regular utility payments. This information is added to your Experian profile and, as the name suggests, can boost your credit score. eCredAble Lift is another similar program, but it only reports to TransUnion. You link your account and you’re able to get credit for phone, utilities, and rent payments.

Another service to boost your score for rental payments is Experian’s RentBureau. This is the same concept as the Boost program, but it’s specifically for rental payments. If you’re signing a lease or already have one, ask if the property management company reports to RentBureau. If they do, then one of your credit reports (Experian) is updated with your rental payment history.

Grow Credit places streaming service bills on your credit report.

If you rent your house or apartment, you can get a big credit score boost by reporting your rent. Companies like Boom and Rent Reporters will report your rent to the credit bureaus.

We’ve reviewed 12 of the best rent reporting services, and if you’re considering rent reporting the review is a great place to start.

The downside to these options is not all credit bureaus receive your payment history. You can still boost your thin credit profile by making routine payments on time.

Should You Start Building Credit at 18?

Many young people don’t think much about credit, and a credit card or loan often seems more like an obligation than an asset. For most people, though, somewhere between 18 to 21 is the right time to start.

Establishing your credit early, and remaining responsible with your credit, can make your life easier in a whole range of situations. Credit makes a difference in many activities, for example:

• Applying for your first job
• Submitting a rental application for an apartment, house, or condo
• Getting a cell phone put in your name
• Having utilities established in your name
• Lower, more competitive interest rates on an auto loan
• More competitive interest rates on a credit card
• Renting a car
• Qualifying for a corporate credit card

When you add up all the ways a credit score is used, you’ll see how important it is to establish your credit history early.

Important Reminders

Starting to build credit is important, but it’s not enough. Maintaining your credit score is as important as building it. Having a strong credit score improves your chances of approval for future loans and reduces the amount you pay on interest rates for loans and credit cards. 

Pay Your Bills On Time

Paying your bills on time is a key part of maintaining and improving your credit. Each month, lenders send payment information to the three credit bureaus. Your payment is recorded either as on-time, 30 days late or more. This information is the single greatest influence on your credit score.

Even if a biller doesn’t report to the credit reporting agencies, it’s important to keep your accounts in good standing.

If you fall behind your account could be sent to a collection agency. The collection agency will report and collection accounts can do real damage to your credit.

Don’t Close Accounts

It seems counterintuitive to be dinged for closing a credit card. After all, it should signal to the credit world you no longer need credit. The credit bureaus and lenders look at it a different way, and closing an account can put a dent in your credit.

There are several reasons why this happens. If you close an older account, the average length of your credit history will be reduced, which can affect your credit score. The diversity of your credit mix may also be reduced. Closing a credit card will reduce your total credit limit, and that can raise your credit utilization. Credit utilization is simply the percentage of your total available credit that you are using.

The lower your credit utilization, the better, because it signals to lenders you are responsible for having credit without bad spending habits.

Quickly determine your credit utilization with our Credit Utilization Ratio Calculator

Check your Credit Report

Monitoring your credit is an essential part of responsible credit management. It’s important to review your credit score and your credit report on a regular basis. Not only does it keep you in the know about what’s being reported, but it helps you spot mistakes. The FTC once estimated one in five credit reports contain an error^[3]. You are your only advocate, so if you see an error you have to take the steps to get it corrected. The only way to spot this is by regular monitoring.

Fortunately, this is easier than ever. Many banks or credit cards offer a free credit score review as a perk. Simply sign up and you get a snapshot each month. You are also entitled to three free credit reports per year through AnnualCreditReport.com, and it’s a good idea to get in the habit of ordering them and reading them carefully.

Explore all the ways you can get your credit report free of charge, all the ways you can request it, and which services to stay away from: Where to Get Your Free Credit Report.

Your credit score has a significant influence on your life, and the earlier you start building it, the more it can work for you. Understand where your credit score comes from, build it one step at a time, and the day will come when you’re glad you did. Remember, the time to start building your credit is well before you need it!

The post 8 Best Ways to Build Credit at 18 appeared first on FinMasters.

FICO® and VantageScore Credit Score Ranges

Credit scores are provided by two major companies: FICO® and VantageScore. They calculate scores using slightly different formulas and group their scores in slightly different ranges.

Both FICO® and VantageScore divide credit scores into ranges that define general risk brackets. Lenders use these ranges to help them decide what credit terms to offer.

Did you know you have more than two credit scores? In fact, you have over 30 of them. Here’s a list of all types of credit scores you should know, along with their credit score ranges.

Excellent

The credit score range for “exceptional” borrowers is 800 to 850 for FICO®.

For VantageScore, a score of 781 to 850 will put you in the “excellent” credit score range.

Borrowers in this range will have no problem getting approved for loans or credit. You’ll receive the best lending terms offered, including the lowest interest rates and fees. If your credit score is exceptional, lenders roll out the red carpet!

Only 1.2% of Americans have an exceptional credit score of 850.

Very Good

If your FICO® score is between 740 and 799, you fall into the “very good” category.

VantageScore does not have a range with a “very good” designation.

Individuals who fall in this range often qualify for better interest rates on loans and credit cards, and will generally have an easier time with the lending process. 

Good

A score from 670 to 739 falls into FICO’s “good” category.

The VantageScore “good” range is 661 to 780.

If your score is within this range, you are close to the national average (the current FICO® average for Americans is 714). Lenders see a score in this range as an indication of an acceptable borrower and it will qualify you for most loans and credit cards. You may not receive the best available terms, and you’re likely to pay a higher interest rate than borrowers with very good or exceptional credit scores. You may not qualify for highly selective premium credit products.

Fair

FICO® scores that range from 580 to 669 fall into the “fair” range.

The VantageScore “fair” range is 601 to 660.

This range may disqualify borrowers from some loans. Some lenders may class borrowers in this range as subprime. Some lenders may not approve your application at all. If they do approve your application they may offer a higher interest rate than borrowers with better credit would get.

Poor

FICO® doesn’t have a “poor” classification, but VantageScore does. VantageScore rates a credit score between 500 and 600 as poor.

It will be difficult to get credit with a poor credit score. Lenders who do approve you will charge very high interest rates.

Very Poor 

A FICO® score between 300 and 570 is considered “very poor”.

This is often caused by bankruptcy or other major credit problems. Most lenders will not extend credit to applicants with scores in this range. If you’re applying for a credit card, your only option may be a secured credit card where you put down a deposit equal to the amount of the spending limit. Utilities will probably require a deposit.

No Credit

As many as 26 million Americans have no credit score and another 19.4 million have thin credit files.

Having no credit can be even more frustrating than having a low score, especially if you have no debts and your finances are in good order. If you don’t have a credit score, it’s probably because you have a “thin credit file,” which means you don’t have much credit history or activity. If you have no credit information on file or there is not enough information on your credit report to generate a score – you will have no credit score.

Some Lenders Use Their Own Ranges

Many lenders adopt the ranges used by FICO® and VantageScore. Others may develop their own classifications. Major lenders may use different ranges to classify potential borrowers by risk level. Many lenders publish their credit score ranges or provide them on request.

If you’re considering applying for a credit card or a significant loan, find out what score ranges the lenders you’re considering use. Check your score and see where you fit. Don’t just consider the minimum standard for approval. Check the ranges that the lender uses to determine interest rates.

Fitting into a higher range can get you significantly lower interest rates, and that can save you money.

Know Your Credit Score Range

The concept of credit score ranges may seem unfair at first glance.

If your FICO® score is 660 you may wonder why you get offered the same loan terms as a borrower with a score of 590 but less attractive terms than a borrower with a score of 670. Some lenders will adjust terms according to your position within a range, but in many cases, the range defines the terms you are offered, fair or not.

If your score falls at the upper end of a lender’s range, ask whether they will give you a break and put you in the higher range.

They may agree, especially if your financial record is generally good. If they won’t, look into other comparable lenders. You may find one that breaks up their score ranges in a way that’s more favorable to you.

If you don’t find a lender that will fit you in a higher range, consider waiting and trying to improve your credit score. A little time and effort could save you real money, and once you start working on building your score you can keep on building it and move into an even higher range.

It is possible to build better credit. If you understand how credit scores are calculated and take a few simple steps, you can improve your credit score. You can rebuild a damaged credit score or start one if you haven’t got one. You may have to wait a bit for that loan or credit card, but you may be doing yourself a big favor!

The post Credit Score Ranges: What They Mean and Why They Matter appeared first on FinMasters.

Then reality hits. You’re out of school and working. The minimum payments you’re making seem to have little to no effect on the loan balance. You pay every month and the debt load barely seems to diminish. The payments become a constant mental load and a constant drag on your finances.

This scenario has become all too common. With over 42 million Americans now carrying federal student loan debt, averaging $37,584 per person^[1], student loan debt is an omnipresent reality. That doesn’t even include the more than $130 billion in outstanding private student loans. 

The CARES Act of 2020 provided some relief to borrowers of federal student loans. From March 2020 to January 2021, your federal student loan borrowers are granted a forbearance, where payments are temporarily halted. If you continue to make payments, the interest rate is 0%. But with the program expiring and its continuation in limbo, millions of Americans are now facing resumed payments.

Despite government legislation and an armload of statistics, student loan debt is personal. There are several ways to attack student loan debt, and any of them can have you free of student loan debt once and for all. You just have to choose a strategy that fits your individual needs.

Let’s review some steps that can help you find solutions that work for you.

1. Understand Your Student Loans

Before you develop a strategy for loan payoff, you have to understand what you’re working with. Take time to pull together the details of what you owe. You should know:

• What type of loans you have (federal, private, personal).
• The interest rate of each loan and whether it is fixed or variable.
• The balance remaining on each loan.
• The term length of each loan.
• The minimum monthly payment on each loan.
• The total amount of the loan to be paid, including interest.

Having this information at your fingertips will give you a sound basis for developing a debt payment strategy.

2. Payoff Strategies: Avalanche vs. Snowball

There are two main strategies for paying off student loans. One is called the snowball, the other is the avalanche. The goals of paying off debt are the same for both, but the approach is different.  

The Avalanche

The avalanche method requires you to pay off the loan with the highest interest rate first, preferably applying all available money in your budget towards it. While you’re doing this, you make only the minimum payment on all other student loans. Once you’ve paid off the first loan, you move on to the loan with the second-highest interest rate. Once the first loan is paid off you won’t have to make that payment anymore. Roll that money over into paying off the second-largest loan. 

This method knocks out high-interest loans first, which means you pay less in interest over the long run. This method also means you might not see real progress against your loans for a while. It’s easy to get discouraged when you feel like you’re not seeing results. 

Learn more about the debt avalanche method →

The Snowball 

With the snowball method, you pay off your loans from smallest to largest. Your first goal is to put all available money towards your smallest loan, while making only minimum payments on the other ones. 

The snowball method lets you see results quickly. Retiring those smaller loans will motivate you to keep paying and tackle the next one on your list. Your total interest cost may be larger than it would be with the avalanche method, but you might pay your debt off sooner since you’re more motivated to stick with the snowball strategy.

Learn more about the debt snowball method →

There’s no right or wrong answer to which one of these strategies to use. You have to decide which method will work best for your debts, income and personality. If you’re easily motivated by “instant” gratification, the snowball might be better. If the thought of paying a penny too much in interest gnaws at you, you might prefer the avalanche. 

It’s important to keep making progress no matter which method you choose. If one doesn’t work for your situation, reevaluate and make changes.

3. Refinancing and Debt Consolidation

Debt consolidation and refinancing are not payment strategies, but they can help you manage your student loans. You can use these methods in conjunction with the snowball or avalanche payoff strategy. 

Debt consolidation and refinancing are often lumped together, but these two terms have different meanings.

Student Loan Refinancing

Refinancing involves taking out a new loan at a lower interest rate and using it to pay one or more old loans. If you took out private student loans when you were young and your credit was poor, refinancing may be a viable option. Interest rates are at historic lows, and if your credit has improved you may be able to get a new loan at a substantially lower rate. 

If you’re thinking of refinancing you may want to check with several lenders to see what rate and loan costs they offer. Be sure to consider any fees in your cost assessment. Work through the numbers to see how much you’ll save.

Be sure to consider the term of your new loan. A longer term can lower your monthly payment, but it can also leave you paying more in total interest even with a lower rate. That may be an acceptable trade if your monthly payments are stressing your monthly budget, but always consider the total cost of the loan and the disadvantages of being in debt for a longer time.

Refinancing can be a viable move if you are paying private loans with relatively high interest rates. Before you make the move, think it through and be sure you’re saving enough to make it worth the effort.

Use our Student Loan Refinance Calculator to see how much you could save by refinancing your student loans.

Debt Consolidation

Debt consolidation is the process of combining several loans into one monthly payment. If you have multiple federal student loans you can consolidate them with a Direct Consolidation Loan. This is also a federal loan and you will retain all of the privileges that come with federal loans. You will not get a lower interest rate, but you will simplify your payment process, as you’ll only be making one payment a month.  

You can also consolidate private loans. If you consolidate private loans with another private loan, you are effectively refinancing several loans at the same time, and the considerations for refinancing should also be applied.

Use our Debt Consolidation Calculator to see how much you can save with a debt consolidation loan.

4. Use Automatic Payments

Many private lenders offer a slight deduction on your interest if you make your payments with an automatic deduction from your bank account. While it may not seem like much, the discount could add up to hundreds of dollars in savings over the life of your student loan.

If you choose to refinance your loans, search for a lender offering this option. In case that refinancing isn’t an option, contact your current lender and see if they offer a rate deduction for automatic payments.

If you have scheduled an automatic payment on your student loan, make sure you have enough in your account to cover it. Your bank may cover the shortfall but they’ll charge a hefty fee for it. That money is better off in your pocket.

Automatic payments can also help you protect your credit score. On-time payments have a significant impact on your credit score, and forgetting a payment can do real damage. Automatic payments can prevent that.

5. Make Bi-Weekly Payments

Another strategy for your student loans is to make payments every two weeks instead of paying monthly. If you make half of a monthly payment every two weeks you’ll make 26 half payments or 13 full payments every year instead of the 12 full payments you’ll make if you pay monthly. That extra payment will retire your loan faster, which will save you money on interest and get you out of debt faster.

This strategy works particularly well if you receive your salary on a bi-weekly basis. Even if you don’t, it’s worth considering.

You can see the difference this payment method makes by inputting your loan information into our Bi-weekly Loan Payment Calculator.

6. Apply Additional Payments Towards Principal, Not Interest

If you have extra money to put toward your loans, make sure you apply anything beyond the minimum to the principal of your loan and not the interest. If you have federal student loans you can generally indicate this preference on your loan servicer’s website. Contact the servicer and ask if this option is available if you don’t see it on their website.

Your interest payment goes straight to the lender. If you apply additional towards your principal, you’re reducing the balance and cutting the amount you’re getting charged interest on. This is particularly important if you’re using a strategy such as snowball or avalanche and are putting all available income towards your student loan(s). 

13 Tips for How to Pay Off Your #studentloandebt

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7. Take On a Side Gig

Not all student loan payoff strategies involve looking for ways to reduce your payments. You can also try to bring in more income to put even more towards your loans.

Taking on a side gig has taken on a whole new meaning in the American economy. With over 45% of Americans claiming some sort of side hustle, it’s become the new norm^[2].

Taking on a side hustle in college and putting your earnings towards your student loans can get you out of debt earlier. You’ll also pay less in interest if you’re able to pay off your loans early.

The key to a successful side gig is to choose something you enjoy. If you dread doing the extra work, then you’re likely to find a reason to quit. A side gig can offer you a creative outlet or chance to interact with new people, in addition to bringing in extra income.

Side gigs take on many forms. For example you could:

• Drive for a rideshare service (Uber or Lyft)
• Sell items online
• Create an Etsy account and sell creative items
• Start a blog
• Teach an online course
• Become a virtual assistant
• Social media manager for a small business

This list of side hustles barely scratches the surface. You are only limited by your imagination. And while it may seem hard to balance your full-time job and a side gig, remember, this is only a temporary situation until you meet your debt payoff goals.

8. Use a Budget

A budget is one of the most important tools in your debt payment kit. If you know where your money is going and you have a plan for every dollar you earn it will be much easier to set aside the money you need to implement a debt payment strategy.

There are numerous budgeting methods. Choosing a budgeting strategy is a personal choice. Whatever method you use, the goal is the same: understand how much money you’re bringing in and control where it’s going.

When you use a budget, you’re creating a framework for your spending. Once you understand where your money is going, then you can see in black and white how much you can put towards your student loan payoff.

For instance, if you discover that you’re spending $200 per month on entertainment subscriptions between cable, Netflix, DisneyPlus and all the other apps, then you can make a decision about your future spending. You might decide to cut out your cable bill and add that money to your loan payment.

It’s your choice, but you won’t know how to make this decision without the help of a budget. 

See just how easy it is to start budgeting. Use our online Budget Calculator to quickly get an overview of your finances.

9. Don’t Obsess Over Student Loans

One of the key elements of budgeting is prioritizing your payments effectively. Some people get so focused on paying student loans that they put every available dollar toward that goal. That sounds like a great idea, but sometimes it isn’t. If you’re carrying a credit card balance at 22% annual interest and your student loans average 6%, there’s no logic in making the minimum payment on your credit card and putting extra money into your student loan payment. You’ll just end up paying money in interest on your credit card balance that could have gone to your student loan.

You need to place your student loans in your overall financial picture. If there are other goals that make financial sense – like paying off higher-interest loans or setting up an emergency fund – don’t hesitate to prioritize them.

10. Reward Yourself

Paying off student loans is hard work. It takes sacrifice. There are times you have to say “no” to friends , family, and even (or especially) yourself.

That doesn’t mean you shouldn’t reward your progress. Set up payoff goals along the way, such as paying off $5,000 or $7,500. When you hit this goal, give yourself a reward. Maybe it’s a dinner out at a restaurant you’ve been dreaming about or it’s a trip to a local winery. Whatever it is, make it something you enjoy and wouldn’t normally do for yourself.

Build this into your budget and you won’t have any excuses not to achieve your goals.

11. Some Months are Harder Than Others

No matter how much you plan and how much detail you put behind your strategies, there are some months it may be more difficult to stick to your student loan payoff goals. Unexpected expenses will arise, and there may be months when you fall short of the goals you set for yourself.

When this happens, accept it and move on to the next month. If it happens once in a while it’s not a big deal: life’s like that. If it’s happening on a regular basis you may need to review your budget and your payment strategy to see if you need to make changes. You’re in it for the long haul, and that means sticking to a plan. Refine your plan if you have to, but don’t give up!

12. An Emergency Fund Helps You Stay on Track

One strategy to help you stay on track with your monthly payments is to have an emergency fund in place as you begin to pay down your student loans. If you have an emergency fund your progress towards your student loans won’t be derailed when your car breaks down or your washing machine floods your apartment. Having savings on hand to cover these instances lessens the chance of you stop payments towards your loans.

It may seem counterintuitive to set aside $1,000 in savings instead of using it to pay your debts, but an emergency fund can help you avoid reaching for a credit card and going further into the hole. That helps your debt payment strategy in the long run.

13. Find the Strategy That Works for You

Anyone can say “my goal is to pay off my student loans”. Putting a plan behind that goal is what makes it achievable.

Paying off student loans early is absolutely possible. The key to success is to find a strategy that works for you. That means understanding your loans, your budget and your finances. You’ll need to use that information to develop a strategy and you’ll need to have the discipline to put that strategy into effect and stick to it. It won’t be easy, but if you’re willing to put in the effort you can be out of debt sooner than you ever thought possible.

The post 13 Tips for How to Pay Off Your Student Loan Debt appeared first on FinMasters.

1. Face Reality

The first step is to face facts. After all, you can’t deal with your current financial situation if you don’t know exactly what’s going on. So how do you deal with your finances head on?

Start by making a complete list of your debts. Write down how much you owe, to whom you owe it, your current interest rate, the due date and the amount you owe each month. List this information on a spreadsheet, a whiteboard, the back of a napkin, anywhere you can easily access the information. You need to know how much debt you’re truly dealing with, and on what terms.

It’s important to deal with concrete numbers as you’re getting out of debt. Don’t make the mistake of guessing what you owe. Write it down and don’t look back!

The second part of facing the facts is to look at your current income and spending habits. You need to know how much you’re bringing in and where your spending occurs each month. Spend time tracking every dollar, whether you put it on a credit card or pay cash.

This is a perfect time to get your spouse or partner involved, if you have one. It’s good for both of you to look at how much you owe and attack the debt together.

2. Develop a Plan for Getting Out of Debt

Now that you have a clear picture of your debts, it’s time to develop your plan for debt payoff.

There are several ways to pay off debt. There are many debates over which strategy is best, and the pros and cons of each method. Here is a snapshot of the most common payoff strategies.

Debt Snowball

The debt snowball method involves prioritizing your debts from smallest to largest. Pay off your smallest debt first, only paying the minimums on your other debts. Then proceed to the next smallest.

Successfully retiring one debt can give you the motivation you need to tackle the rest, as well as freeing up money to apply to your next debt.

The Avalanche

The debt avalanche method requires you to pay off the debt with the highest interest rate first. Focus on that and pay the minimum amount on all others. When you’ve paid off that debt, you focus on the debt with the next highest interest rate.

You’ll pay less money over time in interest, but it can take a while to see progress.

Debt Consolidation

If you have many debts and keeping track of the payments is an issue, consider debt consolidation. You can take out a loan, pay off multiple debts, and make a single monthly payment on the new loan. You can also transfer existing balances to a credit card with a 0% APR promotional period and pay off the debt before the promotion expires.

If you own a home you can use a home equity loan, a home equity line of credit or cash-out refinance to consolidate debt. All of these methods have advantages and disadvantages, so assess them carefully before making a choice!

Debt Relief

If your debts are out of control you may need to take more aggressive action, like credit counseling, a debt management plan, debt settlement, or even bankruptcy.

All of these methods have potential drawbacks, so read up on debt relief options before you commit to any of them.

Tools like our Loan Payoff Calculator and Early Payoff Calculator can be useful when developing a plan for debt payoff.

The most important part of paying off debt is to take action. Whatever method you choose, developing a plan and putting it into action are critical to your success. 

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3. Cut Your Spending

No one said getting out of debt would be easy. To get out of debt you have to be ready to make tough decisions and stick to them. You have to stop spending money you don’t have and apply all available resources to pay down your debt.

First and foremost, you must limit your use of credit cards. You can’t get out of debt if you keep piling on new debt. Don’t put anything on a card that you can’t pay off in full on or before the due date.

If you’re in the habit of using credit cards because you don’t have enough money to make essential purchases, work on building up an emergency fund.

Experts recommend having three to six months worth of living expenses in your emergency fund, but even $500 or $1000 can help you avoid taking on more debt if things get tight.

To figure out just how much you need to put away in emergency savings use our emergency fund calculator.

Common Ways to Cut Spending

There are multiple ways to decrease your spending, even if you feel your money is already tight and you don’t have any “wiggle room” in your budget. Consider these ways to cut spending.

• Cancel the gym membership: Learn to work out at home or outside. 
• Learn to coupon: Gone are the days of clipping coupons, although you can still find paper coupons if you want. It’s easy to find sites online to clip coupons for your trip to the grocery store.
• Shop sales: Grocery stores typically put items on sale every 4-6 weeks When this happens it’s a smart idea to stock up. Focus on purchasing items when they’re on sale and avoid paying full price if possible.

Consult our guide on the best days to shop to find out when is the best time to shop for particular items and when the biggest sales are.

• Cut the cord: Entertainment can be a big-time money waster. Look at cutting out cable or satellite charges, even if it’s only temporary. The money you save each month should be put towards debt. You can add the service back when you’re out of debt.
• Lower your bills: You may be paying too much for cable, internet, or your cell phone. Most people don’t know that you can call up your providers and try negotiating lower prices. Haggling over bills isn’t fun, and many people don’t want to do it. That’s why there are now companies that specialize in bill negotiation and can help you out for a small fee. 
• Audit your subscriptions: A $5 per month charge here, a $10 monthly charge there. The monthly subscriptions add up quickly and before you know it, you’re sabotaging your spending. Audit your subscriptions and cut as many as possible. Remember, you can try them again once you’re out of debt.
• Cut out the expensive coffee: If you have a Starbucks habit (or any other habit similar to this), then it’s time to learn to make coffee at home.
• Find free ways to have fun: Getting out of debt doesn’t mean your life has to stop. There are plenty of free activities to enjoy while you focus your spending on paying down debt. Look for free events such as concerts or festivals. Cutting your spending on expensive hobbies and focusing on free activities can generate money that can help you pay off debts.

If you’re looking for more ways to cut spending, try tracking every expenditure, no matter how small. for a month or more. You’re likely to find significant spending in places you were barely aware of.

Further reading: How Much Can You Save in a Year?

4. Add Income for Debt Payoff Acceleration

Once you’ve cut the unnecessary spending from your budget is, consider adding extra income. The more you earn, the faster you can pay off your debts. There are several creative ways to bring additional money into your monthly budget.

Sell Stuff

If you have junk lying around your house, it’s time to get rid of it. Not only does this declutter your living space, but the money you earn from selling unnecessary items can be put towards your debt. 

Try listing items on places such as Facebook Marketplace or Mercari, or have a massive yard sale. 

Take On a Side Gig

Taking on a side hustle or a gig is a fantastic way to add extra income to your bottom line. You won’t be alone while you’re doing it: currently 45% of Americans have some sort of side gig, with many of them reporting making over $500 a month^[2]. 

If you’re not sure where to begin, start with your interests and hobbies. You may be able to monetize them. Look for opportunities that require very little investment or start-up costs. There are opportunities around every corner, you only have to put forth the effort to find a gig and get started. You could:

• Sell items on eBay or Amazon
• Become a driver (Uber, Lyft, UberEats, Shipt)
• Offer freelance services (writing, web design, graphic design, photography)
• Teach a local or online class
• Add your profile to TaskRabbit
• Become a consultant
• Be a virtual assistant
• Pet sitting or dog walking

These are only a few of the many ways to earn extra money. Your options for adding a second income are virtually endless.

When you do earn extra income, use it to pay off debt instead of spending it.

Ask For a Raise

If you feel that you qualify for a raise in your current position and you have the facts to demonstrate your solid performance, then it may be time to ask for a raise. It can be uncomfortable, but the worst that could happen is your supervisor says no. If you do get a raise, use the additional income to pay off debt.

5. Create a Budget and Stick to It

A budget is the most important weapon you can have in your war on debt. A well-crafted budget balances your income and spending and makes sure you have money set aside for paying off those debts. If the thought of creating and using a budget evokes thoughts of endless spreadsheets, don’t worry. There are several budgeting methods available and you should take time to review which one works best for your situation. 

To make a budget method successful, you should:

• Use technology to your advantage: Today’s digital world means you have your choice of budgeting tools right at your fingertips. Many apps are available to help you track your spending while you’re on the go.
• Get your family involved: Let your kids know what’s going on. Get them involved and let them see you track the progress your family is making. Not only does this help you stay accountable, it shows your kids how to work towards a goal and make progress along the way.
• Learn to say no: There are times you have to say “no” to your friends and family. It’s not fun and it won’t be easy, but it’s better than spending money you don’t have. The sacrifices you’re making now to get out of debt won’t last forever. There will be a time in the future when you can spend more on discretionary items, but while you’re paying off debt the word “no” needs to be a part of your vocabulary.

If you don’t get your budget right on the first try, don’t worry. Very few people do. See what went wrong, fine-tune the budget, and move on. Learn from your mistakes and use them to develop a budget and a budgeting system that work for you.

Use our online Budget Calculator to quickly compare your current income to your spending.

Free Monthly Budget Spreadsheet Template

• This simple monthly budget template makes budgeting fun and exciting.
• Easy-to-follow instructions so you can get started budgeting in no time.
• Access your budget online from anywhere. See all features

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More Strategies for Getting Out of Debt

If you are adopting a new lifestyle but you still find your money is in short supply, it may be necessary to consider big, life-altering changes. These aren’t popular ideas, but if you can make them work you may be able to get out of debt sooner than you expected.

Find a New Job

If you have the skills and experience to make more money than you’re making now, don’t be afraid to look for another job. This is a long-term solution, but it can be effective. Don’t be afraid to let your debt payoff motivate you to find a better job.

Don’t wait on your new job to start making lifestyle changes and taking action against your debt. A new job with a higher income means you have more money to put towards debt payoff, but your payoff plan and actionable steps remain as the foundation. 

Move to a Less Expensive Location

It’s no secret that some cities are more expensive than others. If you have the option to move, it’s worth considering as a strategy to help you pay down your debt. If a new city has a lower cost of living a move could help you with your big goals.

Another word of caution though: moving is expensive. A long-distance move costs an average of $4,950^[3], so this should only be considered if you can move without going further into debt.

Sell Your Car

If you have less expensive options for transportation, or you’ve transitioned to working from home, it may be time to consider selling your car. Cars require more than just a car payment. You’ll also face maintenance costs, repairs, insurance, and parking costs. Going carless can give a big boost to your debt payment program, and once you clear your debts you can consider rewarding yourself with a well-chosen affordable vehicle.

Final Thoughts on Getting Out of Debt

Tackling your debt is a three-part process: Understand your debts, make a plan, and put your plan into action. It’s not as easy as it sounds. It takes hard work, persistence, and discipline. But with a solid plan and a willingness to make changes in your lifestyle, your goal of getting out of debt in 2022 can become a reality. The goal is worth the effort!

The post How to Get Out of Debt for Good: The 5-Step Debt-Elimination Plan appeared first on FinMasters.

5 Best Budgeting Methods

There’s no right or wrong budgeting method. Choosing a realistic method that fits your needs will make it easier for you to follow your budget and realize the advantages of budgeting.

As you read through these five budgeting methods, envision how each method would fit in your life, and consider whether the method would fit your personality and financial situation.

1. The Zero-Based Budget 

A zero-based budget is ideal for those who have a predictable income and fairly predictable expenses. You start with your income at the beginning of the month (or whatever time period you need). You list each expense for the time period and subtract it from your income. If you have any “leftover” income that doesn’t fall into a specific category, you need to allocate the money. The idea is to allocate each dollar until you reach $0, which is where the name zero-based comes from.

With this method, one large unexpected expense can throw your math completely off course. If you go with the zero-based method, it’s a smart idea to have an emergency fund or cushion in your checking account. On the other hand, it forces you to track every expense so you know where your money is going at all times.

2. The Envelope System

Another budgeting method that’s very similar to the concept of zero-based is the envelope system. The idea is the same: you begin with your income and subtract each of your expenses until all your money is allocated. What’s different is that you put as much of your money as possible in cash, literally in an envelope.

As clunky as this method might sound, it remains popular with those who are trying to curb their spending habits in categories such as groceries, fuel, and entertainment.

If you allocate $100 per month towards fuel, you would withdraw $100 cash and put it in an envelope. Anytime you need fuel, you reach for cash from your envelope marked “fuel.” When you need to pay, you can only pay for it from your designated envelope. Once you run out of cash for the category, that’s it. You have to wait to replenish it when you receive more income. 

If you have money left in an envelope at the end of your budget period, you roll it into the next month or put it towards a goal (like paying debt or padding your savings). If you have an emergency and need the cash, instead of taking from an envelope like fuel, you use your emergency funds.

This method has been championed by several personal finance experts including Dave Ramsey. Recently, this budgeting method experienced quite a revival. In 2021 and 2022, videos showcasing the envelope system, rebranded as “cash stuffing“, had over 500 million views on TikTok.

It forces you to be disciplined with your money and stop yourself from overspending. But the method can be tough for some who find keeping up with envelopes cumbersome and inconvenient.

3. The 50/30/20 Budgeting Method

If you’re looking for a budgeting method that isn’t as detailed as the zero-based or the envelope system but still guides your money, then the 50/30/20 might be for you. The categories break down like this:

• 50% necessities 
• 30% discretionary
• 20% for savings and/or debt repayment

The key to making this budget work is your definition of needs and wants. As long as you define these early on, you shouldn’t have any issues.

You can change the percentage of the categories to better reflect your current needs. For instance, if you have a large student loan you want to aggressively pay off in 12 months, you would increase the 20% for debt repayment to meet this goal and take money from another category to cover it. 

Use our 50/30/20 budget calculator to estimate how you should divide your monthly income using this budgeting method:

4. Pay Yourself First or 80/20 Budget

This budget is designed for those who need extra discipline to save money. Any time you receive income, you pay yourself first by putting a designated amount towards your savings or retirement accounts.

You can apply this same method to debt repayment as well. You might see it referred to as the 80/20 budget:  20% would go towards your savings (or debt) goal and the remaining 80% covers all other items.

With the remaining money, you pay for your necessities and your discretionary items, but you don’t track every dollar. The reason you don’t have to watch every remaining dollar is because you’ve already paid your two most important categories first. This is a good option for those who want to aggressively build up their retirement or savings funds, or pay off debt. It’s also ideal for those who don’t like to track all their expenses on a daily basis.

5. Reverse Budgeting

This method is similar to the Pay Yourself First idea of budgeting. With reverse budgeting, you focus on one major money goal each month, usually a different goal each time. You would still follow the 80/20 rule, but the 20% you designate goes toward a different goal every month.

Examples of your goals might look like one of these:

• Add $500 to your emergency fund
• Pay off a $400 credit card balance
• Add an additional $500 to your 401(k)

Once you put the designated amount towards your goal, your remaining income covers the rest of the expenses. Like the 80/20 budget, since you’ve paid yourself first, you don’t have to track every expense going in and out. 

Like the Pay Yourself First, this is ideal for those who don’t want to bother with tracking every expense but need aggressive measures to achieve their money goals.

Free Monthly Budget Spreadsheet Template

• This simple monthly budget template makes budgeting fun and exciting.
• Easy-to-follow instructions so you can get started budgeting in no time.
• Access your budget online from anywhere. See all features

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Why It’s Worth the Time to Find the Right Budgeting Method

78% of Americans admit that they live paycheck to paycheck^[1], which makes them vulnerable to any financial emergency. Building and following a realistic budget is the key to breaking out of that paycheck-to-paycheck pattern. A budget will help you allocate money to specific categories and build an emergency fund. If you stick with your budget and manage it well you’ll soon be saving money for emergencies, pursuing goals like buying a new car or a home or even preparing for retirement.

A budget gives you control over your money. When you’re tracking your expenses and you know what’s coming and going, you are less likely to face those money surprises that throw us off track.

A budget is only a tool. If you choose the right tool and use it well, it will help you. If you don’t, it’s nothing more than addition and subtraction. Budgets are often based on unrealistic expectations about money, and that makes them difficult for some people to follow. The key to the right budgeting method is finding one you can use on a daily basis and basing it on realistic numbers and expectations.

How to Choose a Budgeting Method?

Budgets are personal. This means you should choose a budget method that works with your strengths and fits your income and spending habits. You know yourself and your goals better than anyone.

Once you’ve clearly defined your own money goals, both short-term and long-term, then you can narrow down the budget method you think would work best.

The most productive way to start your budget is to track your actual spending. This will show you the habits you need to adjust and allow you to base your budget on real, concrete numbers. When it comes to budgets, vagueness and guesswork are surefire ways to set up unrealistic expectations. Almost everybody who tracks their daily spending finds significant expenses they didn’t know they had. Building a budget on an unrealistic spending estimate can easily lead to frustration and even giving up on budgeting.

Get started right away! Use our online Budget Calculator to see how much money you have coming in and what you’re spending it on.

If one of these budgeting methods ends up not working for you, it’s okay to try a different one. You may have to work through a few until you find the right one. You’ll know you’ve found the right budgeting method when you learn to stick with it and start making progress towards your money goals.

The post Budgeting Methods: 5 Types of Budgets Explained appeared first on FinMasters.

What Is MediCredit?

MediCredit is a debt collection agency.  Their sole purpose is to collect debts that creditors have failed to pay.

As the name implies, MediCredit collects debts for doctors’ offices, hospitals, and other healthcare providers. These companies use agencies like MediCredit to collect from customers who have not paid.

Here’s What You Can Do

New Federal debt collection regulations took effect on Nov. 30, 2021. The new rules will have a far-reaching impact on the debt collection industry. If you have delinquent debts or accounts in collection these rules will affect you.

Learn more about Regulation F and what will it mean for consumers with debts.

If you’re hearing from MediCredit – or any collection agency – there are things that you can (and should) do. There are also two things that you should not do:

• Don’t panic. It won’t help.
• Don’t ignore the situation. That won’t help either. They won’t go away.

That’s what you shouldn’t do, but what should you do?

Here’s where to start.

1. Know Your Rights

The Fair Debt Collection Practices Act (FDCPA) spells out your rights. Here are some key points.

• A debt collector cannot call you before 8AM or after 9PM.
• A debt collector cannot call your place of employment.
• If you have a lawyer, the collector must communicate with your lawyer.
• A debt collector may not communicate with your friends or family members or tell them about your debts.
• Debt collectors cannot threaten to harm you, your reputation, or your property, or use profane language.
• Debt collectors must identify themselves and the company they represent. They cannot claim to be law enforcement or other officials.
• A debt collector cannot threaten you with imprisonment or seizure of assets.

For a full review of your rights under the FDCPA see this summary from the Consumer Financial Protection Bureau (CFPB).

If you believe that a debt collector is violating the rules, you can report them to the FTC, the CFPB, and your state’s attorney general.

2. Validate and Verify the Debt

Under the new regulations that came into effect on Nov. 30, 2021, debt collectors must send you a Notice of Debt within 5 days of their first contact with you. This notice must contain much more information than the notices that collectors sent under prior rules.

If the notice is incomplete, it is invalid, and the debt isn’t collectible. That makes it important to know what’s required.

A valid Notice of Debt must contain an itemization date. This can be one of five different dates.

• The date of the last statement or invoice provided to the consumer by the creditor.
• The charge-off date.
• The date of the last payment applied to the debt.
• The date of the transaction that gave rise to the debt.
• The judgment date, if there is court judgment on the debt.

This date will help you establish whether the Statute of Limitations on the debt has expired and when it will drop off your credit report.

The Notice of Debt must also contain extensive information about the debt:

• The debt collector’s name and mailing address.
• The consumer’s full name and mailing address.
• If the debt is related to a financial product (like a loan or credit card), the notice must contain the name of the creditor to whom the debt was owed on the itemization date.
• The account number associated with the debt.
• The name of the creditor to which the debt is currently owed.
• The amount of the current debt and an itemized list of any payments made and added fees, interest, or other charges.

The Notice of Debt must contain a statement advising you of your rights under the Fair Debt Collection Practices Act (FCPA), including a statement that you have the right to dispute the debt within 30 days of receiving the letter.

The notice must also contain a returnable form allowing you to declare that you are disputing the debt and allowing you to select one of three reasons for a dispute:

• This is not my debt.
• The amount is wrong.
• Other (you will need to supply additional information.)

The CFPB has published a sample Notice of Debt that will help you determine whether the one you receive is complete.

Why It’s Important

Many debt collectors who purchased debts before the new regulations came into effect will not have the required information. They may not be able to get it from the original creditor. They may still try to bluff or intimidate you into paying them or admitting that the debt is yours.

If you receive a Notice of Debt, examine it in detail to make sure it complies with the law. If it doesn’t, inform the collector that you will not discuss the debt until you receive a Notice of Debt that complies with Regulation F.

Always Dispute the Debt

If you do not dispute the debt within 30 days, it is presumed valid. Always dispute debts held by collection companies.

If you are using a dispute or debt validation letter template, be sure that the template is designed for notices received after the implementation of Regulation F on Nov. 20, 2021. Much of the information that debtors used to ask for is now required in the Notice of Debt.

Send the debt collector a certified letter addressing these issues.

• Ask for documentation that verifies that you owe the debt, such as a copy of the original contract.
• Ask whether the statute of limitations on the debt has expired. The collector doesn’t have to tell you, but they can’t lie. If they won’t say, the statute of limitations may have expired.
• Ask whether the agency is licensed to collect debt in your state. Again, the collector is not allowed to lie. You can ask for the date of the license, the license number, and the state agency that issued the license as well.
• A copy of the last billing statement sent by the original creditor.

Send the letter to MediCredit by certified mail.

Once you receive the debt validation letter, you have 30 days to send your debt dispute letter.

Remember that even if you know the debt is yours, the more important issue is whether they know it’s yours.

Because guess what?

If they can’t prove it’s yours, they can’t collect it or report it to the credit bureaus.

They might not be able to come up with that proof.  Remember, MediCredit probably purchased your debt, in bulk with a bunch of other debt, from the original creditor.

Who knows what was lost in the shuffle?

The onus is on them to provide proof. If they can’t, they’re required by law to remove it from your credit report.

Remember the Statute of Limitations

Always check the date of the debt against the statute of limitations in your state. If the statute of limitations has expired, the collector cannot pursue legal action against you.

The statute of limitations clock begins on the date when the debt was first reported as delinquent.

Remember that making a payment or acknowledging that the debt is yours can restart the statute of limitations.

The expiry of the statute of limitations will not remove an account from your credit record. If the statute of limitations has expired or will expire soon, there’s a good chance that the seven-year period of appearance on your credit record is also nearly up.

If the statute of limitations is nearly up, your best bet might be to just wait it out.

3. Stop Calls from MediCredit NOW

Before Nov. 20, 2021, you could get as many as 15 calls per day from a debt collector, according to a Consumer Credit Card Market Report.

That’s way too many.

That has changed. Regulation F places strict limits on collection calls.

• A debt collector cannot call you more than seven times within seven consecutive days.
• If a debt collector speaks to you on the phone, they must wait seven days before calling again.

Debt collectors can now contact you by email and text message as well, but you can tell them how they are permitted to contact you and when.

You can stop all communication from a debt collector.

Follow these simple steps to stop the calls.

1. Write a “stop contact” or “cease” letter telling them to stop contacting you.
2. Make a copy for yourself and mail the original to MediCredit.
3. To prove you sent the letter, send it by certified mail with “return receipt requested.”

Make sure you follow these exact steps.

If you do, the National Consumer Law Center states, “the collector can only acknowledge the letter and notify you about legal steps the collector may take.”

When you stop the phone calls, you get some breathing room. Remember that you still owe the debt, and the collector can take legal action.

Then you can tackle the next step.

4. Contest the Debt With the Credit Bureaus

If you believe that you do not owe the debt or that the collection agency has failed to validate the debt, you can file a dispute with the credit bureaus. You will need to dispute the account separately with each credit bureau.

Credit Reporting Bureau Mailing Addresses

You can also dispute it online:

• Equifax
• Experian
• TransUnion

The credit bureau must investigate and verify your debt. If they cannot, they must remove it from your credit record.

Remember that even if the debt is removed from your credit record, the collection agency can still pursue collection efforts.

5. Settle With A Pay For Delete Agreement

If the collection agency verifies the debt, a settlement is one way to resolve the situation.

Remember that debt collectors pay, on average, 4 cents for every dollar of debt that they buy. That gives you room to negotiate. A collector can accept less than you owe and still make a profit.

An article from U.S. News & World Report found that collection agencies will settle for between 40-60% of the balance – which could mean thousands of dollars saved.

You might offer 10% of your balance to see what they say.

They’ll probably ask for more, but don’t let them push you around. With a little negotiation, you can reach an agreement you’re comfortable with.

Quick Note: While a “pay-for-delete” agreement removes your debt record from your credit reports, it may not erase the “charge off” your original creditor reported on you.

A collection agency may agree to remove your account from your credit record if you settle your debt. This is called a “pay for delete” arrangement.

When you discuss a settlement, ask the collection agency representative if they will delete your record if you pay. Send a formal “pay for delete letter” to confirm the arrangement and ask for a written commitment.

Get Your FREE Pay for Delete Letter Template

After much testing, we have put written a great pay to delete letter you can use to get started.

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Get Everything in Writing

Again, get everything in writing. You want MediCredit to confirm they will not report your information to any of the 3 credit bureaus.

Be very specific in your emails with MediCredit. Leave nothing to guess.

Remember, you’re paying for total removal from your credit report.  Not just a mark that states this debt has been paid.  But an actual delete – as in, it’s gone forever.

Once you settle on an amount, you’ll need to make the payment. MediCredit will not delete anything unless the payment has been received.

After 30 days, verify your credit report and confirm the entry has been removed. If the debt is still on your report, your copies of your initial request along with receipts of the certified mail will be your best recourse. You’ll need to continue to contact MediCredit until the entry is removed.

Remember that you cannot compel a credit bureau to remove a legitimate account from your record. It will be recorded as paid, but it may remain on your credit report for seven years from the date when the account first became delinquent.

A pay-for-delete arrangement is a gamble. It may not work, but it’s worth trying. If the settlement is accepted, you will no longer have to deal with the collection agency, and that’s a big plus.

Why is MediCredit Contacting Me?

New Federal debt collection regulations took effect on Nov. 30, 2021. The new rules will have a far-reaching impact on the debt collection industry. If you have delinquent debts or accounts in collection, these rules will affect you.
Learn more about Regulation F and what will it mean for consumers with debts.

Will MediCredit Sue Me?

It is not uncommon for collections companies to file a lawsuit against you to collect the debt you owe.

If a collection company does file a lawsuit, you will need to respond to the lawsuit, or the judge may file a summary judgment against you. Read about other steps you should take in dealing with a lawsuit from a debt collector.

A judgment against you means you legally MUST pay back the money, and they could even take it directly out of your bank account.

Generally, if you are sued by a collection company, it is cheaper for you to settle than hire an attorney to defend a lawsuit you probably will lose in the long run.

However, if you truly don’t owe them money and you’ve attempted to show documented reasons why this is the case, you may need to hire an attorney to defend yourself.

You Can Get Professional Help

There may be several areas of your life you could use a little extra help. Credit repair is one of those.

If you’ve tried the steps above and haven’t had any luck, or if you don’t want to deal with MediCredit Inc. on your own, there are professionals who can help you.

The credit repair industry has earned a terrible reputation, and you’ll have to look out for disreputable companies and credit repair scams. There are still some companies that are legitimate and helpful.

Get Professional Help

We analyzed 21 credit repair companies based on price, service, and results, and picked our top three choices.

Best Credit Repair Companies

Free Yourself From MediCredit

Debt collectors will not go away on their own. They will keep harassing you, and you might end up in court. Running away is not an option.

Instead, take the initiative. Learn how to communicate with debt collectors and know your rights. You can control the process and the situation if you’re aware and proactive.

It’s not going to be a pleasant experience, but it will be a better experience if you’re in the driver’s seat!

The post 5 Easy Steps to Get MediCredit Collections Out Of Your Life appeared first on FinMasters.

What Exactly Is a Hard Inquiry?

When you apply for credit, the lender will “pull your credit”. This is known as a “hard inquiry.” The lender obtains your credit report and reviews it to decide whether they want to do business with you.

No business can request your credit report without your permission, When you sign an application for a loan or credit card, you authorize the lender to check your credit and register a hard inquiry. Some other transactions – renting a car, for example – can also register a hard inquiry.

Learn more about hard and soft inquiries and the differences between them.

Why Should I Care about Hard Inquiries?

You may be wondering what happens if you need to shop multiple lenders for a loan. After all, there are times you need to compare lenders when you need a mortgage or auto loan – and they all need to pull your credit. Thankfully, while you are shopping for your particular loan, you will be granted a time period to receive multiple rate quotes which will all count as only one hard inquiry. If you’re shopping for a loan or credit card, try to keep all your applications within a 15-day period.

So is there a way to dispute a hard inquiry and have it removed? A single hard inquiry can affect your score by as much as 5 points. Several hard inquiries close together can have a greater impact: they make you look like you’re desperate for credit.

A hard inquiry can stay on your report for up to two years, but its impact will diminish well before then.

Three Steps to Have Hard Inquiries Removed From Your Credit Report

Let’s talk about legitimate ways to remove hard inquiries from your credit report.

1. Review Your Credit Reports for Free

Your first step in reviewing hard inquiries is to pull your own credit reports. But don’t worry, you won’t be dinged for checking your credit because as a consumer you are entitled to a free report annually from each of the credit bureaus.

The three credit agencies are Equifax, Experian, and TransUnion.You can also visit MyFICO to obtain your reports and your credit score. It’s tempting to not look at your credit too often, but trust me, knowledge is power! You’re not only evaluating your current score, but you’re confirming that the hard inquiries listed are legitimate.

2. Locate the Hard Inquiries Listed on Your Report

Locate the section in your report containing the Hard Inquiry information. Equifax and Experian make it incredibly easy for you. You will see a header titled “Hard Inquiries.” With TransUnion, you will want to look for the “Regular Inquiries” section.

Take a close look at each inquiry listed. Did you authorize this lender to access your information? If you aren’t sure if this is worth your time to review your report. There are over 1.3 billion transactions monthly being reported to credit bureaus, and mistakes happen. If an inquiry is not legitimate, then you have recourse.

3. Verify the Inquiries

An inquiry that you don’t recognize may still be legitimate. Some companies report under a name different from the name you remember doing business with. Some lending platforms pass your information to other lenders.

If you don’t recognize a hard inquiry, call the phone number listed on your credit report. Ask them why they are on your credit report. If they can’t explain it, you are probably dealing with an inaccurate record.

4. Dispute an Unauthorized or Inaccurate Hard Inquiry

Remember, if you did request the credit inquiry because you were applying for a loan, then you can’t dispute it with the agencies. But if the lender can’t verify that you authorized the inquiry, you can get it removed.

An unauthorized inquiry means one of two things has happened.

• A mistake. Many errors on credit reports are simple mistakes. A record for another person with a name or Social Security number similar to yours may have been assigned to you by accident. In this case, all you need to do is dispute the record.
• Identity theft. If a signed application for credit was submitted by someone other than you, you are dealing with a case of identity theft.

If you are dealing with identity theft, then you will need to report the theft to the FTC and to your local police. You will need the information from your police report to help you dispute the unauthorized inquiry. The FTC will provide further information and a recovery plan to help you protect yourself.

File A Dispute with Each Credit Bureau

Since you receive three different credit reports, you’ll need to dispute the inquiry with each corresponding bureau.

As a consumer, you have the right to send a letter of dispute to each agency. The agencies have step-by-step instructions for submitting the dispute online. However, you should take it a step further and send your dispute via certified mail too. Remember, you can use a template to ask the agency to verify the accuracy of the inquiry. You will need to continue to follow up to make sure the inaccurate inquiry is removed.

The post How to Remove Hard Inquiries from Your Credit Report appeared first on FinMasters.