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Payday Loans: Everything You Need to Know

Payday loans are an option for anyone in a sticky financial situation. But, they come at a cost.

Keep reading to learn more about how they work and if getting one is the right decision for you.

What is a payday loan?

A payday loan is a short-term, high-cost loan that you can use to cover any immediate cash needs. They’re designed to cover you until your next paycheck comes, hence the name. 

You only need to show proof of income and an active bank account to get one.

How payday loans work

Payday loans work differently than other consumer and personal loans because you don’t need to have collateral to get one. You work with a physical branch or online vendor who will loan you cash based on your current income. 

The laws in each state vary for how much you can borrow and how much the lender can charge in interest rates and fees. Once approved, the funds will appear in your bank account and you’ll need to repay the loan in full, plus fees, by your next paycheck. 

Be sure to check out the specific rules where you live before moving forward with the process.

Pros and cons of payday loans

Payday loans are definitely a risky business. It’s important to understand what you’ll be getting and giving in return before applying. 

Pros

The best part about a payday loan is it does give you a large sum of cash, which can be very helpful in an emergency situation. Plus, you only need to show proof of income and an active bank account to get one – which means your credit score (good or bad) doesn’t affect anything. 

Cons

More times than not, payday loans set people up for greater debt. Because the process to obtain a loan is so easy, many people become reliant on them as a way to make ends meet. 

The loans are due back so quickly and have such high fees, it can actually backfire and end up costing you more. 

For example, the cost of a loan is usually $15 for every $100 borrowed. That means an interest rate of 15%. But because you have to pay back the loan in two weeks, the 15% charge equals an annual percentage rate (APR) of 400%! Yikes. 

For comparison, a credit card APR is typically only 12-30%.

How to get a payday loan

To start, a payday lender will verify your proof of income and bank account information. 

You’ll also need to have a valid ID and show you are at least 18 years old. The loan funds will arrive in your account within 24 hours and will need to be paid back immediately after your next payday, so typically in two weeks and up to one month. 

The loan amount is determined by the amount of money you earn and lenders will charge a very high amount of interest.

What you need for a payday loan

It’s fairly easy to get a payday loan–you just need a job, valid ID, and to be at least 18 years old. A pay stub will work as proof of income.

It is possible to be rejected from getting a payday loan, though. Here are a few reasons why that could happen:

  • You don’t earn enough money. Lenders often require borrowers to make at least $500 a month.
  • Lenders think you won’t be able to repay the loan. If a lender suspects you aren’t worth the risk, they won’t loan you the cash.
  • You already have outstanding loans. Many lenders are able to check if you’re borrowing money from somewhere else already.
  • You are active-duty military. According to federal law, payday lenders cannot make short-term loans at more than 36% APR to military members. 
  • You’ve recently gone through bankruptcy.
  • You haven’t been employed long enough to meet lender requirements.
  • You have recently bounced checks.
  • Your bank account hasn’t been open for a long enough amount of time.

FAQs

Is a payday loan secured or unsecured?

Payday loans are unsecured personal loans because lenders charge borrowers a very high amount of interest and do not require any collateral.

Are payday loans fixed or variable?

Payday loans work by having lenders charge a fixed fee that is typically much more expensive than other forms of credit. 

Can you get a payday loan with unemployment?

If you’re unemployed, a payday loan might look very tempting. But, because lenders require a consistent source of income to qualify for a loan, you probably won’t be able to get one.

Unemployment benefits are only offered for a limited amount of time, so it doesn’t look very appealing to lenders. Seasonal workers, however, are more likely to obtain a payday loan.

What happens if you don’t pay back a payday loan?

If you can’t pay back your payday loan, lenders will begin to call you and send letters from their lawyers to try to get the money. 

Or, they could outsource the loan to a debt collector which could result in a civil lawsuit. They can even try to continue to withdraw money from your bank account, because they have that information already.

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Credit

Credit Cards: Everything You Need to Know

A credit card allows you to borrow money to buy almost anything you want. However, they come with added costs such as interest and fees – and sometimes they give you benefits, like rewards and credit-building. 

Keep reading to learn exactly how credit cards work.

What is a credit card?

A credit card enables you to borrow money from a financial institution to buy goods or services (where applicable) — whether it’s groceries, bills, or a full-fledged vacation. 

  • Note: It’s unlikely you’ll be able to use your credit card to pay for some bills, like car finance payments or student loans payments, since those lines of credit are already borrowed money.

The card itself is merely a thin piece of plastic, but it can hold a lot of spending power. It can be tempting to spend money you can’t pay back immediately.

With a credit card, there’s an agreement between you and the financial institution lending you the money, that you will pay back the money you spent with any applicable interest, as well as any other established charges.

You can either pay your bill back all at once, or just a portion, or even carry over the balance to the next month. If you choose the latter, you’ll have to pay interest (a percentage of the money you owe) in addition to what you’ve borrowed.

Secured vs. Unsecured credit cards

Most major credit card companies offer both secured and unsecured credit card options. Here’s what you need to know to understand the difference – and make the right choice for you:

  • Secured Credit Cards: These are available to people with poor credit or short credit histories. The credit card is backed by a cash deposit that determines your limit. For example, if you make a $500 deposit, you’ll have a $500 spending limit. 
  • Unsecured Credit Cards: These don’t require a deposit and are available to people with average to excellent credit scores. 

What They Both Have in Common:

Both types of credit cards will often have an annual fee (but there are many that do not). You can use either type of credit card wherever they’re accepted.

How responsible you are with the card (i.e. paying it back on time) will help you build or rebuild your credit over time, or go into debt.

Understanding Annual Percentage Rates (APR)

An annual percentage rate (APR) is the amount of interest you pay on a loan, credit card, or any other line of credit in a year. 

The percentage amount is determined by the total balance you owe. For example, if you’re borrowing $1,000 for 1 year and your credit card has an APR of 10%, you’ll pay around $100 in interest by the time that loan is paid off.

What is a good APR for a credit card?

Your APR is assigned when you open a new credit card and it’s determined by your credit score as well as what’s called the U.S. prime rate – an index used by major banks that sets the rate on consumer loans (i.e. credit cards). 

Lenders consider the prime rate and factor in their own additional margins to make sure they turn a profit with interest rates and decrease the chances of someone “defaulting” on the loan — or not being able to pay it back. 

But let’s define “good” APR.

APRs are entirely variable because they depend on so many factors, so there really isn’t a short definition of “good.” That said, typically the lower your APR, the better it is. And the higher your credit score, the more likely you are to have a lower interest rate.

Understanding how credit cards affect your credit score

There are a few ways a credit card can affect your credit score. Let’s review everything you need to know:

  • It adds hard inquiries to your credit file. This is one of the two types of inquiries that exists in your credit file. When you apply for a credit card, the lender will use a hard inquiry to determine whether or not you are a good candidate. 

Hard inquiries could lower your score by a few points — more if you have too many, too often. Soft inquiries on the other hand, do not affect your credit score.

  • It varies your credit mix. A credit mix is all the different types of credit a person can have – car loans, personal loans, etc. 

So adding in a credit card shows potential lenders you’re able to manage different types of credit, and if you’re responsible with paying them all on time, it will increase your credit score.

  • It helps your credit utilization rate. This is the percentage of total credit you’re using in relation to your credit limit. 

When you first open a new credit card, this will bring down your average of all your credit accounts. But the longer you have the credit card, the more it will help your score (again, if you’re responsible).

How to apply for a credit card

Applying for a credit card is as easy as filling out most online applications.

But there are some key things to know to make sure you’re actually approved for one: 

  • Your credit score. This is the most important factor an issuer will use in deciding the fate of your application. You can find this information at MyFICO.com.
  • Decide what kind of credit card you need. If it’s your first credit card, you might want to aim for a credit card company that has no annual fee and a lower interest rate.

Retail credit cards are often a good place to start, so check to see if your favorite store offers one.

  • Understand the key terminology on the application. We’ve already covered APR, but here are some other terms you’ll see (and need to understand):
    • Annual Fee – The yearly fee that lets you use the card charged by the card issuer.
    • Balance Transfer Fee – The amount charged to transfer a balance onto your credit card. This usually ranges from 3-5%.
    • Minimum Interest Charge – This is the least amount of interest you can be charged if you carry a balance over from one billing period to the next. 
    • Transaction Fee – This is the amount charged on different types of transactions you could make. For example, if you use your card outside of the U.S., you’ll most likely be charged a foreign transaction fee.
    • Penalty Fee – This the amount an issuer will charge if you make a late payment or go over your credit limit.
  • Choose where to apply. If you already have a checking or savings account with a bank or credit union, they may offer a credit card option as well.

How to get a credit card with no credit

If you don’t have any established credit, you might consider a secured credit card.

Like we’ve mentioned, this option requires you to put down a deposit that will determine your credit limit. If you don’t want to do that, there are also student credit cards that are available to those who qualify.

Alternative credit cards also exist and are issued by smaller companies that evaluate an applicant’s creditworthiness based on considerations other than just a FICO credit score.

How to pay off credit card debt

Once you have a credit card, it can sometimes be trickier than you originally planned to keep up with the monthly payments. Here are four suggestions for tackling debt quickly and efficiently.

  1. Pay at least the minimum. Especially if you have multiple credit cards. Then, shift your focus to paying off the total balance on each card one at a time. Start with the card that has the smallest balance first and also check to see which credit card has the highest interest rate.  
  2. Even better, pay more than the minimum. If you can afford it, pay a little extra each month so that your overall balance will be smaller, and therefore so will your interest rate. 
  3. Consolidate your debt. This will allow you to combine several of your debts into one that has a lower interest rate. Then, you’ll be able to pay your debt off faster without increasing the payment amounts. 
  4. Make a budget. And stick to it! Most credit card companies offer a “spend analyzer” that can show you exactly what you’re buying each month. See if there’s any spending category you can cut back on and lower your monthly bill so it’s easier to pay.

FAQs

What credit card should I get?

Finding the right credit card for you is a very personal decision! Afterall, you’ll most likely use it on a daily basis. 

First things first, check your credit score. Once you know this you’ll be able to choose from the three types of credit cards available: cards that earn rewards, cards that save you money on interest, and cards that help you improve your credit score. 

Think about your needs realistically from there. For example, travel credit cards may sound fun, but if you don’t actually travel, they probably won’t do you much good.

How many credit cards should I have?

There isn’t an exact science to the exact number of credit cards someone should have, but it is a fact that having too many credit cards can hurt your credit score.

How do I cancel a credit card?

Because cancelling a credit card account can actually hurt your credit score, it’s best to just leave them open even if you aren’t actively using them. 

However, if that isn’t an option for you, there are ways to safely close an account. 

Be sure to pay off your credit card balance in full every month so you can save money on interest and protect your credit score. If your credit card balance shows $0, it’s possible to close the card without damaging your credit score, but be sure to contact your lender before closing to make sure you have paid off your debt.

What happens to credit card debt when you die?

While a scary thought, everyone is going to die, meaning if you have debt – someone is going to be responsible for it when you’re gone. 
Typically this responsibility falls on your estate. They’ll be in charge of paying everything you owe to bank accounts and other assets. Your personal representative or executor should notify your creditors in a timely fashion of your passing so your debts can be settled.

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Debt

Hard Money Loans: Everything You Need to Know

If you’re interested in real estate or looking to grow as an entrepreneur, a hard money loan could be a way to get the cash you need (and fast, too). Keep reading to learn exactly what the process entails, plus the pros and cons.

What is a hard money loan?

A hard money loan is a loan secured by real property. It’s a way borrowers can take out a loan without using a traditional mortgage lender. 

The loan either comes from an individual or investor who lends you the money based on the value of the property you’re using as collateral. Oftentimes, this type of loan is used as a last resort or considered a short-term bridge loan, meaning the loan lasts until the borrower secures enough permanent financing.

How hard money loans work

The terms of a hard money loan are all based on the value of the property being used as collateral. Your credit history and score do not have any effect on your chances as a borrower. 

This is largely because traditional lenders, like a bank, do not make hard money loans. To get one, you’ll work with a private individual or company that would find value in giving you a loan. 

For example, this loan is commonly issued to property flippers who plan to pay off the high loan relatively quickly.

Pros and cons of hard money loans

Hard money loans have very high interest rates, so they can be a very expensive option. There are, however, pros to getting one. 

Here’s what to know:

Pros

  • Easy approval process. The hard money loan approval process tends to be much quicker than applying at other traditional institutions.

Lenders are private companies or individuals who care more about the value of your collateral than your financial situation, so they can make decisions quicker. They don’t spend as much time verifying income, bank statements, etc., and if you’ve worked with the lender before, the process can be even quicker. 

  • They’re relatively flexible. Most lenders don’t follow a standard loan process when it comes to hard money loans. 

Each borrower is evaluated on an individual basis, so your financial situation will determine a repayment schedule. 

  • Collateral is the name of the game. This is the most important factor for lenders, so if you’re investing in a property that’s worth a lot, the lender will give as much as it’s worth.

Sometimes, hard loan investors aren’t concerned with repayment because there could even be an opportunity for them to resell the property if the borrower defaults.

Cons

  • It’s very expensive. Because the actual property is the only protection against default, hard money loans have lower Loan-to-Value (LTV) rations than other traditional loans. 

For example, the LTV for a hard money loan is usually around 50% to 70% vs. a typical mortgage that has a 80% LTV. Plus, the interest rates can be very high–expect to pay rates in the double-digits.

  • More pressure to succeed. Because these loans are more expensive, it’s very important the project you’re working on (i.e. the property being used as collateral) increases in value – or at least you break even.

How to get a hard money loan

To get a hard money loan, you’ll need to connect with investors looking for new properties. Start by researching companies and individuals in your area that lend money based on collateral. Local real estate agents or investor groups can be great resources for this. 

Then reach out and inform them of your goals and needs so you can start a working relationship and apply for the money once you’re ready.

Getting approved

A traditional lender, such as a bank or credit union, is always interested in: proof you can pay them back, your credit history, and your available income.

Lenders who issue hard money loans are not. 

It’s fairly easy to be approved by a hard money lender because they lend money based on collateral and they aren’t necessarily interested in your ability to repay. They know that if anything goes wrong, they can get their money back by taking your collateral and selling it. 

This type of loan is usually considered a short-term loan and lasts from one to five years. It wouldn’t be financially wise to keep them any longer because of the high interest rates.

Tips for paying off a hard money loan

If you want to get into the world of real estate, hard money loans are a great option. But, because this type of loan is so much shorter than traditional loans and has a higher interest rate, it’s important to have a strategy to pay it off. Here are some things to consider:

  • Sell the property being used as collateral. Most times, the main reason someone would get a hard money loan is to finance their property flipping project.

The goal is to purchase a property, use it as collateral, improve the property, then sell it for a profit. This option allows you to plan and invest in the best way to maximise profits while improving the property.

  • Refinance with the lender. If your plan wasn’t to flip a piece of property but to rent it out, refinancing may be your best bet. 

This strategy gives you a longer-term plan for income rather than one lump sum. Discuss this with your lender and see what they’re open to.

  • Secure a traditional mortgage. If you want to stay in the property you purchased with your hard money loan, you should consider a mortgage. 

You can use your hard money loan to build up your credit or pay off other debts, thus increasing your chances of being approved for a mortgage from a traditional financial institution.

FAQs

What happens if you default on a hard money loan?

If you default on a hard money loan, the property used as collateral for the loan will be used as the asset to pay off the loan. 

Your lender will foreclose the property, which could require you to sign a Deed of Trust, Promissory Note, or go to court to settle depending on where you live.

Do hard money loans require an appraisal?

Yes! Because the value of the property is the most important factor in receiving a hard money loan, the approval process includes an appraisal to determine what that value is.

Do hard money loans show up on credit reports?

Most hard money loans do not show up on your credit report. But because this isn’t always the case and can vary by lender, it’s important to have this conversation with whoever you’re borrowing the money from.

Resources

Debt

Personal Loans: Everything You Need to Know

A personal loan is a relatively flexible loan to be used for short-term financial needs when you don’t want to dip into your savings. Keep reading to learn exactly how they work and what you can afford to do with this type of loan.

What is a personal loan?

A personal loan is money borrowed from a financial institution (think bank, credit union or online lender) that you pay back in fixed monthly payments. 

This type of loan typically lasts between two to seven years. It’s a good option if you don’t want to rely on your savings account to cover unexpected expenses or for any non-discretionary purposes, such as debt consolidation.

How do personal loans work?

Personal loans can be relatively easy to qualify for and are based off of your credit history and income. 

The money can be used for almost anything, including expensive purchases or medical bills. You might also see them referred to as signature loans or unsecured loans because there is usually no collateral required to secure one (but more on that later). 

Once you receive the loan, the money is typically given in one lump-sum that you repay with fixed monthly payments, plus interest (of course@!) 

The interest rate — or Annual Percentage Rate (APR) — is determined by your credit score.  Higher credit scores will give you better interest rates, since your risk as a borrower is calculated using your credit score.

The interest rate is typically fixed throughout the payment period. However, some lenders have different rules so be sure to check your terms to confirm that your rate won’t change in the repayment process.

Secured vs. Unsecured personal loans

The majority of personal loans are unsecured, meaning they aren’t backed by collateral and a lender decides whether or not to give you the loan based on your credit score, history, and income. 

Collateral can be any asset that is able to be seized and sold to repay the loan (if necessary). If you can’t get an unsecured loan, your next option is a secured loan, which is backed by collateral, like your car or house.

What can I use a personal loan for?

Personal loans are very flexible in terms of what you can use them for. Here are a few examples:

  • Debt consolidation (most commonly for credit card debt)
  • Home improvement projects
  • Medical bills
  • Refinancing existing loans, or repaying family and friends
  • Special occasions such as weddings or funerals
  • Small business expenses
  • Vacations and holiday shopping
  • Divorce costs
  • Moving expenses

How to get a personal loan

The process of applying for a personal loan usually involves three steps.

  • First, pre-qualify for the loan with multiple lenders. This way, you can compare interest rates and repayment plans. You’ll need to provide information regarding the loan’s purpose, how much you want the loan to be, your ideal monthly payment, and your personal financial information (credit score, history, income, etc.).
  • Then, select the best offer. Once you decide what’s best for you, you’ll submit a formal application with the lender. This includes a photo ID, proof of address and employment, your financial information and Social Security number.
  • Once approved, you’re all set! And your lender could give you the money as early as the same day as applying.

Learn more about C&D’s Personal Loan services >

If you have bad credit:

A strong credit score will give you a better chance of qualifying for a personal loan, having a simpler time applying for one, and give you a better interest rate. 

That said, there are lenders who cater to people with bad credit profiles. If you don’t have time to improve your credit before applying for a personal loan, talk to your lender to see if they offer a fair credit or bad credit loan. These will have higher rates, but they’re available to people in a sticky financial situation.

FAQs

Do personal loans affect my credit score?

Yes, just like any other kind of loan! If you make your personal loan payments in full and on time, this will help improve your credit score. Late or missed payments, on the other hand, will significantly damage your score.

How many personal loans can you have at once?

It depends on the lender. With some lenders, you can have multiple personal loans with them or even across different lenders. But, a lender could limit the amount of money they’ll give you because you may already have too much existing debt. Generally speaking though, there is no law against having a certain number of personal loans at once.

Can you refinance a personal loan?

Yes, it’s possible to refinance a personal loan. When you do this, you replace the existing loan with a new one to hopefully save money and qualify for a lower interest rate than you originally had.

Can you transfer a loan to another person?

Because a personal loan is determined by a person’s credit score and financial history, they generally cannot be transferred to another person. If your loan has a cosigner or guarantor, it is possible for that person to become responsible for the loan if you default. Doing so though would cause a lot of damage to your credit score.

What happens to personal loans when the borrower dies?

If a personal loan is still not paid off by the time the borrower dies, then the borrower’s estate is responsible for the remaining balance of the loan. If the loan had a co-signer, then that person would be in charge of paying off the loan.

Resources

Debt

Bankruptcy: Everything You Need to Know

Bankruptcy is a scary word. But it could offer the financial solace you need when a financial situation has become too overwhelming to bear. Keep reading to learn exactly what it is and how it may not be as terrifying as you think.

What is bankruptcy and how does it work?

Bankruptcy is the legal process that happens when someone or a business cannot repay their outstanding debts. It’s overseen by federal bankruptcy courts and is there to help people and businesses eliminate their debt partially or completely, or sometimes help them pay part of what they owe. This is a very complex task to undergo and shouldn’t be done without legal help!

First, you’ll need to meet the requirements to file for bankruptcy, such as showing you can’t repay your debts and also that you’ve completed financial counseling with a government-approved credit counselor. The process starts when the debtor files a petition and their debts are measured and evaluated. Then, depending on which type of bankruptcy you are filing for, the rest of the process will have its own specifications. The goal is to give you a financial fresh start, but it will stay on your credit report for many years and could make borrowing money in the future very difficult.

Types of bankruptcy

There are several different types of bankruptcy all known as chapters. They all vary in filing costs, complexities, and more.

  • Chapter 7 Bankruptcy, or Liquidation, is the most common form of bankruptcy chapter. This process does not include a repayment plan, instead, the debtor’s nonexempt assets are collected and sold to pay back the creditors. Nonexempt assets include family heirlooms, second homes, cash, and stocks or bonds. This option is applicable for people who don’t have regular income or who don’t want to use Chapter 13’s plan, which we’ll get to next.
  • Chapter 13 Bankruptcy, or a Wage Earner’s Plan, allows individuals with regular income to create a plan to repay all of their debts. This is the second most common chapter and typically takes debtor’s three to five years. 
  • Chapter 11 Bankruptcy, or Reorganization Bankruptcy, is for businesses who wish to remain open during the bankruptcy process and become profitable once again. This chapter creates new ways to increase revenue and cut costs while under court supervision. For example, a business would raise their service rates or offer more services to become profitable.
  • Chapter 9 Bankruptcy is for municipalities and political subdivisions, such as hospitals, airports, and school districts, who are in financial distress. These institutions do not have to liquidate their assets or close, but must create a plan for repaying them over a period of time.
  • Chapter 12 Bankruptcy is available to provide relief for family farmers and fisherman. It enables them to carry out their business while coming up with a debt repayment plan.
  • Chapter 15 Bankruptcy is for when the filings involve people from multiple countries. It is typically filed in the debtor’s home country.

Who Qualifies for Bankruptcy? 

Whether or not you meet the requirements to file for bankruptcy is a good way to determine if it’s a good option. The most common types of bankruptcy for an individual are Chapter 7 and Chapter 13. 

Chapter 7

To qualify for Chapter 7 bankruptcy you must: 

  • Have a monthly income that’s lower than the median income for the same sized household in your state 
  • (if the above is false) Pass a means test to decide if you have enough money to make payments to your creditors
  • Not have filed for Chapter 7 bankruptcy in the past eight years
  • Not have filed for Chapter 13 bankruptcy in the past six years
  • Complete a credit counseling course.
Chapter 13 

To qualify for Chapter 13 bankruptcy you must: 

  • Have a sufficient income to make debt payments
  • Your unsecured debt must be <$419,275
  • Your secured debt must be <$1,257,850
  • Have filed federal and state income tax returns for the past 4 years
  • Complete a credit counseling course.

When is bankruptcy a good option?

Oftentimes the word “bankruptcy” rings huge alarm bells in our brains. But, if you’re unable to repay your debts and provide necessities like food and shelter for you and your family, it may be your best option. And it isn’t the end of the world. Filing for bankruptcy means an end to collection calls, wage garnishments, potential lawsuits, and the best thing–debt!

The downside of filing for bankruptcy

Declaring bankruptcy is a scary move for many people. Yes, it can help you relieve your debts, but it has a very bad reputation–and possibly for good reason. The biggest being the fact that it lowers your credit score, making it more difficult to get a credit card, loan, mortgage, rent an apartment, or buy a business in the future. (Take a deep breath here, that was a long list!) And a Chapter 7 bankruptcy will stay public record for 10 years after you file. On the other hand, most debtor’s already have poor credit scores from late and missed payments.

Alternatives to bankruptcy

Bankruptcy is just one possible solution when it comes to unmanageable debt. These are some alternatives to consider. Keep in mind, most will still affect your credit score, but maybe not as much as bankruptcy. 

  • Ask for help. The government offers approved credit counseling or debt management plans that can work with your creditors so you can pay back what you owe.
  • Opt for a debt consolidation loan. This is the process of taking out a new loan to pay off your current debts. They typically offer better terms such as lower interest rates and monthly payment options. 
  • Talk to your creditors. They don’t want you to not repay your debts either, so communicate with them to see if they’re willing to renegotiate a repayment plan you can actually manage.

How to file bankruptcy

All bankruptcy cases go through the federal court system as outlined in the U.S. Bankruptcy Code. You can file for bankruptcy on your own, however, it’s best to work with a bankruptcy lawyer. There will be filing costs and legal fees, but free services are available for those who qualify. The process includes:

  • Compiling your financial records. This includes listing all debts, assets, income, and expenses to give the courts and whoever’s helping you a good sense of your situation.
  • Getting credit counseling within 180 days before filing. You actually can’t file for bankruptcy until you’ve gone through this requirement. It shows the courts that you’ve done everything you could before filing bankruptcy as a last resort.
  • Filing the petition. And if you haven’t found a lawyer, this is the time to do it if you want one. Without legal advice, you run the serious risk of not knowing all of the federal and state laws which could affect the outcome of your case. 
  • Meeting with your creditors. Once your petition is accepted, the case will be assigned to a bankruptcy trustee who will set up a meeting with your creditors. This will give them the chance to ask questions about your case.

FAQs

How long does it take to file bankruptcy?

The amount of time it takes to file bankruptcy and complete the process varies by chapter. It will also depend on your financial situation and the amount of debt you have. Generally, a Chapter 7 Bankruptcy can take three to seven months, and Chapter 13 Bankruptcy is anywhere from three to five years.

Can you file bankruptcy on medical bills?

Yes! But you can’t limit your bankruptcy case strictly to your medical bills. When you file, be sure to list all of your debts, and that includes medical bills. They are considered non-priority unsecured debt, meaning it can be forgiven.

How long after bankruptcy can I buy a house?

The length of time it takes to buy a house after bankruptcy depends on the type of bankruptcy you filed for and the type of mortgage loan you’re applying for.

This is because bankruptcy can severely affect your ability to obtain unsecured credit, and even if you do get it, lenders may charge you higher fees and interest rates. Another option may be to reaffirm your current mortgage during the bankruptcy proceedings so you can keep your home and continue paying that mortgage.

Do you need a lawyer to file bankruptcy?

You don’t have to have a lawyer to file for bankruptcy, but the only person that comes to mind who represented themselves in a court of law without one is Ted Bundy. (Yikes.) Bankruptcy has long-term financial and legal consequences, so it’s very important you have a qualified lawyer to guide you along the way.

Resources

Debt

Debt Consolidation: Everything You Need to Know

When you’re in over your head with student loan payments, credit cards, and more, paying off debt can seem nearly impossible.

Debt consolidation might be an option for you if you need help digging yourself out of a hole. Keep reading to learn more.

What is debt consolidation?

Debt consolidation is the process of taking out a new loan to pay off other debts you owe. This option ideally offers a better payoff deal than your old debts original terms, such as lower interest rates and monthly payments. 

It’s a great way to pay back overwhelming credit card debt, student loans, and other liabilities.

How does debt consolidation work?

The first step to starting debt consolidation is to visit your bank, credit union, credit card company, or online personal loan provider to apply for a consolidation loan. If you have a good history with the institution you’re applying at, it should be easier to get the loan. If you aren’t approved, you could try private lenders or mortgage companies. 

Once you have the loan, it will enable you to pay off all your debts through that single loan. Many creditors are willing to do this because it increases their chances of actually collecting the debts. 

Your new loan will be refinanced with an extended repayment period, so keep in mind you will likely be in debt for a longer period of time. Plus, a lower interest isn’t’ always guaranteed, so be sure to read the fine print with your financial institution. 

To sum up the debt consolidation process: 

Step 1: Apply for a loan with a trusted lender 

Step 2: Take out the loan with the lowest rates and best terms

Step 3: Use your loan to pay off your existing debts. 

Different types of debt consolidation explained: how to consolidate debt

There are different kinds of debt consolidation loans and each have their own set of pros and cons. Learn which could be right for you.

1. Debt Management Plans

Debt management plans are a solution for anyone struggling to pay their bills every month. They work by combining all of your unsecured debts into one monthly payment that you can pay off in three to five years. The interest rates, monthly payments, and late fees are lower and you pay a credit counseling agency, who will then pay the creditors the agreed-upon amount.

Learn more about Debt Management Plans>

2. Debt Settlement

Debt settlement is very different from debt consolidation. Like we said, consolidation is a loan that lumps all your unsecured debts into one single payment. Settlement, however, is when you work with a company to negotiate a lump-sum settlement payment with your creditors for less than the original amount you owe. These companies charge a fee for their service, and oftentimes it’s between 15-20% of your total debt. They do not make any actual payments to your credit institutions, they only try to negotiate your current debts.

Learn more about Debt Settlement >

3. Debt Consolidation Loans

If you’re having trouble managing all of your outstanding debts, a debt consolidation loan may be an option. Banks and private lenders offer these in two different forms: secured and unsecured. A secured loan is backed by one of your assets, like a car or house, to act as collateral. An unsecured loan is not backed by any assets and is more difficult to obtain. They also have higher interest rates and lower qualifying amounts, although the interest rate is still typically lower than what is charged by credit card companies and financial institutions.

Personal loans

Personal loans can be used for just about anything, including paying off your debt! The lender may ask you what you’re planning to do with the money, but most will just want to know you’ll be able to pay it back. 

They aren’t secured by collateral and can be relatively inexpensive compared to other loans.

Learn more about personal loans >

Other types of loans

We recommend exploring the options above before tapping into retirement funds and your home value. That said, it’s important to understand all of the options below. 

401(k) loans

A 401(k) loan is when you borrow money from your retirement savings account. Every employer’s plan is different, but it’s typically a fast and convenient way to get the money you need. You’ll have to pay back the borrowed money with interest within five years of taking the loan, depending on your employers terms. 

Home equity lines of credit (HELOCs)

A home equity line of credit (HELOC) is a second mortgage that allows you to access cash based on your home’s value. Similar to a credit card, they’re pretty flexible in that you can borrow as much as you need up to your home’s equity. These also have flexible interest rates. 

To get one, you need a credit score of 620 or higher, a home value that’s at least 15% more than what you owe, and a debt-to-income ratio that’s 40% or less.

Home equity loans

A home equity loan is when you borrow money using your home as the collateral. The money comes as a lump-sum payment and you repay the loan with a fixed-rate interest during a predetermined amount of time. 

The amount of money you can borrow is usually determined by your income, market value of your home, and your credit history. A bank, credit union, mortgage company, and mortgage broker are all options to consider taking a loan from.

4. Balance Transfer Credit Cards

If you don’t want to take out a loan, you might consider consolidating all of your credit card payments onto a new credit card. This could be a good idea if the new card charges little to no interest or if there is a $0 annual fee and $0 transfer fee.

When is debt consolidation a good option?

When considering whether debt consolidation is a good idea for you or not, think about your current situation. If you’re juggling multiple bills with different payment amounts, interest rates, and due dates, consolidating everything into one lump-sum payment might be a good idea. Especially if you can get a lower interest rate than what you already have.

“What type of debt consolidation option is best for me?”

The two most common (and least risky) ways of consolidating debt both involve lumping all your current debt payments into one monthly bill. 

The first is to move all your debts to a 0% interest balance-transfer credit card and be sure to pay it in full each month. You’ll most likely need a credit score of 690 or higher to qualify. 

The next option is to apply for a fixed-rate debt consolidation loan at your financial bureau. Then, use that money to pay off your debt while paying off that loan in set installments. These loans don’t require an excellent credit score, but the higher the score, the lower your interest rate will probably be.

Risky debt consolidation options you should avoid:

Debt consolidation isn’t a perfect solution for overwhelmed debt and doesn’t always work. Here are two loans to be wary of because they put two very important things at risk–your home and your retirement.

401(k) loans

A 401(k) loan allows you to borrow money against your retirement savings account, so it should be used as a last resort when you need to pay off debt. 

This option is appealing because of it’s low-interest, but it could totally derail your retirement savings. The amount of money you borrow won’t be growing compound interest that could benefit you in the future. There could also be potential tax consequences and penalties for this type of loan if it’s not paid back. Plus, you’ll still have to pay back the balance of the loan if you leave the job.

Home equity lines of credit (HELOCs) & home equity loans

Using home equity lines of credit (HELOCs) or home equity loans relies on your home as collateral, so it can be a risky option to consider. 

Let’s start with HELOCs — like we said, these are structured similar to credit cards in that you can access cash based on your home’s value. They have a low, variable rate but because you can take out different amounts at different times, they’re harder to budget for. 

Adjustable rates also mean that your payments could increase, leading to deeper debt in the long run.

A home equity loan can be a good idea depending on your financial situation, but nonetheless, you should proceed with extreme caution. With this loan you’ll have a fixed rate and a set payment schedule, so it’s easier to budget for. 

But, if you miss a payment or are late, it could put you in danger of losing your home. And if you decide to sell while the loan is still in place, you’ll have to pay the entire balance at once.

FAQs

Does debt consolidation hurt my credit?

If you make your loan payments on time every month and pay more than is due, it could help improve your credit score. 

But if you continue unhealthy spending habits like spending more than your line of credit, or you’re late with your payments or completely miss them, this will hurt your score.

Can I consolidate my debt before applying for a mortgage?

Yes, but patience is key. Consolidate your debt well in advance of buying a home so you’ll be more likely to be approved for a mortgage. 

If you pay off your consolidation loan on time and in the full amount, your credit score will increase, which looks great to mortgage companies. It shows you will be a responsible borrower.

Can I refinance my mortgage to consolidate debt?

You can refinance a mortgage to pay off debt, but you’ll want to make sure you have enough equity. A good rule of thumb is if you’ll end up owing more than 80% of your home’s value after you refinance, hold off because you’ll have to buy mortgage insurance. You need 20% equity in your home to avoid mortgage insurance.

Can I file bankruptcy on debt consolidation?

They are two different things! Bankruptcy is a legal process overseen by the federal courts and designed to protect individuals and businesses overwhelmed by debt. It does major damage to your credit score, so another viable option is debt consolidation. 

You’ll only want to file for bankruptcy if you cannot consolidate your debt. Speak with a debt coach or a lawyer before going down this path.

Resources

Credit

Credit Monitoring: Everything You Need to Know

Our worlds are more digital than ever before, which means our private information is more vulnerable to potential threats like fraud and scams. Keep reading to learn how credit monitoring can help you safeguard against these risks.

What is credit monitoring?

Credit report monitoring is when someone — either yourself or a company — monitors your credit history in order to detect any changes or suspicious activity. This is an effective way to stay diligent to potential identity theft and fraud. 

Without monitoring your credit, whether you do it yourself or hire a professional company, your personal information could be compromised along with your access to credit. 

What credit monitoring does

Credit monitoring does exactly what it sounds like — it monitors your credit. And whenever changes are made to your credit report, the credit monitoring service will alert you to verify the change(s).

It’s possible to do this on your own without the help of a professional service, however, these services typically have an automated and efficient method for monitoring your credit faster and more accurately. 

Credit monitoring alerts may include:

  • When a new account is opened in your name
  • When someone applies for credit in your name
  • Balances and payments on your credit
  • Address or name changes
  • Access to public records, such as bankruptcies
  • Personal information available on the dark web, including your social security, email address, and passwords

What credit monitoring doesn’t do

Credit monitoring is a great resource for spotting and preventing potential fraud, however, it’s not a 100% guarantee of protection against identity theft or unauthorized purchases. 

The service will alert you of any changes made to your credit and provide resources to help you identify possible theft, but they can’t actually promise foolproof fraud prevention. They can, however, keep you completely informed in real time so you can take action if need be. 

Here are some services credit monitoring doesn’t offer:

  • Keeping your personal information safe from data breaches
  • Preventing someone else from applying for and opening new accounts in your name
  • Stopping phishing emails
  • Reporting fraud
  • Fixing credit report errors
  • Contacting you if someone withdraws money from your bank account
  • Alerting you if someone else files a tax return in your name

How to monitor credit

Monitoring your credit requires a strong attention to detail. You’ll first want to verify that your personal information is correct. Double check your name, address, marital status, and employment information.

If you see any discrepancies, such as an address you’ve never lived at or an employer you’ve never worked for, consider these suspicious activities that should be reported as soon as possible. 

You should also close any accounts you no longer use, as these are prime targets for criminal activity since they aren’t frequently monitored. Typical criminal activities may include illegal purchases made with a stolen credit card and/or filing fake Social Security or Medicare claims. 

Most times, this information is used without the victim’s knowledge and it is very hard to detect after the fact.

Paid vs. free credit monitoring

Like we’ve mentioned, it’s completely possible to monitor your own credit. But we’re also full advocates of knowing yourself. If monitoring your own credit is something you’ll never make a habit of, it’s worth investing in someone else to get the job done. 

Credit monitoring services might also make sense if:

  • You’ve already been the victim of identity theft (or at high risk). For example, if your Social Security number has already been accessed in a data breach or you lost your Social Security card.
  • You don’t want to freeze your credit.

Credit monitoring services

A credit monitoring service provides information about your credit report in a timely manner. What you do with that information is up to you. This isn’t a full-proof guard against identity theft and fraud, just a way to stay informed about what’s happening with your credit.

Here are a few tips to make credit monitoring the most effective for you:

  • Avoid free trials. Companies that offer free trials are notoriously hard to cancel after you complete the trial period.
  • Cater your notifications to your lifestyle. If you’re always on the go, a text message may be a better way to communicate changes than an email or phone call. Your goal should be to get the most important information as quickly as possible without interrupting your day. 
  • If you see something suspicious, DO something. Don’t wait to dispute incorrect changes or anything that looks incorrect. The point of credit monitoring is to catch these right away!

Learn more about C&D’s Credit Monitoring services >

Free annual credit reports

Thanks to The Fair Credit Reporting Act (FCRA), everyone in the U.S. can get a free credit report from all three credit reporting agencies: Equifax, Experian, and TransUnion. This is available once every 12 months. Check out AnnualCreditReport.com to find yours. 

Tips to protect yourself from identity theft and fraud

There are many other preventative measures to protect yourself from fraud in addition to credit monitoring. Here are some extra steps to consider:

  • Freeze your credit report. This will make your report(s) inaccessible to anyone attempting fraud and ensure new accounts can’t be opened in your name. This is a totally free service you can do with your credit bureau.
  • Stay wary of spam emails, phone calls, and advertisements. If you don’t know who’s sending the email or calling you, it’s best to just not open it or answer. And be sure to check the legitimacy of the company from any advertisement that looks too good to be true. If they’re asking for personal information right upfront, it’s a red flag.
  • Safeguard your personal information. Don’t share your passwords with anyone and keep these stored in a secure app.

FAQs

What is the best credit monitoring service?

The best credit monitoring service depends all on your needs. There are three types of services available:

  • Do-It-Yourself. This requires the most of your time and energy. You’ll only need copies of your credit reports to check them for errors and inaccurate information.
  • Free Services. There are many free credit monitoring services that can keep track of everything you could do yourself. This option saves you time and energy.
  • Paid Services. This could potentially be the safest and most effective way of monitoring your credit. Companies will monitor your credit on a schedule and report any changes or potential problems immediately. It will save you energy, but cost you money.

Do credit cards have credit monitoring?

Many credit card companies are making credit report information readily available for free. In most cases, they provide a credit score from one of the three creditable bureaus, but not a full report. 

Do banks offer credit monitoring?

Some banks and credit unions do offer credit monitoring, and it could be cheaper to go through them. Be sure to confirm that their service covers all three reports and how long it will take for them to notify you of any suspicious activity.

Resources

Credit

Repairing Bad Credit: Everything You Need to Know

Good credit is the en tryway to those big-ticket financial decisions that make a difference in your life. Renting an apartment, getting a loan, buying a car, and getting a good travel rewards credit card, are all determined by the good-ole credit score. 

If your credit score could use a pick-me-up but you’re not quite sure how to do it, it might be time to initiate the credit repair process. 

Keep reading to learn more about how it works and exactly how to get it done! 

What is credit repair?

Credit repair is the process of fixing, restoring, or improving your credit score by communicating with your lenders and the credit bureaus about inaccurate information in your credit report.  

You can take care of credit repair on your own or hire a third-party company. Some third parties are often called credit repair companies and they dispute information with the credit agencies, undoing damage from inaccurate information, identity theft, and harmful spending habits.

Does credit repair work?

Yes, credit repair can work. There are just a few things to keep in mind, including:

  • There are a lot of scams out there. Lots of illegitimate credit repair companies charge illegal fees and use shady business practices to promise positive results they might not deliver. Continue reading to learn about how to choose a legitimate company.
  • It takes time. And when it comes to dealing with credit bureaus and reports, it can feel overwhelming. But with the right resources, either with support from an outside organization or composure on your end, you can see results.
  • You can do this yourself! If you’re someone who believes a job is done better if you do it yourself, it’s totally possible to comb through your own reports to look for inaccurate information. And this option is also free. We like free stuff.

Can you fix bad credit quickly?

First off, let’s define bad credit: Bad credit is a credit history that includes negative remarks that are damaging to your credit score, like late payments or charge-off accounts. myFICO, the official consumer division of FICO — the company that invented the FICO credit score — states that a poor or bad credit score falls between 300 and 579 out of a possible 850. Believe it or not, a one-point difference in your score, like 579 vs a 580, can make the difference in whether you qualify for the loan you want.

While the timeline for credit improvement can vary based on your credit profile, there are often opportunities to make improvements within 30-60 days. There are actions you or a credit repair company can take to repair your credit more quickly.

How to repair credit scores

Repairing a poor credit score takes time and patience, so be sure to keep this in mind if (and when) things get frustrating! 

Start by reviewing your credit report and looking for any inaccurate information. You can then use a credit repair company to dispute these claims or do so yourself. You’ll also want to catch-up on any bills you haven’t paid and create a budget for all your expenses. We know budgeting isn’t the most fun thing to do, so rather than spending time to DIY, consider using a smart budgeting app or calling the pros.

You can often use a secured credit card and other types of credit cards (responsibly!) to start building or rebuilding a positive credit history. Once you begin, be sure to check your credit score regularly.

What do credit repair companies do?

Credit repair companies take the DIY out of credit repair. They offer to improve or fix your poor credit score for a fee. The process starts when you share a copy of your credit report, typically from each of the major consumer credit bureaus: Equifax, Experian, and TransUnion. 

The credit repair company will review your report for inaccurate information and negative marks like bankruptcies, tax liens, and charge-offs… bleh. Then, they will create a plan to dispute any identified errors and advocate on your behalf with the company that reports your credit information to the bureaus. 

The credit repair process may include validating information with creditors, disputing the negative marks altogether, and/or sending cease-and-desist letters to the debt collectors. Debt validation letters are important because if your creditors can’t prove you owe the debt, you aren’t responsible for it.

Learn more about C&D’s Credit Repair services >

Do it yourself credit repair – is it worth it?

To determine whether or not it’s worth working with a credit repair company, ask yourself: “How much time and effort do I have available to put into fixing my credit score?”. If you’re a major DIYer, credit repair might be right up your alley. If you’d rather stop thinking about your credit score until it looks a little better – trust us, we get it – then hire the pros.

If you’re willing to put the energy into going through your report for inaccurate information and remove it, it’s definitely possible. But a credit repair company could save you a lot of time by doing most of the heavy lifting. Plus, the best pros have access and direct connections to the credit bureaus that the average DIYer just doesn’t.

FAQs

How long does it take to fix bad credit?

It could take a just few weeks or several months to fix a bad credit score and it all depends on the severity of the negative history and quantity of errors bringing down your score. 

Here are other things to consider when figuring out your timeline:

  • The type of negative information on your credit report and how much of it there is
  • The age of your negative information
  • Your credit profile and history has a major impact on the way a credit issue affects your score

For example, a foreclosure or bankruptcy will most likely be more difficult to recover from than a one-time late payment.

How long does a repo stay on your credit?

“Repo” stands for repossessions, which are negative items listed on your credit report that can hurt your credit score. When someone comes to take your car because you aren’t making your loan payments, that damage goes a lot farther than you might think.

It takes seven years for a repossession to come off your credit report. That countdown begins from the date of your first missed payment that led to the repossession in the first place. 

Is credit repair legit?

There are legit credit repair companies out there that can help you improve a poor credit score, however, be aware of scams.

Any company that demands money up front is typically making promises they won’t be able to keep. Plus, charging fees for credit repair upfront is ILLEGAL.

Other warning signs for scams include:

  • They promise to remove all negative information from your credit report. Unfortunately, no company will be able to remove accurate information, good or bad. So anyone who claims they can is probably a fraud.
  • They suggest you dispute all information, even when it’s accurate. YIKES! This would just be fraudulent in the eyes of law. Don’t do it.
  • They want you to pay upfront. No legitimate credit repair company will ask for money before any work has been done. It’s actually illegal to do so under the federal Credit Repair Organizations Act.

Is credit repair legal?

Credit repair is legal at the federal level. The Credit Repair Organizations Act was enacted in 1996 and regulates how a credit repair company must operate under federal law. It protects consumers from receiving untrue or misleading information from credit repair companies and requires certain disclosures in regards to the sale of “credit repair” services. 

According to the Federal Trade Commission, the following practices are not allowed under the CROA:

  • Suggesting customers make false statements to credit reporting agencies
  • Advising credit repair customers to change their identify to dissociate with their credit information
  • Charging fees for any services that have not been fully rendered
  • Promising the removal of information from their customer’s credit reports

The CROA also protects credit repair customers by requiring companies to disclose the following information:

  • Customers have the right to dispute their own credit report information
  • Customers can sue the credit repair company if they violate the CROA
  • Credit repair companies cannot force you to sign anything that would waive any of the mentioned rights in this list
  • Credit repair companies cannot hide any of the following information listed above

Many states have their own laws about credit repair. A legitimate credit repair service should be diligent about the various laws at the federal level and those specific to your state but it doesn’t hurt to ask upfront.

What’s the best way to repair credit?

The best way to rebuild your credit score is to use your credit card responsibly (and by that, we mean only purchasing things you know you can afford and pay off in full every month). This ensures positive information is sent to your credit bureau every month.

If you’re not at this point quite yet, start by reviewing your credit reports for errors. You might even notice suspicious activity such as identity theft. Then, make an effort to make payments on time and pay all that is due. You’ll also want to avoid getting too close to your credit limit and applying for new credit cards if you don’t need them.

Pro Tip: Never use more than 30% of your credit card limit. For example, don’t allow your balance to go over $300 if your credit limit is $1,000.

How much does it cost for credit repair?

There are a couple ways a credit repair company could charge you for their services. And again, remember that a company:

  • Can’t charge up-front fees
  • Can’t charge for services until they’re delivered

A company could have you pay a one-time setup fee, which could range anywhere from $20-$90. Typically, that’s combined with a monthly service fee, which can run from $30-$130 a month depending on the services provided. Other companies may use “pay per delete,” which is when they only charge you after an item on your credit report is deleted.

Resources

Debt

Debt Management Plans: Everything You Need to Know

A Debt Management Plan (DMP) can help manage your payments and even reduce your accruing debt, and is one of many debt relief solutions available. If you’re having trouble paying your bills every month, a DMP might be exactly what you need. Keep reading to learn more about how it works.

What is a Debt Management Plan?

Debt Management Plans are defined as “an agreement between a debtor and a creditor that addresses the terms of an outstanding debt.”¹

It’s a debt solution that combines your unsecured debt payments into one monthly payment and allows you to pay off debt in three to five years by reducing interest rates, monthly payments, and late fees.

If you’re struggling to pay off credit card debt or unsecured loans, a DMP can be a magical alternative to bankruptcy. You will make one monthly payment directly to your credit counseling agency, who then will pay the creditors an agreed-upon amount.

How do Debt Management Plans work?

Debt management plans work by discussing your current financial situation with a credit counseling agency who will then create a plan to pay off the amount you owe to creditors. The process starts by having a consultation with a financial coach who will review your current finances and help you understand your options. 

Your coach can then negotiate with your creditors on your behalf to create new payment plans, such as reducing minimum payments, lowering interest rates, and stopping late fees. Then, rather than pay your creditors separately each month, you pay a one-time monthly payment to the credit counseling agency. The goal is to do so in a way you can afford and ultimately become debt-free while the creditors get paid. It’s a win-win. 

Learn more about C&D’s Debt Management Plan services >

Can creditors refuse a DMP?

A creditor does have the right to refuse any Debt Management Plan sent to them. Each company has its own set of rules for what they will and will not accept. That said, even if your account hasn’t always been in great standing, there’s still a change your creditors will work with you.

How long is a Debt Management Plan?

The timeline for full repayment is often three to five years. The timeline depends on how much debt you have and how much you can afford to pay each month. 

Do DMPs really work?

Debt management plans can help someone struggling to pay back overwhelming amounts of unsecured debt. But, these plans are not for everyone. 

Depending on your situation, bankruptcy or another form of debt relief may provide even more benefit. We recommend consulting with a professional to understand all of your financial options.

What are the benefits of a Debt Management Plan?

Here are some of the benefits you may find from a DMP:

  • Reduced stress.

Having debt without a plan to pay it off can feel like a never-ending cycle. With professional advice, you’ll be able to create financial goals, review your budget, and figure out the options to best serve you in the future. 

  • Waived fees and lower payments.

A financial coach can negotiate with your creditor to waive fees and lower your monthly payments, which will help pay off your debt faster and create space in your budget for other necessary expenses.

  • You’ll pay off debt faster.

If your coach can negotiate a lower interest rate, a larger percentage of your payment will go to your debt balance, meaning less debt more quickly.

  • It’s a one-time monthly payment.

Managing one bill is much easier than trying to stay on top of multiple bills from several different creditors. 

  • You have someone on your side.

Your coach is there to help you, not pressure you into a more difficult financial situation. Unlike some debt relief solutions, it’s comforting to know someone is there to have your back and keep you on track to success.

Disadvantages of a Debt Management Plan

Here are some other factors to consider when deciding if it’s the right decision for you.

  • DMPs only resolve unsecured debt. 

Mortgages, car loans, student loans, and most medical bills are often not covered with Debt Management Plans.

  • You can’t have open credit cards. 

Plus, applying for a new credit card during this period may lead creditors to cancel the agreement made with your financial agency.

  • A missed payment can end it.

Sticking to the plan you and your coach made is essential to ensure your Debt Management Plan isn’t cancelled by missing a payment here and there.

FAQs

Are Debt Management Plans legally binding?

Debt Management Plans are an agreement between you and your credit counseling agency. If you’ve enrolled in a DMP and are struggling to stay on track, contact your coach and explain your circumstances as soon as possible.

Does a Debt Management Plan affect your mortgage?

A Debt Management Plan doesn’t include secured debts (a.k.a debts secured against property that you own like cars or other property), so it won’t affect your mortgage payments. Before committing to a DMP, you will work with your financial coach to make sure the amount you pay towards your mortgage will be factored into your budget. This way, you’ll reach an affordable figure to pay back to creditors instead of continuing to struggle to pay all your bills.

Can you get a mortgage after a Debt Management Plan?

You’ll be able to get a mortgage more easily than you would have if you’d applied prior to completing your Debt Management Plan. This is because you won’t have any unsecured debt to worry about and you’ll have your full income available to use for a mortgage plus other expenses.

How will a Debt Management Plan affect my credit rating?

Short answer: a Debt Management Plan won’t directly impact your credit score. 

In fact, ensuring that your accounts are paid on time will likely give your credit score a boost. These plans do require you to make monthly payments, so if you don’t stick with it, there can be significant negative impacts on your credit history and score. If your Debt Management Plan includes your creditors re-aging your past due accounts and setting them as current, your monthly DMP payment will ensure payments on all accounts included in your DMP. This will help you build a positive payment history, thus making your credit score higher. Also, you’ll be repaying your accounts in full, which is better than settling your debts for less than the full amount owed. 

One important factor to consider is closing your account(s). This could increase your credit utilization ratio, or the percentage of your total available credit on all the accounts (like credit cards) you’re currently using. You want a lower utilization ratio to keep your credit score high, so closing credit cards can decrease your available credit. The impact this has varies person-to-person and depends on your exact situation, so be sure to talk with your coach about this first.

How much do Debt Management Plans cost?

You can stop holding your breath! Debt management plans are always either free or low cost. There may sometimes be an enrollment fee of $50, and sometimes there’s a monthly administrative fee, which maxes out at $75. It all depends on what state you live in, so be sure to ask up-front. Most times, your interest savings can cover these costs.

Resources

Budgeting

52 Week Money Saving Challenge [2021]

Saving money can be a challenge. Every time it seems as if you are caught up, an abrupt change of events occurs and your wallet is drained yet again. Life happens, and we’ve all been there. From the unexpected car maintenance, to the medical bills, to all the other unavoidable obstacles life throws your way. 

Unfortunately, while your expenses may increase, the chances are your paychecks stay the same. That said, there are ways to save a bit more by making a few, simple lifestyle changes. Join our 15-day savings challenge and rack up some extra change! The sooner you start, the more you’ll save.

Downloadable 52 Week Money Saving Challenge Spreadsheet

If you’d prefer to track your Money Saving Challenge progress in a spreadsheet, Credit & Debt is providing a free template you can use:

Instructions for Google Sheets – Money Saving Challenge Template

If you haven’t done so already, click here to open the spreadsheet template. You’ll need to make a copy of your own, so click File > Make a Copy and save it to a folder of your choice in your Google Drive:

Now that you have your own copy, you can edit the template each week. In the ‘Recommended Deposit’ Column, you’ll see our recommended weekly challenge dollar amount to help you save $1,170 in just 52 weeks!

Each week, note how much you saved in the ‘Actual Deposit’ Column. The first cell is filled in for you ($15,) and the ‘Total Balance Saved’ Column will update with each additional entry.

Instructions for Microsoft Excel – Money Saving Challenge Template

To use the Microsoft Excel spreadsheet, first click here to open the template and click the download icon in the top right corner:

Save your copy to a location you’ll remember. Once you have your own copy, you can edit the template every week. In the ‘Recommended Deposit’ Column, you’ll see our recommended weekly challenge dollar amount to help you save $1,170 in just 52 weeks!

Each week, note how much you saved in the ‘Actual Deposit’ Column. The first cell is filled in for you ($15,) and the ‘Total Balance Saved’ Column will update with each additional entry.

Printable 52 Week Money Saving Challenge Chart

You can print this chart to help you track your savings each week:

We’d recommend putting it somewhere where it’s hard to miss, perhaps in an area where you sit down to go through your monthly finances.

How to Save $1,170 in Just 52 Weeks

So now that you have the template saved or chart printed, how can you start saving money each week? Here are 10 ways you can cut back on spending and save some extra cash:

1. Avoid Unnecessary Shopping

This is one of the most important rules to set if you want to save that extra cash. It’s easy to get caught up when we have credit cards and don’t always have to pay cash right upfront. However, this also leads to unnecessary shopping and purchases that might not be fundamental to your daily needs. We’ve all made purchases we look back on and regret, so sometimes being more strategic in your buying habits can actually make you feel better–allowing you to avoid clutter and save money. 

You can still allow room to reward yourself every now and then! We all deserve it. But do be thoughtful in your daily purchasing habits to avoid spending cash in unneeded places. Make lists to stick to when grocery shopping, ditch the weekend mall browsing, and make a budget that leaves no room for avoidable purchases. Making these small changes can help save you big bucks at the end of each month.

2. No Eating Out

We all love a good meal, but eating good doesn’t have to mean eating out. Sometimes stopping for fast food seems like the easiest thing to do, but those cheap meals add up! Refraining from spending money at fast food and dine in restaurants can easily save you hundreds of dollars a month. Instead, use the money you would typically spend on eating out towards your monthly groceries! Your money will go much farther–and who knows you might even find a new hobby!

Pro Tip: To save even more money on food, begin learning how to coupon. Pay attention to the weekly sales in your local grocer, and download your store’s app that offers digital coupons as well. Seeing your savings on the receipt at the end of each grocery store run can be rewarding and inspire you to start saving other ways. It’s simple, free and can even be fun. Saving money on things you are already going to buy will help you towards having a larger amount to save each month!

3. Cut The Drinks

Perhaps you’ve heard of –or even participated in–  “Sober October”, “No Drink November” or “Dry December”. The idea of this trendy challenge, which has really taken hold in the past few years, is to avoid drinking any alcohol for the whole month. Alcohol can get expensive, and cutting it out for a bit may help you grow your savings more than you think!

Not only does this help save money, but it also improves your health in many ways. Whether you enjoy a glass of wine in the evening or a couple of beers with dinner on the weekend, cut it out for a week and see how it positively impacts your wallet, and your health! Take it a step further and try it for the whole month. 

4. Hold The Phone!

In today’s world, convenience is a huge determining factor in most of our daily decisions. We have companies that bring you whatever we want all with the simple push of a button. While these services bring convenience and ease to our everyday life, they come with a pretty price tag. If you’re notorious for ordering food on UberEats, using Favor to have your midnight snack cravings delivered to you, or paying to have your groceries brought to your doorstep–stop for a week and see how you save by not racking up these extra fees.

5. No Online Shopping

Just like with using convenience apps, online shopping can seem like a good idea in the moment but later prove to be a wallet drainer. It’s easy to get distracted by all the promotional emails in our inboxes, the online sales, and free 2 day shipping provided by huge names like Amazon Prime. However, online shopping can lead to debts that you wouldn’t have accumulated otherwise. Go a week without logging in to your favorite online retailer and save the money towards something more rewarding than a quick impulse buy.

6. Check Your Subscriptions

Are you drowning in subscriptions? Do you NEED the subscriptions? Can you remember what all you are even subscribed to? Use this week to go through and clean out all the products and services you are subscribed to. Since most subscriptions are set up on autopay and come directly out of your bank account each month, they are easy to overlook and forget about. Having 5 different streaming services is probably not necessary and cancelling some that you can do without could be a great way to save monthly. 

Pro Tip: Talk to your friends and family and see what services they are subscribed to. You can all team up and get a different one and share accounts so that each of you is only paying for one, but can enjoy multiple! You pay for Netflix and your friend can pay for Hulu!

7. Sell Clothes or Home Items to Consignment Stores

Get a kick-start on spring cleaning and make some extra cash this holiday season by cleaning out your closets. There are plenty of consignment stores that buy clothes on the spot. 

Some require the items to be seasonal or trendy in order to hand over any cash. Other stores will pay you after your items sell. Dig through your drawers and see if you have any trendy items that don’t fit your lifestyle anymore! This is an awesome way to declutter, give back, and get some extra cash while doing it!

8. Become a Homebody

We all enjoy going out and spending time with friends. But if you are one to hit the town every weekend, your eventful Saturday nights might be catching up with you. Start hosting dinner parties, game nights, and get togethers at home instead. Everyone can bring a different dish, bottle of wine, etc., taking the weight off of you to provide it all and allowing you to still enjoy company and a drink all in the comfort of your own home. In just one weekend of staying in vs. going out, you could be saving well over a hundred dollars just by eliminating the need for Ubers, valets, expensive drinks and much more.

9. Carpool

Gas is expensive, and if you live in places like LA, you know just how expensive it can get. If you commute to work everyday, try getting a friend and carpooling instead. You can alternate weeks and save a ton on gas money. If you’re all going to the same place anyways, might as well utilize the opportunity! Think about it: if you spend $45 a week to fill up your tank for your work commute, you could carpool with 3 colleagues and each vow to drive one week. You just saved 3 weeks worth of gas money, equalling $135 a month! That could be a total of $1,620 savings or more each year.

10. Reward Yourself

Budgeting is hard and can make you feel like you’re a prisoner in your own home. Saving money doesn’t always have to be bad though. After you make a strategic budget for yourself and make simple changes in your everyday life, vow to reward yourself at the end of it all with a bit of the money you have saved. Don’t go overboard, as that will defeat the purpose, but do be sure to give yourself a nice treat for sticking to it. You will feel like your efforts were worthwhile and satisfied with saying no to certain decisions leading up. If you’ve stuck to our 10 week, you have most likely saved hundreds of dollars. So reward yourself for doing great, stick the rest in savings, and continue to find other creative ways to save!