In most parts of the country, a family with a median household income should — ideally — be able to afford a median-priced home in that area. In fact, an analysis of county-level data from RealtyTrac showed that a monthly payment on a median-priced home was more affordable than fair-market rent on a three-bedroom unit in 76% of counties studied, making buying a home the more economical choice for many Americans.
Of course, there’s a lot more at play when determining if you can afford a house than looking at your paycheck and the rental market — buying a house often requires a home loan, which can be tougher to come by if you don’t have good credit. At the same time, a good credit score will only get you so far in the home-buying process, because if housing in your area is exceptionally expensive, even a median household income may not get you much house. (This calculator can show you how much house you can afford.)
To determine the states where housing is least affordable, the Corporation for Enterprise Development divided the state’s median housing value by the median family income in that state, according to 2013 Census data. A breakdown of all 50 states and the District of Columbia is available through its Assets & Opportunity Scorecard tool. Here are the states with the least affordable homes.
10. (tie) Rhode Island
2013 median housing value: $232,300
2013 median household income: $55,902
Ratio of median housing value to median income: 4.2
10. (tie) Vermont
2013 median housing value: $218,300
2013 median household income: $52,578
Ratio of housing value to income: 4.2
2013 median housing value: $250,800
2013 median household income: $58,405
Ratio of housing value to income: 4.3
7. New Jersey
2013 median housing value: $307,700
2013 median household income: $70,165
Ratio of housing value to income: 4.4
2013 median housing value: $229,700
2013 median household income: $50,251
Ratio of housing value to income: 4.6
5. New York
2013 median housing value: $277,600
2013 median household income: $57,369
Ratio of housing value to income: 4.8
2013 median housing value: $327,200
2013 median household income: $66,768
Ratio of housing value to income: 4.9
2013 median housing value: $373,100
2013 median household income: $60,190
Ratio of housing value to income: 6.2
2. District of Columbia
2013 median housing value: $470,500
2013 median household income: $67,572
Ratio of housing value to income: 7
2013 median housing value: $500,000
2013 median household income: $68,020
Ratio of housing value to income: 7.4
Those are some eye-popping figures, especially if you’re from the other end of the spectrum, like Iowa or Michigan, where the median home price is just 2.4 times the median income in those states. Places like Hawaii, D.C. and California are significant outliers, though.
Nationwide, the median-priced home ($173,900) is 3.3 times the median household income ($52,250), but homeownership remains out of reach for many Americans. Homeownership rates are at their lowest level in more than two decades, partially due to tight credit in the mortgage market. To have the best chance at getting a home loan, borrowers need to focus on improving their credit standing (you can track your credit scores for free on Credit.com) and paying down debt, so they can prove their ability to repay a home loan.
Buying a home can be complicated, and it is likely the biggest financial decision you will face in your life. The housing market is changing all the time, and there are lots of antiquated sayings or supposed “rules” that you will hear about. If you are in the process of buying your first home, it’s important to know which sayings are helpful and which are just myths.
Here are some common misconceptions about homebuying.
1. Buying Is Always Better Than Renting
Even if you are planning to settle in one place for the foreseeable future, renting may still be the smarter option for you. This is usually because buying a home requires a bigger upfront payment that you may not be ready to make. Also, in some areas monthly rent payments may actually be lower than monthly housing payments. Using a rent versus buy calculator can help you see which option is better for your specific situation.
2. You Must Have a 20% Down Payment
The bigger a down payment you can make, the less you will have to finance with a mortgage. This in turn means you pay less in interest and can often put you in a better position. However, you can secure a loan with less than 20% down. Just be aware that you may have to deal with the added cost of private mortgage insurance, which protects the lender in case you default on your loan.
3. Real Estate Will Go Up in Value
Historically, home values have risen, but that doesn’t mean you’ll make money on your purchase. The past decade has shown just how volatile home values can be, and if you find yourself in the situation where you have to sell during a downturn in the market, you may get less money than you paid when you originally purchased the home. That’s even before you consider transaction costs, which can be considerable.
4. A 30-Year Fixed Mortgage Is Best
While many first-time homebuyers go for the conventional 30-year loan, there are other mortgage options worth considering like an adjustable-rate mortgage or a shorter-term fixed-rate loan. If you can afford a shorter term, you will spend less on interest. If you can’t afford the higher monthly payments, then maybe you should go with the 30-year option.
5. Down Payment + Monthly Payments = Total Home Cost
If many of your peers have houses, you may be gauging your ability to afford a home incorrectly. Your credit score, debt load, income and a number of other factors go into your home affordability. (You can check your credit scores for free on Credit.com to see where you stand.) A common misconception is that the main cost after down payment is monthly principal and interest payments, which you can predict. In reality, you will also incur upfront closing costs, maintenance and repairs, homeowners insurance and property taxes so important that all of these are worked into your budget when you become a homeowner.
Whether they are pushing you to buy too soon, too much or the wrong way, it’s a good idea not to fall victim to these common myths. The important thing is to make the right decision for you in your specific situation.
You may have heard that being a landlord is a great way to make some passive income. But before you sign your fist tenant, it’s a good idea to consider just how passive making this money will be. Carefully consider how much mortgage you can take on and ask yourself the right questions before you commit to becoming a landlord. If you decide it is the right move for you, check out some tips below to maximize your financial return and minimize the emotional stress.
1. Crunch the Numbers
In addition to finding a house you can afford in a neighborhood likely to attract renters, it’s important to create a budget to figure out what kind of return you can expect. Evaluate the rental market and ideally find a spot with low vacancy and high demand. Consider that mortgage payments will not be the only cost as maintaining rental property also means taking on property taxes, repair costs, advertising and tenant screening costs.
2. Treat Your Business Like a Business
While investing in real estate and becoming a rental property landlord can be something you do in addition to working full time, it’s important to remember that this is a business. The extra income is nice, but it will take time and effort to make it work. Take the time to be organized, get everything in writing and keep constant contact with your renter(s).
3. Screen Tenants Carefully
Speaking of renters, you want to be sure you find a good person to rent your property. The ideal tenant is someone with a monthly income that is at least three times the monthly rent, someone who doesn’t have a criminal record or recent evictions and someone who can provide references from previous landlords or employers. Some things to consider include the safety deposit, the length of the lease and the time you require for vacating the property. You may also want to check tenants’ credit scores to see how a potential renter has met financial obligations in the past.
4. Setting the Price
In addition to covering the monthly mortgage payments, ideally your rental will actually make you money. In order to do this it’s important to factor in the cost of time when the rental might be sitting vacant, the regular maintenance necessary and the cost of comparable rentals in the area.
5. Call in the Professionals
If you need more help in the process than you thought, don’t be discouraged. You might need help with managing the property. You can hire a management company but it’s important to factor this into your budget. Also, if you find yourself with questions, you may want to ask help from others who have experience as a landlord.
Becoming a landlord can be a great way to make money, but it does require time and care. It’s important to carefully consider whether you are ready to make the commitment.
Bank of America and JPMorgan Chase, two of the nation’s largest banks, will update consumers’ credit reports to remove debts that had been eliminated in bankruptcy, the New York Times reports. Such bills often remain on a consumer’s credit report, despite being legally discharged and no longer owed, and they can seriously damage a consumer’s credit standing.
The plans to update credit reports came in the midst of lawsuits playing out this week in Federal Bankruptcy Court in White Plains, N.Y., against Bank of America, Chase, Citigroup and Synchrony Financial (formerly GE Capital Retail Finance), the Times reports. Prosecutors allege the banks ignored bankruptcy discharges to make more money when selling off bad debts, and if customers complained about the information on their reports or that they were being pursued for the debts, the suit alleges the banks would refuse to fix the credit reports unless the debts (which the consumers don’t owe) were paid.
Bankruptcy is often a last resort for a heavily indebted consumer, but as damaging as it can be to have a bankruptcy on your credit report, it can be the best way to move on from credit problems and get a fresh start. However, if the debts wiped out in bankruptcy continue to be reported as past due or charged off, it’s harder to get that fresh start.
According to court documents, Chase and Bank of America have agreed to make sure debts discharged in bankruptcy are properly recorded as no longer owed on credit reports, the Times reports. The banks have not admitted wrongdoing. The changes could potentially help about 1 million consumers’ credit.
“The bankbelieves that its reporting on sold credit card accounts to credit reporting agencies is accurate and consistent with credit reporting agency policies,” wrote a Bank of America spokesperson in an email to Credit.com. “However, given the issues raised by the Court, we have made the decision to delete credit reporting for the sold credit card accounts.” Chase did not respond to a request for comment by publishing time.
Synchrony Financial also agreed to offer similar changes for consumers last year, if temporarily, according to the Times.
Negative information on credit reports can disrupt many areas of your life. Some employers run credit checks on potential employees, so negative information can jeopardize a consumer’s job prospects, which can cause all sorts of financial problems. On top of that, a utility provider or other service company may require you to pay a deposit to open an account if you have poor credit.
An alternate view on student-loan payment performance data is challenging the prevailing narrative that tends to greatly downplay the problem.
In his recent Wall Street Journal column, Josh Mitchell correctly observes that after accounting for the fact that only half of all student loans are actually in repayment (the other half are deferred because the borrowers are still in school), nearly one-third are actually past due.
Yet as alarming as that metric may be, it doesn’t even factor in the loans that are in default (absurdly depicted as payments that are nine to as many as 12 months past due, versus three months for all other consumer and commercial obligations), temporarily accommodated (often with negatively amortizing forbearances) or permanently modified under one of the federal government’s relief programs (where an estimated 40% of borrowers under the Income-Based Repayment and Pay As You Earn plans fail to re-apply for continued relief between calendar years).
All that taken into consideration, the true level of distressed loans approaches 50%—nearly five times the delinquency rate for home mortgages at its post-economic-crash peak.
No wonder the chatter is intensifying. The question is, are we finally ready to do something about the problem? A good way to start is by grouping the myriad issues into two categories: cleaning up the mess we’ve made and preventing a recurrence.
Fixing the Problem
When a significant portion of any loan portfolio heads south, the reasons typically include poor credit underwriting or improper payment structuring on the front end, or faulty loan administration on the back.
In the case of the student-loan program, it’s all bad.
Beginning with the loan-approval process, there’s a cure for sloppy credit underwriting. It’s called discharge in bankruptcy; a course of action that’s available for all types of consumer indebtedness except for student loans (absent undue hardship), which I’ll talk more about in a moment. But first, the Department of Education complains that not enough financially distressed borrowers are taking advantage of its various payment-relief plans and it holds the loan servicers responsible for that. However, as the saying goes, “Point a finger and there are three pointing back at you.” A good deal of the blame actually rests with the ED. After all, department officials pre-screened these companies, oversee the work they do, and devised the compensation plans the servicers are using to their advantage.
So, too, is the ED at fault for the fundamental design of the government’s relief plans, particularly how not all student loans are eligible for assistance or that the onus is on the borrowers to repeatedly apply for the support they continue to require.
Given the magnitude of this problem, the correct course of action is to refinance the entire portfolio of loans for terms of up to 240 months—rather than the standard 120—at interest rates that are financially justified as opposed to politically contrived, as was the case in 2013. Borrowers should also be entitled to penalty-free rights to pay down the principal or pay off their loans entirely as quickly as possible.
Until all that happens, the right to discharge student debts in bankruptcy should be restored. Doing so will motivate the government, its agents and the lenders, and investors who own discontinued Federal Family Education Loan program contracts (which represent slightly less than half of all the loans that are currently in repayment) to move more borrowers more quickly into more relief programs so that they may avoid bankruptcy altogether.
These borrowers, who by virtue of various Truth in Lending law exceptions have been relegated to second-class consumer citizenship, also deserve the same protections to which they are entitled for all other modes of consumer financing. So, too, should they benefit by the same exemption from taxes that have been granted to home mortgagors in the wake of the economic collapse, along with having their credit bureau reports reflect only their post-relief payment performance.
As for the loan servicers, the ED has had a heck of a time spinning all that bad press about many of its subcontractors’ objectionable practices. But since the department doesn’t disclose the details of its contractual arrangements with the companies that stand accused of misleading, overcharging and failing to funnel borrowers into the relief plans to which they are legally entitled, one might assume that it’s because it’s in these companies’ interests not to do so. Hence the need for reconstituting the department’s fee structure and the rules that govern that, all within the bright light of day.
For example, one way to remedy a runaway-delinquency problem is to remit servicing fees on a sliding scale: a little less for each month for the payments that fall 30, 60, 90 or more days past due. And because temporarily accommodated loans (i.e., in forbearance) do not appear to be characterized as delinquent during that period (which invites the potential for gaming the numbers) these loans should instead continue to be counted as past due until either the borrower becomes current with his payments or the contract is permanently restructured. Finally, in no case should any accommodation—temporary or otherwise—result in negative amortization (when the unpaid interest is added to the outstanding loan balance) because doing so only makes matters worse for the borrower later on.
Everyone agrees that the price of tuition has reached the point of unaffordability and the schools are doing all they can think of to remain competitive. Unfortunately, it’s a race to the bottom.
According to a recent survey conducted by the National Association of College and University Business Officers, many private colleges seem to be opting for a 47th Street (New York City’s Diamond District) approach to the market where no one pays retail. The schools are reportedly discounting the price of their education products an average 46% and, perhaps, relaxing admission standards as well.
And then there are the facilitators.
Higher education financing continues to be readily available with little apparent regard for the borrower’s ultimate ability to repay his or her debt or, for that matter, the relative value of the product he or she plans on purchasing—two of the most basic, commonsense tenets of good credit underwriting. Couple that with the widespread loan-servicing problems of both government and privately originated loans—and it’s no wonder things have gone so terribly wrong.
So why haven’t we pulled the plug on this this reckless form of lending?
Well, if a consumer’s choice is between public- and private-education-related financing, the government wins. Not only are its fixed-rate loans less expensive and its terms and conditions more reasonable, but, most important, its relief programs are also more comprehensive and forgiving. The problem is that this does nothing to arrest the tuition-price spiral.
Perhaps a better way to go would be to consider what Germany has put into place—tuition-free, public higher education—which the U.S. can come tantalizingly close to accomplishing if it does these four things:
Refinance the existing portfolio of student loans so the payments become affordable.
Restructure all loan-servicing contracts to improve subcontractor accountability.
Sell the remediated portfolio and assign the underlying servicing contracts to the private sector (with the department acting as principal for that).
Redirect all the money it currently spends on higher education (originating and servicing loans, awarding grants and so forth) to funding tuition at two- and four-year schools that meet specific outcome-based eligibility requirements (such as program completion and gainful employment).
Will this cover every dollar of every cost at every college and university? No. Nor should it. Germany’s program, for example, funds only the price of tuition. Those students who qualify for admission to the nation’s public universities—a process that is arguably more rigorous than applicants experience in the U.S.—are responsible for room, board and other living costs. Consequently, many choose to attend universities that are close to home, partner up with other students to share the rent and take part-time jobs to pay the bills.
State-supported schools may be able to cover their overhead costs with this arrangement. Those that aren’t will have other decisions to make, as will their private-school counterparts, including merging with other institutions to eliminate wasteful redundancies and divesting noncore businesses such as residential housing and food services. The resulting cash can then be used to upgrade educational content and the systems that are needed for its delivery while reducing the cost of tuition.
What About Graduates?
There is one more matter to address.
If some form of tuition-free higher education actually comes to pass, what of the current and former student borrowers who, at last count, are saddled with more than $1.2 trillion worth of education-related debt? Certainly, there isn’t enough money to address their obligations too, that is, unless one was to consider an alternative source of funding.
Last year, the ED abruptly announced that it decided to drop the so-called cohort default rate (CDR) measurement from its prospective rating system—a move that still boggles the mind because loan repayment and gainful employment go hand-in-hand. But perhaps that metric can be utilized after all. What if the CDR was used as the basis for recovering from the schools a portion of the federal funding they received for the students who’ve proved to be overcharged or inadequately equipped to command the jobs that pay enough to cover their debts? Isn’t it time we held the schools to account, if only for the benefit of those who’ve been left holding the bag?
As you can see, there is more than enough blame to go around. But finger-pointing accomplishes nothing. Taking these politically and financially difficult steps will.
This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its partners.
In the past decade, the American Dream of owning a home has become more like the American Nightmare. With more than 7 million homes foreclosed over the past eight years and unemployment hitting record levels, buying a house has been the last thing on people’s minds. To make matters worse, perhaps you have had to file for bankruptcy and believe that ever owning a home again is out of the question for you. That is simply not the case. In fact, the Federal Reserve Bank recently released a study revealing that consumers who dealt with their financial problems by filing for bankruptcy actually had higher credit scores sooner than those who did not file for bankruptcy. Furthermore, those who did file for bankruptcy were 70% less likely to get into foreclosure.
There are five steps that you should take before making the jump into a house.
A bankruptcy does stay on your credit report for up to 10 years, but you do not need to wait that long before looking to buy a house. While I have represented clients who were able to buy a home within a month after a bankruptcy case, that is more the exception than the rule. You do at least need to let the dust settle on the bankruptcy discharge papers before making that next step.
Immediately after the bankruptcy case is discharged and closed, you need to stop and take stock of where you are financially. What did you lose by going through bankruptcy? Hopefully it was mostly the burden of overdue credit and not any real assets. It is always a good idea to get a copy of your credit report both before filing for bankruptcy and after the bankruptcy discharge. That will give you a great before and after picture of your credit. Then make a practice of getting a copy of your credit report regularly after that. You’re entitled to free annual credit reports from AnnualCreditReport.com. You can also get a free credit report summary, updated every month, from Credit.com.
You will need to take stock of the bills that survived bankruptcy; for example, car loans and non-dischargeable debts that must be paid. You need to understand your current budget. Know what you have coming in the door as income and what your necessary living expenses are. Take a look at expenses that are coming in the near future and some long-term goals and expenses coming four or five years down the road. Only by tightly controlling your discretionary income can you go on to the next step.
And then you need to pay every one of your bills on time, every time, all of the time. Build a rhythm of debt repayment that becomes second nature to you.
Once you have your current budget under control, you will need to start saving money. You need to build up a nest egg not only to cover an emergency fund, but also to cover the down payment and expenses of buying a house. While Fannie Mae and Freddie Mac have just reduced the down payment requirements for their insured loans to 3% of the purchase price, conventional wisdom says that you should have about 20% of the purchase price saved for a down payment. With a 20% down payment, you will save the cost of a monthly charge for mortgage insurance premiums that protects the lender from a default on the loan. You’ll pay for it, but the lender gets the protection. That can add a few hundred dollars to your monthly payment.
There is a simple logic for a 20% investment in your home; not only does it reduce the amount you need to borrow and ultimately the size of your monthly mortgage payment, but it also represents an investment in your home that assures you won’t walk away from it when hard times come.
By saving money in excess of your expenses every month, you will get into the habit of being able to pay a mortgage or cover those unforeseen expenses of home ownership.
Owing a house is not cheap. In fact, there are some studies that show it is cheaper to rent in the short term than it is to own. In some cases, unless you intend to remain in your home for an extended period of 13 to 17 years, the return on saving the difference between rent and home ownership is huge. Remember, if something breaks when you are a tenant, you can call the landlord to come fix it. When you are the homeowner, you are responsible for fixing everything. Maintenance of a house is a big part of the money you will spend on a home.
That’s right, there is more to home ownership than just paying the mortgage every month. Besides heat and lights, you will need to supply water and sewer services, pay property taxes and insurance, landscaping (if you have a yard, even if it is only putting gas into the lawnmower), snow removal (if you are in a snow zone), possibly insect control (if you are in areas of particular infestation) and who knows what else, not to mention those small improvements you want to make to the house to make it your home. Conventional wisdom is that your housing expense (including mortgage payments) should not exceed 28% of your income. (This calculator shows you how much house you can afford.)
Since you will be locked in to a particular location for a while, you need to think about the long term. What does the career path look like? Will you need to relocate to retain your job? What does the family structure look like? The prime reason a family sells their home and relocates is to get better education for their children or to make room for the extended family as children saddled with school debt “fail to launch” or parents faced with shrinking retirements and mounting health expenses consolidate with their children to maintain a standard of living. Selling your home after only living there a short while is not a formula for success. There are expenses with selling a home that will easily eat up the down payment you paid to buy it.
There is a lot to think about when deciding to buy a house.
If your financial records are not in good shape, now is the time to start. When filing a bankruptcy, you are required to produce pay stubs covering an extended period of time, bank account records, tax returns, lists of assets and values, a budget and other documentation of your finances. While not as detailed as a bankruptcy case, similar records are required for most mortgage applications. In this electronic society, this kind of paper is still king.
Being organized with your financial records shows that you are being sensitive to the details. You know what your budget is. You know what your net worth is. You have your finger on the pulse of your money and you know that you are credit-worthy.
Coming from a bankruptcy to your fresh start means that it is unlikely you will be able to buy a house without a mortgage unless you have been extremely lucky to buy that winning lottery ticket. When applying for a mortgage, find out in advance what documents the lender will require from you and show up with them prepared to complete the application. There is nothing worse than to find the loan is delayed because you are missing a document.
Some of the things you will need for a mortgage includes a copy of your bankruptcy petition. Although the lender will draw your credit report (and you will know what is on that credit report), for some reason lenders want to see a copy of that petition. It is not enough that they can get a copy of your bankruptcy discharge or see the debts that were discharged on your credit report, they want to see the actual papers. I will submit that there is nary a banker (or non-bankruptcy lawyer) out there who can read a bankruptcy petition and understand what it means, but the requests for that paperwork is always there.
5. Shop for a Mortgage & a House
When making any large purchase, comparison shopping is paramount. You should compare the costs of things to know that you are getting the best deal. Keep in mind that you are not only shopping for a house to make your home, but you are also shopping for a mortgage to finance that purchase. More than half of all homebuyers do not shop for a mortgage.
There is more to the cost of a mortgage than the interest rate you are being charged. Many consumers fall for the trap of finding the lowest interest rate loan without looking at the whole picture. If you are coming off a recent bankruptcy, be prepared for a higher interest rate. Not that it has anything to do with risk since you cannot file bankruptcy again for a while and walking away from a home after a bankruptcy is extremely unlikely.
However, more important than a low interest rate are the upfront charges — something most consumers miss. Points (or ‘buy-down’ charge), fees of every sort, title costs and escrow needs are very important. These charges can add thousands of dollars to the upfront cost of the loan or to the amount you may need to borrow. It may become a “pay-me-now or pay-me-later” choice; either you will need more money to close on a home purchase or you will pay more each month in your mortgage payment or both.
It used to be conventional wisdom that you should buy more house than you can afford today. The assumption was that your income and family size is likely to grow so you should spend more for a bigger house today. To some extent, this logic resulted in many families getting trapped in mortgages they could not pay, as real incomes have not grown or jobs were lost through the latest economic downturn. A bigger house costs more to heat, more to maintain and makes agents and brokers more money. Don’t get trapped by the size or cost of the house, go for the safest neighborhood and school district you can find for the buck. Then learn to be handy around the house, because repairs will be necessary no matter what.
May is the time of year for new beginnings as students graduate from high school and college and start on their next phase of life. With this transition, many graduates will have new financial requirements as well, and may need their first credit card. Yet with hundreds of different cards offered by dozens of issuers, it can be very difficult for new credit card users to find a product that will meet their needs, and one that they can be approved for.
Credit Cards for High School Grads
High school graduates age 18 and older can apply for their own credit card accounts, but only under certain conditions. The Credit CARD Act of 2009 requires that applicants under 21 be able to show some proof of income so that they can repay any loan they take. So until they reach the age of 21, college students and other young adults will need some kind of job in order to receive a new credit card as the primary account holder. Thankfully, there are several cards offered with students in mind.
BankAmericard Credit Card for Students
This card offers a relatively low APR of 10.99-20.99% (depending on the applicant’s credit history) and has no annual fee. In addition, new cardholders will receive 0% APR promotional financing on new purchases for 15 months. This card is also a great choice for applicants who already have a checking or savings account with Bank of America.
Journey Student Rewards Visa From Capital One
This card features 1% cash back on all purchases, plus a 25% bonus on the cash back earned each month when cardholders make their payments on time. Other benefits include an automatic credit line increase after you make your first five payments on time, no annual fee and no foreign transaction fees.
Citi ThankYou Preferred Card for College Students
This version of Citi’s ThankYou Preferred card offers double points for dining and entertainment purchases, and one point per dollar spent elsewhere. Points can be redeemed for many different kinds of rewards including merchandise, gift cards, travel or loan repayments. In addition, new cardholders receive 2,500 bonus points when they spend $500 within three months of account opening, as well as seven months of 0% APR introductory financing. There is no annual fee for this card.
Credit Cards for College Graduates
Once graduates exit college, they will no longer be eligible for student credit cards, but they will still be able to qualify for several entry-level cards. Further, secured credit cards are a fail-safe option for graduates who have not yet built a credit history, or who had credit problems in the past and want to rebuild.
Wells Fargo Secured Visa Card
With this secured card, applicants submit a refundable deposit of at least $300 upon opening their account, which becomes their credit limit. After that, this card works much like a standard credit card. Cardholders receive a statement every month, and must make a minimum payment. In addition, cardholders will incur interest at 18.99% APR when they carry a balance. One of the nice features is a cellphone protection plan that covers theft or damage of up to $600 with a $25 deductible, so long as account holders pay their bills with their card. There is a $25 annual fee for this card.
Barclaycard Rewards MasterCard
This is an entry-level card that is offered to applicants with good credit. Cardholders receive double points for gas, grocery and utility purchases, and one point per dollar spent elsewhere. Rewards points are worth one cent each towards cash back, starting at 1,000 points for $10. There is no annual fee for this card.
Discover is well known for it customer service, and the Discover it card has features to appeal to a broad segment of applicants, including new graduates. Cardholders earn 5% cash back on up to $1,500 spent each quarter at select merchants and merchant categories, plus 1% cash back on all other purchases. Cardholders also can have their first late payment waived automatically, and there is no annual fee for this card.
Note: It’s important to remember that interest rates, fees and terms for credit cards, loans and other financial products frequently change. As a result, rates, fees and terms for credit cards, loans and other financial products cited in these articles may have changed since the date of publication. Please be sure to verify current rates, fees and terms with credit card issuers, banks or other financial institutions directly.
Judging from the comments we’ve been getting from Credit.com readers lately, borrowers with private student loan debt want to consolidate their loans, but don’t know how.
“I have private student loans, are you able to help me find a way to consolidate to get a lower interest rate?” asks Janice.
“I see all these programs for federal loans, but what if you have private student loans with two different banks? Is it possible to consolidate and if it is, any organization you would suggest?” writes Liz.
Yes, there are options for private student loan consolidation but it’s a much different animal than federal student loan consolidation, and it’s crucial to understand how it works before going into it.
Borrowers hoping to get one of these loans are often looking for one of several possible benefits. They may want to:
Get a lower interest rate
Shrink their monthly payment
Roll multiple debts into one loan
Remove a co-signer
All of these options may be possible — if you qualify.
“The market has really changed in the past two to three years. There are more options for consumers,” says Stephen Dash, CEO of Credible, an online marketplace for student loan refinancing. There are more lenders offering these loans than before, and each year the number grows. But it’s still a drop in the bucket compared with the number of lenders offering credit cards and mortgages, for example. “When we started (in 2012) there was only one lender offering federal and private loan refinancing,” Dash says. “There are now more than 10.”
(Tip: First, of course, you have to know what type of loan you have. Not sure? Check the National Student Loan Data System database which lists virtually all federal loans. Or, better yet, ask your lender or servicer whether your loan is private or federal.)
“The first step is internal housekeeping,” says Jenny Chou, chief strategy officer at student loan lender DRB Student Loan. “Do I fit their credit profile?” Chou said, for her company, that profile is a borrower who is a working professional with a strong income, good earnings potential in the future and a stable credit history.Dash echoed a similar profile for Credible as well.
If you have fallen behind on your private student loans, consolidation isn’t going to be an option. Nor will it help if you are unemployed or barely squeaking by on a low income. If that’s the situation you find yourself in, you may want to instead talk with a nonprofit credit counseling agency that also offers student loan counseling. There are a handful of agencies that currently provide this service, and they will try to help you figure out a plan for tackling your debt.
Bad Credit? That’s a Problem
Unlike federal student loan consolidation, which doesn’t require a good credit history, a credit check will most certainly be part of the application process here. That means you’ll want to review your credit before going into this process. (You can get a free credit report summary from Credit.com to get an idea of how strong your credit is — or isn’t.)“The important thing is that private lenders will risk-score everyone who applies for one of these loans,” says Chou.
If you have poor credit, you probably won’t be eligible for private student loan consolidation, unless you get a co-signer. And that’s risky — for the co-signer. Even if you pay the loan on time, that debt can affect the co-signer’s debt-to-income ratio and credit scores, making it harder for them to qualify for a mortgage, credit card or car loan. And if you don’t make your payment on time, their credit will suffer as much as yours. So make sure you are confident in your ability to repay the loan before you consider asking for their help.
When you identify a lender willing to extend you a loan, don’t automatically assume it is a good deal. As with any type of loan, you’ll want to ask these important questions before you accept the offer:
Is the interest rate fixed or variable?A variable rate means the rate can change periodically. Be sure you understand how often it can change and whether there is a cap that limits how high it can go.
What will be the total cost of repayment under the new loan? If you are stretching out the loan with lower payments, that may be good for your cash flow, but you could pay more in the long run due to interest. How much more?
Can a co-signer be released?Some lenders will allow a release of a co-signer under specific circumstances, for example if you improve your credit score, show proof of income, and have an on-time payment history.
What happens if I can’t pay?What happens to the loan balance if you die, become disabled or lose your job? If there is no loan forgiveness, you may want to consider getting disability and/or life insurance to protect yourself and/or a co-signer.
If there is one thing we need to get done before we die, it’s making a will, but you probably won’t find it on anyone’s bucket list. A lot of us never get around to it. In fact, more than half of Americans between 55 and 64 (presumably at or close to retirement) are without wills, according to a survey by Rocket Lawyer.
What that means is when they die, the state where they live will determine how their assets will be divided. (And if they are parents of minor children, the state may also decide who will raise them.)
Jim Blankenship of Blankenship Financial Planning in New Berlin, Ill., said the arrival of a first child is often what prompts couples to make a will. The desire to choose a guardian then leads to considering how the chosen person will fund the raising of the child. The other impetus for writing a will may come when a close friend or family member dies unexpectedly.
But it’s clear from the statistics that many of us either think we don’t need wills or that we’ll do it later. The real answer to when you need a will is when you have obligations or assets, Blankenship said. If, for example you’re just starting out and you used a co-signer to get a loan, if something happens to you, your co-signer is most likely on the hook for your debt. Or if you have children, then you have someone who depends on you. You’ll want to be sure you have insurance and a will to take care of them.
Homeownership can also prompt people to make wills, Blankenship said. In most cases, a home is both an asset and an obligation, and it should be included in a will.
For the very simplest wills, Blankenship said the kit type you can buy online or at an office supply store is probably adequate. You’ll need to be sure you get the version for your state. For more complicated situations (say, a second marriage, a business or more complex assets), you probably will want legal advice, he said. And remember that some assets can be passed to heirs outside a will — 401(k)s, IRAs, insurance benefits, “just about anything that has a beneficiary,” Blankenship said.
Will kits can walk you through making a will, step by step. The biggest mistake you can make, Blankenship said, is putting it off. The second-biggest, one he sometimes sees with his own pre-retirement clients, is failing to update it as life circumstances change, which is a great time to revisit your beneficiaries.
Credit cards can be a beautiful thing. They’re easier to handle than cash, make purchasing a breeze and allow you to finance purchases. But as great a tool credit cards can be, there’s also the potential for people to get themselves into trouble.
Luckily, poor credit card management really boils down to five simple mistakes that, if avoided, can help keep you out of debt. Here are those five major mistakes.
1. Only Making the Minimum Payment
While that $30 monthly payment might be super manageable, only making the minimum payment on a credit card means you’ll be in debt longer and owe more interest. Not only that, but the more you use of your available credit, 30% of it or higher, the bigger the negative impact it may have on your credit score. Always strive to pay more than the minimum payment (I usually suggest paying at least double).
2. Jumping at Every Rewards Card Offer
Chances are, you’ve probably been offered a discount on your purchase if you sign up for a store credit card. While that discount might seem nice at the time, retail cards often have some of the highest interest rates and fees. Always make sure you read up on the details of a card before applying and ask yourself why and when you’ll be using it. Opening a card just to benefit from a discount or to rack up points may not be the best tactic if you plan to carry a balance. If you carry a balance, the interest charges will almost definitely outpace the discount or rewards you receive.
3. Ignoring Your Statements
Whether it’s because of laziness or fear, ignoring your credit card statement can lead to you falling into debt, or worse. Your statement is essentially a snapshot of your credit behavior for the past month. Reviewing it regularly can help you identify poor spending habits, inform you of your balance, and enable you to spot mistakes and stop fraud.
4. Chasing Interest Rates
Let’s face it: One person’s get out of debt strategy can be another person’s shell game. Transferring your balance to take advantage of another card’s introductory low interest rate might seem like a good idea, but if you’re not careful, it could cost you more in the long run. Not only will you have to deal with a hard inquiry on your credit report and a balance transfer fee, if you don’t pay off your balance before the introductory rate period expires, you’ll be forced to deal with a new — likely higher — interest rate. You may be better off reducing your monthly spending and paying off the original card as quickly as possible (this free calculator can help you come up with a plan). It might be hard work, but it could save you a lot of headaches.
5. Carrying a Maxed-Out Balance
Just because you have a credit limit of $5,000 does not mean you should be carrying around a $5,000 balance. Carrying a balance that is more than 30% of your total credit limit can start to chip away at your credit score, which means higher interest rates on other purchases down the road and costing you more in the long run. If you find yourself carrying high balances, plan to pay down your debt as quickly as possible and consider giving the cards a break for a while. If you’re not careful, that balance could eventually catch up with you, and you may find yourself struggling to pay it (and the accumulated interest) off. If you want to see how your credit card balances – and other factors – are affecting your credit scores, you can get your free credit report summary on Credit.com.
When it comes down to it, most people’s problems with credit cards stem from the mindset that a credit card is synonymous with cash. However, it’s important to remember that a purchase made with a credit card is done so with borrowed money — and like anything borrowed, it needs to be given back. Keep that in mind, and avoid making the mistakes I listed above, and you’re on your way to building – or maintaining – good credit.