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When Should You Consider Bankruptcy?

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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.

 

Matt Becker
Matt Becker |

Matt Becker is a writer at MagnifyMoney. You can email Matt at matt@magnifymoney.com

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How to Choose the Right Type Of Debt Consolidation

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.

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If you’re feeling buried by what you owe, debt consolidation could provide you with both immediate relief and a quicker path to debt-free.

Debt consolidation is the process of taking out a new loan and using that money to pay off your existing debt. It can help in a number of ways:

  • A lower interest rate could save you money and allow you to pay your debt off sooner
  • A longer repayment period could reduce your monthly payment
  • A single loan and single payment could be easier to manage than multiple loans

But debt consolidation isn’t without its potential pitfalls. First and foremost: Consolidating your debt doesn’t address the behavior that got you into trouble in the first place. If you’re in debt because of overspending, consolidating may actually exacerbate your problems by opening up new lines of credit that you can use to spend even more.

And every debt consolidation option has its own set of pros and cons that can make it a good fit or a bad one, depending on your circumstances.

This post explains all of those pros and cons. It should help you decide if debt consolidation is the right move for you, and, if so, which option is best.

Six Consolidation Options to Choose From

1. Credit card balance transfers

A credit card balance transfer is often the cheapest debt consolidation option, especially if you have excellent credit.

With this kind of transfer, you open a new credit card and transfer the balance on your existing card(s) to it. There is occasionally a small fee for the transfer, but if you have excellent credit, you can often complete the transfer for free and take advantage of 0 percent interest offers for anywhere from 12-21 months. None of the other debt consolidation options can match that interest rate.

There are some downsides, though:

  • You need a credit score of 700 or above to qualify for the best interest rate promotional periods.
  • Many cards charge fees of 3 to 5 percent on the amount that you transfer, which can eat into your savings.
  • Unless you cancel your old cards, you’re opening up additional borrowing capacity that can lead to even more credit card debt. Let’s put that another way: Now that you’ve paid off your old cards, you might be tempted to start using them again. (Don’t!)
  • If you don’t pay the loan back completely during the promotional period, your interest rate can subsequently soar. Some balance transfer cards also charge deferred interest, which can further increase the cost if you don’t pay your debt off in time.
  • This just isn’t for people with high levels of debt. Credit limits are relatively low compared with those tied to other debt consolidation options.

Given all of that, a credit card balance transfer is best for someone with excellent credit, relatively small amounts of debt and strong budgeting habits that will prevent them from adding to their burden by getting even further into debt.

Comparecards.com, also owned by LendingTree, tracks the best 0 percent balance transfer offers.

2. Home equity/HELOCs

Home equity loans and home equity lines of credit (HELOCs) allow you to tap into the equity you’ve built in your home for any number of reasons, including to pay off some or all of your other debt.

The biggest benefit of this approach is that interest rates are still near all-time lows, giving you the opportunity to significantly reduce the cost of your debt. You may even be able to deduct your interest payments for tax purposes.

But again, there are perils. Here are some of the downsides to using a HELOC/home equity loan for debt consolidation:

  • Upfront processing fees. You need to watch out for upfront costs, which can eat into or even completely negate the impact of lowering your interest rate. You can run the numbers yourself here.
  • Long loan terms. You also need to be careful about extending your loan term. You might be able to reduce your monthly payment that way, but if you extend it too far, you could end up paying more interest overall. Home equity loans typically have terms of five to 15 years, while home equity lines of credit typically have 10-to-20-year repayment periods.
  • You could lose your home. Finally, you need to understand that these loans are secured by your home. Fail to make timely payments, and you put that home in jeopardy. This is why, though the interest rates are lower than with most other debt consolidation options, there’s also added risk.

Home equity loans and HELOCs are generally best for people who have built up significant equity in their home, can get a loan with minimal upfront costs, and either don’t have excellent credit or need to consolidate more debt than is possible with a simple balance transfer.

You can ask your current mortgage provider about taking out a home equity loan or line of credit. Also, compare offers at MagnifyMoney’s parent company, LendingTree, here and here.

3. Personal loans

Personal loans are unsecured loans, typically with terms of two to seven years. Interest rates typically range from 5 to 36 percent, depending on your credit score and the amount you borrow.

The advantage of a personal loan over a credit card balance transfer is that it’s easier to qualify. While you typically need a credit score of 700 for a balance transfer, you can get a personal loan with a credit score as low as 580. You can also qualify for larger loan amounts than the typical balance transfer.

And the big advantage over a home equity loan or line of credit is that the loan is not secured by your house. This means you can’t lose your home if you have trouble paying back the debt. You can also apply for and obtain a personal loan very quickly, often at a lower cost than a home equity loan or line of credit.

The biggest disadvantage is that your interest rate will likely be higher than either of those options. And if your credit score is low, you may not find a better interest rate than what you already have.

Generally, a personal loan is best for someone with a credit score between 600 and 700 who either doesn’t have home equity or doesn’t want to borrow against his or her home.

You can shop around for a personal loan at LendingTree here. It’s important to compare offers to get the best deal possible.

4. Banks and credit unions

In addition to shopping for a personal loan online, you can contact your local banks or credit unions to see what types of loan options offer.

This is more time-consuming than applying online, and it can be harder to compare a variety of loan options. But it may lead to a better interest rate, especially if you already have a good relationship with a local bank.

One strategy you might try: Get quotes online using a service like LendingTree’s, then take those quotes to the bank or credit union and give it a chance to do better.

This strategy is best for anyone who already has a good and lengthy banking relationship, particularly with a credit union. But if you’re going the personal-loan route, it’s worth looking into in any case.

You can find credit unions in your area here.

5. Borrowing from family or friends

If you’re lucky enough to have family members or friends who have ample assets and are happy to help, this could be the easiest and cheapest debt consolidation option.

With no credit check, no upfront fees and relatively lenient interest rate policies, this might seem like the best of all worlds.

Even so, there are some things to watch out for.

First: A loan fundamentally changes your relationship with the person from whom you borrow. No matter what terms you’re on now or how much you love and trust this person, borrowing money introduces the potential for the relationship to sour in a hurry.

Consequently, if you do want to go this route, you need to do it the right way.

Eric Rosenberg, the chief executive of Money Mola, an app that lets friends and family track loans and calculate interest, suggests creating a contract that outlines each party’s responsibilities, how much money will be borrowed, the timeline for repayment, the payment frequency and the interest rate. He also suggests using a spreadsheet to keep track of the payments made and the balance due.

And Neal Frankle, a certified financial planner and the founder of Credit Pilgrim, suggests adhering to the current guidelines for Applicable Federal Rate (AFR), which as of this writing require a minimum interest of 1.27 to 2.5 percent, depending on the length of the loan. Otherwise, you may have to explain yourself to the IRS and the person lending you the money could be charged imputed interest and have to pay additional taxes.

If you have a family member or a friend who is both willing and able to lend you money, and if your credit isn’t strong enough to qualify favorably for one of the other options above, this could be a quick and inexpensive way to consolidate your debt.

6. Retirement accounts

Employer retirement plans like 401(k)s and 403(b)s often have provisions that allow you to borrow from the accumulated sums, with repayment of the loan going right back into your account.

And while you can’t borrow from an IRA, you can withdraw up to the amount you’ve contributed to a Roth IRA at any time without penalties or taxes, and you can withdraw money from a traditional IRA early if you’re willing to pay both taxes and a 10 percent penalty (with a few exceptions).

The biggest advantage of taking the money out of a retirement account is that there is no credit check. You can get the money quickly, no matter what your credit history looks like. And with a 401(k) or 403(b), you are also paying interest back to yourself rather than giving it to a lender.

Still, while there are situations in which borrowing from an employer plan can make sense, most financial experts agree that this should be considered a last-resort debt consolidation option.

One reason is simply this: Your current debt is already hindering your ability to save for the future, while taking money out of these accounts will only exacerbate the problem. Another is that tapping a retirement account now may increase the odds that it will happen again.

“I’d stay away from a 401(k) loan like the plague,” says Ryan McPherson. McPherson, based in Atlanta, Ga., is a certified financial planner and fee-only financial planner and the founder of Intelligent Worth. “With no underwriting process, and because you’re not securing it with your house, you’re more likely to do it again in the future.”

If you are in dire straits and cannot use any of the other strategies above, then borrowing or withdrawing from a retirement account may be the only consolidation option you have. Otherwise, you are likely to be better off going another route.

Things to consider before picking a debt consolidation strategy

With all these debt consolidation options at your disposal, how do you choose the right one for your situation? To be sure, it’s a key decision: The right option will make it easier for you to pay your obligations, and less likely that you’ll fall back into debt.

Here are the biggest variables you should consider before making the choice:

  1. Have you fixed the cause of the debt? Until you’ve addressed the root cause of your debt, how can any consolidation option help you get and stay out of debt?
  2. How much debt do you have? Smaller debts can be handled through any of these options. Larger debts might rule out balance transfers or borrowing from relatives or friends.
  3. What are your interest rates? You need to be able to compare your current interest rates with the interest rates you’re offered by the options above, if you want to know whether you’re getting a good deal.
  4. What is your credit score? Your score determines eligibility for various debt consolidation options, as well as the quality of the offers you’ll receive. You can check your credit score here.
  5. When do you want to be debt-free? Shorter repayment periods will cost less but require a higher monthly payment. Longer repayment periods will cost more but with a lower monthly payment. With this in mind, you need to decide both what you want and what you can afford.
  6. Do you have home equity? This determines whether a home equity loan or line of credit is an option. If it is, you should decide if you’re comfortable putting your home on the line.
  7. Do you have savings? Could you use some of your savings, outside of retirement accounts, to pay off some or all of your debt? That may allow you to avoid debt consolidation altogether and save yourself some money.

So … what’s the best consolidation strategy?

Unfortunately, there is no single answer to this tough question. The right answer for you depends the specifics of the situation.

Your job is to know what you currently owe and understand the pros and cons of each option we’ve outlined above. In this fashion, you can make an informed choice, one that’ll get you out of debt now and keep you out of it forever.

Matt Becker
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Matt Becker is a writer at MagnifyMoney. You can email Matt at matt@magnifymoney.com

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9 Best 0% APR Credit Card Offers – October 2017

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.

There are a lot of 0% APR credit card deals in your mailbox and online, but most of them slap you with a 3 to 4% fee just to make a transfer, and that can seriously eat into your savings.

At MagnifyMoney we like to find deals no one else is showing, and we’ve searched hundreds of balance transfer credit card offers to find the banks and credit unions that ANYONE CAN JOIN which offer great 0% interest credit card deals AND no balance transfer fees. We’ve hand-picked them here.

If one 0% APR credit card doesn’t give you a big enough credit line you can try another bank or credit union for the rest of your debt. With several no fee options it’s not hard to avoid transfer fees even if you have a large balance to deal with.

1. Chase Slate® – 0% Introductory APR for 15 months, $0 Introductory Balance Transfer FEE

Chase Slate<sup>®</sup>
This deal is easy to find – Chase is one of the biggest banks and makes this credit card deal well known. 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.

You can get this offer if you complete the balance transfer within 60 days of opening the account. So it’s worth a shot to see how big of a credit line you get. If it’s not enough, move on to the other options below.

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on Chase’s secure website

2. BankAmericard® Credit Card – 0% Introductory APR for 15 months, $0 Introductory Balance Transfer FEE

BankAmericard® Credit Card
This card is available if you have excellent credit. There is a $0 intro balance transfer fee if you complete the transfer within 60 days of opening your account.

Bank of America has just recently launched a balance transfer with no intro balance transfer fee. Credit card debt on an existing Bank of America credit card is not eligible for this offer.

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on Bank Of America’s secure website

Tip: The remaining no fee cards on this list are deals for 12 months or less. You might be better off paying a standard 3% balance transfer fee for a longer deal, like 0% for 18 months from the Discover it® - 18 Month Balance Transfer Offer, one of the better deals with a balance transfer fee of 3%. If you’re trying to transfer from Chase, consider a deal from Bank of America with $0 transfer terms.

3. Alliant Credit Union Credit Cards – 0% Introductory APR for 12 months, NO FEE

Alliant is an easy credit union to work with because you don’t have to be a member to apply and find out if you qualify for the 0% Introductory APR deal.

Visa® Platinum Card from Alliant CU

Just choose ‘not a member’ when you apply and if you are approved you’ll then be able to become a member of the credit union to finish opening your account.

Alliant Credit Union

Anyone can become a member of Alliant by making a $10 donation to Foster Care to Success.

If your credit isn’t great, you might not get a 0% intro rate – rates for transfers are as high as 5.99%, so make sure you double check the rate you receive before opening the account, and they might ask for additional documents like your pay stubs to verify the information on your application.

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on Alliant CU’s secure website

4. Edward Jones World MasterCard – 0% Intro APR for 12 months on Balance Transfers, NO FEE

Edward Jones World MasterCard<sup>®</sup>

You’ll need to go to an Edward Jones branch to open up an account first if you want this deal. Edward Jones is an investment advisory company, so they’ll want to have a conversation about your retirement needs.But you don’t need to have money in stocks to be a customer of Edward Jones and try to get this card. Just beware that you only have 60 days to complete your transfer to lock in the 0% introductory rate. This deal expires 11/30/2017.

5. First Tech Choice Rewards – 0% Balance Transfer Intro APR for 12 months, NO FEE

Choice Rewards World MasterCard® from First Tech FCU

Anyone can join First Tech Federal Credit Union by becoming a member of the Financial Fitness Association for $8, or the Computer History Museum for $15. You can apply for the card without joining first. This introductory 0% for 12 months on balance transfers with no fee deal is for the First Tech Choice Rewards World MasterCard, and you also get 10,000 points after you spend $2,000 on the card in your first 3 months. The points don’t expire as long as you have the card, and 6,000 points is enough for $50 cash back, while 11,000 points is enough for $100 cash back, which can help you pay down your card.

6. La Capitol Federal Credit Union – 0% Intro APR on Balance Transfers for 12 months, NO FEE

Visa Rewards Card from La Capitol FCU
Anyone can join La Capitol Federal Credit Union by becoming a member of the Louisiana Association for Personal Financial Achievement, which costs $20. Just indicate that’s how you want to be eligible when you apply for the card – no need to join before you apply. And La Capitol accepts members from all across the country, so you don’t have to live in Louisiana to take advantage of this deal on the Prime Plus card.

 

7. Purdue Federal Credit Union – 0% Intro APR for 12 months, NO FEE

Visa Signature Credit Card from Purdue FCU

This deal is only for their Visa Signature card – other cards have a higher intro rate. The Purdue Federal Credit Union doesn’t have open membership, but one way to be eligible for credit union membership is to join the Purdue University Alumni Association as a Friend of the University.

Anyone can join the association, but it costs $50. The good news is you can apply and get a decision before you become a member of the Alumni Association.

8. Logix Credit Union Credit Card – 0% APR for 12 months , NO FEE

If you live in AZ, CA, DC, MA, MD, ME, NH, NV, or VA you can join Logix Credit Union and apply for this deal. Some applicants have reported credit lines of $15,000 or more for balance transfers, so if you have excellent credit, good income, but a large amount to pay off (like a home equity line), this could be a good option.

9. Premier America Credit Union – 0% Intro APR for 6 months, NO FEE

Premier Privileges Rewards MasterCard® from Premier America CU

Premier America is unique because it has a Student Mastercard® that’s eligible for the balance transfer deal, though limits on that card are $500 – $2,000. There’s also a card for those with no credit history – the Premier First Rewards Privileges®, with limits of $1,000 – $2,000. If you’re looking for a bigger line, the Premier Privileges Rewards Mastercard® is available with limits up to $50,000.

Anyone can join Premier America by becoming a member of the Alliance for the Arts. You can select that option when you apply.

10. Money One Credit Union – 0% APR for 6 months, NO FEE

Visa Platinum Card from Money One FCU

Anyone can join Money One Federal by making a $20 donation to Gifts of Easter Seals. And you can apply without being a member. You’ll see a drop down option during the application process that lets you select Gifts of Easter Seals as the way you plan to become a member of the credit union. Credit lines for the Platinum card are as high as $25,000.

 

11. Andigo Credit Union – 0% APR Intro for 6 months, NO FEE

Visa Platinum Card from andigo

You’ll have a choice to apply for the Andigo Visa Platinum or Visa Platinum Rewards. The Platinum Cash Back card doesn’t have this deal. The Platinum without rewards has a lower ongoing APR, starting as low as 10.65%, compared to 12.65% for the Platinum Rewards card, so if you’re not sure you’ll pay it all off in 6 months the Platinum without rewards is a better bet.

Anyone can join Andigo by making a donation to Connect Vets for $15, and you can submit an application for the card without being a member yet.

12. Evansville Teachers Credit Union – 0% APR on Balance Transfers for first 6 months, NO FEE

ETFCU's Platinum Rewards Credit Card
You don’t need to be a teacher to join this credit union. Just make a $5 donation to Mater Dei Friends & Alumni Association. The Prime Plus has an ongoing rate as low as 7.25% variable, so you can enjoy a low rate even after the intro deal ends.

13. Elements Financial Credit Card – 0% Intro APR for 6 months on Purchases and Balance Transfers, NO FEE

Elements Financial Platinum Visa® Credit Card
To become a member and apply, you’ll just need to join TruDirection, a financial literacy organization. It costs just $5 and you can join as part of the application process.

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on ELFCU’s secure website

14. Justice Federal Credit Union – 0% Intro APR for 6 months on Purchases, Balance Transfers, and Cash Advances, NO FEE

Student VISA Rewards Card from Justice FCU
If you’re not a Department of Justice, Homeland Security, or U.S. court employee (or a few others), you need to join a law enforcement organization to be a member of Justice Federal. One of the eligible associations for membership is the National Native American Law Enforcement Association. It costs $15 to join.

You can apply as a non-member online to get a decision before joining. And Justice is unique in that its Student credit card is also eligible for the 0% introductory rate on purchases, balance transfers, and cash advances, so if your credit history is limited and you’re trying to deal with a balance on your very first card, this could be an option.

15. Xcel Platinum Visa – 0% Introductory APR for 6 months, NO FEE

XCEL’s Platinum VISA® Credit Card
Anyone can join Xcel by becoming a member of the American Consumer Council, and you can apply for the card as a non-member of the credit union, but not everyone who is approved for the card will get the low intro rate. Xcel advises you contact them to get as sense of whether your income, credit history, and employment history will qualify for the intro rate.

16. Michigan State University Federal Platinum Visa – 0% APR for 6 months, NO FEE

Platinum Visa Card from Michigan State FCU
There is the option to apply for the Platinum Plus Visa or the Platinum Visa. The Platinum Visa has a lower ongoing APR starting as low as 8.9%, compared to the 12.9% for the Platinum Plus which can earn you rewards. Anyone can join the Michigan State University Federal Credit Union by first becoming a member of the Michigan United Conservation Clubs. However, this comes at a high fee of $30 for one year.

Are these the best deals for you?

If you can pay off your debt within the 0% period, then yes, a no fee 0% balance transfer credit card is your absolute best bet. And if you can’t, you can hope that other 0% deals will be around to switch again.

But if you’re unsure, you might want to consider…

  • A deal that has a longer period before the rate goes up. In that case, a balance transfer fee could be worth it to lock in a 0% rate for longer.
  • Or, a card with a rate a little above 0% that could lock you into a low rate even longer.

The good news is we can figure it out for you.

Our handy, free balance transfer tool lets you input how much debt you have, and how much of a monthly payment you can afford. It will run the numbers to show you which offers will save you the most for the longest period of time.

promo balancetransfer wide

The savings from just one balance transfer can be substantial.

Let’s say you have $5,000 in credit card debt, you’re paying 18% in interest, and can afford to pay $200 a month on it. Here’s what you can save with a 0% deal:

  • 18%: It will take 32 months to pay off, with $1,312 in interest paid.
  • 0% for 12 months: You’ll pay it off in 28 months, with just $502 in interest, saving you $810 in cash. That even assumes your rate goes back up to 18% after 12 months!

But your rate doesn’t have to go up after 12 months. If you pay everything on time and maintain good credit, there’s a great chance you’ll be able to shop around and find another bank willing to offer you 0% interest again, letting you pay it off even faster.

Before you do any balance transfer though, make sure you follow these 6 golden rules of balance transfer success:

  • Never use the card for spending. You are only ready to do a balance transfer once you’ve gotten your budget in order and are no longer spending more than you earn. This card should never be used for new purchases, as it’s possible you’ll get charged a higher rate on those purchases.
  • Have a plan for the end of the promotional period. Make sure you set a reminder on your phone calendar about a month or so before your promotional period ends so you can shop around for a low rate from another bank.
  • Don’t try to transfer debt between two cards of the same bank. It won’t work. Balance transfer deals are meant to ‘steal’ your balance from a competing bank, not lower your rate from the same bank. So if you have a Chase Freedom with a high rate, don’t apply for another Chase card like a Chase Slate and expect you can transfer the balance. Apply for one from another bank.
  • Get that transfer done within 60 days. Otherwise your promotional deal may expire unused.
  • Never use a card at an ATM. You should never use the card for spending, and getting cash is incredibly expensive. Just don’t do it with this or any credit card.
  • Always pay on time. If you pay more than 30 days late your credit will be hurt, your rate may go up, and you may find it harder to find good deals in the future. Only do balance transfers if you’re ready to pay at least the minimum due on time, every time.
Nick Clements
Nick Clements |

Nick Clements is a writer at MagnifyMoney. You can email Nick at nick@magnifymoney.com

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Best balance transfer credit cards: 0% APR, 24 months

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.

btgraphic

Looking for a balance transfer credit card to help pay down your debt more quickly? We’re constantly checking for new offers and have selected the best deals from our database of over 3,000 credit cards. This guide will show you the longest offers with the lowest rates, and help you manage the transfer responsibly. It will also help you understand whether you should be considering a transfer at all.

 

1. Best balance transfer deals

No intro fee, 0% intro APR balance transfers

Very few things in life are free. But, if you pay off your debt using a no fee, 0% APR balance transfer, you can crush your credit card debt without paying a dime to the bank. You can find a full list of no fee balance transfers here.

Chase Slate<sup>®</sup>

15 month 0% intro APR with $0 intro transfer fee

Chase Slate® – 0% Introductory APR for 15 months, $0 Introductory BT Fee

With Chase Slate® you can save with a $0 introductory balance transfer fee, 0% introductory APR for 15 months on both purchases and balance transfers, and $0 annual fee. Plus, receive your Monthly FICO® Score for free.

You can get longer transfer periods by paying a fee, so this deal is generally best if you have a balance you know you‘ll pay in full by the end of the promotional period. And don’t expect a huge credit line with this card, so it may be best for smaller balances you can take care of quickly.

Also keep in mind you can’t transfer a balance from one Chase card to another, so this is good if the balance you want to move is from a bank or credit union that’s not Chase.

Transparency Score
Transparency Score
  • Interest is not deferred during the balance transfer period
  • There are late payment and cash advance fees

Tip: You have only 60 days from account opening to complete your balance transfer and get the introductory rate.

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BankAmericard® Credit Card

Long 0% intro APR with no intro balance transfer fee
(For Excellent credit)

BankAmericard® Credit Card – 0% Intro APR for 15 months, $0 Intro BT Fee

There is an introductory 0% APR for your first 15 months for purchases and for any balance transfers made within 60 days of opening your account. After that, a Variable APR that’s currently 12.99% to 22.99% will apply.

You need excellent credit to get this card and you can only transfer debt that is not already at Bank of America.

You can get longer transfer periods by paying a fee, so this deal is generally best if you have a balance you know you’ll pay in full by the end of the 15 month promotional period.

Transparency Score
Transparency Score
  • Interest is not deferred during the balance transfer period
  • No penalty APR – paying late won’t automatically raise your rate (APR)
  • There are late payment and cash advance fees

Tip: You can provide the account number for the account you want to transfer from while you apply, and if approved, the bank will handle the transfer.

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0% balance transfers with a fee

If you think it will take longer than 15 months to pay off your credit card debt, these credit cards could be right for you. Don’t let the balance transfer fee scare you. It is almost always better to pay the fee than to pay a high interest rate on your existing credit card. You can calculate your savings (including the cost of the fee) at our balance transfer marketplace.

These deals listed below are the longest balance transfers we have in our database. We have listed them by number of months at 0%. Although you need good credit to be approved, don’t be discouraged if one lender rejects you. Each credit card company has their own criteria, and you might still be approved by one of the companies listed below.

Sphere® Credit Card from Santander

Longest 0% intro balance transfer card

Santander Sphere® – 24 months, 0% intro APR, 4% BT fee

If you have a big balance, or know you can’t pay off your balance quickly – go as long as you can with a good balance transfer rate, even if it comes with a fee.

At 24 months this is the longest 0% APR balance transfer card in the market right now, so you have 2 years to get the balance paid down.

There’s a $35 late payment fee and a penalty APR of 30.99% applies if you make a late payment, and will apply to your existing balances until you make 6 straight months of on time payments.

Transparency Score
Transparency Score
  • Interest is not deferred during the balance transfer period
  • The range of the purchase interest rate based on your credit history (13.49% – 23.49%) is more than 10%, which is a wide range.
  • There are late payment and cash advance fees.

Tip: You have 90 days after you open the account to complete the balance transfer.

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Discover it® - 18 Month Balance Transfer Offer

Decent 0% intro balance transfer period

Discover it® – 18 Month Balance Transfer Offer: Intro 0% for 18 months, 3% BT fee

This is a basic balance transfer deal with an above average term. If you don’t have credit card balances with Discover, it’s a good option to free up your accounts with other banks. With this card, you also have the ability to earn cash back, and there is no late fee for your first missed payment and no penalty APR. Hopefully you will not need to take advantage of these features, but they are nice to have.

Transparency Score
Transparency Score
  • Interest is waived during the balance transfer period, no foreign transaction fees and no late fee for your first late payment
  • The range of the purchase interest rate based on your credit history (11.99% – 23.99% Standard Variable Purchase APR) is fairly standard
  • There is a cash advance fee

Tip: Complete your balance transfer as quickly as possible for maximum savings.

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Low rate balance transfers

If you think it will take longer than 2 years to pay off your credit card debt, you might want to consider one of these offers. Rather than pay a balance transfer fee and receive a promotional 0% APR, these credit cards offer a low interest rate for much longer.

The longest offer can give you a low rate that only goes up if the prime rate goes up. If you can’t get that offer, there is another good option offering a low rate for three years.

Variable Rate Credit Card from UNIFY Financial CU

Longest low rate balance transfer card

Unify Financial Credit Union – As low as 5.99% APR, no expiration, 3% BT fee

If you need a long time to pay off at a reasonable rate, and have great credit, it’s hard to beat this deal from Unify Financial Credit Union, with a rate as low as 5.99% with no expiration. The rate is variable, but it only varies with the Prime Rate, so it won’t fluctuate much more than say a variable rate mortgage. There is a transfer fee of 3% or $5.00, whichever is greater.

Just about anyone can join Unify Financial Credit Union. They’ll help you figure out what organization you can join to qualify, and you don’t need to be a member to apply.

Transparency Score
Transparency Score
  • Interest is not deferred during the balance transfer period.
  • There are late payment fees.

Tip: If you’re credit’s not great, this probably isn’t for you, as the rate chosen for your account could be as high as 18%.

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Prime Rewards Credit Card from SunTrust Bank

Long low rate balance transfer card

SunTrust Prime Rewards – 4.25% variable APR for 36 months, $0 intro BT fee

If you live in Alabama, Arkansas, Florida, Georgia, Maryland, Mississippi, North Carolina, South Carolina, Tennessee, Virginia, Washington, D.C., or West Virginia you can apply for this card without a SunTrust bank account.

The deal is you get the prime rate for 3 years with no intro balance transfer fee. That’s currently 4.25% variable, though your rate will change if the prime rate changes, either up or down, and you have 60 days to complete your transfer with no fee. After that, it’s $10 or 3% of the amount of the transfer, whichever is greater. Also beware the prime rate deal isn’t for new purchases, so only use this card for a balance transfer.

Transparency Score
Transparency Score
  • Interest is not deferred during the balance transfer period.
  • The range of the purchase interest rate based on your credit history (11.99% – 21.99%) is more than 10%, which is high.
  • There are late payment and cash advance fees.

Tip: You have only 60 days from account opening to get the intro $0 transfer fee.

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For fair credit scores

In order to be approved for the best balance transfer credit cards and offers, you generally need to have good or excellent credit. If your FICO score is above 650, you have a good chance of being approved. If your score is above 700, you have an excellent chance.

However, if your score is less than perfect, you still have options. Your best option might be a personal loan. You can learn more about personal loans for bad credit here.

There are balance transfers available for people with scores below 650. The offer below might be available to people with lower credit scores. There is a transfer fee, and it’s not as long as some of the others available with excellent credit. However, it will still be better than a standard interest rate.

Just remember: one of the biggest factors in your credit score is your amount of debt and credit utilization. If you use this offer to pay down debt aggressively, you should see your score improve over time and you will be able to qualify for even better offers.

MasterCard Platinum from Aspire FCU

For less than perfect credit

Aspire Credit Union Platinum – 0% intro APR for 6 months, 0% intro BT fee

Balance transfer deals can be hard to come by if your credit isn’t great. But some banks are more open to it than others, and Aspire Credit Union is one of them, saying ‘fair’ or ‘good’ credit is needed for this card. Anyone can join Aspire, but if you’re looking for a longer deal you also might want to check if you’re pre-qualified for deals from other banks, without a hit to your credit score, using the list of options here.

You’ll be able to check with several banks what cards are pre-screened based on your credit profile, and you might be surprised to see some good deals you didn’t think were in your range. That way you can apply with more confidence.

Transparency Score
Transparency Score
  • Interest is not deferred during the balance transfer period.
  • The ongoing interest rate isn’t known when you apply.

Tip: Only Aspire’s Platinum MasterCard has this deal. Its Platinum Rewards MasterCard doesn’t have a 0% offer. And if you transfer a balance after 6 months a 2% fee will apply.

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2. Learn more

Checklist before you transfer

Never use a credit card at an ATM

If you use your credit card at an ATM, it will be treated as a cash advance. Most credit cards charge an upfront cash advance fee, which is typically about 5%. There is usually a much higher “cash advance” interest rate, which is typically above 20%. And there is no grace period, so interest starts to accrue right away. A cash advance is expensive, so beware.

Always pay on time.

If you do not make your payment on time, most credit cards will immediately hit you with a steep late fee. Once you are 30 days late, you will likely be reported to the credit bureau. Late payments can have a big, negative impact on your score. Once you are 60 days late, you can end up losing your low balance transfer rate and be charged a high penalty interest rate, which is usually close to 30%. Just automate your payments so you never have to worry about these fees.

Get the transfer done within 60 days

Most balance transfer offers are from the date you open your account, not the date you complete the transfer. It is in your interest to complete the balance transfer right away, so that you can benefit from the low interest rate as soon as possible. With most credit card companies, you will actually lose the promotional balance transfer offer if you do not complete the transfer within 60 or 90 days. Just get it done!

Don’t spend on the card

Your goal with a balance transfer should be to get out of debt. If you start spending on the credit card, there is a real risk that you will end up in more debt. Additionally, you could end up being charged interest on your purchase balances. If your credit card has a 0% balance transfer rate but does not have a 0% promotional rate on purchases, you would end up being charged interest on your purchases right away, until your entire balance (including the balance transfer) is paid in full. In other words, you lose the grace period on your purchases so long as you have a balance transfer in place.

Don’t try to transfer between two cards of the same bank

Credit card companies make balance transfer offers because they want to steal business from their competitors. So, it makes sense that the banks will not let you transfer balances between two credit cards offered by the same bank. If you have an airline credit card or a store credit card, just make sure you know which bank issues the card before you apply for a balance transfer.

Comparison tools

Savings calculator – which card is best?

If you’re still unsure about which cards offer you the best deal for your situation, try our calculator. You get to input the amount of debt you’re trying to get a lower rate on, your current rate, and the monthly payment you can afford. The calculator will show you which cards offer you the most savings on interest payments.

The calculator will show you which cards offer you the most savings
Balance transfer or a loan?

A balance transfer at 0% will get you the absolute lowest rate. But you might feel more comfortable with a single fixed monthly payment, and a single real date your loan will be paid off. A lot of new companies are offering great rates on loans you can pay off over 2, 3, 4, or 5 years. You can find the best personal loans here.

And you might find even though their rates aren’t 0%, you could afford the payment and get a plan that takes care of your debt for good at once.

Use our calculator to see how your payments and savings will compare.

Balance Transfer Graph

Questions and Answers

Yes, you can. Most credit card companies will allow you to transfer debt from any credit card, regardless who owns it. Just remember that once the debt is transferred, it becomes your legal liability.

Yes, you can. Most banks will enable store card debt to be transferred. Just make sure the store card is not issued by the same bank as the balance transfer credit card.

As a general rule, if you can pay off your debt in six months or less, it usually doesn’t make sense to do a balance transfer.

Here is a simple test. (This is not 100% accurate mathematically, but it is an easy test). Divide your credit card interest rate by 12. (Imagine a credit card with a 12% interest rate. 12%/12 = 1%). In this example, you are paying about 1% interest per month. If the fee on your balance transfer is 3%, you will break even in month 3, and will be saving money thereafter. You can use that simplified math to get a good guide on whether or not you will be saving money.

And if you want the math done for you, use our tool to calculate how much each balance transfer will save you.

With all balance transfers recommended at MagnifyMoney, you would not be hit with a big, retroactive interest charge. You would be charged the purchase interest rate on the remaining balance on a go-forward basis. (Warning: not all balance transfers waive the interest. But all balance transfers recommended by MagnifyMoney do.)

Many companies offer very good deals in the first year to win new customers. These are often called “switching incentives.” For example, your mobile phone company could offer 50% off its normal rate for the first 12 months. Or your cable company could offer a big discount on the first year if you buy the bundle package. Credit card companies are no different. These companies want your debt, and are willing to give you a big discount in the first year to get you to transfer.

Completing a balance transfer is easy. If you are applying for a new credit card, most credit card companies will just ask you for the account number of the credit card that has the debt. The transfer will then happen automatically. (It will look like the balance transfer credit card made a payment for you). You can also call your credit card company, and complete the transfer easily on the phone.

Automate your payments so that it doesn’t happen! If you do miss a payment, you will be charged a late fee. If you become 60 days late, you could lose your promotional interest rate and could be charge the punitive rate, which is often near 30% with most companies.

No, you can’t. Credit card companies are trying to steal balances from their competitors. So these deals are only good if you bring balances from competitors.

Many credit card issuers will allow you to transfer money to your checking account. Or, they will offer you checks that you can write to yourself or a third party. Check online, because many credit card issuers will let you transfer money directly to your bank account from your credit card. Otherwise, call your issuer and ask what deals they have available for “convenience checks.”

In most cases, you cannot. Once a balance transfer is complete, it is complete.

Yes, it is possible to transfer the same debt multiple times. Just remember, if there is a balance transfer fee you would be charged that fee every time you transfer the debt.

You can call the bank and ask them to increase your credit limit. However, even if the bank does not increase your limit, you should still take advantage of the savings available with the limit you have.

Yes. You decide how much you want to transfer to each credit card.

No. You do not earn rewards with a balance transfer. No cash back, no points and no miles can be earned with a balance transfer.

No, there is no penalty. You can pay off your debt whenever you want without a penalty.

Mathematically, the best balance transfer credit cards are no fee, 0% offers. You literally pay nothing. The best in the market is offered by Chase, which has a 15 month 0% introductory offer with a $0 introductory fee.

However, if your debt is already with Chase, or you think it will take years to pay off your debt, you should consider a longer duration offer or a personal loan. You can find 21 month offers with 3% fees and 24 month offers with 4% fees. Your savings over the two years would likely be substantial, even when you include the cost of the fee.

Nick Clements
Nick Clements |

Nick Clements is a writer at MagnifyMoney. You can email Nick at nick@magnifymoney.com

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College Students and Recent Grads, Pay Down My Debt, Reviews

CommonBond Student Loan Refinance Loan Review

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.

CommonBond Grad Student Loan Refinance Loan Review

Updated September 7, 2017

CommonBond was founded by three Wharton MBAs who felt the sting of student loans after they graduated. The founders decided to provide a better solution for graduates, as they thought the student loan system was broken and in need of reform. As a result, they strive to make the refinance (and borrowing) process as simple and straightforward for graduates as possible.

CommonBond* began by servicing students from just one school, and has rapidly expanded. Today, CommonBond loans are available to graduates of over 2,000 schools nationwide. Although the company traditionally offered loan refinancing to undergraduate and graduate students, CommonBond recently started offering loans for current students as well (both undergraduates and graduates).

CommonBond is one of the top four lenders identified by MagnifyMoney to refinance student loans.

As you might be able to tell by the name, CommonBond thinks of its community as family. There is a network of alumni and professionals within the community that want to help borrowers. This alone sets it apart from other lenders, as members often meet for events.

While these are all great things, we know you’re more interested in how CommonBond might be able to help you make your student loans more affordable. Let’s take a look at what terms and rates they offer, eligibility requirements, and how they compare against other lenders.

Refinance Terms Offered

CommonBond offers low variable and fixed rate loans. Variable rates range from 2.81% – 6.74% APR, and fixed rates range from 3.35% – 7.12% APR.

Note that these rates take a 0.25% auto pay discount into consideration.

There is no maximum loan amount. CommonBond will lend what you can afford to repay. CommonBond offers fixed and variable rates with terms of 5, 7, 10, 15, and 20 years.

The hybrid loan is only offered on a 10 year term – the first 5 years will have a fixed rate, and the 5 years after that will have a variable rate.

CommonBond has a great chart listing repayment examples based off of borrowing $10,000, which can be found on its rates and terms page.

To pull an example from that, if you borrow $10,000 at a fixed 4.74% APR on a 10 year term, your monthly payment will be $104.80. The total amount you will pay over the 10 year period will be $12,575.90.

The Pros and Cons

CommonBond is available to graduates of 2,000 universities. While that is a very long list, not all colleges and universities are included.

One pro to consider is the hybrid loan option available. It might seem a little confusing at first – why would someone want a variable rate down the road?

If you’re confident you’ll be able to make extra payments on your loan and pay it off before the 5 years are up, you might be better off going with the hybrid option (if you can get a better interest rate on it).

This is because you’ll end up paying less over the life of the loan with a lower interest rate. If you were offered a 10 year loan with a fixed rate of 6.49% APR, and a hybrid loan with a beginning rate of 5.64%, the hybrid option would be the better deal if you’re intent on paying it off quickly.

What You Need to Qualify

CommonBond doesn’t list many eligibility requirements on its website, aside from the following:

  • You must be a U.S. citizen or permanent resident
  • You must have graduated

CommonBond doesn’t specify a minimum credit score needed, but based on the requirements of other lenders, we recommend having a score of 660+, though you should be aiming for 700+. The good news is CommonBond lets you apply with a cosigner in case your credit isn’t good enough.

Documents and Information Needed to Apply

CommonBond’s application process is very simple – it says it takes as little as 2 minutes to complete. Initially, you’ll be asked for basic information such as your name, address, and school.

Once you complete this part, CommonBond will perform a soft credit pull to estimate your rates and terms.

If you want to move forward with the rates and terms offered, you’ll be required to submit documentation and a hard credit inquiry will be conducted. CommonBond lists the following as required:

  • Pay stubs or tax returns (proof of employment)
  • Diploma or transcript (proof of graduation)
  • Student loan bank statement
  • ID, utility bills, lease agreement (proof of residency)

CommonBond also notes it can take up to 5 business days to verify documents submitted, so the loan doesn’t happen instantaneously.

Once your documents are approved, you electronically sign for the loan, and CommonBond will begin the process of paying off your previous lenders. It notes this can take up to two weeks from the time the loan is accepted.

Who Benefits the Most from Refinancing Student Loans with CommonBond?

Borrowers who are looking to refinance a large amount of student loan debt will benefit the most from refinancing with them.

Keeping an Eye on the Fine Print

CommonBond does not have a prepayment penalty, and there are no origination fees nor application fees associated with refinancing.

As with other lenders, there is a late payment fee. This is 5% of the unpaid amount of the payment due, or $10, whichever is less.

If a payment fails to go through, you’ll be charged a $15 fee.

It’s also noted that failure to make payments may result in the loss of the 0.25% interest rate deduction from auto pay.

Transparency Score

Getting in touch with a representative is simple and there is a chat and call option right on the homepage. Some lenders have this hidden at the bottom, or they don’t offer a chat option at all.

CommonBond also lets borrowers know they can shop around within a 30 day period to lessen the impact on their credit.

It does not list its late fees on its website, unlike other lenders. However, after making a chat inquiry, the question was answered promptly.

CommonBond does offer a cosigner release and is ranked with a A+ transparency score.

Alternative Student Loan Refinancing Lenders

The student loan refinancing market continues to get more competitive, and it makes sense to shop around for the best deal.

One of the market leaders is SoFi. It’s always worth taking a look to see if SoFi* offers a better interest rate.

The two lenders are very similar – CommonBond offers “CommonBridge,” a service that helps you find a new job in the event you lose yours. SoFi offers a similar service called Unemployment Protection.

SoFi’s variable rates are currently 2.815% – 6.740% APR with autopay, and its fixed rates are currently 3.35% – 7.125% APR, which is in line with what CommonBond is offering.

SoFi also doesn’t have a limit on how much you can refinance with them.

SoFi

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on SoFi’s secure website

Another lender to consider is Earnest. There is no maximum loan amount, and Earnest has a very slick application process. Interest rates start as low as 2.57% (variable) and 3.35% (fixed).

Lastly, you could check out LendKey. It offers student loan refinancing through credit unions and community banks, but only offers variable rates in most states and fixed rates in a select few. The maximum amount to refinance with an undergraduate degree is $125,000, and the maximum amount to refinance with a graduate degree is $250,000.

All three of these options provide forbearance in case of economic hardship and offer similar loan options (5, 10, 15 year terms).

Don’t Forget to Shop Around

As CommonBond initially conducts a soft pull on your credit, you’re free to continue to shop around for the best rates if you’re not happy with the rates it can provide. As the lender states on its website, if you apply for loans within a 30 day period, your credit won’t be affected as much.

Since CommonBond does have strict underwriting criteria, you should continue to shop around and don’t be discouraged if you are not approved. The market continues to get more competitive, and a number of good options are out there.

Customize Your Student Loan Offers with MagnifyMoney Comparison Tool

*We’ll receive a referral fee if you click on offers with this symbol. This does not impact our rankings or recommendations. You can learn more about how our site is financed here.

Erin Millard
Erin Millard |

Erin Millard is a writer at MagnifyMoney. You can email Erin at erinm@magnifymoney.com

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College Students and Recent Grads, Pay Down My Debt

19 Options to Refinance Student Loans in 2017 – Get Your Lowest Rate

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.

19 Options to Refinance Student Loans - Get Your Lowest Rate

Updated: August 31, 2017

Are you tired of paying a high interest rate on your student loan debt? You may be looking for ways to refinance your student loans at a lower interest rate, but don’t know where to turn. We have created the most complete list of lenders currently willing to refinance student loan debt.

You should always shop around for the best rate. Don’t worry about the impact on your credit score of applying to multiple lenders: so long as you complete all of your applications within 14 days, it will only count as one inquiry on your credit score. You can see the full list of lenders below, but we recommend you start here, and check rates from the top 4 national lenders offering the lowest interest rates. These 4 lenders also allow you to check your rate without impacting your score (using a soft credit pull), and offer the best rates of 2017:

LenderTransparency ScoreMax TermFixed APRVariable APRMax Loan Amount 
SoFiA+

20


Years

3.35% - 7.125%


Fixed Rate*

2.815% - 6.740%


Variable Rate*

No Max


Undergrad/Grad
Max Loan
apply-now
earnestA+

20


Years

3.35% - 6.39%


Fixed Rate

2.82% - 6.19%


Variable Rate

No Max


Undergrad/Grad
Max Loan
apply-now
commonbondA+

20


Years

3.35% - 7.12%


Fixed Rate

2.81% - 6.74%


Variable Rate

No Max


Undergrad/Grad
Max Loan
apply-now
lendkeyA+

20


Years

3.15% - 7.26%


Fixed Rate

2.58% - 6.31%


Variable Rate

$125k / $175k


Undergrad/Grad
Max Loan
apply-now

We have also created:

But before you refinance, read on to see if you are ready to refinance your student loans.

Can I Get Approved?

Loan approval rules vary by lender. However, all of the lenders will want:

  • Proof that you can afford your payments. That means you have a job with income that is sufficient to cover your student loans and all of your other expenses.
  • Proof that you are a responsible borrower, with a demonstrated record of on-time payments. For some lenders, that means that they use the traditional FICO, requiring a good score. For other lenders, they may just have some basic rules, like no missed payments, or a certain number of on-time payments required to prove that you are responsible.

If you are in financial difficulty and can’t afford your monthly payments, a refinance is not the solution. Instead, you should look at options to avoid a default on student loan debt.

This is particularly important if you have Federal loans.

Don’t refinance Federal loans unless you are very comfortable with your ability to repay. Think hard about the chances you won’t be able to make payments for a few months. Once you refinance, you may lose flexible Federal payment options that can help you if you genuinely can’t afford the payments you have today. Check the Federal loan repayment estimator to make sure you see all the Federal options you have right now.

If you can afford your monthly payment, but you have been a sloppy payer, then you will likely need to demonstrate responsibility before applying for a refinance.

But, if you can afford your current monthly payment and have been responsible with those payments, then a refinance could be possible and help you pay the debt off sooner.

Is it worth it?

Like any form of debt, your goal with a student loan should be to pay as low an interest rate as possible. Other than a mortgage, you will likely never have a debt as large as your student loan.

If you are able to reduce the interest rate by re-financing, then you should consider the transaction. However, make sure you include the following in any decision:

Is there an origination fee?

Many lenders have no fee, which is great news. If there is an origination fee, you need to make sure that it is worth paying. If you plan on paying off your loan very quickly, then you may not want to pay a fee. But, if you are going to be paying your loan for a long time, a fee may be worth paying.

Is the interest rate fixed or variable?

Variable interest rates will almost always be lower than fixed interest rates. But there is a reason: you end up taking all of the interest rate risk. We are currently at all-time low interest rates. So, we know that interest rates will go up, we just don’t know when.

This is a judgment call. Just remember, when rates go up, so do your payments. And, in a higher rate environment, you will not be able to refinance to a better option (because all rates will be going up).

We typically recommend fixing the rate as much as possible, unless you know that you can pay off your debt during a short time period. If you think it will take you 20 years to pay off your loan, you don’t want to bet on the next 20 years of interest rates. But, if you think you will pay it off in five years, you may want to take the bet. Some providers with variable rates will cap them, which can help temper some of the risk.

Places to Consider a Refinance

If you go to other sites they may claim to compare several student loan offers in one step. Just beware that they might only show you deals that pay them a referral fee, so you could miss out on lenders ready to give you better terms. Below is what we believe is the most comprehensive list of current student loan refinancing lenders.

You should take the time to shop around. FICO says there is little to no impact on your credit score for rate shopping as many providers as you’d like in a single shopping period (which can be between 14-30 days, depending upon the version of FICO). So set aside a day and apply to as many as you feel comfortable with to get a sense of who is ready to give you the best terms.

Here are more details on the 5 lenders offering the lowest interest rates:

1. SoFi: Variable Rates from 2.815% and Fixed Rates from 3.35% (with AutoPay)*

SoFi

SoFi (read our full SoFi review) was one of the first lenders to start offering student loan refinancing products. More MagnifyMoney readers have chosen SoFi than any other lender. Although SoFi initially targeted a very select group of universities (it started with Stanford), now almost anyone can apply, including if you graduated from a trade school. The only requirement is that you graduated from a Title IV school. You need to have a degree, a good job and good income in order to qualify. SoFi wants to be more than just a lender. If you lose your job, SoFi will help you find a new one. If you need a mortgage for a first home, they are there to help. And, surprisingly, they also want to get you a date. SoFi is famous for hosting parties for customers across the country, and creating a dating app to match borrowers with each other.

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on SoFi’s secure website

2. Earnest: Variable Rates from 2.57% and Fixed Rates from 3.35% (with AutoPay)

Earnest

Earnest (read our full Earnest review) offers fixed interest rates starting at 3.35% and variable rates starting at 2.57%. Unlike any of the other lenders, you can switch between fixed and variable rates throughout the life of your loan. You can do that one time every six months until the loan is paid off. That means you can take advantage of the low variable interest rates now, and then lock in a higher fixed rate later. You can choose your own monthly payment, based upon what you can afford (to the penny). Earnest also offers bi-weekly payments and “skip a payment” if you run into difficulty.

3. CommonBond: Variable Rates from 2.81% and Fixed Rates from 3.35% (with AutoPay)

CommonBond

CommonBond (read our full review) started out lending exclusively to graduate students. They initially targeted doctors with more than $100,000 of debt. Over time, CommonBond has expanded and now offers student loan refinancing options to graduates of almost any university (graduate and undergraduate). In addition (and we think this is pretty cool), CommonBond will fund the education of someone in need in an emerging market for every loan that closes. So not only will you save money, but someone in need will get access to an education.

4. LendKey: Variable Rates from 2.58% and Fixed Rates from 3.15% (with AutoPay)

Lendkey

LendKey (read our full LendKey review) works with community banks and credit unions across the country. Although you apply with LendKey, your loan will be with a community bank. If you like the idea of working with a credit union or community bank, LendKey could be a great option. Over the past year, LendKey has become increasingly competitive on pricing, and frequently has a better rate than some of the more famous marketplace lenders.

In addition to the Top 4 (ranked by interest rate), there are many more lenders offering to refinance student loans. Below is a listing of all providers we have found so far. This list includes credit unions that may have limited membership. We will continue to update this list as we find more lenders. This list is ordered alphabetically:

  • Alliant Credit Union: Anyone can join this credit union. Interest rates start as low as 4.25% APR. You can borrow up to $100,000 for up to 25 years.
  • Citizens Bank: Variable interest rates range from 2.79% APR – 8.14% APR and fixed rates range from 3.35% – 8.24%. You can borrow for up to 20 years. Citizens also offers discounts up to 0.50% (0.25% if you have another account and 0.25% if you have automated monthly payments).
  • College Avenue: If you have a medical degree, you can borrow up to $250,000. Otherwise, you can borrow up to $150,000. Fixed rates range from 6.22% – 11.58% APR. Variable rates range from 3.69% – 9.25% APR.
  • Credit Union Student Choice: If you like credit unions and community banks, we recommend that you start with LendKey. However, if you can’t find a good loan from a LendKey partner, this tool could be helpful. Just check to see if you or an immediate family member belong to one of their featured credit union and you can apply to refinance your loan.
  • Laurel Road (formerly known as DRB) Student Loan: Laurel Roadoffers variable rates ranging from 2.99% – 6.42% APR and fixed rates from 3.95% – 6.99% APR. Rates vary by term, and you can borrow up to 20 years.
  • Eastman Credit Union: Credit union membership is restricted (see eligibility here). Fixed rates start at 6.50% and go up to 8% APR.
  • Education Success Loans: This company has a unique pricing structure: your interest rate is fixed and then becomes variable thereafter. You can fix the rate at 4.99% APR for the first year, and it is then becomes variable. The longest you can fix the rate is 10 years at 7.99%, and it is then variable thereafter. Given this pricing, you would probably get a better deal elsewhere.
  • EdVest: This company is the non-profit student loan program of the state of New Hampshire which has become available more broadly. Rates are very competitive, ranging from 3.94% – 7.54% (fixed) and 3.16% – 6.76% APR (variable).
  • First Republic Eagle Gold. The interest rates are great, but this option is not for everyone. Fixed rates range from 2.35% – 3.95% APR. You need to visit a branch and open a checking account (which has a $3,500 minimum balance to avoid fees). Branches are located in San Francisco, Palo Alto, Los Angeles, Santa Barbara, Newport Beach, San Diego, Portland (Oregon), Boston, Palm Beach (Florida), Greenwich or New York City. Loans must be $60,000 – $300,000. First Republic wants to recruit their future high net worth clients with this product.
  • IHelp: This service will find a community bank. Unfortunately, these community banks don’t have the best interest rates. Fixed rates range from 4.65% to 8.84% APR (for loans up to 15 years). If you want to get a loan from a community bank or credit union, we recommend trying LendKey instead.
  • Navy Federal Credit Union: This credit union offers limited membership. For men and women who serve (or have served), the credit union can offer excellent rates and specialized underwriting. Variable interest rates start at 3.42% and fixed rates start at 4.00%.
  • Purefy: Only fixed interest rates are available, with rates ranging from 3.95% – 6.75% APR. You can borrow up to $150,000 for up to 15 years. Just answer a few questions on their site, and you can get an indication of the rate.
  • RISLA: Just like New Hampshire, the state of Rhode Island wants to help you save. You can get fixed rates starting as low as 3.49%. And you do not need to have lived or studied in Rhode Island to benefit.
  • UW Credit Union: This credit union has limited membership (you can find out who can join here, but you had better be in Wisconsin). You can borrow from $5,000 to $60,000 and rates start as low as 2.76% (variable) and 4.04% APR (fixed).
  • Wells Fargo: As a traditional lender, Wells Fargo will look at credit score and debt burden. They offer both fixed and variable loans, with variable rates starting at 4.49% and fixed rates starting at 6.24%. You would likely get much lower interest rates from some of the new Silicon Valley lenders or the credit unions.

You can also compare all of these loan options in one chart with our comparison tool. It lists the rates, loan amounts, and kinds of loans each lender is willing to refinance. You can also email us with any questions at info@magnifymoney.com.

Nick Clements
Nick Clements |

Nick Clements is a writer at MagnifyMoney. You can email Nick at nick@magnifymoney.com

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Older Americans Are Getting Crushed by Debt, New MagnifyMoney Analysis Shows

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.

More American seniors are shouldering debt as they enter their retirement years, according to a new MagnifyMoney analysis of data from the latest University of Michigan Retirement Research Center Health and Retirement Study release. MagnifyMoney analyzed survey data to see whether debt causes financial frailty during retirement. We also spoke with financial experts who explained how seniors can rescue their retirements.

1 in 3 Americans 50 and older carry non-mortgage debt

The Health and Retirement Study from the University of Michigan Retirement Research Center surveys more than 20,000 participants age 50+ who answer questions about well-being. The survey covers financial topics including debt, income, and assets. Since 1990, the center has conducted the survey every other year. They released the 2014 panel of data in November 2016. MagnifyMoney analyzed the most recent release of the data to learn more about financial fitness among older Americans.

In an ideal retirement, retirees would have the financial resources necessary to maintain the lifestyle they enjoyed during their working years. Debt acts as an anchor on retiree balance sheets. Since interest rates on debts tend to rise faster than earnings from assets, debt has the power to destroy the balance sheets of seniors living on fixed incomes.

We found that nearly one-third (32%) of all Americans over age 50 carry non-mortgage debt from month to month. On average, those with debt carry $4,786 in credit card debt and $12,490 in total non-mortgage debt.

High-interest consumer debt erodes seniors’ ability to live a quality lifestyle, says John Ross, a Texarkana, Texas-based attorney specializing in elder law.

“From an elder law attorney perspective, we see a direct correlation between debt and institutional care,” Ross says. “Essentially, the more debt load, the less likely the person will have sufficient cash assets to cover medical care that is not provided by Medicare.”

Even worse, debt leads some retirees to skip paying for necessary expenses like quality food and medical care.

“The social aspect of being a responsible bill payer often leads the older debtor to forgo needed expenses to pay debts they cannot afford instead of considering viable options like bankruptcy,” says Devin Carroll, a Texarkana, Texas-based financial adviser specializing in Social Security and retirement.

Some older Americans may even be carrying debt that they don’t have the capacity to pay.

According to our analysis, 40% of all older Americans have credit card debt in excess of $5,000. More than one in five (22%) Americans age 50+ have more than $10,000 in credit card debt. On average, those with more than $10,000 in credit card debt couldn’t pay off their debt even by emptying their checking accounts.

Over a third of American seniors don’t have $1,000 in cash

It’s not just credit card debtors who struggle with financial frailty approaching retirement. Many older Americans have very little spending power. More than one-third (37%) of all Americans over age 50 have a checking account balance less than $1,000.

Low cash reserves don’t just mean limited spending power. They indicate that American seniors don’t have the liquidity to deal with financial hardships as they approach retirement. This is especially concerning because seniors are more likely than average to face high medical expenses. Over one in three (36%) Americans who experienced financial hardship classified it as an unexpected health expense, according to the Federal Reserve Board report on the Economic Well-Being of U.S. Households in 2015. The median out-of-pocket health-related expense was $1,200.

Debt pushes seniors further from retirement goals

Seniors carrying credit card debt exhibit other signs of financial frailty. For example, seniors without credit card debt have an average net worth of $120,000. Those with credit card debt have a net worth of just $68,000, 43% less than those without credit card debt.

The concern isn’t just small portfolio values. For retirees with debt, credit card interest rates outpace expected performance on investment portfolios. Today the average credit card interest rate is 14%. That means American seniors who carry credit card debt (on average, $4,786) pay an average of $670 per year in interest charges. Meanwhile, the average investment portfolio earns no more than 8% per year. This means that older debtors will earn just $4,508 from their entire portfolio. Credit card interest eats up more than 15% of the nest egg income.

For some older Americans the problem runs even deeper. One in 10 American seniors has a checking account balance with less than $1,000 and carries credit card debt. This precarious position could leave some seniors unable to recover from larger financial setbacks.

Increased debt loads over time

High levels of consumer debt among older Americans are part of a sobering trend. According to research from the University of Michigan Retirement Research Center, in 1998, 36.94% of Americans age 56-61 carried debt. The mean value of their debt (in 2012 dollars) was $3,634.

Over time debt loads among pre-retiree age Americans are becoming even more unsustainable. Today 42% of Americans age 50-59 have debt, and their average debt burden is $17,623.

Credit card debt carries the most onerous interest rates, but it’s not the only type of debt people carry into retirement. According to research from the Urban Institute, in 2014, 32.2% of adults aged 68-72 carried debt in addition to a mortgage or a credit card, and 18% of Americans age 73-77 still have an auto loan.

Even student loan debt, a debt typically associated with millennials, is causing angst among seniors. According to the debt styles study from the Urban Institute, as of 2014, 2%-4% of adults aged 58 and older carried student loan debt. It’s a small proportion overall, but the burden is growing over time.

According to the Consumer Financial Protection Bureau, in 2004, 600,000 seniors over age 60 carried student loan debt. Today that number is 2.8 million. Back in 2004 Americans over age 60 had $6 billion in outstanding student loan debts. Today they owe $66.7 billion in student loans, more than 10 times what they owed in 2004. Not all that student debt came from seniors dragging their repayments out for 30-40 years. Almost three in four (73%) older student loan debtors carry some debt that benefits a child or grandchild.

Even co-signing student loans puts a retirement at risk. If the borrower cannot repay the loan on their own, then a retiree is on the hook for repayment. A co-signer’s assets that aren’t protected by federal law can be seized to repay a student loan in default. Because of that, Ross says, “We never advise a person to co-sign on a student loan. Never!”

How older Americans can manage debt

High debt loads and an impending retirement can make a reasonable retirement seem like a fairy tale. However, an effective debt strategy and some extra work make it possible to age on your own terms.

Focus on debt first.

Carroll suggests older workers should prioritize eliminating debt before saving for retirement. “Several studies have shown a direct correlation between debt and risk of institutionalization,” he says. Debt inhibits retirees from remodeling or paying for in-home care that could allow them to age in place.

Downsize your lifestyle

As a first step in eliminating debt, seniors should check all their expenses. Some may consider drastic measures like downsizing their home.

Cut off adult children

Even more important, seniors with debt may need to stop supporting adult children.

According to a 2015 Pew Center Research Poll, 61% of all American parents supported an adult child financially in the last 12 months. Nearly one in four (23%) helped their adult children with a recurring financial need.

Wanting to help children is natural, but it can leave seniors financially frail. It may even leave a parent unable to provide for themselves during retirement.

Work longer

Older workers can also eliminate debt by focusing on the income side of the equation. For many this will mean working a few years longer than average, but the extra work pays off twofold. First, eliminating debt reduces the need for cash during retirement. Second, working longer also allows seniors to delay taking Social Security benefits.

Working until age 67 compared to age 62 makes a meaningful difference in quality of life decades down the road. According to the Social Security Administration, workers who withdraw starting at age 62 received an average of $1,077 per month. Those who waited until age 67 received 27% more, $1,372 per month.

Retirees already receiving Social Security benefits have options, too. Able-bodied retirees can re-enter the workforce. Homeowners can consider renting out a room to a family member to increase income.

Consider every option

If earning more money isn’t realistic, a debt elimination strategy becomes even more important. Ross recommends that retirees should consider every option when facing debt, including bankruptcy. He explains, “A 65-year-old, healthy retiree would be well advised to pay down the high-interest debt now. Alternatively, an 85-year-old retiree facing significant health issues is better off filing bankruptcy or just defaulting on the debt. For the older person, their existing assets are a lifeline, and a good credit score is irrelevant.”

Don’t take on new debt

It’s also important to avoid taking on new debt during retirement. “The only exception,” Ross explains, “[is taking on] debt in the form of home equity for long-term medical care needs, but then only when all other reserves are depleted and the person has explored all forms of government assistance such as Medicaid and veterans benefits.”

Every senior’s financial situation differs, but if you’re facing financial stress before or during retirement, it pays to know your options. Conduct your research and consult with a financial adviser, an elder law attorney, or a credit counselor from the National Foundation for Credit Counseling to choose what is right for your situation.

Hannah Rounds
Hannah Rounds |

Hannah Rounds is a writer at MagnifyMoney. You can email Hannah at hannah@magnifymoney.com

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RANKED: The 10 Best Options When You Need Cash Fast

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.

What happens when your emergency fund isn’t enough?

Long-term unemployment or a medical emergency can easily dry up a once-healthy rainy day fund, leaving consumers wondering where to turn next. According to a recent consumer expectations survey by the New York Federal Reserve, only one in three Americans say they wouldn’t be able come up with $2,000 within a month to cover an unexpected expense.

It’s during times of vulnerability like this that it’s easy to jump at seemingly quick and easy sources of cash, like payday lenders, credit cards, or even your 401(k).

Unfortunately, practically every potential source of cash that doesn’t come from your own piggy bank is going to cost you in some way.

But at this point, it’s all about choosing the lesser of all evils — when all you have are crummy options, how do you decide which one is the best of the worst?

We’ve ranked common sources of emergency short-term cash from best to worst, which can help you sort through your borrowing options when your savings dry up.

#1 Personal loan from family and friends

It’s an uncomfortable conversation to have with a loved one, but asking a friend or relative for a small loan can be a far better idea than turning to high-interest credit debt, or worse, payday lenders. Unless they’re offering, it doesn’t have to be an interest-free loan. Agree on an interest rate that seems fair and is lower than what you’d find through a bank or other lender.

Because you have a relationship already, you may have an easier time convincing them to lend you money versus a bank that would make the decision after doing a credit check and evaluating other financial information.

#2 (tie) Lender-backed personal loan

A personal loan can be a solid borrowing option if you need money in a pinch or you’re looking to consolidate other debt. The process to apply for a personal loan is similar to applying for a credit card or auto loan, in that the lender will run your credit and offer you a certain rate based on your creditworthiness.

If your credit is poor, that doesn’t necessarily mean you’re out of the running for a personal loan, but it will cost you in the form of much higher interest charges. For example, a lender could offer loans with APRs ranging from 5.99% to 35.85%. The lower your score, the higher your rate. You can get rates from multiple lenders without impacting your credit score at LendingTree (which owns MagnifyMoney). You can start your shopping experience on their website (by clicking this link).

Why choose a personal loan over a credit card? It really comes down to math. If you can find a personal loan that will cost less in the long term than using a credit card, then go for it. Use this personal loan calculator to estimate how much a loan will cost you over time. Then, run the same figures through this credit card payoff calculator.

#2 (tie) Credit cards

If your need for cash is truly short-term and you have enough income to pay it off quickly, then credit card debt can be a decent option. This option gets even better if you can qualify for a card with a 0% interest offer. The card will let you buy some time by allowing you to cover your essentials while you work on paying off the balance.

Because the debt is unsecured, unlike an auto title loan, you aren’t putting your assets at risk if you can’t pay.

#3 Home equity line of credit (HELOC)

You may be able to leverage the equity in your home to cover short-term emergency needs. A HELOC, or home equity line of credit, is a revolving credit line extended to a homeowner using your home as collateral. How much you can take out will depend on your home’s value, your remaining mortgage balance, your household income, and your credit score. A home equity line of credit may allow you to borrow the maximum amount, or only as much as you need. You will also be responsible for the costs of establishing and maintaining the home equity line of credit. You can learn more about these here.

You’ll choose the repayment schedule and can set that for less than 10 years or more than 20 years, but the entire balance must be paid in full by the end of the loan term. You’ll pay interest on what you borrow, but you may be able to deduct it from your income taxes. Keep in mind that if you are unemployed, it will be unlikely that you’ll be approved for a HELOC.

HELOC vs. Personal loans

Because home equity lines of credit are secured against the borrower’s home, if you default on your home equity line of credit, your lender can foreclose on your home. Personal loans, on the other hand, are usually unsecured, so, while failure to make your payments on time will adversely impact your credit, none of your personal property is at risk.

#4 A 401(k) loan

A 401(k) loan may be a good borrowing option if you’re in a financial pinch and are still employed. And it is a far better bet than turning to a payday lender or pawn shop for a loan. Because you’re in effect borrowing from yourself, any interest you pay back to the account is money put back in your retirement fund. You are allowed to borrow up to $50,000 or half of the total amount of money in your account, whichever is less. Typically, 401(k) loans have to be repaid within five years, and you’ll need to make payments at least quarterly.

But there are some cons to consider. If you get laid off or change jobs, a 401(k) loan immediately becomes due, and you’ll have 60 days to repay the full loan amount or put the loan funds into an IRA or other eligible retirement plan. If you don’t make the deadline, the loan becomes taxable income and the IRS will charge you another 10% early withdrawal penalty.

#5 Roth IRA or Roth 401(k) withdrawal

Generally, withdrawing funds from your retirement savings is a big no-no, because you’re going to miss out on any gains you might have enjoyed had you kept your money in the market. On top of that, there are fees and tax penalties, which we’ll cover in the next section.

But there is an exception: the Roth IRA or Roth 401(k).

Because funds contributed to Roth accounts are taxed right away, you won’t face any additional tax or penalties for making a withdrawal early. The caveat is that you can only withdraw from the principal amount you’ve contributed — you’re not allowed to withdraw any of the investment gains your contributions have earned without facing taxes and penalties.

However, it is still true that any money you take out is money that will not have a chance to grow over time, so you will still miss out on those earnings.

#6 Traditional 401(k) or IRA withdrawal

Experts typically recommend against borrowing from your 401(K) or IRA, but when you’re in desperate need of cash, it may be your best option.

Just understand the risks.

If you withdraw funds from a traditional retirement account before age 59 1/2 , the money will be taxed as income, and you’ll be charged a 10% early distribution penalty tax by the IRS. You may want to speak with a tax professional to estimate how much you’ll have to pay in taxes and take out more than you need to compensate for that loss. There’s no exception to the income tax, but there are a number of exceptions to the 10% penalty, such as qualified education expenses or separation from service — when you leave a company, whether by retirement, quitting, or getting fired or laid off — at 55 years or older.

When you take that money out, not only will you lose out on potential tax-deferred investment growth, but you’ll also lose a huge chunk of your retirement savings to taxes and penalties.

#7 Reverse mortgage

Homeowners 62 years old and older have another option for cash in a pinch: a reverse mortgage. With a reverse mortgage, your property’s equity is converted into (usually) tax-free payments for you. You can take the money up front as a line of credit, receive monthly payments for a fixed term or for as long as you live in the home, or choose a mix of the options. You keep the title, but the lender pays you each month to buy your home over time.

In most cases, you won’t be required to repay the loan as long as you’re still living in your home. You’ll also need to stay current on obligations like homeowners insurance, real estate taxes, and basic maintenance. If you don’t take care of those things, the lender may require you to pay back the loan.

The loan becomes due when you pass away or move out, and the home must be sold to repay the loan. If you pass away, and your spouse is still living in the home but didn’t sign the loan agreement, they’ll be allowed to continue living on the property, but won’t receive any more monthly payments. When they pass away or move out, the home will be sold to repay the loan.

The reverse mortgage may take a month or longer to set up, but once you get the paperwork set you can choose to take a line of credit, which could serve as an emergency fund, advises Columbus, Ohio-based certified financial planner Tom Davison.

He says the reverse mortgage’s advantages lie in the fact that it doesn’t need to be paid back until the homeowner permanently leaves the house, and it can be paid down whenever the homeowner is able. You can also borrow more money later if you need it, as the line of credit will grow at the loan’s borrowing rate.

Take care to look at the fine print before you sign. Under current federal law, you’ll only have three days, called a right of rescission, to cancel the loan. Reverse mortgage lenders also usually charge fees for origination, closing, and servicing over the life of the mortgage. Some even charge mortgage insurance premiums. Also, if you pass away before the loan is paid back, your heirs will have to handle it.

#8 Payday loan alternatives

While regulators work to reign in the payday lending industry, a new crop of payday loan alternatives is beginning to crop up.

Services like Activehours or DailyPay allow hourly wage earners to get paid early based on the hours they’ve already worked. Activehours allows you to withdraw up to $100 each day and $500 per pay period, while DailyPay, which caters to delivery workers, has no cap. DailyPay tracks the hours logged by workers and sends a single payment with the day’s earnings, minus a fee ranging from 99 cents to $1.49.

Another alternative could be the Build Card by FS Card. The product targets customers with subprime credit scores and offers an initial low, unsecured $500 credit limit to borrowers, which increases as they prove creditworthiness. The card will cost you a $72 annual membership fee, a one-time account setup fee of $53, plus $6 per month just to keep it in your wallet. It also comes with a steep interest rate — 29.9%. After all of the initial fees, your initial available limit should be about $375.

#9 Pawn shop loans

Pawn shop loan interest charges can get up to 36% in some states and there are other fees you’ll have to pay on top of the original loan.

Pawn shops get a shady rap, but they are a safer bet than payday lenders and auto title loans. Here’s why: Because you are putting up an item as collateral for a payday loan, the worst that can happen is that they take possession of the item if you skip out on payments. That can be devastating, especially if you’ve pawned something of sentimental value. But that’s the end of the ordeal — no debt collectors chasing you (payday loans) and no getting locked out of your car and losing your only mode of transportation (title loans).

#10 Payday loans and auto title loans

We have, of course, saved the worst of the worst options for last.

When you borrow with a payday loan but can’t afford to pay it back within the standard two-week time frame, it can quickly become a debt trap thanks to triple-digit interest rates. According to a recent study by the Pew Charitable Trusts, only 14% of payday loan borrowers can afford enough out of their monthly budgets to repay an average payday loan. Some payday lenders offer installment loans, which require a link to your bank account and gives them access to your funds if you don’t pay.

Some payday lenders today require access to a checking account, meaning they can dip in and take money from your bank account if you miss a payment. Also, your payday loan will be reflected on your credit report. So if things end badly, your credit will suffer as well. They have no collateral, so payday lenders will continue to hound you if you miss payments.

And, of course, auto title lenders require you to put up your wheels as collateral for a loan. And if you rely heavily on your car to get to and from work, having it repossessed by a title lender could hurt you financially in more ways than one.

The loans are usually short-term — less than 30 days — so this might not be a good option for you if you don’t foresee a quick turnaround time for repayment. If your household depends on your car for transportation, you may not want to try this option as there is a chance you could lose your car. If you don’t repay the loan, the lender can take your vehicle and sell it to cover the loan amount.

One more thing to watch out for is the advertised interest rate. Auto title lenders will often advertise the monthly rate, not the annualized one. So a 20% interest rate for the month is actually a 240% APR.

Brittney Laryea
Brittney Laryea |

Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at brittney@magnifymoney.com

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Create a Budget Designed Just for Dumping Debt

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.

Even if you hate spreadsheets and numbers, coming up with a debt-destroying budget can be simple with a single rule: always apply excess funds to debt.

This rule can work with two of the most common debt repayment methods: the debt snowball or the debt avalanche.

The debt snowball method attacks smaller debts first, regardless of interest rate. The goal is to motivate you with small victories in order to go on and gain confidence to pay off larger debts. The debt avalanche method focuses on paying down debt with the highest interest rate until you pay off the balance with the lowest interest rate.

How Much Can I Throw Toward My Debt?

The math for your budgeting process is super-simple: Monthly income minus monthly expenses equals the amount of extra money you can apply toward your debt each month. The emphasis is on extra money because you’ll still want to pay your minimum debt obligations to avoid getting behind on your payments.

Note: If you still need help with the math because you’ve got to actually figure out how much you spend each month, you can use an app that connects with your bank to add up all your expenses. Check out services like Mint.com, YNAB, or Personal Capital to help you get quick figures around your income and spending along with categories for each.

Though the math is not too complicated, the harder part could be increasing the gap between your income and expenses to actually have a surplus in your budget.

Unless you’ve got little to no wiggle room in your budget, you don’t have to start cutting expenses quite yet. However, there are some expenses that are discretionary and should be omitted from your equation until you’ve tamed your debt load.

For now, just get a baseline of what you should have left over at the end of each month once all your bills and expenses are accounted for. If it’s $15, great. Start there. If it’s more, even better.

Once you get this number, use it to pay more on your debt than is required. So if your minimum payment is normally $50, pay $65 with your $15 surplus. It can be the smallest debt or the account with the highest interest rate. What matters now is that you do something to get into the habit of making extra payments on debt and accounting for it in your monthly budget.

How to Apply This Rule in Various Scenarios

If you budget with a goal in mind, the purpose of your money becomes clearer. Any kind of money that turns out to be extra should be applied to debt to reduce your balances. But the key is being mindful of extra money, even when it doesn’t seem to be extra.

For example, getting a raise is a reason for some people to increase their standard of living. They might move to a place with a view or buy that lavish SUV they’ve been eyeing for a while. If you’ve committed extra funds to a purpose (paying off debt), the decision is made for you far in advance of you actually getting the money.

The same goes for your income tax refund check. You might bank on this money every time income tax filing season comes around. While many people are planning spring break trips and shopping sprees with this money, you’ve got to make up your mind that this money is already earmarked for debt repayment.

Finally, there’s always that unexpected windfall: an inheritance, a settlement, or any type of money you never saw coming. This might be one of the most difficult chunks of money to part with for the sake of paying off debt. After all, you didn’t know it was coming, and maybe you didn’t have to work too hard for it.

In this case, it’s pretty tempting to want to splurge and blow it all on something you think you deserve. Things can get complicated at this point. But if you keep following “the rule,” this money is technically already allocated, and your debt repayment budget suddenly becomes easier to stick with.

Keep Widening the Gap Between Income and Expenses

This is the fun part. Why? You get to be creative and have more control over your debt repayment timeline. Want to get out of debt fast? Then you’ll have to figure out how to make your income outpace your expenses. It could mean adding a side hustle to the mix or getting more aggressive with cutting out or decreasing expenses.

Adjusting Your Tax Withholdings

If you pocket a large tax refund each year, ask yourself why. It is likely because you are paying too much in income taxes throughout the year. If that’s the case, you can change your tax withholdings through your payroll department to keep more money in your pocket throughout the year. It will mean a smaller tax refund come tax time, but you’ll have more cash on hand to put toward your debt with each paycheck.

Use this IRS withholding calculator to estimate your withholdings.

Decrease Your Income Tax Liability

There are more than a few ways to decrease your income tax liability. From IRA contributions to tax tips for entrepreneurial endeavors and other tax credits and deductions, there should be one or more things you can do to owe less on your tax bill.

Cut Expenses Where You Can

There are so many ways to save money on so many things. You can start small with things like eating out and having cable and work up to saving money on housing costs or refinancing student loans.

Then there are the diehards who go full monty and go through full-on spending freezes on things like takeout and travel. The list of cost-cutting measures can get pretty long, but you get the point: Go through your spending with a fine-tooth comb and find out where you can save and what you could cut.

Increase Your Income

Creating another stream of income sounds gimmicky, but there are ways to do it without getting caught up in scams. You can find a part-time job, provide consulting services on the side, or even start a mini-business like dog walking or car washing. It shouldn’t be anything that will cost you tons up front to start, and it shouldn’t hinder your ability to keep your full-time job.

You may find that you have to try a few things before you come up with the perfect combination of low overhead, quick to start, and profitable. That’s OK. Just keep plugging away until something clicks. It’ll be more than worth it to add that extra income to the budget for paying off more debt even faster.

Remember the Golden Rule: Excess Cash Goes to Debt

It all comes down to committing your cash to a purpose ahead of time. No matter how your financial circumstance changes, you’ll know what to do when you’ve got a surplus of money.

You’ll have to come up with a list of things you are willing to do to increase your cash reserves, but if you keep the goal in mind of continually applying extra funds toward debt, you’ll save on interest and also pay down your debt faster.

Aja McClanahan
Aja McClanahan |

Aja McClanahan is a writer at MagnifyMoney. You can email Aja here

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Should You Use a Mortgage to Refinance Student Loans?

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.

Fannie Mae, the largest backer of mortgage credit in America, recently made it a little easier for homeowners to refinance their student loans. In an update to its Selling Guide, the mortgage giant introduced a student loan cash-out refinance feature, permitting originators that sell loans to Fannie Mae to offer a new refinance option for paying off one or more student loans.

That means you could potentially use a mortgage refi to consolidate your student loan debt. Student loan mortgage refis are relatively new. Fannie Mae and SoFi, an alternative lender that offers both student loans and mortgages, announced a pilot program for cash-out refinancing of student loans in November 2016. This new program is an expansion of that option, which was previously available only to SoFi customers.

Amy Jurek, a Realtor at RE/MAX Advantage Plus in Minneapolis/St. Paul, Minn., says people with home equity have always had a cash-out option, but it typically came with extra fees and higher interest rates. Jurek says the new program eliminates the extra fees and allows borrowers to refinance at lower mortgage interest rates. The policy change could allow homeowners to save a significant amount of money because interest rates on mortgages are typically much lower than those for student loans, especially private student loans and PLUS loans.

But is it a good idea?

Your student debt isn’t eliminated; it’s added to your mortgage loan.

This may be stating the obvious, but swapping mortgage debt for student loan debt doesn’t reduce your debt; it just trades one form of debt (student loan) for another (mortgage).

Brian Benham, president of Benham Advisory Group in Indianapolis, Ind., says refinancing student loans with a mortgage could be more appealing to borrowers with private student loans rather than federal student loans.

Although mortgage rates are on the rise, they are still at near-historic lows, hovering around 4%. Federal student loans are near the same levels. But private student loans can range anywhere from 3.9% up to near 13%. “If you’re at the upper end of the spectrum, refinancing may help you lower your rate and your monthly payments,” Benham says.

So, the first thing anyone considering using a mortgage to refinance student loans should consider is whether you will, in fact, get a lower interest rate. Even with a lower rate, it’s wise to consider whether you’ll save money over the long term. You may pay a lower rate but over a longer term. The standard student loan repayment plan is 10 years, and most mortgages are 30-year loans. Refinancing could save you money today, but result in more interest paid over time, so keep the big picture in mind.

You need to actually have equity in your home.

To be eligible for the cash-out refinance option, you must have a loan-to-value ratio of no more than 80%, and the cash-out must entirely pay off one or more of your student loans. That means you’ve got to have enough equity in your home to cover your entire student loan balance and still leave 20% of your home’s value that isn’t being borrowed against. That can be tough for newer homeowners who haven’t owned the home long enough to build up substantial equity.

To illustrate, say your home is valued at $100,000, your current mortgage balance is $60,000, and you have one student loan with a balance of $20,000. When you refinance your existing mortgage and student loan, the new loan amount would be $80,000. That scenario meets the 80% loan-to-value ratio, but if your existing mortgage or student loan balances were higher, you would not be eligible.

You’ll lose certain options.

Depending on the type of student loan you have, you could end up losing valuable benefits if you refinance student loans with a mortgage.

Income-driven repayment options

Federal student loan borrowers may be eligible for income-driven repayment plans that can help keep loan payments affordable with payment caps based on income and family size. Income-based repayment plans also forgive remaining debt, if any, after 25 years of qualifying payments. These programs can help borrowers avoid default – and preserve their credit – during periods of unemployment or other financial hardships.

Student loan forgiveness

In certain situations, employees in public service jobs can have their student loans forgiven. A percentage of the student loan is forgiven or discharged for each year of service completed, depending on the type of work performed. Private student loans don’t offer forgiveness, but if you have federal student loans and work as a teacher or in public service, including a military, nonprofit, or government job, you may be eligible for a variety of government programs that are not available when your student loan has been refinanced with a mortgage.

Economic hardship deferments and forbearances

Some federal student loan borrowers may be eligible for deferment or forbearance, allowing them to temporarily stop making student loan payments or temporarily reduce the amount they must pay. These programs can help avoid loan default in the event of job loss or other financial hardships and during service in the Peace Corps or military.

Borrowers may also be eligible for deferment if they decide to go back to school. Enrollment in a college or career school could qualify a student loan for deferment. Some mortgage lenders have loss mitigation programs to assist you if you experience a temporary reduction in income or other financial hardship, but eligibility varies by lender and is typically not available for homeowners returning to school.

You could lose out on tax benefits.

Traditional wisdom favors mortgage debt over other kinds of debt because mortgage debt is tax deductible. But to take advantage of that mortgage interest deduction on your taxes, you must itemize. In today’s low-interest rate environment, most taxpayers receive greater benefits from the standard deduction. As a reminder, taxpayers can choose to itemize deductions or take the standard deduction. According to the Tax Foundation, 68.5% of households choose to take the standard deduction, which means they receive no tax benefit from paying mortgage interest.

On the other hand, the student loan interest deduction allows taxpayers to deduct up to $2,500 in interest on federal and private student loans. Because it’s an “above-the-line” deduction, you can claim it even if you don’t itemize. It also reduces your Adjusted Gross Income (AGI), which could expand the availability of other tax benefits.

You could lose your home.

Unlike student debt, a mortgage is secured by collateral: your home. If you default on the mortgage, your lender ultimately has the right to foreclose on your home. Defaulting on student loans may ruin your credit, but at least you won’t lose the roof over your head.

Refinancing student loans with a mortgage could be an attractive option for homeowners with a stable career and secure income, but anyone with financial concerns should be careful about putting their home at risk. “Your home is a valuable asset,” Benham says, “so be sure to factor that in before cashing it out.” Cashing out your home equity puts you at risk of carrying a mortgage into retirement. If you do take this option, set up a plan and a budget so you can pay off your mortgage before you retire.

Janet Berry-Johnson
Janet Berry-Johnson |

Janet Berry-Johnson is a writer at MagnifyMoney. You can email Janet here

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