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My Parents Can’t Afford College Anymore – What Should I Do?

When most parents offer to fund their child’s tuition, it’s with the expectation that their financial circumstances will remain relatively unchanged. Even with minor dips in income or temporary periods of unemployment, a solid plan will likely see the child through to graduation.

Unfortunately, what these plans don’t tend to account for is a global pandemic wreaking havoc on the economy and job market.

Now, many parents of college-age children are finding themselves struggling to stay afloat – much less afford college tuition. This leaves their children who were previously planning to graduate college with little or no debt in an uncomfortable position.

So if you’re a student suddenly stuck with the bill for your college expenses, what can you do? Read below for some strategies to help you stay on track.

Contact the University

Your first step is to contact the university and let them know that your financial situation has changed. You may have to write something that explains how your parent’s income has decreased.

Many students think the federal government is responsible for doling out aid to students, but federal aid is actually distributed directly by the schools themselves. In other words, your university is the only institution with the authority to provide additional help. If they decide not to extend any more loans or grants, you’re out of luck.

Ask your advisor if there are any scholarships you can apply for. Make sure to ask both about general university scholarships and department-specific scholarships if you’ve already declared a major. If you have a good relationship with a professor, contact them for suggestions on where to find more scholarship opportunities.

Some colleges also have emergency grants they provide to students. Contact the financial aid office and ask how to apply for these.

Try to Graduate Early

Graduating early can save you thousands or even tens of thousands in tuition and room and board expenses. Plus, the sooner you graduate, the sooner you can get a job and start repaying your student loans.

Ask your advisor if graduating early is possible for you. It may require taking more classes per semester than you planned on and being strategic about the courses you sign up for.

Fill out the FAFSA

If your parents have never filled out the Free Application for Federal Student Aid (FAFSA) because they paid for your college in full, now is the time for them to complete it. The FAFSA is what colleges use to determine eligibility for both need-based and merit-based aid. Most schools require the FAFSA to hand out scholarships and work-study assignments.

Because the FAFSA uses income information from a previous tax return, it won’t show if your parents have recently lost their jobs or been furloughed. However, once you file the FAFSA, you can send a note to your university explaining your current situation.

Make sure to explain this to your parents if they think filing the FAFSA is a waste of time. Some schools won’t even provide merit-based scholarships to students who haven’t filled out the FAFSA.

Get a Job

If you don’t already have a job, now is the time to get one. Look at online bulletin boards to see what opportunities are available around campus. Check on job listing sites like Monster, Indeed and LinkedIn. Make sure you have a well-crafted resume and cover letter.

Try to think outside the box. If you’re a talented graphic designer, start a freelance business and look for clients on sites like Upwork or Fiverr. If you’re a fluent Spanish speaker, start tutoring other students. Look for jobs where you can study when things are slow or that provide food while you’re working.

Ask anyone you know for suggestions, including former and current professors, older students and advisors. If you had a job back home, contact your old boss. Because so many people are working remotely these days, they may be willing to hire you even if you’re in a different city.

It may be too late to apply for a Resident Advisor (RA) position now but consider it as an option for next year. An RA lives in the dorms and receives free or discounted room and board in exchange for monitoring the students, answering their questions, conducting regular inspections and other duties.

Take Out Private Loans

If you still need more money after you’ve maxed out your federal student loans and applied for more scholarships, private student loans may be the next best option.

Private student loans usually have higher interest rates and fewer repayment and forgiveness options than federal loans. In 2020, the interest rate for federal undergraduate student loans was 2.75% while the rate for private student loans varied from 3.53% to 14.50%.

Private lenders have higher loan limits than the federal government and will usually lend the cost of tuition minus any financial aid. For example, if your tuition costs $35,000 a year and federal loans and scholarships cover $10,000 a year, a private lender will offer you $25,000 annually.

Taking out private loans should be a last resort because the rates are so high, and there’s little recourse if you graduate and can’t find a job. Using private loans may be fine if you only have a semester or two left before you graduate, but freshmen should be hesitant about using this strategy.

Consider Transferring to a Less Expensive School

Before resorting to private student loans to fund your education, consider transferring to a less expensive university. The average tuition cost at a public in-state university was $10,440 for the 2019-2020 school year. The cost at an out-of-state public university was $26,820, and the cost at a private college was $36,880.

If you can transfer to a public college and move back home, you can save on both tuition and housing.

Switching to a different college may sound like a drastic step, but it might be necessary if the alternative is borrowing $100,000 in student loans. Remember, no one knows how long this pandemic and recession will last, so it’s better to be conservative.

The post My Parents Can’t Afford College Anymore – What Should I Do? appeared first on MintLife Blog.

Source: mint.intuit.com

Should You Make Payments During Coronavirus Student Loan Deferment?

As Americans grappled with the financial consequences of the pandemic in March of this year, the federal government took several actions to help cash-strapped consumers. For starters, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act in late March of 2020, which included a temporary suspension of payments and interest for government-owned student loans through the end of September 2020.

Beyond just suspending payments and interest, the act also halted all collections activities on federal student loans. Americans pursuing Public Service Loan Forgiveness (PSLF) would see these non-payment months counted toward the 120 months of payments needed to have their loans forgiven. 

You can continue making payments on your federal student loans during the deferment period if you want to. Whether you should, depends on your goals and your situation.

This announcement was a huge relief for Americans with student debt since it meant they could pause federal student loan payments without accruing interest or facing penalties for several months. And recently, this assistance was extended for the remainder of 2020.

About the Student Loan Deferment Order

According to a memorandum from the White House, this extension intends to “provide such deferments to borrowers as necessary to continue the temporary cessation of payments and the waiver of all interest on student loans held by the Department of Education until December 31, 2020.”

What does this mean for borrowers? The extension of this order means that those with federally owned student loans (not private student loans) can continue skipping payments for the duration of 2020. Interest won’t accrue on federal student loans during this time, and penalties won’t come into effect for those who choose to defer loan payments.

How Does This Help Student Loan Borrowers?

Although unemployment numbers have improved since the summer, the initial pause on federal student loan payments was of massive help for borrowers struggling with job loss or a loss in pay. After all, getting a break from student loan payments made room for funds to go toward other household needs and bills. Keep in mind that the average student loan payment is approximately $393 for all borrowers, but that many with advanced degrees pay significantly more than that every month.

When the Presidential action was released, it was unclear whether borrowers pursuing PSLF will still receive credit for non-payment months. However, a U.S. Department of Education press release clarified that PSLF borrowers would, in fact, receive credit toward loan forgiveness as if they’d made on-time payments.

Just keep in mind that this order does not apply to consumers with private student loans. Only federal student loans qualify for this protection, although some private student loan companies are offering their own separate deferment options to consumers who can show financial hardship.

Pros and Cons of Making Payments During Automatic Deferment

One interesting detail from this order is buried in the fine print:

“All persons who wish to continue making student loan payments shall be allowed to do so, notwithstanding the deferments provided pursuant to subsection (a) of this section.”

In summary, you can continue making payments on your federal student loans during the deferment period if you want to. Whether you should, depends on your goals and your situation.

Benefits of Making Loan Payments 

If you haven’t faced a loss in income, then you might be tempted to continue making payments on your student loans. The benefits of doing so include:

  • Paying down your student loan debt faster. The Department of Education says that, through the end of 2020, “the full amount of your payments will be applied to principal once all the interest that accrued prior to March 13 is paid.” This means that every cent thrown toward your loans right now applies to your loan balance, quickly reducing your student debt on a dollar-for-dollar basis.
  • Saving money on interest. Because of the way interest accrues on student loans and other debts, reducing your balance will automatically save you money on interest over the long haul. The more you pay toward your student loans now, the more money you save.

Disadvantages of Making Loan Payments

There are a few potential downsides to making student loan payments when they’re not required. Plus, borrowers with certain types of student loans should not be making payments right now. 

Here are a few considerations to keep in mind.

  • You may need the money later on. Even if your income is fine right now, the financial fallout from the pandemic is far from over. If you choose to make student loan payments through the end of the year and lose your job in a few months, you might wish you had saved that extra cash instead. 
  • Those pursuing PSLF shouldn’t make payments. If you’re pursuing PSLF, then this deferment period is counted toward the 120 on-time payments you need for loan forgiveness. If you continued making payments through the end of the year, you would be throwing money down the drain.
  • Most borrowers on income-driven repayment plans have little incentive to make payments. If you’re on an income-driven repayment plan like Pay As You Earn (PAYE) or Income Based Repayment (IBR), then your loan payment is only a percentage of your discretionary income, and your loans will be forgiven after 20-25 years of on-time payments. Borrowers who aim to have their loans forgiven after 20-25 years anyway should skip payments through the end of the year and set aside their cash for a rainy day instead.

The Bottom Line

Individuals who want to pay off their loans quickly would be smart to pay as much as they can, but only if they can afford it. It also makes sense to be cautious about any extra income you have for the time being. After all, more economic pain may be on the way, and it’s possible you could face a loss in income later in the year.

Without any interest accruing on federally owned student loans during this historic forbearance, however, you could always put your student loan payments into a high-yield savings account until the end of the year. At that point, you can assess your financial situation and make a large, lump sum payment toward your loans if you want.

This strategy creates a greater safety net for the remainder of 2020 while also paying down debt faster with a large payment before the end of December. Run the numbers and make sure you have a plan (and a back-up plan) in place.

The post Should You Make Payments During Coronavirus Student Loan Deferment? appeared first on Good Financial Cents®.

Source: goodfinancialcents.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

Repossession Credit Scores: What You Need to Know

One of the harsh truths of secured loans is that your asset can be repossessed if you fail to make the payments. In the words of the FTC, “your consumer rights may be limited” if you miss your monthly payments, and when that happens, both your financial situation and your bank balance will take a hit.

On this guide, we’ll look at what can happen when you fall behind on your car payments, and how much damage it can do to your credit score.

What is a Car Repossession?

An auto loan is a loan acquired for the sole purpose of purchasing a car. The lender covers the cost of the car, you get the vehicle you want, and in return you pay a fixed monthly sum until the loan balance is repaid.

If you fail to make to make a payment or you’re late, the lender may assume possession of your car and sell it to offset the losses. At the same time, they will report your missed and late payments to the main credit bureaus, and your credit score will take a hit. What’s more, if the sale is not enough to cover the remainder of the debt, you may be asked to pay the residual balance.

The same process applies to a title loan, whereby your car is used as collateral for a loan but isn’t actually the purpose of the loan.

To avoid repossession, you need to make your car payments on time every month. If you are late or make a partial payment, you may incur penalties and it’s possible that your credit score will suffer as well. If you continue to delay payment, the lender will seek to cover their costs as quickly and painlessly as possible.

How a Repossession Can Impact Your Credit Score

Car repossession can impact your credit history and credit score in several ways. Firstly, all missed and late car payments will be reported to the credit bureaus and will remain on your account for up to 7 years. They can also reduce your credit score. 

Secondly, if your car is repossessed on top of late payments, you could lose up to 100 points from your credit score, significantly reducing your chances of being accepted for a credit card, loan or mortgage in the future. 

And that’s not the end of it. If you have had your car for less than a couple of years, there’s a good chance the sale price will be much less than the loan balance. Car repossession doesn’t wipe the slate clean and could still leave you with a sizable issue. If you have a $10,000 balance and the car is sold for $5,000, you will owe $5,000 on the loan and the lender may also hit you with towing charges.

Don’t assume that the car is worth more than the value of the loan and that everything will be okay. The lender isn’t selling it direct; they won’t get the best price. Repossessed vehicles are sold cheaply, often for much less than their value, and in most cases, a balance remains. 

Lenders may be lenient with this balance as it’s not secured, so their options are limited. However, they can also file a judgment or sell it to a collection agency, at which point your problems increase and your credit score drops even further.

How Does a Repo Take Place?

If you have a substantial credit card debt and miss a payment, your creditor will typically take it easy on you. They can’t legally report the missed payment until at least 30-days have passed and most creditors won’t sell the account to a collection agency until it is at least 180-days overdue.

This leads many borrowers into a false sense of security, believing that an auto loan lender will be just as forgiving. But this is simply not true. Some lenders will repo your car just 90-days after your last payment, others will do it after 60 days. They don’t make as many allowances because they don’t need to—they can simply seize your asset, get most of the money back, and then chase the rest as needed.

Most repossessions happen quickly and with little warning. The lender will contact you beforehand and request that you pay what you owe, but the actual repo process doesn’t work quite like what you may have seen on TV. 

They’re not allowed to break down your door or threaten you; they’re not allowed to use force. And, most of the time, they don’t need to. If they see your car, they will load it onto their truck and disappear. They’re so used to this process that they can typically do it in less than 60-seconds.

It doesn’t matter whether you’re at home or at work—you just lost your ride.

What Can You Do Before a Repo Hits Your Credit Score?

Fortunately, there are ways to avoid the repo process and escape the damage. You just need to act quickly and don’t bury your head in the sand, as many borrowers do.

Request a Deferment

An auto loan lender won’t waste as much time as a creditor, simply because they don’t need to. However, they still understand that they won’t get top dollar for the car and are generally happy to make a few allowances if it means you have more chance of meeting your payments.

If you sense that your financial situation is on the decline, contact your lender and request a deferment. This should be done as soon as possible, preferably before you miss a payment.

A deferment buys you a little extra time, allowing you to take the next month or two off and adding these payments onto the end of the term. The FTC recommends that you get any agreement in writing, just in case they renege on their promise.

Refinance

One of the best ways to avoid car repossession, is to refinance your loan and secure more favorable terms. The balance may increase, and you’ll likely find yourself paying more interest over the long-term, but in the short-term, you’ll have smaller monthly payments to contend with and this makes the loan more manageable.

You will need a good credit score for this to work (although there are some bad credit lenders) but it will allow you to tweak the terms in your favor and potentially improve your credit situation.

Sell the Car Yourself

Desperate times call for desperate measures; if you’re on the brink of facing repossession, you should consider selling the car yourself. You’ll likely get more than your lender would and you can use this to clear the balance. 

Before you sell, calculate how much is left and make sure the sale will cover it. If not, you will need to find the additional funds yourself, preferably without acquiring additional debt. Ask friends or family members if they can help you out.

How Long a Repo Can Affect Your Credit Score

The damage caused by a repossession can remain on your credit score for 7 years, causing some financial difficulty. However, the damage will lessen over time and within three or four years it will be negligible at best.

Derogatory marks cease to have an impact on your credit score a long time before it disappears off your credit report, and it’s the same for late payments and repossessions.

Still, that doesn’t mean you should take things lightly. The lender can make life very difficult for you if you don’t meet your payments every month and don’t work with them to find a solution.

What About Voluntary Repossession?

If you’re missing payments because you’ve lost your job or suffered a major change in your financial circumstances, it may be time to consider voluntary repossession, in which case there are no missed payments and you don’t need to worry about repo men knocking on your door or coming to your workplace.

With voluntary repossession, the borrower contacts the lender, informs them they can no longer afford the payments, and arranges a time and a place to return the car. However, while this is a better option, it can do similar damage to the borrower’s credit score as a voluntary repossession, like a traditional repossession, is still a defaulted loan.

Missed payments aside, the only difference concerns how the repossession shows on the borrower’s credit report. Voluntary repossession will look better to a creditor who manually scans the report, but the majority of lenders run automatic checks and won’t notice a difference.

Summary: Act Quickly

If you have student loan, credit card, and other unsecured debt, a repo could reduce your chances of a successful debt payoff and potentially prevent you from getting a mortgage. But it’s not the end of the world. You can get a deferment, refinance or reinstate the loan, and even if the worst does happen, it may only take a year or so to get back on track after you fix your financial woes.

Repossession Credit Scores: What You Need to Know is a post from Pocket Your Dollars.

Source: pocketyourdollars.com

How to Get a Loan Without a Cosigner

Need to get a loan without a lot of credit, but you don’t have someone to cosign? Get some tips for how to get a loan without a cosigner from Lexington Law.

Source: lexingtonlaw.com

Minimum Payments on a Credit Card

Your minimum monthly payment is the lowest amount that you need to pay on your credit card balance. Any less could result in a derogatory mark, any more will clear more of the principal. 

Your monthly payment is one of the most important aspects of your credit card debt and failure to understand this could seriously impact your credit score and leave marks on your credit report that remain for up to 7 years.

With that in mind, let’s take a closer look at how these payments operate and how you can quickly clear your credit card debt.

How Minimum Payments on a Credit Card are Calculated

The minimum payment is calculated as a percentage of the total balance at the end of the month. This percentage ranges from 2% to 5%, but it has been known to go lower. 

As an example, if you have a $5,000 credit card balance and are required to pay 5% a month, then your monthly payment will be $250. However, this only covers the principal, which is the money that you borrowed. It does not cover the interest, which is where things get a little complicated and expensive.

What Influences Your Minimum Monthly Payment?

The reason credit card interest is so high is because it compounds. This means that if you have an annual percentage rate of 20% and a debt of $20,000, that debt will climb to $24,000, at which point the next billing cycle will commence and this time you’ll be charged 20% on $24,000 and not $20,000.

However, credit card interest is calculated daily, not yearly. To arrive at your daily percentage rate, simply divide your interest rate by 365 (the number of days in a year) and then multiply this by your daily balance.

For example, if we stick with that 20% interest rate, then the daily rate will be 0.00054%. If we multiply this with the daily balance, we get an interest rate of $2.7 for the first day. Multiply this by 30, for the total days in a billing cycle, and it’s $81. That’s your total interest for the first month.

So, when we calculate the 2% minimum monthly payment, we’re calculating it against $5,081, not $5,000, which means we get a total of $101.62, reducing the balance to just $479.38.

In other words, you pay over $100, but reduce the balance by a little over $20 when you make that monthly payment. If penalty fees and interest rates are added to that, it will reduce in even smaller increments.

Pros and Cons of Only Paying the Minimum Payment on your Credit Card

As discussed above, it’s imperative that you make the minimum payment, avoiding any late payment charges or credit score reductions. However, if you only make those minimum payments every month then it will take a long time to clear your balance and you may struggle to keep your head above water.

The Benefits of Paying More Than the Minimum

Many borrowers struggle to pay more than the minimum not because they don’t have the money, but because they fail to see the benefits. They focus on the short-term and not the long-term, seeing an extra $100 payment as a lost $100 in the present, as opposed to a saved $500 in the future.

However, if you can get over this mindset and start paying more than the minimum, you will do your future self a huge favor, helping with all of the following:

Shorten the Term and Lessen the Interest

Every extra dollar that you add to your minimum payment can help you get out of debt quicker than if you simply stick with the minimum. This is true for all debts—a higher monthly payment means that more money goes towards the principal, which means there is less interest to compound.

Credit card debt is like a snowball gathering momentum as it rolls, and this is exacerbated every time you miss a payment and are hit with penalty fees. By paying more than the minimum, you’re taking a giant chunk out of that snowball and slowing its progression.

You’ll Improve Your Credit Utilization

Your credit utilization ratio is one of the most important parts of your credit report, counting for 30% of your total. This ratio takes your total available credit (such as a credit limit on a credit card) and then compares it to total debt (such as the balance on that credit card). The higher the number, the more of your credit has been used and the more your credit score will suffer.

Every time you pay more of your credit card balance, you’re reducing this score and significantly boosting your credit score.

Avoid Maxing Out Your Balance

Not only will a maxed-out credit card do some serious damage to your credit utilization score, but it can also have a direct impact on your credit score on the whole. Lenders don’t want to see it and credit bureaus will punish you for it. If you’re still using the card and only paying the minimum, you may be stuck in a cycle of persistent debt, but by paying more and using it less, you can prevent that.

You May Get a Better Credit Limit

Credit card issuers monitor their customer’s activities very closely. If they clear their balances every month without issue, they are more inclined to increase their credit limit, offer them rewards, and generally provide them with good opportunities. If they are accumulating large amounts of credit card debt and only meeting their minimum payments, they’ll be less inclined to do any of those things.

It always helps to get on a creditor’s good side, because you never know when you will need that improve credit limit or access to that generous rewards scheme.

What Happens if you Only Make the Minimum Payment?

If you only pay the minimum, the debt will take a long time to clear and you’ll repay huge sums of interest in that time. If we go back to the previous example and assume an APR of 20%, a balance of $5,000 and a minimum payment of 2%, you will repay over 400% in interest alone and it will take you decades to repay the debt.

Thankfully, very few credit card providers will actually let you pay such a small amount on such a substantial debt. But even if we increase the minimum payment to 5%, it still looks abysmal for the borrower. It would take them about 9 years to pay the balance, requiring $250 a month and paying close to $2,500 in interest.

Although it’s more realistic, this is still a poor option, especially when you consider the card will still be active and you may still be using it, which means that every time you make a repayment, you’re adding more debt and offsetting all your hard work.

Your credit score will not suffer if you only make the minimum payment. Providing you make it on time then you will build a respectable payment history, a stable credit report, and a credit score that is sure to impress lenders. However, it won’t look great for your finances as you’re giving yourself an expensive liability that will cripple your debt-to-income ratio and your credit utilization ratio for years to come.

Are There Any Advantages to Just Paying the Minimum?

The only advantage to paying just the minimum is that you will have more money in your pocket at the end of the month, which will allow you to make additional investments and purchases that would otherwise not be available to you. However, this is a pretty narrow-minded way of looking at it, because while you will have more cash in the long-term, it comes at the expense of many additional risks and obligations, not to mention thousands of dollars’ worth of additional interest paid over the term.

What Happens if you Can’t Pay the Minimum Payment?

If there is a late payment or a missed payment, your creditor may charge you a penalty fee or a penalty rate. If your payment is due for more than 30-days they may also report you to the credit bureaus, at which point a derogatory mark will appear on your credit report and your credit score will drop.

This can happen even with a single missed payment, which is why you should never simply skip a payment on the basis that you’ll just double-up next time around.

Instead, contact your creditor, explain your situation, and see if there is anything they can do to help you. They may say no, but it doesn’t hurt to ask, and, in most cases, they will offer you some kind of reprieve. After all, they want their money, and if they can increase their chances of getting paid by providing you with some leeway, they’ll often be more than happy to do it.

Some people believe that you can simply pay a few dollars and it will count as a minimum payment and not show on your credit report. This is a myth. Technically, any payment that doesn’t meet the full minimum requirement can be classed as a late payment and can lead to fees and derogatory marks.

Resources to Lower Minimum Payments on a Credit Card

It’s important to keep a close eye on your credit card statement and activity at all times. Monitor your spending, making sure it doesn’t go overboard, and if you find yourself struggling to make payments at any time, checkout the following resources and options to get the help you need:

  • Credit Counselors: Speak with a trained expert who has helped many individuals in a similar position. They will discuss your finances and your debts and will help you to find a solution.
  • Debt Management: A debt management plan can help when you’re struggling to meet your debt obligations and have a huge debt-to-income ratio. They will provide assistance and help you swap multiple debts for a single consolidation loan.
  • Debt Settlement: An option that works best for individuals with multiple debts and missed payments. It’s one of the cheapest ways to clear personal loan and credit card debt, as well as other forms of unsecured debt.
  • Debt Consolidation: Another consolidation loan option, this time with a long term, ensuring that you pay less per month but more over the term. This is a good option if you’re stuck in a tricky spot right now and need to reduce your outgoings.

In all the above cases, you can use the NMLS Consumer Access site to find a legitimate and reputable company or professional working within the financial sector. You can also use resources like the Better Business Bureau as well as the many guides, reviews, and help files right here on the Pocket Your Dollars website.

How to Reduce the Balance on a Credit Card Debt

One of the best ways to reduce your balance is to initiate a balance transfer. As the name suggests, this entails moving your balance from one card to another. Balance transfer cards entice you by offering a 0% APR on all transfers and this lasts for up to 18% with the best providers. 

In that time, you won’t pay any interest on your balance, which means all your monthly payment will go towards the principal and you can reduce your debt in huge leaps as opposed to small steps.

These cards are not without their issues, however. You will need a good credit score to get a card that has a good APR and balance transfer offer. If you don’t, and you fail to clear the balance during that introductory period, you may be paying more interest than you were before.

In most cases, though, these cards will be just what you need to ease the burden of mounting credit card debts and get back into the black. Take a look at our guide to the best balance transfer cards to learn more and discover how you can move your current balance to a card that has more preferable terms, in the short-term at least.

The Bottom Line: Clear that Balance

A minimum payment is the least amount you need to commit to a credit card balance. If credit card debt was a house party, the minimum payment would be the equivalent of showing up, saying your introductions, and then hiding in the corner for the rest of the night. If you really want to make an impact, you need to be proactive.

It doesn’t have to be twice or thrice the size of your minimum payment. It doesn’t have to be a consistent sum that you pay every month, but it does have to be something. Don’t worry if it’s only 1% or 2% of the balance, because every additional payment helps. Just pay whatever you can afford, whenever you can afford it. A small amount of money today can save you a huge sum of money in the future.

Minimum Payments on a Credit Card is a post from Pocket Your Dollars.

Source: pocketyourdollars.com

Credit 101: What Is Revolving Utilization?

Aerial view of a young woman with brown hair contemplating her revolving utilization. She has a pen in her mouth and an open notebook on her desk.

According to Experian, the average credit score in the United States was just over 700 in 2019. That’s considered a good credit score—and if you want a good credit score, you have to consider your revolving utilization. Revolving utilization measures the amount of revolving credit limits that you are currently using, and it accounts for a large portion of your credit score.

Find out more about what revolving utilization is, how to manage it, and how it impacts your credit score below.

What Is Revolving Credit?

To understand revolving utilization, you first have to understand revolving credit. Revolving credit accounts are those that have a “revolving” balance, such as credit cards.

When you are approved for a credit card, you are given a credit limit. If you have a credit card with a limit of $1,000 and you use it to buy $200 worth of goods, you now have a $200 balance and an $800 remaining credit limit.

Now, if you pay that $200, you again have $1,000 of open credit. If you pay $150, you have $950 of open credit. But your credit revolves between balance owed and how much open credit you have available to use. How much you have to pay each month—known as the minimum payment—depends on how much your balance owed is.

Other forms of revolving credit include lines of credit and home equity lines of credit. They work similar to credit cards.

What Isn’t Revolving Credit?

Unlike revolving credit, installment loans involve taking out a lump sum and paying it back in an agreed-upon fashion over a set term of months or years. Typically, you agree to pay a certain amount per month for a certain number of months to cover the amount you borrowed plus any interest.

With an installment loan, the amount of your monthly payment is determined by your loan agreement, not the balance due. Common types of installment loans include vehicle loans, personal loans, student loans, and mortgages.

What Is Revolving Utilization?

Revolving utilization, also known as “credit utilization” or your “debt-to-limit ratio,” relates only to revolving credit and isn’t a factor with installment loans. Utilization refers to how much of your credit balance you’re using at a given time.

Here’s how to determine your individual and overall credit utilization:

  1. Look at your credit reports and identify all of your revolving accounts. Each of these accounts has a credit limit (the most you can spend on that account) and a balance (how much you have spent).
  2. To calculate individual utilization percentage on an account, divide the balance by the credit limit, and multiply that number by 100.
    1. $500/$1,000 = 0.5
    2. 5*100 = 50%
  3. To calculate overall utilization (all revolving accounts), add up all of the credit limits (total credit limit) and all of the balances (total spent) on your revolving accounts. Divide the total balance by total credit limit, and multiply that number by 100.

If you have a credit card with a $1,000 credit limit and a balance of $500, your utilization rate is 50%, for example. For the same card, if you have a balance of $100, your utilization rate is 10%.

When it comes to your credit score, revolving utilization is typically calculated in total. For example:

  • You have one card with a limit of $1,000 and a balance of $500.
  • You have a second card with a limit of $4,000 and a balance of $400.
  • You have a third card with a limit of $3,000 and a balance of $600.
  • Your total credit limit across all three cards is $8,000.
  • Your total utilization across all three cards is $1,500.
  • Your revolving utilization is around 19%.

How Can You Reduce Revolving Utilization?

You can reduce revolving utilization in two ways. First, you can pay down your balances. The less you owe, the less your utilization will be.

Second, you can increase your credit limit. If you apply for a new credit card but don’t use it, you’ll have more open credit, and that can reduce your utilization. You might also be able to ask your credit card company to review your account for a credit increase if you’re an account holder in good standing.

Find the Right Credit Card for You

What Is Revolving Utilization’s Impact on Your Credit Score?

Your revolving utilization rate does impact your credit. It’s the second-largest factor in the calculation of your credit score. Your utilization rate accounts for around 30% of your score. The only factor more important is whether you make your payments on time.

Why is credit utilization so important to your score? Because to lenders, it can say a lot about you as a borrower.

If you’re currently maxed out on all your existing credit, you may be struggling to pay your debts. Or you might not be managing your debts in the most responsible fashion. Either way, lenders might see you as a riskier investment and be less inclined to approve you for loans or other credit.

How Do You Know If You Have a Revolving Utilization Problem?

Sign up for Credit.com’s free Credit Report Card. It provides a snapshot of your credit report and gives you a grade for each of the five areas that make up your score. That includes payment history, credit utilization, age of credit, credit mix, and inquiries. The credit report card makes it easy for you to see what might be negatively affecting your credit score.

You can also sign up for ExtraCredit, an exciting new product from Credit.com. With an ExtraCredit account, you get a look at 28 of your FICO scores from all three credit bureaus—plus exclusive discounts and cashback offers as well as other features—for less than $25 a month.

Sign Up Now

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Source: credit.com