Life Events, Pay Down My Debt

Practical Advice For Those Facing Bankruptcy, From Someone Who Has Been There

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Mixed Race Young Female Agonizing Over Financial Calculations in Her Kitchen.

My journey to bankruptcy began in 2003 after I was in a major car accident that left me unable to work for several months. Injured and unemployed I was forced to move back home with my mother, younger brother and three foster brothers. As I slowly began to regain my financial independence our family was dealt another blow.

In December of 2004, after what should have been a routine knee replacement surgery, my mother contracted a MERSA staff infection and became gravely ill. Needing around the clock care and help with my four younger brothers, I became a full-time caretaker while my mother fought for her life. It took her over a year to win back hear health. Unfortunately Murphy’s Law was not done with its assault on our family just yet.

In the spring of 2006 I had just gone back to nursing school when I had an emergency appendectomy, which left me with an additional $15,000 of debt. Having no insurance I was responsible for the entire amount due. This surgery was the tipping point in which my debt became too much for me to handle and I had to begin looking for a different solution.

I spent the next several months educating myself on how to handle harassing debt collectors, ways to work with your creditors and how to rebuild your credit score. After struggling to send my creditors every spare penny I had I finally came to the conclusion that filing for Chapter 7 bankruptcy was the best solution for my situation.

Walking into bankruptcy court was one of the most nerve-racking things I had ever gone through, but I am so glad that I did.

If you find yourself at a crossroads contemplating bankruptcy there are a few important things you need to take into consideration in regards to your own situation.

Evaluate Your Financial Habits

Before you file for bankruptcy you need to take a long hard look at your finances, your spending habits, and any other situations your currently facing that is causing you financial hardship. Until you know how you wound up in the situation you can’t have a clear plan on how to fix it. This is also the time to decide if going bankrupt is really the right thing for you to do.

[When Should You Consider Bankruptcy?]

Gather All Your Information

Once you have decided to move forward you need to spend some time gathering all of your information. This will include: all of your bank accounts, retirement accounts, your personal property and other assets. Having this information will help you figure out which type of bankruptcy for which you qualify.

Know Your Options

It is very important to know your bankruptcy option and what each will mean for you.

A Chapter 13 bankruptcy does not wipe out your debt. Instead the court will calculate your disposable income and use that number to make a payment plan for you. Over the course of three to five years you will be required to make payments on your debt until it is paid in full or to the agreed upon amount.

A Chapter 7 bankruptcy wipes out your debt completely. There are however a few specific debts that cannot or rarely can be eliminated with a Chapter 7 including back taxes and student loans. It is also important to note that you must qualify for a Chapter 7 bankruptcy. You must prove that you are unable to pay off your debt either because your income level is below the state median or your living expenses are so high that you simply cannot repay your debt.

[8 Steps for Discharging Student Loans Through Bankruptcy]

Find A Reputable Lawyer

There are many websites out there suggesting that you can file for bankruptcy on your own, and that there is no reason to pay a lawyer. What those sites fail to mention is if you make a mistake on your paperwork you may have to start the process over. You may even find that some of your debt was not included in your bankruptcy leaving you responsible for the payments regardless of what type of bankruptcy you filed.

While hiring a lawyer does increase the expense of filing for bankruptcy it is his or her job to make sure that everything is in order and goes as smoothly as possible. Speaking from personal experience having a lawyer by your side during your proceeding can also help you feel more confident when facing the judge.

Have an After Bankruptcy Game Plan

There is a life after bankruptcy, while it may not feel like it in the moment things will get better. You however need to have a plan for how you will handle your finances from this point on. If you do not make a conscious decision to change the way you have been handing your money you will find yourself right back in the financial mess you have just escaped.

Going bankrupt can seem like the end of your financial life, and you may be wondering how you will ever recover from it. The good news is that you can. If you learn from your mistakes and make the decision to move forward with good money habits it is possible. I went from being financially devastated to a credit score of 740 in just a few short years. It took hard work and dedication to my financial health but I did it and so can you!

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College Students and Recent Grads, Life Events, Pay Down My Debt

8 Steps for Possibly Discharging Your Student Loans Through Bankruptcy

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Students throwing graduation hats

Student loans are the one type of debt you can never discharge through bankruptcy. Or are they?

For years that’s been the case, largely because of a court ruling from 1987 that set an almost impossible standard for student loan borrowers to meet. But the student loan landscape has changed dramatically since then, and in recent years there have been some signs that borrowers in tough spots may in fact be able to find some relief.

If you’re struggling under the weight of your student loans, read on. In this post you will learn:

  • What the current (and strict) criteria are for having student loans discharged through bankruptcy.
  • Commonalities from recent cases where individuals were successful at having their student loans discharged.
  • A step-by-step process for getting on track with your student loans and improving your chances at discharge.

The Current Standard

Individuals hoping to have their student loans discharged through bankruptcy typically have to show “undue hardship” by passing the three-part Brunner test. This test was born from a court ruling in 1987 and it requires the individual to:

  1. Show that he or she has made a good faith effort to repay the loans.
  2. Show that he or she cannot maintain a reasonable minimum standard of living while paying back the loans.
  3. Show that this condition is expected to last for most of the repayment period.

It’s that third criteria in particular that has made student loans so difficult to discharge. After all, how can you convincingly demonstrate that your prospects aren’t likely to improve, especially when student loan repayment periods can extend for as many as 30 years?

It’s proven challenging, but a few recent rulings can give borrowers hope and may even provide a road map for at least opening up the possibility of discharging your student loans through bankruptcy.

Two Commonalities Between Successful Student Loan Discharges

Looking at a few high-profile stories of borrowers who successfully discharged their student loans, there appear to be two big commonalities that may show the path forward for others:

Time: In two cases of successful discharges from 2013, the student loans were 10 and 15 years old. Clearly these were not recent grads at the beginning of their repayment journey.

Significant current hardship: One woman had been unemployed for almost a decade and was caring for her elderly mother. Another woman was 64, on Social Security, working multiple jobs, and cited mental and physical ailments.

In other words, they seemed to be struggling with some of the same factors you might consider when filing bankruptcy for any reason. Which means that if you’re struggling with your student loans and your financial situation in general, it may in fact be possible to have them discharged through bankruptcy as a last resort.

With that in mind, here are some steps you could take to put you in the best situation to either repay your student loans or to successfully have them discharged so you can hit the reset button.

Step 1: Get Organized

Get a complete list of all your debt, both student loan and otherwise, in one place so that you know exactly what you’re dealing with. The most important information you need to know for each type of loan is:

  • The amount you owe
  • The interest rate
  • The minimum payment

For student loans specifically, you will also want to know the type of loan and when it was issued, as that information may impact your repayment options.

You can collect your student loan information from the national student loan data system, and information on your other debts from annualcreditreport.com.

Step 2: Pay the Minimums on All Debts

This one is for both you and the courts.

For you, this will keep your credit history in good shape and keep your debt from spiraling out of control.

For the courts, this is one step towards showing a good faith effort at repayment.

Step 3: Look into Income-Driven Repayment Plans

Just like the previous step, this will both help you immediately and help if you eventually move to bankruptcy.

In the short-term, income-driven repayment plans may help to lessen the burden of your student loans by decreasing your monthly payment. They can even provide a path to eventual discharge without bankruptcy.

And if you do end up in traditional bankruptcy, this will serve as more evidence that you have made reasonable efforts to repay.

Step 4: Track Your Expenses

Tools like mint.com and You Need a Budget will help you stay on top of where your money is going now so that you can make more informed decisions about how you want to use it going forward.

Many of my clients, when they sign up for a tool like this for the first time, are shocked to find out how much they’re spending in certain categories and can quickly find some big ways to cut down on their monthly expenses. If you can find one or two of those big wins, you may find that your loans become a little easier to handle.

Step 5: Create a Repayment Plan

Creating a repayment plan for your student loans will not only give you a better shot at repaying them in full, but will give you another thing to point to if the courts want to see that you’ve made a strong effort to repay.

Hopefully you’re able to enroll in one of the income-driven repayment plans mentioned above, but if you have any extra money available you should consider how you want to prioritize it. That is, which loans should you put your extra money towards first? A thoughtful strategy could save you a lot of money in the long-term.

Don’t forget to keep other financial goals in mind here. For example, taking advantage of a 401(k) employer match or setting up a starter emergency fund could be better uses of your extra money, depending on your situation.

Step 6: Find Ways to Free up Cash

There may be some relatively easy ways to free up cash that could either help with your regular living expenses or help you pay down your loans even faster.

Things like switching to a lower cost cell phone provider, cutting cable, or even bringing lunch to work are relatively small changes that could reduce a significant amount of financial burden.

Step 7: Find Ways to Earn More Money

It doesn’t have to be all about cutting costs. Could you negotiate a raise at your job? Could you start a side hustle? Even a small amount of extra income could give you a lot more breathing room.

Step 8: Consider Bankruptcy

If you’ve been doing all of the above for a number of years and your student loan debt still feels like too much to overcome, it may be worth considering bankruptcy.

Keep in mind that there are some real, negative consequences to bankruptcy, so it’s not a cure-all. And it’s likely still a long shot that you could get your student loans discharged.

But for many it can be a huge relief to hit the reset button on their financial situation, and as recent court cases have shown it is possible to have your student loans discharged. If you’ve been diligently taking the steps above, you’ll have a strong history of attempting to pay them back that the courts may look favorably upon and it may be worth giving it a shot.

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Life Events, Mortgage, Pay Down My Debt

Getting a Mortgage After Bankruptcy

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Purchase agreement for house

Whether you’re drowning in loans, unemployed, racking up medical bills, or guilty of too much online shopping, one thing’s for certain — we all hate debt. And when debt becomes impossible to pay back, bankruptcy may seem like the only way to escape.

While filing for bankruptcy may be the right solution, it can negatively affect your finances for years to come. But, fortunately, life moves on. And despite this financial setback, you may want access to credit in the future. Without it, large purchases like a home can be difficult. It’s not impossible, but applying for a mortgage post-bankruptcy means working through a particular set of challenges. Prepare yourself by knowing these important guidelines.

Know the Difference: Chapter 7, 11, & 13 Bankruptcies

We constantly hear about bankruptcies in the media, but what does filing for one actually mean? Bankruptcy is a legal procedure that can help you wipe out or repay debt under the protection of the United States bankruptcy court.

Chapter 7 and Chapter 13 are the main types of consumer bankruptcies. But what are the key differences?

Chapter 7 is typically the preferred type of bankruptcy because involves liquidation and eliminates all your eligible debt. This means your nonexempt property will be sold and the proceeds will be distributed to your creditors. Exempt property varies from state-to-state, but part of your property may be subject to liens or mortgages, promising it to other creditors. It’s important to know Chapter 7 bankruptcies may, but not frequently, result in a loss of your property. You may lose your home outside of bankruptcy to foreclosure if you fall behind on your mortgage payments.

It is much harder to be eligible for Chapter 7 bankruptcy. If your income is above the median in your state and you prove you have sufficient cash flow to service some of the debt, then you’ll likely be forced to file Chapter 13.

Chapter 13 bankruptcy allows you to keep property, adjust debt, and to pay it back over time. This is a long process as the repayment period is typically three to five years. If you’re behind on mortgage payments, it may be easier to keep your home in Chapter 13 because you may be able to make up payments in your repayment plan.

What about Chapter 11 bankruptcies? If your business is a corporation, partnership, or you own a small business, Chapter 11 may give you a chance to reorganize. Chapter 11 also can help restructure debt so it can be paid back over time.

Unfortunately, bankruptcies may stay on your credit report for up to 10 years. Because of this, many people incorrectly assume bankruptcies ruin your chance at homeownership. This definitely isn’t the case, but it does mean the path to purchasing a home will take more time. 

The Waiting Period After Bankruptcy

Even if bankruptcy stays on your credit report for 10 years, you’re not expected to wait that long before trying to buy a home. However, Fannie Mae knows a bankruptcy increases your likelihood of a mortgage default. Despite this red flag, Fannie Mae encourages lenders to investigate the cause of these issues, make sure sufficient time has passed, and verify an acceptable credit history has been re-established. So, how long do you have to wait? The waiting periods begin upon the completion, discharge, or dismissal date of your bankruptcy.

Both Chapter 7 and Chapter 11 require a four-year waiting period. However, if you have documented extenuating circumstances, it’s possible it may be reduced to two years.

Chapter 13 bankruptcy requires either a two-year or four-year waiting period, depending on what step of the procedure you’re on (discharge or dismissal). If you’ve had more than one bankruptcy within seven years, a five-year waiting period is required. But remember, this time period kicks in after the Chapter 13 bankruptcy is complete, so that’s two to four years on top of the original three to five years working your repayment plan. It could be up to nine years total before you’re eligible.

If you’re anxious to start the home buying process, these waiting periods may feel inconvenient. But they offer a fantastic opportunity to clean up your credit and reduce your debt-to-income ratio before re-applying for a mortgage.

The Importance of Your Credit Score and Debt-To-Income Ratio

As soon as your bankruptcy case has been discharged and closed, it’s time to take a detailed look at your finances. Chances are, you have a lot of room for improvement. Luckily, Fannie Mae’s mandatory waiting period gives you the chance to prepare.

Here’s what you need to do:

  • Improve your credit score. First, get a copy of your credit report and a view of your credit score to see what work needs to be done. AnnualCreditReport.com offers a free report every year, but this does not come with a credit score. You can find more information about how to access your score here. Do you know what steps to take next? 35% of your score is based on payment history. That means you need to pay every single bill on time. If you no longer have access to any lines of credit, then consider getting a secured credit card in order to rehabilitate your credit. Start doing this right away and you’ll see improvements. Going forward, you need to monitor your credit report regularly. Remember, your credit score will also affect what interest rate you’ll be able to secure, and consequently, which mortgages you’ll be able to afford.
  • Pay down outstanding debts. After the dust settles from your bankruptcy, do you still owe any money? Try to repay these debts as quickly as possible. Debt-to-income ratio is the single most important factor in getting approved for a mortgage. Looking for your best chance at approval? Aim for a debt-to-income ratio of 40% or less. Also, make sure you don’t take on any additional loans during this period of time.
  • Stick with your Chapter 13 repayment plan. Did you file for Chapter 13 bankruptcy? If so, don’t miss any of your court-ordered repayment requirements. Diligently follow exactly what you’ve agreed to.
  • Save as much as you can. Do you have an emergency fund? A health stash of cash reserves can help keep your debt repayment plan on track as unexpected expenses pop up. Don’t forget, you’re also going to need a chunk of change for your mortgage down payment.

Bankruptcy doesn’t have to create a barrier to homeownership. But bouncing back may take time. Whether you’ve filed for Chapter 7, 11, or 13, Fannie Mae’s mandatory waiting periods offer an opportunity to get your finances back on track. Use this time wisely by committing to improve your credit score and reduce your debt-to-income ratio. Save as much as you can. And when the time comes to reapply for a mortgage, be upfront with your lender. Be honest about your setbacks, show how much progress you’ve made, and explain how you’ve learned from past mistakes. Remember, bankruptcy was never meant to be a life-long penance; it’s a chance for you to start over.

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Pay Down My Debt

When Should You Consider Bankruptcy?

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Young couple calculating their domestic bills

If you’re drowning in debt and having trouble keeping up with your payments while still handling your living expenses, you may have at least begun to consider filing for bankruptcy.

Bankruptcy certainly has its benefits, potentially allowing you to wipe the slate clean and start anew.

But there are a lot of things to consider before making a decision, from the negative consequences of filing to whether bankruptcy would even provide relief for your specific situation.

This is a big decision that requires a significant amount of due diligence before moving forward, and in this post we’ll go over some of the key points to help you get started.

Are You Eligible?

There are two types of bankruptcy for individuals: Chapter 7 and Chapter 13.

There are some significant differences between the two programs, but here’s a high-level summary:

  • Chapter 7 allows you to completely discharge your debts, with some exceptions (such as student loans, certain tax obligations, and child support). But you may be obligated to sell some of your property to settle some of your debt obligation.
  • Chapter 13 allows you to create a payment plan to repay some or all of your debts over a 3-5 year period. So your debts are not discharged, but you will also not be obligated to sell any property in order to make your payments.

Either one could be more or less beneficial depending on the specifics of your situation. But the very first question is whether you qualify for either one, and each has its own set of criteria.

Chapter 7 bankruptcy has what’s called the “means test”, which is meant to ensure that only people who truly can’t afford their debt payments are allowed to file. There are two different wants to pass it, and therefore qualify for Chapter 7 bankruptcy:

  1. If your monthly income is less than the median monthly income in your state for your family size, you pass. You can find current median income numbers by family size here.
  2. If you don’t pass #1, you’ll have to go through a complex calculation to see whether your disposable income after subtracting out certain expenses is enough to satisfy your debt obligations. At this stage it would probably be best to talk to a professional who could help you navigate the process.

Eligibility for Chapter 13 bankruptcy is a little more straightforward. Here’s how it works:

  1. As opposed to Chapter 7, you need to prove that your disposable income is high enough to afford a reasonable repayment plan.
  2. Your secured debt (mortgage, auto loan) can’t exceed $1,149,525, and your unsecured debt (credit cards, medical bills, etc.) can’t exceed $383,175.
  3. You must have filed both federal and state income taxes each of the last four years.

There are some other requirements for each, but those are the major ones. Assuming you qualify for at least one of them, there are a few other things to consider.

What Kinds of Assets and Liabilities Do You Have?

Depending on the specifics of your financial situation, one type of bankruptcy may be preferable to the other. Or it may be that neither would actually be particularly helpful.

As an example, neither type of bankruptcy would likely help you all that much if your primary debts are student loans. They wouldn’t be discharged in Chapter 7 bankruptcy. And while your required payments might be reduced over the 3-5 year repayment period in Chapter 13 bankruptcy, once that was over you would have to continue paying them back as usual.

The type of assets you own and their value also matters, particularly if you’re going through Chapter 7 bankruptcy. During that process your bankruptcy trustee is allowed to sell your property in order to settle your debts, but certain property is protected.

For example, your house and car are protected up to certain limits. Employer retirement accounts like 401(k)s and 403(b)s are fully protected, while IRAs are protected up to about $1 million. But other accounts, such as checking, savings, and regular investment accounts may not have the same protections.

The rules here vary by state, and having a strong understanding of which assets you might be able to keep and which you might end up losing will help you make your decision.

What Are Your Alternatives?

Bankruptcy can have the big advantage of erasing your debts and allowing you to start anew. But there are also some serious consequences, such as a hit to your credit score and a mark on your credit report for up to 10 years. So it makes sense to evaluate your other options before making a decision.

One option may be to call up your lenders and see if you negotiate a lower interest rate, a reasonable payment plan, or a settlement for a smaller amount.

You could also work on making some changes to your spending habits, cutting out certain expenses and possibly selling certain possessions to make room for your debt payments.

If you have student loans, you should look into income-driven repayment plans as a way to decrease your monthly obligation and potentially have some of your debt forgiven down the line.

You could also look into getting some 1-on-1 help from a credit counseling company. Just make sure to stick with reputable companies like The National Foundation for Credit Counseling and to avoid the late-night infomercials promising to wipe your debt away.

Make the Best Decision for You

Filing for bankruptcy is a big decision, and in the end you’re the only one who will know what’s right for you.

Do your research, evaluate all of your options, and then make the decision that most helps you reach your personal goals.

 

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College Students and Recent Grads, Pay Down My Debt

Can You Discharge Student Loans in Bankruptcy?

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The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Students throwing graduation hats

Student loans have been a hot topic in recent news and for good reason. The level of student loan debt in the United States has grown substantially over the past several decades. As of 2014, the balance of student loan debt reached $1.2 trillion. Students burdened with debt have one option when it comes to repayment: pay the debt. However, in extreme circumstances, it may be possible to completely discharge student loan debt in bankruptcy.

How to Discharge Student Loans in Bankruptcy

The U.S. Department of Education website provides four cases in which federal student loans may be discharged. Those include:

  1. Closed school discharge
  2. Total and permanent disability discharge
  3. Death discharge
  4. Bankruptcy discharge

There are a few more options for partial discharge with qualifications. The website lists bankruptcy as an option in rare cases.

“If you file Chapter 7 or Chapter 13 bankruptcy, you may have your loan discharged in bankruptcy only if the bankruptcy court finds that repayment would impose undue hardship on you and your dependents. This must be decided in an adversary proceeding in bankruptcy court. Your creditors may be present to challenge the request.”

The U.S. bankruptcy court will use the three-part Brunner test to determine if the student loans are eligible for discharge in bankruptcy. To show hardship you must show that:

  1. If you were forced to repay the loan, you would not be able to maintain a minimal standard of living.
  2. There is evidence that this hardship will continue for a significant portion of the loan repayment period.
  3. You made good-faith efforts to repay the loan before filing bankruptcy (usually this means you have been in repayment for a minimum of five years).

If you are unable to satisfy any of the three requirements, the loan will not be discharged. However in a study published in the American Bankruptcy Law Journal by Jason Iuliano, 39% of those who applied were granted at least some discharge.

For example, if you are 30 and your student loan payments make up a significant portion of your total income, and you can prove that this hardship will continue for many years you might be able to have your student loans included in your bankruptcy.

But if you just started making payments and have not attempted to use available programs such as income-based repayment, then you may have a harder time discharging your student loans.

If you feel that bankruptcy is for you, consult a lawyer and consider including your student loans.

[Struggling to pay back private student loans? Learn about loan modification here.]

Ramifications of Bankruptcy

Choosing to eliminate your student loans using bankruptcy is a difficult path. Moreover, you will mark your credit report for 7 or 10 years with a bankruptcy filing. This could prevent you from purchasing a home, opening new lines of credit, and benefiting from the best rates to borrow money. It could also prevent you from getting a job with credit pre-screening.

Options So You Can Avoid Bankruptcy

If you would rather avoid bankruptcy, here are more ways to eliminate your student loan debt.

Reduce or Halt Your Current Payment

Determine if you are eligible for deferment or forbearance. A deferment is a period during which repayment of the principal and interest of your loan is temporarily delayed. Depending on the type of loan you have, the federal government may pay the interest on your loan during this period.

If you can’t make your scheduled student loan payments, but don’t qualify for deferment, a forbearance may allow you to stop making payments or reduce your monthly payment for up to 12 months.

[Miss a student loan payment? Learn how to find help here.]

Choose a Reduced Payment Plan

For federal loans, there are a few repayment plans that can help you manage your student loan repayment. Choose one of the following:

  • Income Based Repayment Plan – Payments are calculated based on your discretionary income and can extend up to 25 years of repayment.
  • Graduated Repayment Plan – Payments start off small then increase every two years for a maximum of 10 years of repayment.
  • Extended Repayment Plan – Payments can extend up to 25 years of repayment.
  • Pay as You Earn Repayment Plan – Payments are calculated based on your discretionary income and can extend up to 20 years of repayment.
  • Income-Contingent Repayment Plan – Payments are based on your adjusted gross income and can extend up to 25 years of repayment.
  • Income Sensitive Repayment Plan – Payments are based on your annual income and last for a maximum of 10 years; however, you will pay more over time versus the standard 10-year repayment plan.

[Read about Student Loan Forgiveness Programs Here.]

Career Based Discharged

You can also have your student loans discharged if you take a certain career path and your loans are: Direct, FFEL Program, or Federal Perkins loans. Private loans are often not eligible for forgiveness programs. As an eligible public service employee you can have 100% of your loan balance forgiven after 120 consecutive payments; this assumes that you maintain your status as an eligible public service employee while making those payments. If combined with one of the reduced payment plan options that could mean a substantial reduction in total repayment balance.

Check out our Student Loan Refinance table to compare your options.

 

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News

When Bankruptcy Makes Sense

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The word “bankruptcy” usually gets an emotional response from anyone who hears it. Lawyers, advertising it on television, sell bankruptcy like it is a flat-screen television. Radio talk show hosts often call it immoral, telling you to live on beans and toast for 10 years before you break your vow of repayment and walk away from debt.

At MagnifyMoney, we think the truth lies somewhere in between. For certain situations, bankruptcy is the single best solution. For others, it can’t help them. And for some, who can actually afford to repay their debt, it does raise serious ethical questions.

And this isn’t just our opinion. The Fed just recently released a report, showing that bankruptcy can be an excellent solution for some people. And it also showed that the 2005 reform, which made it harder to file bankruptcy, has harmed individuals who stopped filing for bankruptcy. Not filing has condemned them to a life of chronic debt, with daily calls from collection agencies, low credit scores and reliance upon payday lenders for any future emergencies.

In this article, we will:

  • Help you figure out if you should consider bankruptcy
  • Explain how it works
  • Show the cost of not filing for bankruptcy
  • Talk about how to avoid filing again

Is Bankruptcy for Me?

Bankruptcy should only be considered if you are in financial crisis. Although financial crisis can have different meanings to different people, we think the following can be a good way to answer the question:

  • Do you find it impossible to make all of your basic monthly payments? Do you struggle to cover mortgage/rent payment, auto payment, insurance payments and credit card minimums?
  • Is your total debt (excluding mortgage) more than 50% of your gross annual income?

If you answered yes to either (or probably both) of those questions, you are likely in an unsustainable situation. For example, someone who makes $40,000 before tax and has $30,000 of credit card debt in addition to a mortgage will likely never get out of debt, unless he is able to significantly increase his income. That person has a net monthly income of about $2,000 (may vary by state and cost of healthcare and other deductions). Just the minimum due on $30,000 of credit card debt would be over $1,000.

In our example, that individual would work incredibly hard to stay in debt for over 30 years. During those 30 years, he would pay over $50,000 of interest alone to the credit card company. In addition, because of the high credit card balances (and the high likelihood of missing payments whenever there is an emergency), his credit score will remain incredibly low, making everything else in life much more expensive. A low credit score will result in more expensive auto loans, auto insurance, mortgage re-finance and every other type of borrowing.

It makes no sense for that individual to just keep paying the minimum due. He will be stuck in a life of poverty, unless he can increase his income.

Bankruptcy is not for you if:

  • All of your debt is in student loans. It is virtually impossible to discharge your student loan debt in a bankruptcy.
  • All of your debt is with your mortgage or your auto loan. Secured debt is not considered as part of the bankruptcy. (However, you may have the opportunity to get your auto loan balance reduced as part of a bankruptcy. The process is called a cram-down, and the amount of the loan that is greater than the value of your car can be forgiven if you negotiate properly).
  • You can afford to repay the debt. Beyond the moral issues of walking away from debt, there is now a means test and you may not be able to file bankruptcy if you have sufficient assets or income to service the debt.

How does Bankruptcy Work?

There are 2 types of bankruptcy: Chapter 7 and Chapter 13.

Chapter 7 is a true “fresh start.” In most cases, all of your unsecured debt (credit cards, personal loans) will be discharged. That means creditors will no longer be able to do any form of collections. The phone calls stop. The wage garnishment stops. The lawsuits stop. There is a record of the debt discharge on your credit report, and it will stay there for 10 years. However, for most people the recovery from bankruptcy is remarkably rapid. If you are in debt crisis (as we defined above), a bankruptcy can help you recover in as few as 2-3 years, compared to a lifetime sentence of poverty. 70% of all bankruptcy filings are Chapter 7. We should warn you: for the full 10 years, you will still have some limitations. Some lenders will never lend to someone with a bankruptcy on their credit report. Some employers will not hire employees with former bankruptcy. And, in the military, filing bankruptcy can result in the loss of intelligence clearance, which could cost you your career. All of these factors need to be considered before filing.

In Chapter 13, you do not have all of your debt discharged. Instead, a portion of your debt is written off, and a payment plan is created for the remainder of the debt. It takes longer to recover from a Chapter 13 bankruptcy, and for most individuals a Chapter 7 is preferable. The main reason people end up in Chapter 13 is because they fail to qualify for Chapter 7 (because they have too many assets or too much income relative to their debt to qualify for Chapter 7).

You should speak to your lawyer, but in most cases for people in debt crisis, a Chapter 7 makes the most sense and will certainly lead to the fastest recovery.

Just remember: Chapter 7 and Chapter 13 generally can not help you with mortgage, auto and other secured debt or student loans.  The only way it will help is by eliminating other debt, helping you to make payments on your mortgage.

The Cost of Not Filing for Bankruptcy

In 2005, bankruptcy “reform” was passed. It did 3 big things:

  • Introduced a means test. If you household income is above the median, you have much higher hurdles to cross before having your bankruptcy petition approved
  • Increased the cost of filing. The cost of filing for bankruptcy has increased by 44%, from an average of $697 to an average of $975. As you can imagine, higher costs make it more difficult for those with the least amount of money to afford the filing.
  • Made student loans off limit. Student loan debt is now a protected bubble, and it is virtually impossible to have that debt discharged.

As a result of these changes, the number of people filing for bankruptcy declined significantly. The Fed has looked at the impact of this decline in bankruptcy filings, and the results are startling. They clearly show that many people would have been much better off had they filed. Here are the findings:

Because bankruptcy now costs more, the poorest people are least likely to file. (And they need it the most)

The Federal Reserve tracked the likelihood of people to file for bankruptcy before and after the change to the law. People with higher incomes continued to file for bankruptcy, whereas those with the lowest incomes filed at a much slower rate. The Fed concludes that “liquidity constraints” kept people from filing. In other words, people were too poor to file for bankruptcy.

People who file for bankruptcy recover much quicker than people who don’t file.

People who file for bankruptcy see a much quicker improvement in their credit score than those who don’t. Why? People who don’t file bankruptcy (but are in financial crisis) continue to struggle to make minimum payments. They continue to deal with accounts in questions. They continue a life of chronic debt.

The table below (from the Fed) shows that people who file bankruptcy could get a score of 620 within a year of filing.

BK score

The top 2 lines show people filing for bankruptcy (3 months and 12 months after filing). The lines at the bottom show people who remain in chronic collections, but don’t file for bankruptcy. Their credit scores stay in the low 500s.

In addition, the ability to open new credit accounts (like an auto loan or mortgage) is severely restricted for people who can not file bankruptcy, but remain in collections. The chart below shows the number of new accounts opened by those stuck in default, versus those who filed bankruptcy:

Quarters

You can see on the red line that people who don’t file bankruptcy, but stay in collections, are unable to open any new form of credit. If they do need to borrow, they will be forced to payday lenders, title loan companies or worse.

How to Prevent Future Bankruptcies

There are 2 criticisms against bankruptcy that we agree with at MagnifyMoney. First, some people have abused the system historically. They enjoy spending the money that they borrow, they can afford to repay, but they use bankruptcy as a way to walk away from debt. In addition to the moral questions, it also drives up the cost of borrowing for responsible people (because they have to pay for the people who don’t pay back through higher interest rates).

Second, people use bankruptcy as an easy way out of debt, but they never fix the core problem. As a result, 5-7 years later they are back in the same situation.

The bankruptcy reforms of 2005 did introduce a means test. If you income is below the national medium, you can file for bankruptcy easily. If, however, you income is above the median, you will have to pass a means test. That makes it difficult for people who have assets and income to walk away from debt.

The second issue is trickier. We believe that before filing for bankruptcy, everyone should truly understand why the problem happened, and deal with the root cause. In the Self-Assessment chapter of our free ebook (which you can download here), we dig deep into your budget. You should look to understand:

  • Are your fixed expenses too high? When mortgage and car payments eat up a big chunk of your monthly income, you can very quickly end up borrowing on credit cards to get through the month. Although difficult, selling your home or car and downsizing could be the difference between avoiding debt, or ending up back in the same place you started.
  • Can you control your discretionary expenses? Can you actually live within a budget? Do you even have one?
  • Do you have health insurance? So many big medical expenses were the result of no health insurance. With Obamacare, most Americans can find a health policy that can at least protect against massive medical bills.

If your fixed expenses are too high, and you can’t live within a budget, you will likely end up in bankruptcy again. You should do the hard work now to make sure bankruptcy is a tool that you only use once.

Final Thoughts

For many people, bankruptcy is the fresh start that they deserve. Too many people stay in a chronic state of debt, when bankruptcy would be the right answer. However, the decision should not be taken lightly. And everyone (whether you have filed for bankruptcy or not) should be taking the necessary steps to build a secure financial future.

 

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Debt Guide: When to File Bankruptcy

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Below is an excerpt from our Debt Free Forever Guide. Be sure to download the free guide to help dump debt for good.

For some people, bankruptcy may be an appropriate option. In a bankruptcy, you may be able to eliminate some or all of your debts. However, debt forgiveness does not come lightly. Chapter 7 (where all eligible debt is eliminated) stays on your record for 10 years. Chapter 13 stays on your report for 7 years. And, during that time (especially in the first 3-5 years), you may find it virtually impossible to apply for any new credit. And credit is not limited to mortgages and auto loans. It can even include pay-as-you- go mobile phone packages. If you work in the financial services sector, you may find that bankruptcy will make it impossible to get a job. So, this decision should not be taken lightly.

However, for some people, this may be the only option. I will give a few examples of people whom I have met, where bankruptcy made complete sense:

  • A hardworking man had a medical emergency. Unfortunately, he did not have medical insurance. The total bill was over $500,000. And his annual salary was $40,000. There was no chance that he would ever pay off that debt. Bankruptcy made perfect sense.
  • A married couple unfortunately did not plan for the future. They had no life insurance, no savings and credit card debt. The husband was a professional, and the wife stayed at home with the children. The husband died unexpectedly. Between the funeral, the credit card debt from before the marriage and the costs of the transition, the widow had over $75,000 of debt. She was able to get a secretarial job for $25,000. It made sense to eliminate the debt with bankruptcy.

The biggest reasons for bankruptcy are medical and divorce. We always try to work with people to help them prepare for the worst. Everyone should have medical insurance, even if that means paying for a high deductible (low premium) policy that at least insures against bankruptcy. If someone depends upon you (like the husband in the story above), term life insurance is necessity, and it doesn’t cost much. In medicine, it is always better to prevent (via a good diet and exercise) than to fix after something goes wrong. The same is true in financial matters. However, if you are now in the emergency room, a bankruptcy may be the right option.

What can a bankruptcy do for me?

A bankruptcy gives you the opportunity to eliminate a significant portion of your debt. The bank has to write off the debt, and is no longer able to collect on the debt.

In Chapter 7 bankruptcy, all of the eligible debt is eliminated. It takes about 3-6 months to have the bankruptcy discharged.

  • Most or all of your unsecured debt will be erased. Unsecured debt would include things like credit card debt, personal loan debt, medical bills, mobile phone bills and other debt.
  • Certain types of debt are usually excluded from bankruptcy. These include student loan debt, tax obligations, spousal support, child support and some other types of debt can not be eliminated.
  • Some of your property may have to be sold to pay off your debt. However, in most cases, your primary property is exempt.
  • For secured property (like an auto loan), you will be given a choice. You can continue to pay, you can have the property repossessed, or you can make a lump sum payment (at the replacement value).

If your problem is with credit card debt and/or medical debt, than Chapter 7 makes sense. All of that debt will be wiped out. You continue to pay (and keep) your mortgage and auto loan.

In a Chapter 13 Bankruptcy, you are not able to eliminate all of your debt. Instead, you will be forced to make regular monthly payments towards your debt before it is completely eliminated.

Chapter 7 or Chapter 13?

If given the choice, most people would choose Chapter 7. From a credit score perspective, they both have equal (negative) impact on your score. In fact, here is what FICO says:

The formula considers these two forms of bankruptcy as having the same level of severity and, for both types, uses the filing date to determine how long ago the bankruptcy took place. As with other negative credit information, the negative effect of a bankruptcy to one’s FICO score will diminish over time.

So, if you get the same penalty, but in one form of bankruptcy all of your debt is wiped out, and you still have to pay back some debt in the other form, then you would probably choose Chapter 7. And most people did, until the law was changed in 2005.

Note: there may be some instances when you will want to file Chapter 13 instead of Chapter 7. For example, if you are behind on your house payments and want to keep your house, Chapter 13 may make more sense. Why? In Chapter 13, you can put your past due mortgage payments into your repayment plan, and pay them back over time. In Chapter 7, your past due mortgage payments may be due right away.

However, in the majority of cases, Chapter 7 is more favorable to the borrower than Chapter 13.

There are now some “means tests” required to see if you can file for Chapter 7. Here are some very basic rules:

  • If your family income is below the median income of your state, you will probably be able to file Chapter 7. The income used is the average of your last 6 months income. You can find the median incomes here.
  • If your income is above the median, you may still be able to file bankruptcy. However, you will have to pass a means test. Your income and expenditures will be looked at, to see if you have the ability to make payments towards a payment plan over 5 years towards the accumulated debt.

In addition, if you tried to be clever, you will likely be caught. Any recent cash advances on your credit card, and any recent luxury purchases can be exempt from the bankruptcy completely.

It used to be very easy to file for Chapter 7 and have all of your unsecured debt eliminated. That is no longer the case. But, if you have low income, you can still proceed. And, if you have a very difficult situation, you can still find a path towards eliminating a significant portion of your debt.

How to Proceed

As part of the bankruptcy legislation, you need to meet with a non-profit debt counselor before you are allowed to file for bankruptcy. So, whether you are thinking about negotiating settlements or filing for ?bankruptcy, it makes sense to meet with a counselor. You can find a list of the approved agencies here.

For further reading on bankruptcy, we recommend this website (NOLO) – they have an excellent library of information.

In Summary

If you are in too deep, bankruptcy may be the only remaining viable option. I have met many people who filed bankruptcy, and went on to live very fulfilling and prosperous lives. Companies file bankruptcy all the time – and I believe that people should have the same legal protections that companies have.

You just need to be realistic about what bankruptcy can and cannot do. If you have student loans, tax liens, spousal support or child support – you will not be able to use this tool. You need to find a way to pay back your debt.

But, if you have been hit with a big medical bill, or your credit card debt is just too large relative to your income, bankruptcy could be the best option. It will be a very difficult 2 years. By Year 3, things will look a lot better. And, 7 years later, your score will reflect the person you have been in the last 7 years. A very good friend of mine had filed bankruptcy. He now has a home (purchased with a mortgage at a low rate). He has a car (purchased with a 0% car loan). And he has a rewards credit card (that he pays off in full every month). His score is high. It was a rough couple of years, but it made sense. Otherwise, he would have been making minimum payments for 30 years and still wouldn’t be out of debt.

Weigh your options carefully. Meet with a non-profit counselor. We are always available at MagnifyMoney to talk as well (just email us at info@magnifymoney.com).

Good luck with your decision.

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Credit Cards

Disputing Credit Card Charges: What You Need to Know and Instructions for Each Card Issuer

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The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

If you use credit cards, chances are at some point you’ll need to dispute a charge that appears on your statement for one reason or another. The good news is that this common practice has some pretty awesome guidelines and provisions protected under both state and federal laws.

Whether your dispute is straightforward or complicated, you’ll want to know the ins and outs of how the dispute process works so that it can ultimately work for you should you need it. The dispute process will help you get the best outcome in the case of billing errors, fraud, misrepresented products, or any other charge on your statement you believe you shouldn’t be responsible for.

When to Dispute a Charge on Your Account

The Fair Credit Billing Act (FCBA) protects consumers from unfair credit billing practices. This federal law also provides guidelines to both consumers and credit card issuers for dispute management and resolution. According to the FCBA, consumers can file disputes, according to the FCBA settlement procedures, for the following billing errors (list provided by the FTC website):

  • Unauthorized charges. Federal law limits your responsibility for unauthorized charges to $50.
  • Charges that list the wrong date or amount.
  • Charges for goods and services you didn’t accept or that weren’t delivered as agreed.
  • Math errors.
  • Failure to post payments and other credits, like returns.
  • Failure to send bills to your current address — assuming the creditor has your change of address, in writing, at least 20 days before the billing period ends.
  • Charges for which you ask for an explanation or written proof of purchase, along with a claimed error or request for clarification.

There are additional FCBA provisions covering problems with the actual goods or services, aside from billing errors. This is known as the right to assert “claims and defenses.” In other words, the charge is correct, but the goods or services are not delivered as promised or described. This right can be exercised up to one year after purchase.

Under claims and defenses, the purchase has to be made within 100 miles of your current billing address and be more than $50, and you’ve got to make a “good faith” effort to resolve the dispute with the merchant first. The dollar and distance rules don’t apply if there is a special relationship between the buyer and seller or the purchase was made via internet, mail, or phone.

When you are initiating a dispute on this basis, make that clear with the credit card company so they’ll process the dispute accordingly. In this case, state laws may also play a part in determining what actions you can take against the merchant and the credit card issuer if the dispute is not resolved in your favor.

How to Dispute a Charge on Your Credit Card

The first thing you’ll want to do is determine if the charge is really an error. A little research will help you figure out if a charge is an error, fraudulent, or a purchase gone wrong. Some things to consider:

  • Did you let someone use your card? Do you have an authorized user on your account? They may have made a purchase with it.
  • Is it possible that someone obtained your information illegally and made a fraudulent charge on your card?
  • Does the merchant use another company name that appears on your credit card statement? (For example, Binky Toys can appear as “TOY CORP” on your billing statement.)
  • Did you read the fine print? You may have signed a contract with a merchant authorizing charges you were not aware of.

Once you determine there is an actual problem with your statement, you’ll want to figure out if the problem is with your credit card issuer or a merchant. The process can be slightly different if a merchant is involved or not.

If the charge is an error that doesn’t involve a merchant, like fraud or identity theft, then you can contact your credit card issuer directly. Though it’s best to document your dispute in writing, many card issuers will discuss the issue with you (and sometimes even resolve it) over the phone.

Nowadays, most major card issuers will allow you to log in to your account and file the dispute or initiate an inquiry about a charge online. If you don’t feel comfortable with any of these methods, you can use this sample dispute letter provided by the Federal Trade Commission (FTC) and begin the dispute process via mail.

If the charge involves a merchant whose goods or services were either defective, misrepresented, or not delivered as agreed, then you’ll want to contact them first. You can place a call to start the process, but it’s best to have things in writing. So an email or snail mail letter can either kick things off or confirm and reiterate what was discussed over the phone regarding the issue.

Many times, merchants will work with you because they want to keep their chargeback rates (credit card refunds due to errors and disputes) low. Merchants who have higher chargeback rates are deemed high risk by credit card processors and face higher penalties and processing rates which cut deeply into their bottom line. For this reason, try to settle with them before going to your credit card company with the problem.

If you can’t get an acceptable resolution from the merchant who charged your card, then it’s time to contact your credit card issuer. Just like the process outlined above for billing errors, you can choose to initiate the dispute via phone, internet portal, or mail.

In all your disputing, remember the timelines set forth by the Fair Credit Billing Act. If your problem is with a merchant, you’ve got up to a year to make a claim under “claims and defenses.”

For errors, your dispute correspondence has to be received by the credit card issuer no later than 60 days after the first statement containing the charge you are disputing. In either case, if you decide to send your correspondence via mail, it’s a good idea to send it certified with proof of delivery.

What Happens After You Initiate a Dispute

Under the FCBA, your card issuer has to acknowledge your complaint 30 days after receiving it (unless they resolve it before then). Sometimes, the dispute process is fairly straightforward and within a matter of minutes the dispute could be resolved in your favor. You’ll receive a credit on your statement and the issue is resolved.

You should also be aware that under the FCBA, you don’t actually have to pay the amount in dispute or any interest or any related late fees while the dispute is ongoing. Sometimes, the card issuer will even remove the charge under investigation right away. The bank has 90 days to investigate the issue and resolve it either in your favor or the merchant’s favor.

Keep in mind that you could be asked for supporting documentation to back up your dispute. This could include police reports, photos of a defective product, manufacturer claims and descriptions, tracking numbers, screenshots, and email correspondence.

This evidence will be gathered and checked against any evidence supplied from the merchant. Once the bank has concluded the investigation, you’ll receive a final ruling where the charge is either removed permanently or placed back onto your statement and becomes your responsibility to pay. You should also know that you may be responsible for interest and fees that accrue for a dispute you ultimately do not win.

What If Your Dispute Isn’t Approved

If finally, despite your best efforts, you’re deemed responsible for the disputed charge, you still have a few options. You could appeal the final decision with the credit card issuer within 10 days of the decision. Sometimes, the investigation could be reopened. Inform the bank that you’ve got new information they should consider.

If they still decline to reconsider or resolve in your favor, they can report your failure to pay to credit bureaus. If they do report this information, it must also state that you do not believe you owe the amount in question.

Another option is to take the merchant, your bank, or both parties to court. This can be costly, but for an amount that’s high enough, a court case could be justified. Be sure to check terms and conditions for both the merchant and the issuer, because you may have waived your right to this course of action in doing business with them. Also, state laws will have a say in what legal recourse is available to you against both the merchant and credit card company. Check with the consumer protection division of your state’s attorney general office for guidance in this area.

Also, don’t be afraid to engage help and organizations that might have oversight of the institutions involved in your dispute. You can file a complaint against credit issuers with the FTC. The FTC complaint process, however, won’t apply to banks. Banks are regulated by the FDIC. You can find the regulator that has oversight of the bank you are dealing with here, or you can file a complaint with the Federal Reserve Consumer Help website.

If you’ve got the time, energy, and ambition, you can always take to social media to vent and tell the world about your experience. Many companies are diligent about protecting their online reputation and prefer to route these conversations offline for resolution. If possible, be just as polite and diplomatic on social media channels as you would be with a phone call or written complaint. You’ll likely get further with this approach.

Where It Can Get Sticky

As mentioned, disputes can be settled quickly and easy. Some people say that their card issuer didn’t even ask for documentation but charges were immediately reversed. Other times, it can be a longer process, especially if a merchant objects to your dispute.

When this happens, there can be a lot of back-and-forth between everyone involved in a credit dispute. The purchaser, the merchant, the acquirer (Visa, MasterCard, American Express, Discover), and the issuing bank all have to coordinate communication to make sure disputes are investigated thoroughly and resolved appropriately.

Be aware that there are circumstances that can complicate, delay, and even hinder the dispute procedures.

Bankruptcy

When a merchant doesn’t deliver goods or services due to insolvency, there may not actually be any money in their bank’s account to cover a chargeback. You might be better off filing a case in small claims court. Sadly, in many bankruptcy proceedings, outstanding payables due to customers are one of the last payment priorities.

Collections

Though the dispute can be resolved in your favor from the credit issuer, the merchant could come back and bill you anyway. They can even send your account into collections. In this case, keep your documentation and be ready for a potential battle with collection agencies that have been engaged to recoup the funds from you. You credit report could also suffer.

Prepaid services

Let’s say you make an advance payment on a fitness camp 12 months in advance, but the company goes out of business and won’t be hosting the camp after all. You’ll want to make sure that you fully understand the dispute resolution process regarding future purchases. It will vary for each card issuer, so find out how you are protected in a situation like this. Consult your bank’s card member agreement and speak with someone who can give you clarity on dispute terms before making advanced payments with your credit card.

Product returns

If the dispute is resolved in your favor, part of the resolution may be connected to returning goods in order to receive the refund amount. There are very clear rules around what merchants must do when they receive your goods — a credit must be transmitted to the card issuer within seven days. From there, the issuer must ensure it shows up on your account within three days. It’s not unheard of for a seller to “send” for an item and never retrieve it in order to delay or avoid issuing a refund. Make sure that you take responsibility for returning goods. It’s a good idea to pay for tracking and insurance to make sure your items arrive safely, with proof of delivery, to the seller.

Pre-existing contracts

Terms and conditions are no fun to read, but it’s a good practice to look at the fine print (especially for large purchases). Hidden in these terms could be strict refund policies and even waivers to the dispute process should a problem occur with a sale.

Instructions for Filing Disputes with Major Credit Card Issuers:

 

Card Issuer: Instructions for Disputes:
Chase Chase dispute instructions
Bank of America Bank of America dispute instructions
Capital One Capital One dispute instructions
Barclays Barclays dispute instructions
Discover Discover dispute instructions
Citi Citi dispute instructions
American Express American Express dispute instructions

Final Thoughts on Credit Card Instructions

There are so many variables that can influence the outcome in all of these cases that it can seem like the final decisions are arbitrary. What worked in one scenario may not work in another with a different company or cardholder.

Many times, you’ll be working with a customer service representative who is unfamiliar with your rights as a consumer and the laws that should govern the outcomes of credit card charge disputes. When all else fails, research, education, and persistence may be your most powerful weapons in the fight for your consumer rights.

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Credit Cards: Find the Best Credit Card Offers & Deals (0% for 24 mos, 6% cash back)

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Credit Cards: Find the Best Credit Card Offers & Deals

Updated April 18, 2017

The best credit cards can help you earn $2 or more for every $100 you spend – an easy way to make $100s or even $1,000s a year. When done properly, low rate credit cards are also the cheapest way to borrow. You can get 0% interest for up to 2 years. And credit cards are the best way to build, rebuild or maintain an excellent credit score, without paying fees.

But if you get it wrong, you can easily end up buried under a pile of expensive debt. This is a step-by-step guide that will help you find the best credit cards (updated daily) while avoiding expensive traps.

Should You Get a Credit Card?

Credit cards are like knives. Used well, they are great (even essential) tools. But if you start playing with them, you can get into trouble quickly.

There are two big risks associated with swiping plastic:

  • You spend more than you should, because it is just too easy
  • You pay higher interest rates than you should, adding years to your debt repayment

Before using a credit card, you need to answer the following question honestly:

Do I trust myself with plastic? Can I exhibit the necessary self-control to spend only what I can afford to pay in full every month?

If you have the discipline and self-control, keep reading and we will help you find the best credit card for your needs. But, if you don’t, it is possible to live a long and fulfilling life without plastic cards in your pocket.

The CFPB has a good guide on what to be aware of with your first credit card, as does the Federal Reserve.

Which type of card is best for you?

Why do you want a credit card ? The answer to that question will determine which type of card is best for you.

Just remember this critical rule when selecting a credit card:

You should have a Rewards Card for your spending. You should have a Low Rate Card for your borrowing. But you should avoid mixing the two. The best Rewards Cards tend to have higher interest rates. And the best Low Rate Cards often have no (or bad) rewards.

How to Choose and Use a Rewards Card

It is now easy to earn great rewards when you use a credit card for your spending. You should earn at least 2% cash back, and can earn even earn more with a bit of work. The money can add up quickly. If you spend $1,000 a month, you can earn $240 a year. It is not very often you can get something for nothing. But if you make the right choice and follow the rules, it is possible to get something for nothing.

How to Choose

Best Cash Back Credit Cards

These are the top cards offering a flat cash back rate.

Citi Double Cash Card

1% When You Buy + 1% When You Pay

Citi Double Cash Card

The Citi Double Cash Card is the best overall cash back credit card. So long as you pay your statement balance in full and on time every month, you will earn 2% cash back. You earn 1% unlimited cash back on all of your purchases. You then earn an additional 1% on payments based on your purchases. The bonus cash back can take up to two billing cycles to post.

Transparency Score
Transparency Score
  • No caps on how much cash back you can earn.
  • Cash back earning formula is easy to understand
  • There is a range of interest rates. You won’t know yours until after you apply

Key Information

Credit Score Required : Good or Excellent Credit

Purchase Interest Rate : 13.49% – 23.49%

Annual Fee : $0

Sign-on Bonus : None

Intro Purchase APR : None

Intro Balance Transfer : 0% for 18 months with a 3% fee

Tip: Make sure you pay your statement balance in full and on time to maximize your cash back

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Fidelity Rewards Visa Signature Card

Unlimited 2% Cash Back on Every Purchase

Fidelity Rewards Visa Signature Card

The Fidelity Rewards Visa Signature Card offers Fidelity customers a generous 2% cash back on all purchases, with no limits or category restrictions. The cash back you earn must be deposited into a Fidelity account, but you don’t need to have a Fidelity account to apply for the card.

If you do not have a Fidelity account, they will open a Fidelity Cash Management Account to deposit your cash back. It works like a checking account with no minimum balance requirement and no monthly fees. In addition, all domestic ATM fees are reimbursed (unlimited).

Transparency Score 1
Transparency Score
  • Simple cash back earning formula
  • No caps on how much cash back you can earn
  • You need to have a Fidelity account in order to redeem your cash back

Key Information

Credit Score Required : Excellent Credit

Purchase Interest Rate : 14.49%

Annual Fee : $0

Sign-on Bonus : None

Tip: You don’t need to keep your retirement or stock accounts with Fidelity to qualify for this card. Anyone can apply.

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Barclaycard Cash Forward Credit Card

1.575% Cash Back

Barclaycard CashForward World MasterCard

Barclaycard has just recently launched this card, which offers a generous 1.5% cash back rate on all purchases. You can earn a 5% bonus when you redeem, which creates an effective 1.575%. Cash redemptions start at $50.

There is a $200 cash rewards bonus after you spend $1,000 in the first 90 days after account opening. There is also a generous 0% intro APR on purchases for the first 15 months. The card has no annual fee.

Transparency Score 2
Transparency Score
  • Cash back earning formula is easy to understand
  • There is a range of interest rates. You won’t know yours until after you apply

Key Information

Credit Score Required : Excellent Credit

Purchase Interest Rate : 15.74%, 20.74% or 25.74%

Annual Fee : $0

Sign-on Bonus : $200 after spending $1,000 in the first 90 days

Intro Purchase APR : 0% for 15 months

Tip: Always pay your bill on time to avoid late fees.

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Best Category Bonuses (Gas, Grocery, Travel, Dining)

Here are the top cash back cards that pay much higher rates in certain bonus categories, which can be a great way to boost your returns.

Fort Knox Credit Union Platinum Visa

Unlimited 5% Cash Back on Gas

Fort Knox Credit Union Platinum Visa

If you spend a lot of money on gas, there is no better card than this. You can earn unlimited 5% cash back on spending at gas stations. You will earn 1% on all other spend. You must be a member of the credit union, but anyone can join. Pay $5 to join the American Consumer Council of Kentucky (you can do that here) and you will be eligible to join.

Transparency Score 3
Transparency Score
  • No limit to the cash back you can earn, even in the bonus category
  • You have to be a member of the credit union to get the card

Key Information

Credit Score Required : Good or Excellent

Purchase Interest Rate : 9.50%

Annual Fee : $0

Tip: If you are not yet a member, you can use the non-member application process. Once approved, you can join with your $5 contribution to American Consumer Council.

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Blue Cash Preferred Card from American Express

6% Cash Back on Groceries (Up to $6,000 of Spend)

Blue Cash Preferred Card from American Express

The unparalleled 6% cash back rate on groceries makes this one of the best cards on the market for heavy grocery consumers. Even with the $75 annual fee, most grocery shoppers will come out ahead.

You will also earn 3% cash back on all gas station purchases, 3% at select department stores and 1% on all other purchases. You will earn a bonus offer of $150 after you spend $1,000 in the first three months. And, for a limited time, you can earn 10% back at Amazon.com, up to $200 within the first six months you have the card.

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  • Simple, easy to understand bonus offer
  • There is an Annual fee

Key Information

Credit Score Required : Good or Excellent

Purchase Interest Rate : 13.49% – 22.49%

Annual Fee : $95 (no fee for additional cards)

Intro Purchase APR : 0% for 15 months

Tip: If you spend less than $200 a month on groceries, you will earn less than 2% cash back (after taking into account the fee) and would be better with Citi Double Cash or Fidelity American Express. But, if you spend more each year, this is a great option.

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PenFed Premium Travel Rewards American Express

4.25% Cash Back on Airfare Expenses

PenFed Premium Travel Rewards American Express

If you buy a lot of plane tickets every year, this card can be particularly lucrative. You will earn 5 points for every $1 spent on air travel. When you convert those points to a prepaid Visa card, those 5 points turn into a 4.25% earn rate. You earn 1 points per $1 on all other purchases.

There is no annual fee, no foreign transaction fees and 20,000 bonus points when you spend $2,500 within three months.

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  • No annual fee and no foreign transaction fees
  • The conversion from points to $ can be confusing
  • You must be a member of the credit union

Key Information

Credit Score Required : Good or Excellent

Purchase Interest Rate : 9.24% – 17.99%

Annual Fee : $0

Intro Balance Transfer Offer : 0% for 12 months with a 3% fee

Tip: Keep an eye open on the redemption opportunities. You can sometimes find better deals than just prepaid Visa cards.

GO TO SITE More Cards for Travel Spending

AARP Credit Card from Chase

3% Unlimited Cash Back at Restaurants

AARP Credit Card from Chase

You do not have to be over 55, or a member of the AARP, to apply for this credit card. When applying, you just need to keep the “AARP Membership Number” field blank. You can earn unlimited 3% cash back on your dining expenses. So, if you are a foodie, this is a great card. You also get a healthy 3% cash back on gas and 1% on all other purchases.

If you are interested in joining the AARP, you also don’t need to be older than 55. Anyone can join.

You can learn more about the offer by visiting AARP.org.

The information related to AARP Visa credit card has been collected by MagnifyMoney and has not been reviewed or provided by the issuer of this card.

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  • No limit to the cash back you can earn
  • You do not need to be an AARP member to get the card

Key Information

Credit Score Required : Good or Excellent

Ongoing Purchase APR : 16.99% to 23.74%

Annual Fee : $0

Intro Purchase APR : 0% for 12 months

Intro Balance Transfer Offer : 0% for 12 months with a fee of 3% or $5 (whichever is greater)

Tip: Joining AARP at a younger age isn’t as crazy as it sounds. There are a lot of benefits and discounts available to members.

More Dining Credit Cards

Do you spend a lot of money in other categories? You can find the best cash back credit cards for every category here.

Best Travel Rewards Credit Cards

If you would like to earn free travel, there are a number of credit cards designed specifically to help you earn free flights quickly. Here are the best travel rewards credit cards.

BankAmericard Travel Rewards

Best No Annual Fee Travel Card – Miles Can Be Used Anywhere

BankAmericard Travel Rewards

You earn 1.5 points for every $1 you spend. There is no limit to the number of points you earn.

The points can be used on any purchase. There are no restrictions and no blackout dates. Every 100 points can buy $1 worth of travel. The rewards get even better if you have “Preferred Rewards” at Bank of America. You can earn a bonus of between 25% and 75% if you have significant balances at Bank of America or Merrill Lynch.

There is no annual fee and no foreign transaction fees. You can use your points for a wide range of travel options, including flights, hotels, vacation packages, cruises, rental cars and even pesky baggage fees.

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  • Simple introductory bonus
  • No limit to the points you can earn
  • There is a range of interest rates. You won’t know yours until after you apply

Key Information

Credit Score Required : Good or Excellent

Purchase Interest Rate : 15.49% – 23.49%

Annual Fee : $0

Intro Purchase APR : 0% for 12 months

Tip: The Preferred Rewards program offers excellent rewards. If you rollover your old 401(k) or IRA to Merrill Edge, you can get up to a 75% credit card bonus and ATM fee reimbursement with a Bank of America checking account.

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Amex Everyday Credit Card

Best No Annual Fee Travel Card – Earn Airline Miles & Hotel Points

Amex Everyday Credit Card

You can earn 2 points for every $1 spent at supermarkets, up to $6,000 per year. You will earn 1 point on all other purchases, including supermarket spend above $6,000. And there is an added bonus. If you use your credit card for 20 purchases per month, you will get a 20% bonus. That means you would get 2.4 points on grocery store spend (up to $6,000) and 1.2 points on everything else.

You will be earning Membership Rewards Points, which have a wide variety of redemption options. You can convert these points into frequent flier miles of airlines. Participating airlines include Delta, Virgin America, British Airways, Virgin Atlantic and more. You also have the option to convert points into hotel programs, including Hilton and Starwood.

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  • Simple introductory bonus
  • The 2-point bonus on grocery store spending is capped
  • You need 20 transactions each month to get the the 20% bonus

Key Information

Credit Score Required : Good or Excellent

Purchase Interest Rate : Prime + 9.74% – Prime + 18.74%

Annual Fee : $0

Tip: Make sure you use this card for all of your everyday spend. The 20% bonus is based upon the number of transactions made, not the value of those transactions. Even buying a package of gum in the grocery store counts.

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Best Credit Cards for Foreign Travel

These are the best credit cards for use when traveling outside of the country. None of these cards have foreign transaction fees. And some of them even have chip and pin, helping to increase acceptance.

First Tech Credit Union Platinum Rewards MasterCard

No Annual or Foreign Transaction Fee + Chip and Pin Functionality

First Tech Credit Union Platinum Rewards MasterCard

This card is the perfect companion for overseas travel. There is no annual fee or costly foreign transaction fee. Even better, the card offers chip and pin functionality. Most major credit card issuers in America have rolled out chip and signature, which can be problematic overseas. If you try to use your card at a ticket machine or with a waiter’s portable payment device, you have a good chance of being rejected.

The card also offers low credit union interest rates, starting at just 9.99%. It is easy to join the credit union. Membership is free if you work for a sponsor technology company. If you work for the state of Oregon or live in Lane County, Oregon membership is also free. Otherwise, you just need to join the Financial Fitness Association. There is a one-time fee of $8, and you are member. That membership gives you the right to join the credit union and apply for this card.

You will earn 1 point for every $1 you spend. This is not the best rewards program on the market.

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  • No annual fee or foreign transaction fees
  • You have to be a member of the credit union

Key Information

Credit Score Required : Good or Excellent

Purchase Interest Rate : from 10.24%

Annual Fee : $0

Tip: First, join the Financial Fitness Association. Then join the credit union. Finally, apply for the credit card. This can all be done online, and it is an easy process.

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Barclaycard Arrival Plus World Elite MasterCard

No Foreign Transaction Fee + Chip and Pin Functionality

Barclaycard Arrival Plus World Elite MasterCard

With this card, you earn 2 miles for every $1 you spend. When you redeem, you receive a 5% bonus, which gives you a 2.1% earn rate. Your miles can be used on any travel purchase with any airline, hotel or other travel expense. There is an annual fee of $89, which is waived during the first year. If you spend $1,000 a month, you would earn $252 of rewards during the year. After deducting the annual fee, you will have earned 1.4%.

There is a sign-on bonus of 50,000 miles after you spend $3,000 in the first 90 days. But the real strength of this card is for foreign travel. There are no foreign transaction fees and full chip and pin functionality is available.

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  • No limit on the bonus points you can earn
  • There is an annual fee

Key Information

Credit Score Required : Excellent

Purchase Interest Rate : 16.74%, 20.74% or 23.74% variable

Annual Fee : $89 (waived during the first year)

Intro Purchase APR : None

Intro Balance Transfer : 0% for 12 months with a 3% fee

Tip: Given the high annual fee, this card is only worthwhile if you expect to spend a lot on the card.

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Capital One Quicksilver One Rewards MasterCard

Best Foreign Travel for Fair Credit

Capital One Quicksilver One Rewards MasterCard

This card is designed for people with Average/Fair credit. If you have defaulted on a loan in the past five years (but not more than one), or if you have had limited credit history (at least one account for less than three years), you would be considered “average/fair.”

With this card, you can earn 1.5% unlimited cash back. There is also no foreign transaction fee. That combination of no fee and rewards can make this card lucrative. There is an annual fee of $39.

This card can be useful to build your credit score. Just keep your utilization low (ideally below 20% of the available credit) and make your payments on time and in full every month. Capital One provides free access to your FICO score. So, you can track your score and see when you are eligible for an upgrade to a no-fee card.

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  • No limit to the cash back you can earn
  • No confusing categories or limits
  • No annual fee or foreign transaction fee

Key Information

Credit Score Required : Fair or Average

Purchase Interest Rate : 24.99%

Annual Fee : $39

Intro Purchase APR : 0% until September 2016

Tip: Use this credit card to build your score and avoid expensive foreign transaction fees.

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How to Use

In order to maximize your cash back, make sure you follow these suggestions:

  • Use your chosen cash back card for ALL of your spending. Your goal should be to replace cash, checks, automatic debits and debit cards completely. For example, you can automate bill payments (like your cell phone) to be debited from your credit card. This will make your life easier (only one payment to make each month) and it will make budgeting easier (you can set a target for spending and track it easily).
  • Set up automatic monthly payments for the statement balance, not the minimum due. If you set up automatic payments, you will ensure that your payment will be on time every month. And if you set up the automatic payment for the statement balance, you will ensure that you are never charged interest and only charge what you can afford to repay.
  • Avoid cash advances. If you use your credit card to take out cash, most companies will charge a cash advance fee that averages 3%. The interest rate on cash advances is usually above 20%. And there is no grace period, which means interest starts accruing right away.

Brian Karimzad, Co-Founder of MagnifyMoney, explains how to get the most out of cash back credit cards in this video:

How to Choose and Use a Low Rate Credit Card

When done properly, credit cards can be the cheapest way to borrow. Just make sure you choose the right credit card for your situation and automate a plan to pay off the debt as quickly as possible.

How to Choose

Best Balance Transfer Credit Cards

With a balance transfer credit card, you can transfer debt from a high interest rate credit card to a 0% introductory promotional rate. You can find no fee balance transfers for up to 15 months. If you are willing to pay a fee, you can find balance transfers for up to 24 months. The fee is usually worthwhile – if you want to do the calculation, you can use the calculator on our interactive tool.

Remember: you cannot transfer debt between two credit cards of the same bank.

Here are the best 0% balance transfer offers in the market today. All of these credit cards waive interest – which means there is no retroactive interest charge to worry about.

Chase Slate®

$0 introductory balance transfer fee, 0% introductory APR for 15 months on purchases and balance transfers, and $0 annual fee

Chase Slate®

With Chase Slate®, you can save with a $0 introductory balance transfer fee and get 0% introductory APR for 15 months on purchases and balance transfers, and $0 annual fee. Plus, receive your Monthly FICO® Score for free. At MagnifyMoney, this is our favorite balance transfer offer.

You cannot transfer debt from other Chase credit cards, including their co-brand cards. Chase operates credit cards for companies like United Airlines, Southwest Airlines and Marriott.

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  • Interest is not deferred during the introductory promotional period. It is waived.
  • There is a range of interest rates. You won’t know yours until you apply.

Key Information

Credit Score Required : Good or Excellent

Ongoing Purchase APR : 15.74% to 24.49% variable

Annual Fee : $0

Intro Purchase APR : 0% for 15 months

Tip: Make sure you complete the balance transfer within 60 days of opening the account.

LEARN MORE Read Our Full Review

Alliant Platinum Visa

No Fee – 0% on transfers for 12 Months

Alliant Platinum Visa

With the Alliant Platinum Visa, there is no balance transfer fee and you pay no interest for 12 months. You can apply for the credit card even if you are not a member of the credit union. If you are approved for the credit card, you can then join

Anyone can join the credit union. You just have to make a contribution of $10 to Foster Care for Success and then you can become a member of the credit union. That is what we love about credit unions: joining requires a donation to a worthy charity.

There is one catch (that we don’t like). Even if you are approved for the credit card, you might not get the 0% offer. Depending upon your credit score, you might be given a much higher introductory interest rate.

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  • Interest is not deferred during the introductory promotional period. It is waived.
  • You might not get the 0% offer, depending upon your credit score
  • You have to join the credit union

Key Information

Credit Score Required : Good or Excellent

Purchase Interest Rate : 9.49% – 21.49%

Annual Fee : $0

Intro Purchase APR : 0% for 12 months

Tip: If your credit score is not excellent, you might find it difficult to get the 0% offer. Pay close attention to the offer details once approved.

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Santander Sphere Visa

0% on transfers for 2 Years – 4% Balance Transfer Fee

Santander Sphere Visa

This is the longest 0% offer in the MagnifyMoney database. The only catch: it comes with a hefty 4% balance transfer fee. The fee could still be worthwhile, depending upon how long it takes for you to pay off the debt. You cannot transfer debt from other Santander credit cards.

The card also offers a rewards program, with 1 point for every $1 spent. And if you spend $1,000 in the first 90 days, you earn 10,000 bonus points.

You have 90 days from account opening to complete the balance transfer, otherwise you lose the promotional rate.

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  • Interest is not deferred during the introductory promotional period. It is waived.
  • There is a range of interest rates. You won’t know yours until you apply.

Key Information

Credit Score Required : Good or Excellent

Purchase Interest Rate : 12.99% – 22.99%

Annual Fee : $0

Tip: This card is a good option if you think it will take a long time to pay off your debt in full.

GO TO SITE Read Our Full Review

Citi Simplicity

0% on transfers and purchases for 21 Months; 3% Fee

Citi Simplicity

Citibank has a strong balance transfer offer, with a long 21 months and a 3% fee. In addition, Simplicity has some added perks. There are no late fees, no penalty rate and no annual fee. Although you should always try to pay on time, it is nice that this card will not punish you for the occasional mistake.

In addition to the balance transfer offer, you pay no interest on purchases for 21 months.

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  • No late fee, no penalty APR and no annual fee
  • Interest is not deferred during the introductory promotional period. It is waived.
  • There is a range of interest rates. You won’t know yours until you apply.

Key Information

Credit Score Required : Good or Excellent

Purchase Interest Rate : 13.49% – 23.49%

Annual Fee : $0

Tip: Make sure you transfer your balance within 4 months of opening the card, otherwise you lose the promotional offer.

GO TO SITE Read Our Full Review

Paying off credit card debt sometimes requires more than one balance transfer credit card. If you want even more choices, check out our full guide to the best balance transfer cards, or use our balance transfer calculator to see which cards will save you most.

Best 0% Purchase Credit Cards

With a 0% introductory purchase offer, you will not be charged interest for purchases made on the credit card during the promotional period. This is a great way to finance a purchase. Even better, none of these top cards charge retroactive interest if you don’t pay off the balance during the promotional period. (A lot of store credit cards offer 0%, but then hit you with a big penalty. But don’t worry – these recommendations don’t do that).

Citi Simplicity

0% on Purchases for 21 Months

Citi Simplicity

If you are looking to finance a purchase, Citibank offers the longest 0% purchase promotion of any credit card in the MagnifyMoney database. The APR on purchases will be 0% for the first 21 months after opening the credit card.

Additionally, Citi Simplicity charges no annual fee, no late fee and has no penalty APR.

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  • No late fee, no penalty APR and no annual fee
  • Interest is not deferred during the introductory promotional period. It is waived.
  • There is a range of interest rates. You won’t know yours until you apply.

Key Information

Credit Score Required : Good or Excellent

Purchase Interest Rate : 13.49% – 23.49%

Annual Fee : $0

Tip: The 21 months starts from when you open the credit card, not when you make the purchase. So make sure you time your application with your planned purchase.

GO TO SITE Read Our Full Review

TruWest Visa Signature

0% on Purchases for 18 Months – Credit Union Membership Required

TruWest Visa Signature

TruWest is a credit union with restricted membership. Unfortunately, you need to live in certain regions of Texas or Arizona, or work for a few select employers (like Motorola) to join. You can learn about membership eligibility here.

If you are able to join, you will find a long 0% promotional period. Even better, the credit card has reasonable credit union interest rates after the promotional period ends. There is no annual fee on the card.

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  • Interest is not deferred during the introductory promotional period. It is waived.
  • There is a range of interest rates. You won’t know yours until you apply.

Key Information

Credit Score Required : Good or Excellent

Purchase Interest Rate : 8.15% – 9.15%

Annual Fee : $0

Tip: Make sure you check your membership eligibility before you apply.

Best Low Interest (not 0%) Credit Cards

Having a credit card with a rate that stays low is a good idea. In case of an emergency, you will always have access to a low cost way to borrow. Here are some great low interest rate options:

Barclaycard Ring

13.74% Variable Interest Rate

Barclaycard Ring

Barclaycard Ring was launched as a new type of credit card. Barclaycard has created a “community” that allows cardholders to share opinions and participate in a charity partner Giveback program.

There is a flat 13.74% APR (variable), regardless of your score. That is a nice card to have in your back pocket in case of an emergency. There is also a generous balance transfer offer. You can get a 0% intro APR for 15 months with no balance transfer fee (balance transfer must be done within 45 days of opening the account).

There are no rewards offered on this card.

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  • One flat interest rate
  • No annual fee

Key Information

Credit Score Required : Excellent

Purchase Interest Rate : 13.74% Variable

Annual Fee : $0

Tip: This is a good card to keep in your back pocket in case of an emergency

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Langley Select Visa Platinum Card

As Low as 7.50% from a Credit Union Anyone Can Join

Langley Select Visa Platinum Card

Anyone can join Langley Federal Credit Union by joining an association during the signup process for $5.

If you have excellent credit and just want a place for emergency spending with no rewards, consider keeping this card on hand. Although the rates start as low as 7.50%, not everyone will get a rate that low.

It’s more of a hassle than a regular bank card, but if you insist on the very lowest rate consider this.

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  • Interest is not deferred during the introductory promotional period. It is waived.
  • There is a range of interest rates. You won’t know yours until you apply.
  • You have to join the credit union

Key Information

Credit Score Required : Excellent

Purchase Interest Rate : from 7.50%

Annual Fee : $0

Tip: You need to have an excellent credit score in order to qualify for the lowest interest rate. And unfortunately the online banking is not as good as some of the bigger banks.

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You might get a lower rate from a credit union or bank near you that doesn’t accept nationwide applications, and you can check our full list of low interest credit cards to see if there is one that works for you.

How to Use

If you need to borrow money, credit cards can be an incredibly low cost way of borrowing. Just make sure you pay attention to the following tips:

  • Get that balance transfer done quickly! If you are transferring a balance, make sure you complete the transfer as soon as possible. The introductory offer starts from when you open the card, not when the transfer is completed. And you can lose the offer with most issuers if you wait more than 60 days to complete the transfer.
  • Automate your monthly payments. If you pay late, you can be charged a costly late fee. And, if your payment is 60 days late, you can lose the introductory offer entirely.
  • You cannot transfer debt between two cards of the same bank. For example, if you open a Citibank account you will only be able to transfer debt from credit cards other than Citibank.

Nick Clements is the Co-Founder of MagnifyMoney. He also used to run a large credit card company and explains how to use balance transfers in this video.

How to Choose and Use a Credit Card to Build or Rebuild Your Score

If you are looking to build or rebuild your credit score, a credit card can be the perfect tool.

How to Choose

If you have no credit, or your credit score is below 620, you should consider a secured credit card.

If you have limited credit history (less than three years) or you have only defaulted once on a credit card or loan (not multiple times), you should consider a credit card for fair credit.

Best Secured Credit Cards for People with Bad or No Credit

Secured credit cards are the best option if you need to build or rebuild your credit score. The best secured credit cards have no annual fees. If you’re going to use a secured credit card, it will help you grow your score if you pay your balance on time every month, keep your credit utilization low, and you apply for an unsecured credit card after 12-18 months of regular use.

Need to know more? These are ways that you can build your credit without paying interest and spending just $10 a month, and these are tips for improving your credit score.

No Fee Secured Card with Free FICO Score; $200 Deposit Required

Discover it® Secured Credit Card – No Annual Fee

This is our favorite secured credit card. There is no annual fee. You will get free access to your credit score. You can watch your good behavior being rewarded, and you will know when it is time to convert to a fully unsecured credit card.

In order to open the card, you will need to deposit at least $200, depending upon your creditworthiness. With this secured credit card, you will actually be able to earn cash back rewards. If you have previously filed bankruptcy, you still have the chance to be approved.

Our favorite part of the product is the automatic graduation. After seven months, Discover will start monthly automated reviews. If you qualify for a standard card, you will be graduated (and get your deposit back).

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  • No annual fee
  • Free FICO credit score

Key Information

Credit Score Required : Best for no credit, 670 or less

Purchase Interest Rate : 23.74% variable APR

Annual Fee : $0

Tip: This product reports to all three credit bureaus. It is a great tool to build your score. But, if you miss payments, you can do damage to your score.

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Community Secured Visa from Coastal Credit Union

No Fee Secured Card; Credit Union Membership and $100 Deposit Required

Community Secured Visa from Coastal Credit Union

This card has no annual fee, and you only need to deposit $100 in a Collateral Savings Account to get started. If you’re not a member of Coastal Credit Union, you can join an organization for $18, which is deducted from your initial deposit, and become a member. So you’ll need $118 to get started.

While the initial deposit is a bit higher than the Capital One card, you get the peace of mind that your interest rate will be more reasonable in case you get into trouble. This one takes more work to open than the Capital One card, since it involves joining a credit union, but you deal with less fine print once you have the card.

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  • A single interest rate that you know up front, before you apply
  • You have to join a credit union

Key Information

Credit Score Required : Anyone can apply

Purchase Interest Rate : 15.50%

Annual Fee : $0

Tip: It is easy to join the credit union. Join an organization for $18 and you will become eligible.

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We also have a list of several other no annual fee secured credit cards from both banks and credit unions anyone can join. Or browse our list of hundreds of secured cards to compare rates, fees, and deposit requirements.

Best Credit Cards for People with Fair Credit

If you have fair or average credit, you might be able to qualify for an unsecured credit card. If you have more than one default in the last five years, you will find it difficult to get approved. In addition, if you are currently delinquent on any of your accounts it will also be hard to get approved, and you should try a secured card instead.

Here are some good cards for people with fair credit:

Capital One Quicksilver One

1.5% Cash Back for People with Fair Credit – with $39 Annual Fee

Capital One Quicksilver One

Capital One has created a credit card specifically for people with fair or average credit. If you have defaulted on a loan (but not more than one) in the last five years, or you have limited credit history (at least one account for less than three years), you would meet the definition of fair credit.

You will earn 1.5% cash back, unlimited. There is also 0% interest on purchases until September 2016 as well.

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  • Interest is not deferred during the introductory promotional period. It is waived.
  • There is an annual fee

Key Information

Credit Score Required : Fair or Average

Purchase Interest Rate : 24.99%

Annual Fee : $39

Tip: Watch your credit score closely. As you pay down your debt, your score will improve. Once your score is above 700, you can find a lot of choices for credit cards with better rewards or no annual fee.

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You may also want to try and see if you are pre-qualified for a credit card before applying. Banks can perform a ‘soft’ pull on your credit file to give you a sense of whether you might qualify for one of their products. It leaves no mark on your credit score, and you can see a full list of ways to check if you’re pre-qualified here.

A Special Note: Beware Predatory Companies

Many lenders target consumers with FICO credit scores of less than 650. If you have searched for “credit cards for bad credit,” you will probably find offers from companies like First Premier. In addition to high interest rates, these lenders often require application processing fees, maintenance fees and more. You could be given a $300 credit limit and see a big portion of it eaten up with fees.

Stay away from these specialist subprime lenders. Instead, consider the following:

  • If you need to borrow, consider a personal loan instead. You can find much better deals. Search for options here
  • If you want to build your credit score, use a secured credit card instead.
How to Use It

In order to build your credit score with one of these cards, you should follow our tips. By doing this, you should see real improvement in your score.

  • Don’t use more than 10% – 20% of your available credit. For example, if you have a $500 credit limit, never spend more than $50. That keeps your utilization low.
  • Use your card every single month. You should make sure you have a transaction every month, so that positive data is reported to the credit bureaus.
  • Automate and pay your statement balance in full and on time every month. Even just one late payment could crush your score. And by paying the balance in full, you will avoid any interest expense.
  • Watch your score closely. Keep an eye on your credit score. After 12 months, you should really start to see a big improvement. Once your score is above 650, you should try to get your secured card converted or apply for an unsecured credit card.

Other Benefits of Using a Credit Card

Not only can you use a credit card to earn rewards, borrow at low rates or build your credit score for free – but there are many other benefits available. Here are some of the benefits that you can find:

Available on Most Credit Cards

$0 Liability on Fraudulent Activity: Credit cards are the best way to protect yourself from fraud. So long as you report the fraud to your credit card company, you will not be liable for any losses on any major credit card.

Car Rental Collision Insurance: If you waive collision coverage when renting a car, your credit card may provide secondary coverage of $50K or more.

Available on Some Credit Cards

Retail Purchase Protection: Protects you from loss, theft, fire or accidental damage for a limited period of time after your purchase has been made. Not all cards protect you from loss, so look it up in the Purchase Protection Coverage Description Document.

Price Protection: If you buy something in stores and you see an advertised price, you will receive the difference between the two prices.

Extended Warranties: Duplicates both manufacturers and store warranties for a limited length of time and for limited dollar values (varies by card).

Travel Accident Coverage: If you are injured during travel, and you purchased the tickets via credit card, your company fully insures you.

Lost Luggage Coverage: You can receive compensation for lost, stolen or damaged luggage if you purchased flight or travel tickets using your credit card.

Trip Interruption Cancellation Coverage: If travel delays keep you from completing a trip, and you purchased the tickets on your credit card, the full value of the tickets will be refunded

Concierge Services: Certain cards offer free access to local concierge services that can help you make dinner reservations, purchase event tickets, and locate items while you are abroad.

FAQ

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New Study Shows Number of Americans with Past-Due Medical Debt Down 6%

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Fewer Americans are struggling to pay back medical debt.

The rate of American adults aged 18 to 64 with past-due medical debt dropped from 29.6% to 23.8% between 2012 and 2015, according to new study released by researchers at the Urban Institute.

Not surprisingly, people who did not have insurance were more likely to say that they currently had unpaid bills from a health care or medical service provider (a rate of 30.5%). But with the rise of high-deductible health plans, even people who have insurance find themselves in medical debt — 22.8% of insured consumers had past-due medical debt, according to the study.

When researchers looked at past-due debt by region, the differences were particularly staggering. There was “enormous variation across states,” according to Senior Research Associates Kyle Caswell and Michael Karpman, who authored the study.

Eight of the 10 states with the highest rates of past-due medical debt were in the South, including Mississippi, Arkansas, West Virginia, South Carolina, Kentucky, Oklahoma, Alabama, and Georgia. The other two were midwestern states Indiana and Missouri.

The researchers could not point to a solid conclusion as to why Southerners were harder hit by medical expenses.

“Of course we would like to understand better why, but it does give us a starting point for asking questions as to why the population differs from state to state,” said Caswell.

Why are rates of past-due medical debt dropping? It would be easy to conclude that the drop is due to the implementation of the Affordable Care Act. People today are simply more likely to have insurance, as the rate of uninsured Americans has fallen from 16.6% to 10.5% since the implementation of ACA in 2013, according to the Kaiser Family Foundation.

But Caswell and Karpman said it would be a stretch to give all the credit to the expansion of health care under the Affordable Care Act. The steady drop in unemployment and a general improvement of the U.S. economy over the last few years could also play a role, making it more likely that people can afford to cover out-of-pocket medical expenses.

As the Urban Institute’s report found, simply carrying health insurance isn’t enough to protect consumers against unexpected medical bills. Their findings are bolstered by a recent report by the Kaiser Family Foundation, which found 70% of people with medical debt also have insurance, mostly through employer-provided plans.

How to Tackle Unpaid Medical Debt

In just moments, an unexpected medical emergency can put the average American family in thousands of dollars of medical debt. That can pose a burden, considering about of 47% Americans would struggle to scrape together $400 in case of an emergency according to the Federal Reserve’s 2016 Report on the Economic Well-Being of U.S. Households.

Families with medical debt say the debt undercut their ability to save and afford basic household needs, the Urban Institute’s study found. To cope, families may rely more on credit cards and other forms of debt to make ends meet.

According to the Consumer Financial Protection Bureau, outstanding medical debt makes up more than half of all collection notices on credit reports. Past-due medical debt can seriously harm your credit score. If bills go unpaid for long enough, consumers may wind up facing a lawsuit or even bankruptcy.

To help avoid these types of consequences, follow these tips to tackle medical debt you can’t afford to pay:

Ask for a detailed billing statement and check for errors

You may receive a billing statement from your insurer or medical provider, but it may not give the full picture of services you received. Request a detailed, line item statement and review it carefully for any errors. It’s possible you could have received treatment from an out-of-network doctor without your knowledge. Or, there may be duplicate charges or charges for care you didn’t receive. If you find errors, contact the provider directly and have them corrected and a new statement sent.

Negotiate with your medical provider directly

You might be able to negotiate down your medical debt or arrange a payment plan with the medical provider, whether it’s your doctor’s office, a hospital, or your insurer. Along the way, keep careful records of who you talk to and what was said. Here’s a step-by-step guide on how to negotiate a medical bill with a health insurance company.

Try a 0% APR credit card

If your bill isn’t overwhelmingly large, you could try paying the debt off with a credit card with an introductory 0% interest period. Since you won’t be charged interest, you’ll pay less over the period. Before you apply, make sure you’ll be able pay off the balance before the 0% interest introductory period expires.

Pay off medical debt with a personal loan

If you’ve been unable to negotiate or you are struggling to find a 0% APR credit card deal, a personal loan may be another option. Depending on your credit history, rates on personal loans range from 4.7% to 36%. We’ve pulled together a list of six great personal loan options here.

Negotiate a settlement with a collection agency

Past-due medical debt eventually gets charged off and sold to a collection agency. But that doesn’t mean your window to negotiate has totally closed. If you have access to enough cash, ask if you can settle the debt for a lesser amount and forgive the remaining balance. Just be aware that forgiven debts can be treated as taxable income in some cases.

Seek help from a medical billing advocate

If you’ve been unsuccessful in trying to negotiate down your medical debt, the debt has significantly damaged your credit, or you are on the brink of filing bankruptcy, consider reaching out to a medical billing advocate. Don’t confuse these advocates with debt settlement or repair firms, which should be treated with caution.

You can find a medical billing advocate through the National Association of Healthcare Advocacy Consultants or the Alliance of Claims Assistance Professionals. These services aren’t free, and whether or not it makes financial sense to hire a pro depends on how much money you stand to save by lowering your debts. Advocates typically charge about $80 to $150 annually, a flat fee or a percentage of your savings says Denise Sikora, Secretary of ACAP.

Look for a charitable foundation that can help

You may want to consider reaching out to a nonprofit for assistance. If you were diagnosed with a particular condition, look toward organizations such as the Lupus Foundation of America for individuals with lupus or the American Kidney Fund for those with kidney disease. You can also apply for grants from nonprofits that provide more general assistance such as the Patient Access Network and the HealthWell Foundation, which may be able to grant funds toward medication assistance or other medical costs. With these foundations, limits for assistance may depend on your diagnosis and other factors.

Consider bankruptcy as a last resort

If the debt is more than 50 percent of your annual income, bankruptcy might be a viable move to make. Let the hospital know you’re considering bankruptcy first, as they may then be open to negotiation. Be aware the filing bankruptcy can adversely impact your credit for years after the fact.

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