Your current debt to income ratio may prevent you from qualifying for a debt consolidation loan in the size that you would need to fully pay off all of your credit card bills. In fact, I do not see unsecured consolidation loans as high as you would need much anymore. You may only be able to secure about half of what you would need.
2. You use a debt consolidation company for their established relationships with your banks in order to combine all of your balances into one smaller monthly payment, and pay that same fixed monthly amount of money until all of your credit card balances are eliminated.
You can call my hotline 800-939-8357 and choose option one to speak with a counselor and get an accurate quote for what your lower interest rates would be, and how much your monthly payments will be reduced.
Depending on your answers to my below questions, my suggestion is going to be to call a counselor and see if they can get your interest rates low enough to get you the breathing room you need.
3. You use some of the strategies I outline about credit card banks lowering your interest rates, and try to get them all to agree, or just a couple of the larger balance and or higher interest cards.
I cover how to get your credit card interest rates reduced by yourself. Much of that article series relates to recession era bank policies. I am now seeing several credit card banks return to only offering temporary interest rate reduction plans to their account holders. But they will still give the debt consolidation companies the lower interest rates for the life of your balances.
The more credit cards you have to attempt to get lower interest rates from.
Many branded store, and specialty credit cards, are serviced by Synchrony Bank. If you are wondering whether you card is serviced by Synchrony, I provide a list of known businesses that use them below.
As you can see, Synchrony is not just about its flagship relationships like Amazon, and Care Credit. They do a ton of financing with fuel stations, and other auto related purchases we all need, as well as major clothing stores like Old Navy, American Eagle, and many others.
There are other credit card servicing platforms for large and small retailers, like Comenity Bank, but Synchrony is the largest. They have millions of customers.
Can’t Make Payments on a Synchrony Credit Card?
If you miss a payment to Synchrony, they are likely going to charge a late fee. If your situation is such that you can get the payment and fee to them prior to your next billing cycle, you can avoid being reported as 30 days late on your credit reports.
If you are dealing with something more than a one month financial hiccup, you may want to call Synchrony, after already being late, and ask about any hardship repayment program they may offer to you. But be sure you are confident you can follow through with any reduced payment Synchrony offers on a continuing basis.
If your situation is one that causes you to miss more than one payment, or you have too many accounts that you are juggling, it may be time to seek out a more permanent solution.
Getting Help with Synchrony Debt
You may have passed the point where temporary relief, or Synchrony waiving a late fee, is going to be helpful. This is often the case when you do not have enough income to meet all your bills each month. When this happens, you are typically looking at the following 3 mainstream methods for getting debt relief.
Enroll in a consumer credit counseling program and get all of your credit card debts under control. Review that link for a complete understanding of how credit counseling can help you. The gist is that your interest rates are reduced through agreements the counseling agency has with Synchrony and your other lenders.
You could file chapter 7 bankruptcy and wipe out all unsecured debts. Be sure to review your situation with an experienced bankruptcy attorney. There are income and asset considerations for each state that can vary, and prevent you from filing.
Anything but paying Synchrony on time, all the time, is going to have an impact to your credit score, or your ability to access new credit products and loans. Be sure to review this article about how debt relief hurts your credit before you make any assumptions. The truth may surprise you.
Things may not be simple
There is usually more to think about when your settling debts with Synchrony. Most of us have more than one debt we are struggling to keep current, and Synchrony balances may be the lowest on our list. In fact, the smaller the balance (less than $1500), I will often discourage falling behind if it can be avoided.
It is also important to point out that Synchrony is one of the few lenders that will refuse to send you a written agreement, or settlement letter, outlining what you negotiated with them over the phone, until your payments are set up in the system. I typically encourage you to record the phone call where you are covering all that you are agreeing to with them. Use an old-school tape recorder on speaker phone, or download one of the free apps. Be sure to tell them you are recording that portion of the call and why (they will not release a letter). Hold that recording until your letter arrives (they do send them).
Check out this video where I cover negotiating with Synchrony in more detail:
Be sure to reach out via the get help button if you want to talk through your options with someone. I can often answer basic questions via email, and you have the option of scheduling a 15-minute free call.
Here are the more common retailers and services that provide credit cards through Synchrony. Not all of these accounts will settle the same way, or for the same amount, but most do.
With a reverse mortgage, a senior homeowner can withdraw a large chunk of the equity in their home for cash, spend it how they wish and wait to pay it back.
Reverse mortgages are special types of home loans that are available to homeowners aged 62 and older. Unlike home equity loans, with a reverse mortgage you can wait to repay it until after you leave your home. Leaving your home could simply mean no longer using the house as your principal residence, selling or relocating to a new home, or moving to a senior living facility, or upon the homeowner’s death.
Many seniors may turn to reverse mortgages for an infusion of much-needed cash, strengthening their monthly budgets and giving them a greater sense of financial security from month to month. You may use the money from a reverse mortgage to bolster your Social Security benefits, which may not be enough each month.
You may turn to a reverse mortgage for help in dealing with the diagnosis of a long-term illness for yourself, or a loved one, which may require money beyond their current income or for help in dealing with the costly aftermath of a lengthy hospital stay and its subsequent recovery.
For example, you may need to pay for additional people to help you at home, in-home aides, someone to help with laundry, meals and housekeeping. And your health insurance may not cover the full extent of your on-going medical costs and expenses.
Other people may decide to take out reverse mortgage to simply pay for home repairs or home improvements. The money could be available in a lump sum in a single disbursement, through a line of credit or monthly cash advances or a combination of a line of credit and monthly payments.
With a reverse mortgage, you keep the title of your home and you are still responsible for paying property taxes, homeowner’s insurance and maintaining your home, so it’s not as if your homeowner costs vanish, as convenient as the cash may seem.
In general, with reverse mortgages, the older you are and the greater the equity that you have in your home, the more money you can receive. How much you can borrow with this type of mortgage depends on a homeowner’s age, the type of reverse mortgage you choose, the appraised value of your home, available interest rates and a financial assessment of your ability to continue to pay property taxes and homeowner’s insurance.
The amount you owe with a reverse mortgage comes due when the homeowner dies, sells the home, or no longer lives there as a principal residence. Most of this loan type have a “non-recourse” clause, which means you or your estate if you should you die while living there, would owe no more than the value of your home.
A reverse mortgage may be a good option for people who own their own home and have few if any other savings to tap or for those simply looking to get some additional cash for expenses. But it is important to consider your individual situation carefully and to understand the pros and cons of a reverse mortgage. Seniors with other assets may wish to tap those instead and leave their home and its full equity as an inheritance for their heirs.
Here is a look at the pros and cons of getting a reverse mortgage as a senior homeowner.
Advantages of reverse mortgages
Tapping home’s equity for cash. Converting some of the equity in your home to cash through a reverse mortgage is a key advantage and selling point for these types of home loans. You’ve got equity in your home but you’re short of cash. A reverse mortgage is one way to convert that equity into cash.
Tax-free money. Believe it or not, the money you receive through a reverse mortgage is tax-free, an advantage for people with limited incomes. Rather than income earned, a reverse mortgage is considered a loan advance so the money you receive through a reverse mortgage isn’t subject to taxes.
No impact on federal benefits. Getting a reverse mortgage will not affect your eligibility for Social Security or Medicare so you can tap into the equity in your home and bolster your monthly budget and not impact those important federal programs.
Disadvantages of reverse mortgages
Fees. With a reverse mortgage, you will pay an origination fee as well as closing costs and continuing servicing fees. So there are plenty of costs to consider when tapping your home’s equity through a reverse mortgage.
Interest adds up. As you receive money through a reverse mortgage, interest gets added to the balance you owe so the amount you owe through a reverse mortgage increases over time. Some reverse mortgages have fixed rates and other come with variable rates. With a variable rate reverse mortgage, an increase in interest rates will increase the interest you pay on your reverse mortgage, bumping up your overall balance.
Fewer assets. A reverse mortgage could use up much of the equity in your home, leaving fewer assets for you and your heirs. So you and your descendants will have less outright value in your home after signing on for a reverse mortgage.
Shop smart for a reverse mortgage
If you think a reverse mortgage may be right for you and your family. It is important to shop around. Consider offers between lenders carefully. You’ll also want to learn more about the different types of reverse mortgages.
Single purpose. Single-purpose reverse mortgages are available from some state and local government agencies and non-profit organizations. These types of reverse mortgages may only be used for specific purposes such as home repairs and home improvements.
Proprietary. Proprietary reverse mortgages are private loans back by companies that develop them. Homeowners with high value homes may qualify for more cash through a proprietary reverse mortgage.
Home Equity Conversion Mortgage (HECM). These federally insured reverse mortgages are backed by the U.S. Department of Housing and Urban Development. Before applying for this type of reverse mortgage, you must meet with a counselor from a government-approved housing counseling agency.
If your debts are unsustainable, and you have few assets, you may wish to clean the slate by filing for a Chapter 7 bankruptcy. Even those of us with assets we want to keep, such as your home or car, may find that it’s more suitable for their situation as well. As consumers, we will typically find we have two types of bankruptcy options. A Chapter 13 bankruptcy re-organizes a consumer’s debts and establishes a repayment plan rather than wiping the debts away like Chapter 7 bankruptcy.
I am going to focus on chapter 7.
The process takes three to six months and a Chapter 7 trustee oversees the process, selling a debtor’s non-exempt assets and then distributing the proceeds to creditors, according to the priorities established in the U.S. Bankruptcy Code.
Referred to as Chapter 7 because it is contained within Chapter 7 of the U.S. Bankruptcy code, this type of bankruptcy also is called a “liquidation” bankruptcy or a “straight” bankruptcy. This type of bankruptcy is the most popular form of bankruptcy in the United States.
No Asset Bankruptcy Cases
Most Chapter 7 bankruptcy cases that are filed in the United States are no-asset cases, meaning the debtor does not own any non-exempt assets, which could be sold to pay for debts owed to creditors. In a no-asset Chapter 7 bankruptcy case, a trustee will file a no asset report for your case and your creditors will not receive any payments from you through the bankruptcy proceedings.
Each state has its own set of exemptions that allow consumers to protect certain types of property and assets when filing for Chapter 7 bankruptcy. And there are federal exemptions as well. The reason behind the exemptions is the belief that you need a certain amount of assets and property to make a new start and sustain yourself and your family after filing bankruptcy.
For example, when you file bankruptcy a motor vehicle exemption may protect your family’s car. If all or most of your car’s equity is covered by a motor vehicle exemption, the trustee in a Chapter 7 bankruptcy filing will not be able to include your car when selling off assets to pay debts.
Making the Most of Property Exemptions
In Maine, the motor vehicle exemption is $5,000 so if you live in that state and your car is worth say, $4,500, the bankruptcy trustee will not be able to touch your car. In Florida, the motor vehicle exemption is just $1,000. In Kansas, this exemption is $20,000 when that vehicle is “regularly used for the transportation to and from a person’s regular place of work.”
In some states, these motor vehicle exemptions are higher for married couples and if the vehicle in question is equipped for people with disabilities.
Because of the range of exemptions, it is important to research the motor vehicle exemption in your state when contemplating bankruptcy. (Also be aware if you are delinquent on car payments, a lender may still be able to repossess your car before or after bankruptcy.)
Homes are another big consideration and exemption allowed in bankruptcy proceedings. Some or all of the equity that you’ve established in your home may be exempted in a Chapter 7 bankruptcy proceeding because of your state’s homestead exemption. As with motor vehicle exemptions, homestead exemptions vary greatly between states, so it’s important to research the laws where you live.
To learn more about the bankruptcy property exemptions in your state, reach out to a local bankruptcy attorney.
Pros and Cons of Chapter 7 Bankruptcy
As mentioned, Chapter 7 bankruptcy has a number of advantages for consumers. Filing this type of bankruptcy may allow you keep all or most of their assets thanks to exemptions. The whole process typically takes three to six months, which is shorter than other types of bankruptcy.
In contrast, a Chapter 13 bankruptcy requires a three- or five-year repayment plan.
Upon completion of the bankruptcy, the consumer walks away essentially debt-free, other than loan payments for assets they were able to keep, their home and their car, plus any non-dischargeable debts, such as student loans, recent taxes and unpaid child support.
A Chater 7 bankruptcy will remain on your credit report for up to 10 years, whereas a completed Chapter 13 bankruptcy will remain for up to seven years. In both instances, a public record item associated with the filing of the bankruptcy is listed on your credit report. And impacted individual accounts will fall away from your credit report within seven years. So, a Chapter 7 bankruptcy does have a longer lasting negative impact on your credit by three years than a Chapter 13 bankruptcy would. But do not let these credit reporting facts fool you. People who file chapter 7 are in better shape to get new credit and meet life goals, like buying a home or car, long before someone who files chapter 13, and often before the many people who choose a bankruptcy alternative like debt settlement or credit counseling.
The Income Means Test
Because of income, not all consumers qualify for Chapter 7 bankruptcy.
A 2005 law added a means test, which was meant to prevent higher income debtors from cancelling their debts through Chapter 7 bankruptcy rather than repaying a portion of their debts through a Chapter 13 bankruptcy.
If your income is lower than the median income in your state then you will qualify for a Chapter 7 bankruptcy. But, if your income is higher than the median income in your state, you’ll have to pass a means test. This test compares your income and some expenses to see if you would be able to repay a portion of your unsecured debt.
But there are exceptions to taking this test if you do have higher income than your state’s median income. If 50 percent of your debts are non-consumer debts such as business debts, you may not need to take a means test to qualify for Chapter 7 bankruptcy.
Disabled veterans, members of the National Guard and military reserve also may qualify for exceptions to the means test.
Regardless of income, you must complete credit counseling with an approved credit counseling agency to qualify for a Chapter 7 bankruptcy. For a list of approved agencies in each state, visit www.usdoj.gov/ust and look for “Credit Counseling and Debtor Education.”
For a Chapter 7 bankruptcy, you will need to provide information on your current income and current living expenses, your property and assets, including property that you will be claiming that your state allows you to exempt from the proceedings.
If you have questions about how your state sees your assets as exempt, or whether you make too much money to file chapter 7, post in the comments below and include the state you live in.
If you’re in debt, you may be able to break free just by making some smart moves with your budget. Slashing expenses that you don’t need, finding ways to lower fixed expenses such as auto insurance and utilities bills will free up more room in your budget.
And so will the plain, old task of taking a close look at your monthly income and expenses. It will take a little bit of time to get organized, but it will be well worth the effort. It’s hard to see where the money you make is going when you don’t have a clear budget. Not having a clear and airtight budget makes it even tougher to rein in and pay down the debt you’ve acquired.
How much are you spending on food each month? How often do you fill up the gas tank? How much are your utility and cable bills? Just tracking your expenses for a month will help you to slow down spending and free up more money for debt payments.
Revamping Your Budget
Start with your fixed expenses. Tally up your fixed expenses such as rent or mortgage payments, utility bills, cable bills and cell phone bills. Add in any other monthly bills as well. Are you paying a little extra for auto insurance coverage each month rather than each quarter? Include this in your fixed expenses for now but know you can save money if pay this bill every six months or even yearly.
Short of moving or getting a roommate, there is little you can do to lower your monthly mortgage or rent payment, but those utility bills and cable bills and phone bills should be scrutinized. Keeping the temperature in a home just a few degrees cooler in the winter and warmer in the summer can help with utility costs. So can turning off lights whenever you leave, and doing without air conditioning on low-humidity summer days. Letting the fresh air into your home or apartment can do wonders for your budget.
Cable bills can be expensive. Weigh the pros and cons of keeping your current cable package. Can you get by with a less expensive option? Could you get by without this option altogether for a few months to free up more money to pay for your debts?
Cell phone bills are another big monthly expense. Do you have the best plan for your calling, texting and data needs? If you talk on the phone infrequently, opting for a less expensive voice plan than unlimited may make sense. Take a look at your text and data usage too. Could you get by without unlimited data? Ask your mobile phone provider just how much data you used last month. If you are nowhere near the lower data limits on cheaper plans, why not switch?
Making changes to your fixed expenses, the bills you pay each month, is a fast way to have a little more green in your pocket for that debt you are keen on paying off.
Reining in Variable Expenses
Variable expenses may change from month to month, or they may be a big expense such as homeowner’s insurance that you pay once or twice year. Making sure you get all the deductions you qualify for with your homeowner’s insurance is one way to lower what can be a very expensive bill. A quick call to your insurer may save you money, so don’t hesitate to reach out. Be honest with your agent. There may be ways to lower your bill that you didn’t realize.
This strategy works with car insurance too. Your insurance company wants to keep you as a customer so they may help to lower your costs with just a quick phone call. Shopping around for a better deal from another insurance company may save you money too. Loyalty and having a good relationship is certainly nice if an accident should happen and you need to file a claim, but when the priority is paying down debt, you may want to double-check that you’re getting the absolute best deal.
Food and gas are common variable expenses that may shift from month to month. A few dinners out can make food costs soar, while a few more nights in can have the opposite effect on your wallet, so take a close look at your food spending and make adjustments accordingly. If your food costs are burdened by meals eating out with friends, plan lunch or happy hour dates instead. Even better, invite friends over to your home instead, and savor a night in for a change.
Gas is another variable expense. If you travel the same route to and from work and do little additional driving, your variable gas expenses may not be all that different month to month. If you look back at a couple of months worth of spending and see big swings in what you’re paying to fill up your gas tank and it’s just more than you want to be paying, it may be time to re-assess your driving habits. Running errands all in one day can save on gas, as can carpooling with friends. Walking more and leaving your car behind to stroll a couple blocks works well too.
But there is a big caveat; all that fun and impulsiveness is curbed back for awhile until your debt is paid in full, and you can build up some savings too. It’s more fun to spend money on an impulse when you have plenty of green in your account to handle it.
Choosing the best health plan for you and your family takes time and a little bit of work. But before getting lost in the details of each plan, sit down and take a close look at your family’s medical needs and expenses.
What medical services will you and your family need in the next year? Not sure? Take a look back at your health expenses in the previous year and use it as a guideline.
Did you visit the doctor often? Or just for standard check-ups? Does someone you love have asthma or another condition or disease that requires routine attention and care? Did you spend a lot on prescription drugs or hospital visits?
Tally up all of your medical expenses over the past year and look at the costs. Take the time to go through each month thoroughly. You want to have a firm grasp of your actual health care expenses before choosing a plan. Once you know just how much you spent on health care in the past year, it will give you a good estimate of what you are likely to spend on health care in the upcoming year.
And, if there is an additional health care cost on the horizon, a possible operation, or medical procedure that may be needed, factor that into your future medical costs as well.
Once you know your medical costs and expenses and what you spent your money on, it’s time to look at health plans.
Finding the Right Plan
Some health plans offer greater choice of medical providers and tend to cost more. These more traditional health plans are called indemnity plans.
Indemnity plans tend to have higher out-of-pocket expenses and higher deductibles. After paying an annual deductible, most indemnity plans cover a percentage of a patient’s medical costs, often 80 percent. Most indemnity plans come with a cap of how much you would pay as the patient in an upcoming year.
With other health plans, you have fewer health provider choices. And you’ll need to select physicians within a specific network of care providers but the costs also tend to be lower.
These types of plans are called managed care plans, and include preferred provider organizations, (PPOs) or health maintenance organizations (HMOs). With a managed care plan, your choice of doctors and hospitals are more limited but you also tend to have lower out-of-pocket costs and lower premiums.
Of course, if you can find a doctor that you like within an affordable network of physicians, it can be the best of both worlds.
Managed care plans are available in many employer health plans and through HealthCare.gov.
Think About Your Savings
Looking at your own personal savings is another important aspect of choosing a health plan.
Higher deductible plans mean you’ll pay more money out of your own pocket before the benefits and coverage of your health plan kicks in, but you’ll also pay a lower premium or payment amount each month.
Weigh the pros and cons of paying a little more each month out of your own pocket, with a lower deductible plan, but paying less if a serious medical condition or expense should occur. Would a higher deductible or lower deductible plan work best for your family?
An Uncertain Future
For people with health plans through the Health Insurance Marketplace, the future is not clear.
The new President-elect pledged to repeal Obamacare, but an all-out repeal will be difficult, without having 60 votes in the U.S. Senate. And Republicans have 51 seats, with a seat representing Louisiana to be decided in a run off election in December.
Sections of the Affordable Care Act that will be difficult to repeal or change are the reforms made to the Medicare program, the provision that allows young adults to be on their parents policies until the age of 26, and the provision that requires insurers to sell policies to everyone, including people with pre-existing health conditions.
Under the Affordable Care Act, those under the age of 26 may be added or stay on a parent’s health insurance policy even if the young person gets married, does not live with a parent, is not financially dependent on a parent, is attending college, or is eligible for an employer plan. And this may be a good option for families if other areas of the law are repealed.
There are portions of the Affordable Care Act that can be changed or eliminated through a process called reconciliation, and if Republicans vote along party lines in 2017 they have enough votes to make those changes.
These include ending the expansion of Medicaid coverage, eliminating the federal subsidies that make it more affordable to buy health care through the Marketplace and doing away with tax penalties for not buying health insurance. They also could eliminate a number of taxes that were created to pay for the Affordable Care Act under the Obama administration.
These were all provisions of a bill passed by Republicans in 2015 in the House and Senate and vetoed by President Obama.
When and if those changes take place is unclear. One bill proposed by Republicans in 2015, called for the end of the federal subsidies assisting people buying insurance through the Health Insurance Marketplace at the end of 2017. The deadline for enrolling in 2017 health plans in the Health Insurance Marketplace is Thursday, December 15.
Laws typically take a long time to change and implement, so it is possible there may be a year or more before changes to the Affordable Care Act take effect. But nothing is certain other than the new President’s plan to take apart Obamacare and replace it with something else.
Trump released an outline of his health care plans on Nov. 11. He has a very different plan for health care coverage in America, including a return to high-risk insurance pools and more Health Savings Accounts.
According to Greatagain.gov, “A Trump Administration will work with Congress to repeal the (Affordable Care Act) and replace it with a solution that includes Health Savings Accounts (HSAs) and return the historic role in regulating health insurance to the States. The Administration’s goal will be to create a patient-centered healthcare system that promotes choice, quality and affordability with health insurance and healthcare and take any needed action to alleviate the burdens imposed on American families and businesses by the law.”
The outline also calls for allowing people to purchase insurance across state lines and re-establish high risk insurance pools “for individuals who have significant medical expenses and who have not maintained continuous coverage.”
Looking to buy a home in the next year or more? You’ll want to clean up your credit, pay down debt and build up your savings.
Here are six ways to get ready to apply for a mortgage.
Review your credit reports. Buying a home is the biggest purchase you are likely to make and it’s important to get your credit in tip-top shape before you apply.
So get a copy of your credit report and make sure there are no errors, and resolve any unpaid accounts. Even an outstanding bill of less than $100 can hurt your credit, so pay off any forgotten accounts that you may find.
You’ll also want to clean up any errors and correct any mistakes on your credit report prior to applying for a mortgage. You don’t want a mix-up on a credit report to slow you down when you are getting ready to buy a home and apply for a mortgage. And these days, identity theft is a worry as well. So check for accounts that someone else posing as you could have opened in your name. You want your credit reports clean and reflective of your credit record over the past several years and no one else’s.
You can request a free copy of your credit report from each of the three major credit-reporting agencies by visiting annualcreditreport.com. You are entitled to a free copy of your credit report from each credit reporting agency each and every year so be sure to take advantage of this, especially in the ramp up to buying your own home.
You can order copies of your credit report one at a time or order all three at once.
Errors on credit reports take a bit of time to correct so be sure not to put this off until the last minute. And because of the possibility of identity theft it is good idea to get in the habit of checking your credit reports at least once a year, anyway.
Pay off small bills. Got credit card balances of a few hundred dollars or less? Now is the time to pay off those bills. You want to lower your outstanding debt as you prepare to borrow for a mortgage. So take care of any lingering balances you may have on store cards from say last Christmas.
Ease off on big purchases. Put those credit cards away for a while. Other than small purchases you can pay in full each month, such as cell phone bills, you’ll want to ease off those little plastic cards. And you’ll want to put off other big purchases such as new furniture, another computer, a new car and stick with what you have until that mortgage gets approved.
Mortgage lenders evaluate your debt-to-income ratio when reviewing your mortgage application and you want your debt levels as low as you can get them prior to applying for a home loan.
Mortgage lenders want proof of income.
Be steady with your income. As you hold off purchases, you will want to fortify your income. Got a good job? Stay there. Prior to applying for a mortgage is not the time to switch jobs or start a new business. Lenders are looking for stability and will like that you’ve been at a steady job for a while. And they will be reviewing your employment record for the previous two years so you will need to explain any changes in employment.Hopping around to multiple jobs does not look good. They want to be assured that you can make a mortgage payment each month, and demonstrating you have steady, reliable income each month will help to assuage those concerns.
Save. Save. Save. Most lenders require down payments of 5 to 20 percent when you purchase a home. (Although, there are some lending programs available that require no money down.)
Saving money for a down payment means trimming your budget of extras for many months and boosting your income however you can.
If you make a down payment of less than 20 percent of a home’s purchase price, a lender may require that you purchase private mortgage insurance, which will increase your monthly payment each month. Once you pay off 20 percent of the home’s purchase value through your monthly payments, you will no longer be required to pay PMI and you can cancel it.
Remember the more money you save on a down payment for a home, the lower your monthly mortgage payment is likely to be. And if you can put down 20 percent or more, it can save you from paying PMI altogether.
Also keep in mind, when you own the place the repairs and home maintenance are on you. There’s no landlord to call for help if something goes awry. So you also want to build up a savings fund for managing your home and taking care of repairs.
Get into the savings habit. Save for your down payment and open a separate savings account just for your down payment, and continue to use this account for home savings after you move in to your home. Automate your savings by having a set amount of each paycheck moved to this account. Keep it separate from your other savings so you won’t dip into it.
Prep your documents. When you apply for a mortgage, a lender is going to ask for quite a few documents. Gather them up in advance so you’ll be ready.
A mortgage lender may ask for:
Checking, savings, investment account statements
Your employment history for two years
Information on your outstanding debts, including student loans, auto loans and credit cards
One to two years of tax returns, including W-2 forms and I-9 forms
I wrote a previous post on how to rebuild your credit score, mentioning the fact that I had signed up for a Discover secured card to get the ball rolling. In this post, I will walk you through what a secured credit card is, the pros and cons of
getting one, and how to best use your newfound secured credit to boost your FICO score.
What is a secured credit card?
A secured card is a credit card that is backed with cash as collateral. In other words, if you want a $500 secured card, then you’ll have to send the bank $500 in cash to “secure” a $500 credit line. Many banks are fully secured by the deposit, but some may allow a partial deposit, meaning that your credit limit may be higher than your initial cash deposit. An example is if you sent the bank a $200 deposit, but were allowed a $500 credit line.
It’s easy to get a secured credit card when you’re unable to qualify for an unsecured credit card due to poor credit worthiness.
A secured card can act as a tool to help build or rebuild credit over a period of time, if used properly, as most banks report your payments to the major credit bureaus.
If you default, the cash deposit you provided will be used to pay what you owe. This is also a drawback, see below.
You could earn a few bucks through cash back bonuses on your spending, depending on what bank you choose.
You may learn better spending habits. Keep purchases small and pay off your balance monthly.
Deposit is refundable if you close the account or graduate to an unsecured card (some banks do this automatically), assuming you paid your bills on time.
You have to provide a cash deposit to secure the card, which could be difficult for some people, however some banks offer secured cards with credit lines as low as $200.
There may be application fees, ATM fees or annual fees, so be vigilant in your research, and choose a card that won’t eat up your money before you have a chance to use it.
You can still end up in debt. If you don’t pay, the interest will pile up quickly. If you started with a $500 credit line (secured), and default, you could end up owing much more once you add in monthly interest, penalty APRs and late fees.
Be sure your bank reports to at least one of the three major credit bureaus, otherwise it will be impossible to meet your credit building goals. And, inquire as to whether they report the card as secured or unsecured, because that can definitely make a difference on your credit report.
I Used Discover to Raise My Credit Score
I chose the Discover It Secured Credit Card to meet my particular credit goals, which was a small secured credit card ($300-$500) to help rebuild my credit and FICO score, but I could have easily gone with Capital One. It was close, but Discover won me over with the bonuses and a review at around the 6-month mark for graduation to an unsecured card.
I have had my DiscoverCard since May of 2016. I chose to deposit $500, so that was my credit limit. I’ve used it semi-monthly to pay for a nice dinner out with my husband, which usually runs about $50, give or take a few dollars, which is equivalent to about 10% of my credit limit. This is a little low, but I paid it off each month, on time for six months, and it was sufficient enough to boost my FICO score by more than 125 points!
At about the 6-month mark, Discover automatically reviewed my account and then automatically graduated my account to an unsecured credit card, unbeknownst to me, and sent me my $500 deposit back in the mail. I have to tell you, it was a fantastic surprise, being a few weeks from Christmas! That same week, Discover also sent a letter to inform me that my credit limit had been increased to $1250. Trust me, folks, this works, so let’s find you the perfect card!
You should first know what your credit needs and/or goals are before you decide which secured card to choose for yourself, but let’s compare some of the more popular ones, in no particular order.
*These are quick “snapshot” overviews. Please see the links provided (unaffiliated) for complete details on card security, features, current offers, APRs, and fees.
I’m bringing up credit unions, in general, because if you’re already a member of a credit union, it might be in your best interest to inquire about a secured credit card program with them first. Many will offer much lower APR’s and little to no annual fees.
DISCOVER IT SECURED CARD – 23.24% APR
The Good: Deposits are from $200-$2,500. Periodic account review to transition you to an unsecured card (deposit refund), no annual fee, 1% cash back on purchases (2% on gas and restaurants), free access to FICO score (TransUnion), reports to all three credit bureaus, and there’s no penalty APR. You should not be late on any payments, but the first time you are, you will not be charged a late fee. And, they have a cash back match for the first year (new customers only).
The Bad: Late fee of up to $37, but this or the APR won’t matter if you pay off your balance monthly, on time. Discover.
CAPONE SECURED MASTERCARD – 24.99% APR
The Good: Deposits are $49, $99, or $200 for initial credit line of $200 based on credit worthiness. Reports to all three credit bureaus, no annual fee, no penalty APR, unlimited access to credit score (CreditWise), and after 5 months of on-time payments, you can get a higher credit limit without paying an additional deposit.
The Bad: Late fee of $35, but this or the APR won’t matter if you pay off your balance monthly, on time. At this time, CapOne does not graduate accounts to unsecured cards, but you may receive a limit increase. Capital One.
OPEN SKY SECURED CREDIT CARD -17.64% APR
The Good: Deposits are $200-$3,000. This one tends to be more for those with really bad credit. That’s why there’s no credit check and no checking account required to make the initial deposit or qualify. They report to all three credit bureaus.
The Bad: Annual fee of $35, and look out for “inactive late fees” after the 12-month mark. Late fee of up to $27 and penalty APR of 21.75%, but this won’t matter if you pay off your balance monthly and on time. You can’t graduate to an unsecured card because they do not offer one. Open Sky.
BANKAMERICARD SECURED VISA – 20.24% APR
The Good: Deposits are $300-$4,900. You may be able to qualify for a higher credit limit than you deposit (partially-secured card). Free access to your FICO score, a 12-month review that may allow you to graduate to an unsecured card, and reports to the major credit bureaus.
The Bad: Annual fee of $39. Penalty APR of up to 29.99% and late fee of up to $37, but neither will matter if you pay off your balance monthly, on time. Bank of America.
U.S. BANK SECURED VISA CARD – 19.24% APR
The Good: Deposits are from $300-$5,000. No penalty APR, reports to all three major credit bureaus, earns interest in a savings account (minimal), and you may be able to graduate to an unsecured card after a year, but you may have to call and request it.
The Bad: Annual fee of $29. Late payment of up to $37, but this or the APR won’t matter as long as you pay your balance off monthly, and on time. US Bank.
WELLS FARGO SECURED CARD – 19.24% APR
The Good: Deposits are $300-$10,000. Periodic reviews for account upgrades (if upgraded, your deposit will be refunded), and reports to the major credit bureaus.
The Bad: $25 annual fee. Late payment up to $37, but this and the APR will not effect you if you pay off your balance each month and pay on time. Wells Fargo.
Using Your Secured Card to Rebuild Credit
It’s important to remember WHY you’re doing this – for better credit. This goal can only be achieved by “playing the game”. The game is a small set of credit rules that insure a positive outcome. The bank gets what they want (money) and you get what you want – a better credit rating.
Rule #1 – Pay on time, every time (set reminders). Rule #2 – Pay your balance in full every month (auto-pay may be an option). Rule #3 – Keep credit utilization low, ideally 15-30% of your total secured credit line. Rule #4 – Use the card frequently, but for small purchases only. Rule #5 – DO NOT CARRY A BALANCE – EVER (to avoid interest and late fees).
If you’ve had any experience with any of the above-mentioned cards, have questions or tips to help others on their quest to improve their credit, please share below in the comment section.
At age 40, Will Milzarski, an attorney, took leave from his state government job to return to the U.S. Army. After completing officer training, he served two tours of duty in Afghanistan. where he led more than 200 combat missions.
On his last day in combat, Milzarski was wounded in the face, which left him with a traumatic brain injury, hearing loss, and post-traumatic stress disorder. He was later determined to be totally disabled.
Milzarski returned to civilian life with $223,000 in student-loan debt, most of it acquired to obtain a law degree from Thomas M. Cooley School of Law. In accordance with its policy, the Department of Education forgave all of that debt due to Milzarski’s disability status.
But then this wounded veteran received a surprise. The IRS considers forgiven debt to be taxable income, and thus it sent Milzarski a tax bill for $62,000.
Milzarski summarized his experience well. “One part of our government says, ‘We recognized your service, we recognize your inability to work,” Milzarski said. “The other branch says ‘Give us your blood.’ Well, the U.S. Army already took a lot of my blood.”
Nearly 400,000 disabled Americans have student-loan debt, and this obscure tax provision impacts nearly all of them. Although they are entitled to have their student loans forgiven due to their disability status, this forgiveness comes with a tax bill.
And disabled student-loan debtors are not the only people affected by the IRS forgiven-loans rule. More than 5 million student-loan debtors are in long-term, income-driven repayment plans (IDRs), and most of them are making monthly payments so low that they are not repaying the accumulated interest.
Under the terms of all IDRs (there are several varieties), college borrowers who successfully complete their 20- or 25-year repayment plans are entitled to have any remaining debt forgiven. But IDR participants, like retired Lieutenant Milzarski, will get a tax bill for the forgiven debt.
Obviously, this state of affairs is insane. President Obama recommended a repeal of the IRS rule when he was in office, but nothing came of his suggestion.
Surely a bill to repeal the IRS forgiven-debt rule would receive bipartisan support in Congress. Who could decently oppose a repeal? In fact, President Trump can probably reverse the rule that is persecuting Mr. Milzarski simply by signing an executive order.
I predict, however, that nothing will be done about this problem–either legislatively or by executive action. Washington DC is in so much partisan turmoil that almost nothing positive is getting done. Under current tax law, millions of student borrowers in income-driven repayment plans will have huge tax bills waiting for them when they complete their repayment obligations and have their remaining student-loan debt forgiven.
And unlike retired Lieutenant Milzarski, who is in his forties, most IDR participants will be in their sixties or seventies when their tax bills arrive in the mail. And if they can’t pay their taxes, that will not be the government’s problem. The IRS will simply garnish their Social Security checks.
Retired Lieutenant Will Milzarski (photo credit Matthew Dae Smith/Lansing State Journal via AP
Associated Press. Wounded Michigan vet gets student loan debt forgiven, but now IRS wants $62,000. Chicago Tribune, October 20, 2017.
Jillian Berman. Why Obama is forgiving the student loans of almost 400,000 people. Marketwatch.com, April 13, 2016.
Judith Putnam. Student debt forgiven, but wounded vet gets $62,000 tax bill. USA Today, October 20, 2017.
Michael Stratford. Feds May Forgive Loans of Up to 387,000 Borrowers. Inside Higher Ed, April 13, 2016.
If you’ve been affected by a recent natural disaster has someone called asking to verify your FEMA registration even though you didn’t apply? Or have you tried to claim FEMA benefits or assistance, but were told you had already applied?
After receiving multiple complaints from people living in these affected areas, the FTC wants you to know about a scam involving FEMA impersonators and identity theft. Here is what people are reporting:
People’s identities have been stolen after a recent natural disaster
Someone has filed for FEMA benefits using people’s names
FEMA has tips to help protect yourself from disaster fraud. This includes what to do if you try to register for FEMA assistance online but get a verification error, and what to do if someone calls asking you to verify your FEMA registration even though you did not apply. You also can check out the FTC’s information on imposter scams, including people pretending to be from the government.
Has your identity already been stolen? Visit IdentityTheft.gov to receive a step-by-step personal recovery plan. And if you’ve spotted a disaster–related fraud, please tells us about it at ftc.gov/complaint.