Tag: balance transfer

The Shame of Debt

Money doesn’t make you happy. That’s how the saying goes, and you can’t deny that there’s some truth to it. However, while having lots of money won’t make you happy, having very little is more likely to make you stressed and depressed. 

The less you have, the more likely you are to stress over the smallest of things, and if debt is forcing that poverty on you, hanging a dark cloud of uncertainty over your head, that stress and that depression will increase.

Psychological Cost of Debt

Debt has a massive psychological cost and a lot of that boils down to shame. Debt stress and debt shame are more common than ever in the United States, as debtors seek to hide their troubles from their families and loved ones. There is an unmistakable link between debt and an increased suicide risk.

A student conducted several years ago looked at the finances of people who had committed suicide and found they were significantly more likely to have massive debts (student loan debt, credit card debt). Similar studies have been conducted on mental health, noting that people are more likely to suffer from debilitating depression, stress, and anxiety when they have problems with debt.

And it’s easy to see why. Not only do many debtors choose to keep their problems to themselves, feeling an immense shame that stops them from telling even their closest friends and family, but debt can also lead to anxieties about debt collectors, foreclosures, repossessions, bankruptcy, and more. 

How to Overcome the Shame of Debt

To improve your mental health, you need to fight debt stress and shame. That’s easier said than done, but there are a few things that you can do:

Understand Where the Shame Comes From

The first step is to understand why you feel the way that you feel. This might not fix your debt shame, but it will help you to understand it more.

There is no single, overriding cause of debt shame. Some debtors feel shame because they see themselves as the breadwinner, the provider, and if they have debt it means they have failed. Others feel shame because they come from frugal backgrounds and have been wasteful or because their debt is the result of a drug, alcohol or gambling problem.

Whatever the reason, you need to find it, address it, and fix it. Get help for that gambling or drug addiction, get advice from that frugal family.

Admit Your Fault

Debt doesn’t mean that you’re a bad or useless person. It doesn’t mean that you don’t care about your family. It’s not a character flaw tied to your personality, it’s a behavioral issue tied to impulsivity and even mental health issues. It’s still your fault, but it’s easily fixed and doesn’t make you a bad person.

Understanding this can help you to get rid of that shame and deal with your stress and mental health issues.

Improve Your Financial Knowledge

Researchers have found a direct correlation between debt and financial knowledge; the more you have of the former, the less likely you are to be competent in the latter.

Fortunately, it has never been easier to educate yourself. Take a look at the many guides here on Pocket your Dollars, spanning everything from pay off strategies for credit card debt to money-making ideas, recommendations for loans and credit cards, and more.

Get Credit Counseling

Credit counseling exists for a reason and can help you in your time of need. They’re not mental health counselors, they can’t prescribe you medication and they can’t help with your insomnia and anxiety. However, they have worked with countless debtors, many of which have anxiety and depression, and they understand what it’s like to be in your shoes.

They can help you to assess and manage your debts before advising on the right course of action. A financial therapist can also provide assistance with any relationship issues, counseling you on who you should tell, how you should tell them, and what sort of reaction to expect.

The problem that many debtors have is that they think they know everything. They won’t speak to a counsellor because they’re convinced they know what the counsellor will say. But let’s be honest, if you’re struggling with debt, there’s a good chance you’re not a financial wizard and even if you are, it always helps to speak with an expert, voicing your concerns out loud and bouncing some ideas around.

Stop Spending

We spend when we’re depressed, get depressed because we’re in debt and are in debt because we spend too much. It’s a cycle that’s keeping your favorite retailer in profit and doing untold damage to your finances. To get out of debt, you need to accept that this cycle exists and that the only way to escape is to stop that spending immediately.

Anything that isn’t an absolute necessity can be left for another day, preferably one when you actually have money to spend. Limit your spending to clothes, food, rent, utility bills, medical bills, and everything else that allows you to continue living comfortably from day to day, but give the alcohol, cigarettes, vacations, and other luxuries a miss.

How to Take Control of Your Debt

The best way to avoid the shame and stress of debt is to get rid of it. Studies on debtors have found that at least 9 out of 10 believe they will be much happier if they didn’t have debt. These beliefs have been confirmed by individuals who successfully pay off debt, claiming = they are much happier than they ever were.

There are many ways you can pay off debt and we’ll look at a few of these options below, but generally speaking, you need to:

  • Assess your financial situation
  • Check your credit report and credit score
  • Get help from a credit counselor or financial therapist
  • If your debt-to-income ratio is low, budget better and pay off more with a debt payoff strategy
  • If your debt-to-income ratio is high, try debt relief
  • Create an emergency fund to prevent future issues

Best Ways to Get out of Debt

There is no debt shame if there is no debt. As discussed above, debt is not something you should be ashamed of, but it’s also not something you should cling onto. It can cause you a great deal of stress, placing strain on your relationships and generally making life very difficult for you.

So, while it’s important to face the truth of the situation and dispel those feelings of shame, it’s just as important to fight your debt and get your head above water. Here are a few debt relief options and debt payoff strategies that can help. For more information, including expensive guides and recommendations on each of these options, take a look at the relevant sections on Pocket Your Dollars.

Snowball and Avalanche Methods

The debt snowball and debt avalanche methods are two of the most popular debt payoff strategies, and ones that we have discussed at great length before (see debt snowball vs debt avalanche). They can make the process more systematic, which, in turn, may provide you with the support and the structure you need to get your debts in order. 

In both cases, you need to make a list of all your debts, covering things such as Balance, Monthly Payment, and Interest Rate. For debt snowball, sort the list by balance and go from the smallest to the largest. For debt avalanche, focus on the debts that have the highest interest rate and get those out of the way first. With both methods, you need to keep meeting your monthly payment obligations, before putting any extra money you have towards your chosen debt.

Debt avalanche provides the most practical benefits as it clears the problematic debts first, thus reducing the total interest. Debt snowball provides more of a psychological boost, giving you motivation as you steadily clear your debts.

Major Sacrifices

The biggest issue with any debt payoff strategy is that it isn’t easy to get the extra money you need to make those additional payments and clear your debts early. However, many debtors are trapped in a cycle of debt not because they can’t scrape the cents together no matter how hard they try, but because they struggle to budget properly and make the necessary sacrifices.

The average American debtor spends thousands of dollars every year on uneaten groceries, lottery tickets, and media subscriptions. They drop hundreds of dollars on luxuries they don’t really need and spend over $3,500 a year eating out. If debt is dragging you down then it’s imperative that you clear it, which means making some sacrifices and getting your priorities in check.

If you genuinely can’t spare a dime and don’t waste money on unnecessary expenses, then look into some of the options below.

Debt Settlement

Debt settlement is tailor-made for unsecured debt and works especially well for clearing credit card debt, as well as private students. Debt settlement companies often request that you stop meeting your monthly payment obligations, which puts the accounts into doubt and means your creditors are more likely to accept a settlement.

This settlement will clear the entirety of the debt for a fraction of the price, often around 50%. This means that a credit card debt of $10,000 would be cleared for $5,000, providing you with some big savings even after the settlement fees have been taken into account.

Debt Consolidation

A consolidation loan is a large loan that pays off all of your debt at a reduced interest rate and for a reduced monthly payment. The loan is often extended by several years, which means you pay more in the long-term, but the reduced monthly payments alleviate some of the burden and make the debt more manageable.

Debt Management

Debt management provides debtors with a debt repayment strategy, with all funds funneled through the debt management plan and then distributed to creditors. This service is often provided by credit counseling agencies and credit unions, who begin the process by negotiating with creditors and then assuming control of all debts.

These companies often ask that the debtors cancel all but one credit card, which can reduce the debtor’s credit score by impacting their credit utilization ratio.

Balance Transfer

A balance transfer credit card lets you move all your credit card balances onto a single card, one that offers a 0% APR for the first 6, 12 or 18 months, allowing you to pay down debt without interest, thus reducing compounded interest and clearing the debt quickly.

This method works with all credit card debt and you can typically move between 1 and 5 balances onto a new credit card, providing that card isn’t offered by the same company.

The Shame of Debt is a post from Pocket Your Dollars.

Source: pocketyourdollars.com

How to Escape Debt in 2016

How to Escape Debt in 2016

The new year is right around the corner and if you’re like most people, you’ve probably got a running list of resolutions to achieve and milestones to reach. If getting out of debt ranks near the top, now’s the time to starting thinking about how you’re going to hit your goal. Developing a clear-cut action plan can get you that much closer to debt-free status in 2016.

1. Add up Your Debt

You can’t start attacking your debt until you know exactly how much you owe. The first step to paying down your debt is sitting down with all of your statements and adding up every penny that’s still outstanding. Once you know how deep in debt you are, you can move on to the next step.

2. Review Your Budget

A budget is a plan that sets limits on how you spend your money. If you don’t have one, it’s a good idea to put a budget together as soon as possible. If you do have a budget, you can go over it line by line to find costs you can cut out. By eliminating fees and unnecessary expenses like cable subscriptions, you’ll be able to use the money you save to pay off your debt.

3. Set Your Goals

How to Escape Debt in 2016

At this point in the process, you should have two numbers: the total amount of money you owe and the amount you can put toward your debt payments each month. Using those two figures, you should be able determine how long it’s going to take you to pay off your mortgage, student loans, personal loans and credit card debt.

Let’s say you owe your credit card issuer $25,000. If you have $500 in your budget that you can use to pay off that debt each month, you’ll be able to knock $6,000 off your card balance in a year. Keep in mind, however, that you’ll still need to factor in interest to get an accurate idea of how the balance will shrink from one year to the next.

4. Lower Your Interest Rates

Interest is a major obstacle when you’re trying to get out of debt. If you want to speed up the payment process, you can look for ways to shave down your rates. If you have high-interest credit card debt, for instance, transferring the balances to a card with a 0% promotional period can save you some money and reduce the amount of time it’ll take to get rid of your debt.

Refinancing might be worth considering if you have student loans, car loans or a mortgage. Just remember that completing a balance transfer or refinancing your debt isn’t necessarily free. Credit card companies typically charge a 3% fee for balance transfers and if you’re taking out a refinance loan, you might be on the hook for origination fees and other closing costs.

5. Increase Your Income

How to Escape Debt in 2016

Keeping a tight rein on your budget can go a long way. But that’s not the only way to escape debt. Pumping up your paycheck in the new year can also help you pay off your loans and increase your disposable income.

Asking your boss for a raise will directly increase your earnings, but there’s no guarantee that your supervisor will agree to your request. If you’re paid by the hour, you can always take on more hours at your current job. And if all else fails, you can start a side gig to bring in more money.

Hold Yourself Accountable

Having a plan to get out of debt in the new year won’t get you very far if you’re not 100% committed. Checking your progress regularly is a must, as is reviewing your budget and goals to make sure you’re staying on track.

Photo credit: Â©iStock.com/BsWei, ©iStock.com/marekuliasz, ©iStock.com/DragonImages

The post How to Escape Debt in 2016 appeared first on SmartAsset Blog.

Source: smartasset.com

Does Paying the Minimum Hurt Your Credit Score

Credit card bills can be confusing. If everything was straightforward and clear, credit card debt wouldn’t be such a big issue. But it’s not clear, and debt is a massive issue for millions of consumers. 

One of the most confusing aspects is the minimum payment, with few consumers understanding how this works, how much damage (if any) it does to their credit score, and why it’s important to pay more than the minimum.

We’ll address all of those things and more in this guide, looking at how minimum credit card payments can impact your FICO score and your credit report.

What is a Credit Card Minimum Payment?

The minimum payment is the lowest amount you need to pay during any given month. It’s often fixed as a fraction of your total balance and includes fees and interest.  

If you fail to make this minimum payment, you may be hit with late fees and if you still haven’t paid after 30 days, your creditor will report your activity to the major credit bureaus and your credit score will take a hit.

When this happens, you could lose up to 100 points and gain a derogatory mark that remains on your credit report for up to 7 years. Making minimum payments will not result in a derogatory mark, but it can indirectly affect your credit score and we’ll discuss that a little later.

Firstly, it’s important to understand why you’re being asked to pay a minimum amount and how you can avoid it.

How Much is a Minimum Credit Card Payment?

Prior to 2004, monthly payments could be as low as 2% of the balance. This caused all kinds of problems as most of your monthly payment is interest and will, therefore, inflate every month so that every time you reduce the balance it grows back. 

Regulators forced a change when they realized that some users were being locked into a cycle of credit card debt, one that could see them repaying thousands more than the balance and taking many years to repay in full.

These days, a minimum payment must be at least 1% of the balance plus all interest and fees that have accumulated during that month, ensuring the balance decreases by at least 1% if only the minimum payment is met.

Do I Need to Make the Minimum Payment?

If you have a rolling balance, you need to make the minimum monthly payment to avoid derogatory marks. If you fail to do so and keep missing those payments, your account will eventually default and cause all kinds of issues.

However, you can avoid the minimum payment by clearing your balance in full.

Let’s assume that you have a brand-new credit card and you spend $2,000 in the first billing cycle. In the next cycle, you will be required to pay this balance in full. However, you will also be offered a minimum payment, which will likely be anywhere from $30 to $100. If this is all that you pay, the issuer will start charging you interest on your balance and your problems will begin.

If you spend $2,000 in the next billing cycle, you have just doubled your debt (minus whatever principal the minimum payment cleared) and your problems.

This is a cycle that many consumers get locked into. They do what they can to pay off their balance in full, but then they have a difficult month and that minimum payment begins to look very tempting. They convince themselves that one month won’t hurt and they’ll repay the balance in full next month, but by that point they’ve spent more, it has grown more, and they just don’t have the funds.

To avoid falling into this trap, try the following tips:

  • Only Spend What You Have: A credit card should be used to spend money you have now or will have in the future. Don’t spend in the hope you’ll somehow come into some money before the billing period ends and the credit card balance rolls over.
  • Get an Introductory Interest Rate: Many credit card issuers offer a 0% intro APR for a fixed period of time, allowing you to accumulate debt without interest. This can help if you need to make some essential purchases, but it’s important not to abuse this as you’ll still need to clear the full balance before the intro period ends.
  • Use a Balance Transfer: If you’re in too deep and the intro rate is coming to an end, consider a balance transfer credit card. These cards allow you to move your full balance from one card (or cards) to another, taking advantage of yet another 0% APR and essentially extending the one you have.
  • Pay the Minimum: If you can’t pay the balance in full, make sure you at least pay the minimum. A missed payment or late payment can incur fees and may hurt your credit score. 

Why Pay More Than the Minimum?

You may have heard experts recommending that you pay more than the minimum every month, but why? If you’re locked into a cycle of credit card debt, it can seem counterproductive. After all, if you have a debt of $10,000 that’s costing you $400 a month, what’s the point of taking an extra $100 out of your budget?

Your interest and fees are covered by your minimum payment and account for a sizeable percentage of that minimum payment. By adding just 50% more, you could be doubling and even tripling the amount of the principal that you repay every month.

What’s more, your interest accumulates every single day and this interest compounds. Imagine, for instance, that you have a balance of $10,000 today and with interest, this grows to $10,040. The next day, the interest will be calculated based on that $10,040 figure, which means it could grow to $10,081, which will then become the new balance for the next day. 

This continues every single day, and the larger your balance is, the more interest will compound and the greater the amount will be due over the term. By paying more than your minimum payment when you can, you’re reducing the balance and slowing things down.

Does Paying the Minimum Hurt My Credit Score?

Paying the minimum amount every month ensures you are doing the bare minimum to avoid hurting your credit history or accumulating fees. However, it can indirectly reduce your score via your credit utilization ratio.

Your credit utilization ratio is a score that compares the credit limit of all available credit cards to the total debt on those cards. It accounts for 30% of your credit score and is, therefore, a very important aspect of the credit scoring process.

The more credit card debt you accumulate, the lower your credit utilization rate will be and the more your score will be impacted. If you only pay the minimum, this rate will become stagnant and may take years to improve. By increasing the payment amount, however, you can bring that ratio down and improve your credit score.

You can calculate your credit utilization score by adding together the total amount of credit limits and debts and then comparing the latter to the former. A combined credit limit of $10,000 and a balance of $5,000, for instance, would equate to a 50% ratio, which is on the high side.

Can Credit Card Fees Hurt My Credit Score?

As with interest charges, credit card fees will not directly reduce your score but may have an indirect effect. Cash advance fees, for instance, can be substantial, with many credit card companies (including Capital One) charging 3% with a $10 minimum charge. This means that every time you withdraw cash, you’re paying at least $10, even if you’re only withdrawing $10.

What many consumers don’t realize is that these fees are also charged every time you buy casino chips or pay for some other form of gambling, and every time you purchase money orders and other cash products. 

Along with foreign transaction fees and penalty fees, these can increase your balance and your minimum payment, making it harder to make on time payments and thus increasing the risk of a late payment.

Does Paying the Minimum Hurt Your Credit Score is a post from Pocket Your Dollars.

Source: pocketyourdollars.com

Credit Card Balance Transfers

Credit card balances are crippling households across the United States, giving them insurmountable debts that just keep on growing and never seem to go away. But there is some good news, as this problem has spawned a multitude of debt relief options, one of which is a credit card balance transfer.

Balance transfers are a similar and widely available option for all debtors to clear their credit card balances, reduce their interest rate, and potentially save thousands of dollars.

How Credit Card Balance Transfers Work

A balance transfer credit card allows you to transfer a balance from one or more cards to another, reducing credit card debt and all its obligations. These cards are offered by most credit card companies and come with a 0% APR on balance transfers for the first 6, 12 or 18 months.

Consumers can use this balance transfer offer to reduce interest payments, and if they continue to pay the same sum every month, all of it will go towards the principal. Without interest to eat into their monthly payment, the balance will clear quickly and cheaply.

There are a few downsides to transferring a balance, including late fees, a transfer fee and, in some cases, an annual fee.

What Happens When You Transfer a Balance on Credit Cards?

When you transfer a balance, your new lender repays your credit card debt and moves the funds onto a new card. You may incur a transfer fee and pay an annual fee, which can increase the total debt, but transferring a balance in this way allows you to take advantage of a 0% introductory APR. While this introductory period lasts, you won’t pay any interest on your debt and can focus on clearing your credit card debt step by step.

Why are Balance Transfers Beneficial?

A little later, we’ll discuss some alternatives to a balance transfer offer, all of which can help you clear your debt. However, the majority of these methods will increase your debt in the short term, prolong the time it takes to repay it or reduce your credit score. 

A balance transfer credit card does none of these things. As soon as you accept the transfer offer, you’ll have a 0% introductory APR that you can use to eliminate your debt. The balance transfer may increase your debt liabilities slightly by adding a transfer fee and an annual fee, but generally speaking, this is one of the best ways to clear your debt.

To understand why this is the case, you need to know how credit card interest works. If you have a debt of $20,000 with a variable APR rate of 20% and a minimum monthly payment of $500, you’ll repay the debt in 67 months at a cost of over $13,000 in interest.

If you move that debt to a card with a balance transfer offer of 0% APR for 12 months, and you continue to meet the $500 minimum payment, you’ll repay $5,000 and reduce the debt to $15,000. From that point on, you’ll have a smaller balance to clear, less interest to worry about, and can clear the debt completely in just a few more years.

Of course, the transfer fee will increase your balance somewhat, but this fee is minimal when compared to the money you can save. The same applies to the annual fee that these cards charge and, in many cases, you can find cards that don’t charge an annual fee at all. 

You can even find no-fee balance transfer cards, although these are rare. The BankAmericard credit card once provided a no fee transfer offer to all applicants, in addition to a $0 annual fee. However, they changed their rules in 2018 and made the card much less appealing to the average user.

Pros and Cons of Credit Card Balance Transfers

From credit score and credit limit issues to a high variable APR, late fees, and cash advance fees, there are numerous issues with these cards. However, there are just as many pros as there are cons, including the fact that they can be one of the cheapest and fastest ways to clear debt.

Pro: 0% Introductory APR

The 0% APR on balance transfers is the best thing about these credit cards and the reason they are so beneficial. However, many cards also offer 0% APR on purchases. This means that if you continue to use your card after the transfer has taken place, you won’t be charged any interest on the new credit.

With most cards, the 0% APR on purchases runs for the same length of time as the balance transfer offer. This ensures that all credit you accumulate upon opening the account will be subject to the same benefits. Of course, accumulating additional credit is not wise as it will prolong the time it takes you to repay the debt.

Pro: Can Still Get Cash Rewards

While cash rewards are rare on balance transfer cards, some of the better cards still offer them. Discover It is a great example of this. You can earn cash back every time you spend, even after initiating a balance transfer. The cash rewards scheme is one of the best in the industry and there is also a 0% APR on balance transfers during an introductory period that lasts up to 18 months.

Pro: High Credit Limit

A balance transfer card may offer you a high credit limit, one that is large enough to cover your credit card debt. You will need a good credit score to get this rate, of course, but once you do your credit card debt will clear, you can repay it, and then you’ll have a card with a high credit limit and no balance.

Throw a rewards scheme into the mix (as with the Discover It rewards card) and you’ll have turned a dire situation into a great one.

Con: Will Reduce Credit Score

A new account opening won’t impact your credit score as heavily as you may have been led to believe. In fact, the impact of a new credit card or loan is minimal at best and any effects usually disappear after just a few months. However, a balance transfer card is a different story and there are a few ways it can impact your score.

Firstly, it could reduce your credit utilization ratio. This is the amount of credit you have compared to the amount of debt you have. If you have four credit cards each with a credit limit of $20,000 and a debt of $10,000 then your score will be 50%. If you close all of these and swap them for a single card where your credit limit matches your debt, your score will be 100%.

Your credit utilization ratio points for 30% of your total FICO score and can, therefore, do some serious damage to your credit score.

Secondly, although FICO has yet to disclose specifics, a maxed-out credit card can also reduce your score. By its very nature, a balance transfer card will be maxed out or close to being maxed out, as it’s a card opened with the sole purpose of covering this debt.

Finally, if you close multiple accounts and open a new one, your account age will decrease, thus reduce your credit score further.

Con: Transfer Free

The transfer fee is a small issue, but one worth mentioning, nonetheless. This is often charged at between 3% and 5% of the total balance, but there are also minimum amounts of between $5 and $10, and you will pay the greater of the two.

This can sound like a lot. After all, for a balance transfer of $10,000, 5% will be $500. However, when you consider how much you can save over the course of the introductory period, that fee begins to look nominal.

There may also be an annual fee to consider, but if your score is high enough and you choose one of the cards listed in this guide, you can avoid this fee.

Con: Late Fees and Other Penalties

In truth, all credit cards will charge you a fee if you’re late and you will also be charged a fee every time you make a cash advance. However, the fees may be higher with balance transfer cards, especially if those cards offer generous benefits and rewards elsewhere. It’s a balancing act for the provider—an advantage here means a disadvantage there.

Con: High APR on Purchases

While many balance transfer cards offer a 0% APR on purchases for a fixed period, this rate may increase when the introductory period ends. The resulting variable APR will often be a lot larger than what you were paying before the transfer, with many credit cards charging over 25% or more on purchases.

Which Credit Cards are Best for Clearing Credit Card Debt?

Many credit card issuers have some kind of balance transfer card, but it’s worth remembering that credit card companies aren’t interested in offering these cards to current customers. You’ll need to find a new provider and if you have multiple cards with multiple providers, that can be tricky. 

Run some comparisons, check the offers against your financial situation, and pay close attention to late fees, APR on purchases, cash rewards, and the length of the 0% introductory APR rate. 

You’ll also need to find a card with a credit limit high enough to cover your current debt, and one that accepts customers with your credit score. This can be tricky, but if you shop around, you should find something. If not, focus on increasing your credit score before seeking to apply again.

Here are a few options to help you begin your search for the most suitable balance transfer card:

Discover It

  • Balance Transfer Offer: 18 Months
  • Transfer Fee: 3% on transfers
  • Purchases APR: 0% for 6 months
  • Annual Fee: $0
  • Rate: Up To 24.49% Variable APR
  • Rewards: Yes

Chase Freedom Unlimited

  • Balance Transfer Offer: 15 Months
  • Transfer Fee: 5% on transfers
  • Purchases APR: 0% for 15 months
  • Annual Fee: $0
  • Rate: Up To 25.24% Variable APR
  • Rewards: Yes

Citi Simplicity

  • Balance Transfer Offer: 21 Months
  • Transfer Fee: 5% on transfers
  • Purchases APR: 0% for 12 months
  • Annual Fee: $0
  • Rate: Up To 26.24% Variable APR
  • Rewards: No

Bank of America Cash Rewards

  • Balance Transfer Offer: 15 Months
  • Transfer Fee: 3% on transfers
  • Purchases APR: 0% for 15 months
  • Annual Fee: $0
  • Rate: Up To 25.49% Variable APR
  • Rewards: No

Capital One Quicksilver

  • Balance Transfer Offer: 15 Months
  • Transfer Fee: 3% on transfers
  • Purchases APR: 0% for 15 months
  • Annual Fee: $0
  • Rate: Up To 25.49% Variable APR
  • Rewards: No

Blue Cash Everyday Card from American Express

  • Balance Transfer Offer: 15 Months
  • Transfer Fee: 3% on transfers
  • Purchases APR: 0% for 15 months
  • Annual Fee: $0
  • Rate: Up To 25.49% Variable APR
  • Rewards: No

Capital One SavorOne

  • Balance Transfer Offer: 15 Months
  • Transfer Fee: 3% on transfers
  • Purchases APR: 0% for 15 months
  • Annual Fee: $0
  • Rate: Up To 25.49% Variable APR
  • Rewards: Yes

How to Clear Debt with a Balance Transfer Card

From the point of the account opening to the point that the introductory period ends, you need to focus on clearing as much of the balance as possible. Don’t concern yourself with a variable APR rate, annual fee or other issues and avoid additional APR on purchases by not using the card. Just put all extra cash you have towards the debt and reduce it one step at a time.

Here are a few tips to help you clear debt after you transfer a balance:

Meet the Monthly Payment

First things first, always meet your minimum payment obligations. The 0% APR on balance transfers protects you against additional interest, but it doesn’t eliminate your repayments altogether. If you fail to meet these payments, you could find yourself in some serious hot water and may negate the balance transfer offer.

Increase Payment Frequency

It may be easier for you to repay $250 every two weeks as opposed to $500 every month. This will also allow you to use any extra funds when you have them, thus preventing you from wasting cash on luxury purchases and ensuring it goes towards your debt.

Earn More

Ask for a pay rise, take on a part-time job, work as a freelancer—do whatever it takes to earn extra cash during this period. If you commit everything you have for just 12 to 18 months you can get your troublesome debt cleared and start looking forward to a future without debt and complications, one where you have more money and more freedom.

Sell Up

It has never been easier to sell your unwanted belongings. Many apps can help you with this and you can also sell on big platforms like Facebook, eBay, and Amazon. 

Sell clothes, electronics, books, games, music—anything you no longer need that could earn you a few extra dollars. It all goes towards your debt and can help you to clear it while your introductory APR is active.

Don’t Take out a Personal Loan

While you might be tempted to use a loan to cover your debt, this is never a good idea. You should avoid using low-interest debt to replace high-interest debt, even if the latter is currently under a 0% introductory APR. 

It’s easy to get trapped in a cycle of swapping one debt for another, and it’s a cycle that ultimately leads to some high fees and even higher interest rates.

Focus on the Bigger Picture

Debt exists because we focus too much on the short-term. Rather than dismissing the idea of buying a brand-new computer we can’t afford, we fool ourselves into believing we can deal with it later and then pay for it with a credit card. This attitude can lead to persistent debt and trap you in an inescapable cycle and it’s one you need to shed if you’re going to transfer a balance.

Instead of focusing on the short term, take a look at the bigger picture. If you can’t afford it now, you probably can’t afford it later; if you can’t repay $10,000 worth of debt this year, you probably can’t handle $20,000 next year.

Alternatives to Credit Card Balance Transfers

If you have the cash and the commitment to pay your credit card debt, a balance transfer card is perfect. However, if you have a low credit score and use the card just to accumulate additional debt and buy yourself more time, it will do more harm than good. In that case, debt relief may be the better option.

These programs are designed to help you pay your debt through any means possible. There are several options available and all these are offered by specialist companies and providers, including banks and credit unions. As with balance transfer cards, however, you should do your research in advance and consider your options carefully before making a decision.

Pay More Than the Minimum

It’s an obvious and perhaps even redundant solution, but it’s one that needs to be mentioned, nonetheless. We live in a credit hungry society, one built on impulsive purchases and a buy-now-care-later attitude. A balance transfer card, in many ways, is part of this, as it’s a quick and easy solution to a long and difficult problem. And like all quick patches, it can burst at the seams if the problem isn’t controlled.

The best option, therefore, is to try and clear your debts without creating any new accounts. Do everything you can to increase your minimum payment every month. This will ensure that you pay more of the principal, with the minimum payment covering your interest obligations and everything else going towards the actual balance.

Only when this fails, when you genuinely can’t cover more than the minimum, should you look into opening a new card.

Debt Consolidation

Balance transfers are actually a form of debt consolidation, but ones that are specifically tailored to credit card debt. If you have multiple types of debt, including medical bills, student loans, and personal loans, you can use a consolidation loan to clear it.

This loan will pay off all of your debts and then give you a new one with a new provider. The provider will reduce your monthly payment and may even reduce your interest rate, allowing you to pay less and to feel like you’re getting a good deal. However, this is at the expense of a greatly increased loan term, which means you will pay considerably more over the duration of the loan.

As with everything else, a debt consolidation loan is dependent on you having a good credit score and the better your financial situation is, the better the loan rates will be.

Debt Management

Debt management can help if you don’t have the credit history required for debt consolidation. Debt management plans are provided by companies that work with your creditors to repay your debts in a way that suits you and them. You pay the debt management company, they pass your money on, and in return, they request that you abide by many strict terms and conditions, including not using your credit cards.

Many debt management programs will actually request that you close all but one of your credit cards and only use that one card in emergencies. This can greatly reduce your credit score by impacting your credit utilization ratio. What’s more, if you miss any payments your creditors may renege on their promises and revert back to the original monthly payments.

Debt Settlement

The more extreme and cheaper option of the three, but also the riskiest. Debt settlement works well with sizeable credit card debt and is even more effective if you have a history of missed payments, defaults or collections. A debt specialist may request that you stop making payments on your accounts and instead put your money into a secured account run by a third-party provider.

They will then contact your creditors and negotiate a settlement amount. This process can take several years as they’re not always successful on the first attempt but the longer they wait, the more desperate your creditors will become and the more likely they will be to accept a settlement.

Debt settlement is one of the few options that allows you to pay all your debt for much less than the original balance. However, it can harm your credit score while these debts are being repaid and this may impact your chances of getting a mortgage or a car loan for a few years.

Credit Card Balance Transfers is a post from Pocket Your Dollars.

Source: pocketyourdollars.com

You spent too much on the holidays. Now what?

Credit card debt can be really expensive. About half of Americans have it, and the average amount is $6,300, according to the Federal Reserve. The holiday season is especially expensive, and 2020 was no exception: spending grew by 8.3% over 2019.

If you overspent this holiday season, here are some strategies for tackling your debt.

Read more from our credit card experts.

Ask Ted a question.

Get a balance transfer card

Zero percent balance transfer credit cards are great, although they’ve gotten harder to obtain during the pandemic. If you have proof of sufficient income and a good credit score – at least 700, although 720 or 740 would make you a stronger applicant – you might still be able to qualify. The longest 0% promotion is 20 months on the U.S. Bank Visa Platinum Card. It has a 3% transfer fee (minimum $5), and after the promo, the regular APR ranges from 13.99 to 23.99%. The longest 0% promotion without a transfer fee is 12 months, offered by the Navy Federal Credit Union Platinum card (which has a regular APR of 5.99% to 18%) and the First Technology Federal Credit Union Platinum Mastercard (regular APR: 6.99% to 18%).

Take out a personal loan

Another popular debt payoff method is a personal loan. Someone with good credit might be able to get a rate as low as 5% or so. However, the terms vary widely. The average personal loan rate is close to 12%, according to our sister site Bankrate.com. Borrowers with lower credit scores can be charged 20% or more. The typical term is anywhere from one to five years.

Card companies have their own versions of these that don’t require additional underwriting – for example: American Express Pay It Plan It, Citi Flex Pay and My Chase Plan. Existing cardholders can designate purchases to be paid off in installments, giving them more predictability and a lower interest rate. These companies often prefer to call it a plan fee rather than interest, but it’s basically interest. The equivalent APR is generally something like 6 to 10% for a plan paid off within a year or so. Most of these card-related plans last anywhere from three months to a year, although sometimes you can stretch them out longer.

See related: Buy now, pay later with installment payment services

Enroll in nonprofit credit counseling

Another option is nonprofit credit counseling, which is generally much easier to qualify for. There are some great agencies like Money Management International and GreenPath that provide helpful advice, consolidate debt and negotiate lower rates with creditors. These debt management plans frequently last 2-5 years and carry interest rates in the 6 to 10% range. Nonprofit credit counseling is best suited for people who owe at least a few thousand dollars in unsecured debt (credit cards and medical debt, mostly).

Ask for a lower rate

You can also ask your current card issuer for a lower rate: 78% of cardholders who tried that strategy were successful in 2020. To improve your odds, come armed with competing offers that you received in the mail or saw online. It also helps if you’re a good customer who has been with them a while and pays on time.

Avoid the minimum payment trap

However you decide to pay off your debt, always pay as much as you reasonably can – even if that’s significantly higher than the minimum payment. Just $1,000 of holiday debt can really cost you if you’re only paying the minimum. If your credit card interest rate is 16.05% (the national average) and you’re paying a 3% minimum payment, it would take you just over 7 years to pay off the balance and you’d end up paying more than $500 in interest.

Review your budget

If you are struggling to find the money to pay more than the minimum, take a hard look at your income and expenses. Identify areas that you can cut back, particularly subscriptions you’re not using and large expenses. For instance, can you move to a cheaper apartment, drive a less expensive car or trim your dining budget without sacrificing too much happiness?

See related: How to create a budget and stick to it

Bottom line

People get into credit card debt for many different reasons. Contrary to popular belief, it’s usually not because you splurged on a vacation or holiday gifts. The most common explanations are emergencies (e.g., medical bills and car and home repairs) and day-to-day expenses, according to a March 2020 CreditCards.com survey.

That same survey found that 56% of Americans with credit card debt have been in the red for at least a year, including 25% who have been in debt for at least three years and 15% for at least five years. Carrying long-term credit card debt can cripple your finances, so follow these steps to pay it down as soon as possible.

Have a question about credit cards? E-mail me at ted.rossman@creditcards.com and I’d be happy to help.

Source: creditcards.com

Tips to Consolidate Credit Card Debt

Tips to Consolidate Credit Card Debt

Editorial Note: This content is not provided by the credit card issuer. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by the issuer.

If left unchecked, extensive amounts of credit card debt can cripple your finances. The good news is there are many ways to handle debt, though each requires a dedicated effort on your part. But if you can manage to consolidate credit card debt, you will reduce your burden relatively quickly. In the process, you’ll avoid the exorbitant interest rates that accompany most credit cards. Below we take a look at some of the most effective techniques you can use to make this goal a reality.

Find Out Your Credit Score

Before you can work on improving your credit and minimizing your debt, you have to know where you currently stand.

Many credit card issuers allow cardholders to see their FICO® credit score free of charge once a month, so check out if any of your cards include that free credit score. The three major credit bureaus – TransUnion, Experian and Equifax – also give out free annual credit reports. If that’s not enough, websites like Credit Karma™ and Credit Sesame provide a free look at your credit score and reports as well.

It is vital to review your credit report with a fine-tooth comb to ensure the accuracy of the information. If you find errors be sure to let the credit bureau in question know so the issue can be eradicated as soon as possible.

Zero Interest Balance Transfer Cards

Although it might seem counterintuitive to apply for another credit card to lessen your debt, a zero interest balance transfer card could really help. These cards typically include an introductory 0% balance transfer Annual Percentage Rate (APR) for six months or more. This ultimately allows you to move debt from one account to another without incurring more interest. However, once the introductory offer concludes, any leftover balances will revert to your base APR.

These offers aren’t totally free, though. Most cards also charge a balance transfer fee that’s usually between 3% and 5% of the transfer. Even with this initial payment, you will almost always still save money over leaving your debt where it stands currently.

If you want to consolidate credit card debt, here are three different balance transfer credit cards you could apply for, with varying introductory interest rates and transfer fees:

Balance Transfer Credit Cards Card Intro Balance Transfer APR Balance Transfer Fee Chase Slate 0% APR for first 15 months; then 16.49% to 25.24% Variable APR, depending on your creditworthiness No fee for first 60 days; then $5 or 5% of each transfer, whichever is greater Citi Double Cash Card 0% introductory APR for 18 months from date of first transfer when transfers are completed within 4 months from date of account opening; then 15.49% to 25.49% Variable APR, depending on your creditworthiness $5 or 3% of each transfer, whichever is greater BankAmericard® credit card 0% APR for first 15 billing cycles; then 14.49% to 24.49% Variable APR, depending on your creditworthiness No fee for first 60 days; then $10 or 3% of each transfer, whichever is greater Take Out a Personal Loan

Tips to Consolidate Credit Card Debt

The thought of taking out another loan probably doesn’t sound too appetizing to consolidate credit card debt. But a personal debt consolidation loan is one of the speediest ways to rid yourself of credit card debt. More specifically, you can use it to pay off most or all of your debt in one lump sum. That way, your payments are all merged into a single account with your lender.

The APR and length of the offered loan and the minimum credit score needed for approval are the main factors that should go into your final decision on a lender. By concentrating on these three components of the loan, you can map out what your monthly payments will be. As a result, you can more easily implement them into your financial life.

Applying for a personal consolidation loan can have a detrimental effect on your credit. Unfortunately, most institutions will run a hard credit check on you prior to approval. However, many online lenders don’t do this, which might ease your mind depending on the severity of your debt situation.

These loans are available through a wide variety of financial institutions, including banks, online lenders and credit unions. Here are a few examples of some of the most common debt consolidation lenders:

Common Debt Consolidation Lenders Banks Wells Fargo, U.S. Bank, Fifth Third Bank Online Lenders Lending Club, Prosper, Best Egg Credit Unions Navy Federal Credit Union, Unify Financial Credit Union, Affinity Federal Credit Union Auto or Home Equity Loan

If you own assets like a home or car, you can take out a lump-sum loan based on the equity you hold in them to consolidate credit card debt. This is a great way to reuse money you paid toward an existing loan to take care of your debt. When paying back your auto or home equity loan, you’ll usually pay in fixed amounts at a relatively low interest rate. Even if this rate isn’t great, it’s likely much better than any offer you’d receive from a card issuer.

Equity loans are technically a second mortgage or loan, meaning your house or car will become the loan’s collateral. That means you could lose your house or car if you cannot keep up with your equity loan payments.

Create a Budget

Tips to Consolidate Credit Card Debt

To build a budget, you first need to figure out your approximate monthly net income. Don’t forget to take into account taxes when you’re doing this.

You can then start subtracting your variable and fixed expenses that are expected for the upcoming month. This is where you will likely be able to identify where you’re overspending, whether it’s on food, entertainment or travel. Once you’ve completed this, you can begin cutting back where you need to. Then, use your surplus cash to pay off your debt one month at a time.

It shouldn’t matter if you’re dealing with substantial credit card debt or not. A monthly spending budget should always be a part of how you manage your finances. While this is likely the slowest way to eliminate debt, it’s also the most financially sound. At its core, it attempts to fix the problem without taking funding from an outside source. This should leave very little financial strife in the aftermath of paying off your debt.

Professional Debt Counseling

Perhaps since you’ve found yourself in serious debt, you feel like you want professional help getting out of it. Well the National Foundation for Credit Counseling® (NFCC®) is available for just that reason. The NFCC® has member offices all around the U.S. that are certified in helping you consolidate credit card debt.

These counselors won’t only address your current financial issues and debt. They’ll also work to create a plan that will help you avoid this situation again in the future.

Agencies that are accredited by the NFCC® will have it clearly displayed on their website or at their offices. If you’re not sure where to look, the foundation created an agency locator that’ll help you find a counselor nearby.

Borrow From Your Retirement

Taking money early from your employer-sponsored retirement account obviously isn’t ideal. That’s means borrowing from your retirement is a last-ditch alternative. But if your credit card debt has become such a handicap that it’s affecting all other facets of your life, it is a viable option to consolidate credit card debt.

Because you are technically loaning money to yourself, this will not show up on your credit report. Major tax and penalty charges await anyone who has trouble making payments on these loans though. To make matters worse, if you quit your job or are fired, you’re typically only given 60 days to finish paying it off to avoid incurring a penalty.

Tips To Consolidate Credit Card Debt

  • If you take the time to come up with a budget, don’t let it go to waste. While you might find it tough to stick to, especially if you’re trying to cut back, it is the best way to manage your money correctly. Even if a budget becomes habit, stay vigilant with where your money is being spent.
  • Although a financial advisor will cost money, he or she might be able to help you keep your finances in check while ultimately helping you plan for the future as well. However, if this isn’t an option for you financially, stay on track with your NFCC® debt counselor’s plan.
  • There are so many ways to gain access to your credit score that there’s virtually no excuse for not knowing it. It doesn’t matter if you do it through one of the top three credit bureaus, FICO® or one of your card issuers. Just remember to pay attention to those ever-important three digits as often as possible.

Editorial Note: This content is not provided by the credit card issuer. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by the issuer.

Photo credit: ©iStock.com/Liderina, ©iStock.com/ferrantraite, Â©iStock.com/cnythzl

The post Tips to Consolidate Credit Card Debt appeared first on SmartAsset Blog.

Source: smartasset.com

2020 Financial Crisis Auto Loan Relief

Car manufacturers have been feeling the strain during the financial crisis. There are fewer cars on the road, workers in the factories, and consumers willing to spend, and as a result, the automobile industry has been devastated.

But manufacturers and showrooms are fighting back, finding ways to encourage consumers to buy and to make life easier for the ones that already have. In this guide, we’ll look at the ways that auto lenders are helping consumers hit by the crisis and the ways that manufacturers are encouraging more drivers to purchase.

Financial Crisis Auto Relief: Manufacturers

Automobile manufacturers saw their profits free-fall in March 2020 and that followed into April, with suggestions that the chaos will progress as the year (and the pandemic that has gripped it so fiercely) continues. They are struggling and their customers are struggling as well.

Over 700,000 Americans lost their job in March and unemployment is set to rise to levels that haven’t been seen for years. To make matters work, the country’s 9.5 million+ self-employed workers have seen their incomes half. 

As a result, many are struggling with their debts and finding it harder to meet auto loan payments. To lend a helping hand, many of the world’s biggest manufacturers have established auto loan relief programs:

Ford

Ford announced its response to the crisis towards the end of March. Known as the Built to Lend a Hand program, it offers up to 6 months payments on a brand-new Ford and applies to all models from 2019 and 2020.

As soon as consumers sign up, they will be given 3 months of payments from Ford, while an additional 3 months can be deferred as per the customer’s request. The customer can choose to defer these payments as and when they want, but they must get their auto loan through the Ford Credit program to apply.

Hyundai

South Korean manufacturer, Hyundai, was one of the first to offer an auto loan relief program. South Korea was one of the hardest-hit countries in the early stages of the virus and this led to the major automobile brand offering a relief program in the middle of March.

Known as the Assurance Job Loss Protection, this program first appeared following the 2008 recession and has been revived for the recent pandemic. 

As part of this auto loan relief program, consumers who bought or borrowed a car after March 14 can have up to 6 payments made by Hyundai. They can also request payment deferment that lasts for up to 90 days.

The Assurance Job Loss Protection program is set to run until April 30 and applies to everyone who purchases a Hyundai through eligible finance programs. It also extends to Genesis, the luxury division of Hyundai Motors that is responsible for new vehicles such as the 2020 Genesis G90.

If the pandemic continues to grow in scale and severity, the program may be prolonged, although only time will tell.

Nissan

Nissan is following in the footsteps of many major creditors and lenders by working with customers on a case by case basis. If you’re feeling the strain of the crisis, whether because you’ve lost some or all of your income or your expenses have increased, you can contact them and request some relief.

For borrowers struggling to meet monthly payments, Nissan offers deferred payments, but only if hardship can be proved. You likely won’t be offered anything just because you ask for it and must show that your financial situation is worse now than it was before the financial crisis.

The same applies to all Infiniti car owners, which is Nissan’s luxury brand.

Kia

Kia announced that all 0% APR borrowers could defer payments for up to four months. Borrowers who don’t qualify for this can still request deferment of up to 30 days on 3 different occasions.

However, as with Nissan and many other providers, borrowers need to prove that they are experiencing hardship to be offered this auto loan relief.

General Motors

GM has seen some pretty hefty losses during the financial crisis, and this is despite the fact that it began the year on a high note, making noticeable gains that were all but wiped out in the first couple weeks of March.

GM is offering a few different options to keep consumers happy and to ensure cars are still driven out of the showroom. If you already have a finance program with General Motors, and you’re experiencing hardship, you can contact GM directly, tell them what you’re going through, and get assistance.

The GM OnStar program has also been activated for all current owners. This program offers 24/7 emergency assistance and can help you get to a hospital in your time of need.

If you need a new car, you can get 0% APR for up to 84 months on most GM manufactured vehicles.

Fiat Chrysler

Fiat Chrysler is another brand that began 2020 with a bang and then quickly suffered a substantial slump. To counteract this, it has improved its online offerings, allowing all consumers to purchase a brand-new vehicle online and to benefit from improved financing offers when they do.

In addition, Fiat Chrysler is assisting current owners by making it easy for them to pay their bills.

If you have a car made by this leading manufacturer and you’re struggling to make payments, contact them directly, tell them about your financial hardship, and they may offer to help you with deferred payments and other solutions.

Financial Crisis Auto Relief: Alternative Options

Contrary to what you might think, lenders are not desperate to get their hands on your collateral. The best outcome for them is that you meet your payments and they get every penny of the vehicle’s value along with the interest.

If you default and they are forced to repossess, they need to pay for the repossession, deal with the extra paperwork and hassle, and eventually sell the car for much less than it is worth. They can still chase you for what you owe, but they know they probably won’t get it, making repossession something that lenders are keen to avoid.

When you’re struggling to make your payments, be honest with them, lay it all on the line, and find a compromise. They will probably be a lot more forgiving than you expect, especially during the crisis, when everyone is more understanding and willing to help.

Unfortunately, you don’t have many other debt relief options when it comes to auto loans, as it doesn’t make sense to do a balance transfer and debt settlement simply doesn’t work here. But if you contact your lender, they’ll help you find a solution.

You can think about returning the vehicle, as well. When you lose your job and your income, and you no longer need to drive several miles to and from work every day, what’s the point of owning a car that costs you tens of thousands of dollars and leaves you with a substantial debt?

2020 Financial Crisis Auto Loan Relief is a post from Pocket Your Dollars.

Source: pocketyourdollars.com