Pay Down My Debt

Americans with Holiday Debt Added $986 on Average

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Young couple calculating their domestic bills

The holidays over, and we are back to work.

But for many of us, the holidays linger in fresh debt that paid for holiday gifts and celebrations, with bills that will start hitting mailboxes in the coming weeks.

MagnifyMoney surveyed a national sample of 403 Americans who reported they added debt during the holidays via Survata and found:

Americans with holiday debt added $986 in debt on average.

Between gifts, hosting parties, family emergencies, and for some, fewer work hours, it’s easy for debt to add up if you don’t have savings on hand. While the $986 those surveyed added to their debt on average is a manageable amount, it can easily snowball.

At a 15% rate on a credit card making just the minimum $25 payment it would take 10 years to pay off, including nearly $400 in interest paid, almost doubling the cost of the holidays.

44% of debt holders report they are stressed out about it.

 

Credit cards were the most common form of debt.

52% of debt holders used a bank or credit union credit card to finance their holiday debt, while another 30% used store cards to finance, which often carry rates of 20% or more. 8% took a specific personal loan, which could yield a lower rate, while 6% relied on the worst of all – payday and title loans. Less than 5% used home equity lines of credit to finance purchases.

The payoff may take until next Christmas and beyond

Less than half of those surveyed think they can pay off their holiday debt in less than 5 months. 55% plan to take more than 5 months or just make the minimum payments,  which could extend the debt to 10 years or more.

holiday-debt-2

Rates being paid are high

One third of respondents say they’re paying a rate of over 10% on their debt, with 20% of them paying more than 15%. And 14% of respondents don’t even know what rate they’re paying.

But most won’t bother to get a lower rate

Despite 28% of respondents expecting to take 5 months or more to pay off the debt, just 22% plan to shop around to find a better rate with a different bank or loan.

Yet, 47% report a good credit score above 650 that may qualify for better rates than most existing credit cards and store cards offer.

The most cited reason for not wanting to shop around is not wanting to deal with another bank, noted by 28% of respondents.

A consumer with $1,000 in debt at a 15% rate making minimum payments would shave over a year off debt repayment by taking advantage of the longest 0% balance transfer deal on the market and save over $300 in interest payments.

What can be done?

MagnifyMoney has prepared a free 45 page Debt Free Forever Guide that you can download to prepare your action plan, tailored to whether your situation needs a quick transfer, or more significant repair and dealing with collections.

You’ll learn no-nonsense ways to get your rate lower, negotiate hard with creditors, and tackle your budget to find the fastest way to get debt free.

Survey results

Average new holiday debt   $986

Holiday debt funded by a….  

  • Credit card       52%
  • Store card        30%
  • Personal loan   8%
  • Payday / title loan  6%
  • Home equity    4%

holiday-debt-1

When will you pay the debt off?        

  • 1 month           15%
  • 2 months         11%
  • 3 months         12%
  • 4 months         6%
  • 5 months+       28%
  • Only making minimum payments        27%

What is your credit score?      

  • Above 700       27%
  • 650-700           20%
  • 550-649           20%
  • Below 550       10%
  • Don’t know      25%

Will you shop around for a better rate with a different bank or loan? 

  • Yes      22%
  • No- Don’t want to deal with another bank       28%
  • No – Too many traps   17%
  • No – Rate is already low          10%
  • No – Don’t know enough about it        10%
  • No – Wouldn’t qualify 14%

How stressed are you about your holiday debt?        

  • Not stressed    56%
  • Stressed           44%

What rate are you paying on your debt?        

  • Less than 5%   35%
  • 5-9%   18%
  • 10-14%           13%
  • 15-19%           11%
  • 20% or more   9%
  • Don’t know      14%

Methodology

MagnifyMoney surveyed 403 Americans who answered yes to the screening question “Did you add debt for holiday spending this year?”

The survey was conducted online January 2 – 4 2015 via Survata, using a nationally representative sample age 25-65.

Nick Clements
Nick Clements |

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

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RANKED: The 10 Best Options When You Need Cash Fast

Editorial Disclaimer: 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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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, Lending Club offers loans with APRs from 5.99% to 35.85%, but it’s willing to lend to people with a credit score as low as 600.

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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College Students and Recent Grads, Pay Down My Debt

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

Editorial Disclaimer: 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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19 Options to Refinance Student Loans - Get Your Lowest Rate

Updated: June 3, 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% - 6.74%


Fixed Rate*

2.615% - 6.54%


Variable Rate*

No Max


Undergrad/Grad
Max Loan
apply-now
earnestA+

20


Years

3.35% - 6.49%


Fixed Rate

2.61% - 6.28%


Variable Rate

No Max


Undergrad/Grad
Max Loan
apply-now
commonbondA+

20


Years

3.37% - 6.74%


Fixed Rate

2.62% - 6.54%


Variable Rate

No Max


Undergrad/Grad
Max Loan
apply-now
lendkeyA+

20


Years

3.25% - 7.26%


Fixed Rate

2.52% - 6.06%


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 2.615% and Fixed Rates from 3.35% (with AutoPay)*

sofiSoFi (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.

Go to site

2. Earnest: Variable Rates from 2.61% and Fixed Rates from 3.35% (with AutoPay) 

EarnestEarnest (read our full Earnest review) offers fixed interest rates starting at 3.35% and variable rates starting at 2.61%. 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.

Go to site

3. CommonBond: Variable Rates from 2.62% and Fixed Rates from 3.37% (with AutoPay)

CommonBondCommonBond (read our full CommonBond 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.

Go to site

4. LendKey: Variable Rates from 2.52% and Fixed Rates from 3.25% (with AutoPay)

lendkeyLendKey (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.

Go to site

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 4.00% APR. You can borrow up to $100,000 for up to 25 years.
  • Citizens Bank: Variable interest rates range from 2.60% APR – 8.39% APR and fixed rates range from 3.74% – 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 4.75% – 7.35% APR. Variable rates range from 3.00% – 6.25% 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 Road offers variable rates ranging from 3.89% – 6.54% APR and fixed rates from 4.45% – 7.54% 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 2.92% – 6.54% 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. Variable rates range from 2.50% – 4.30%. 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 4.75% to 9% 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 3.27% and fixed rates start at 4.00%.
  • Purefy: Only fixed interest rates are available, with rates ranging from 3.50% – 7.28% 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 2.61% (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 4.24% 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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Pay Down My Debt, Strategies to Save

Create a Budget Designed Just for Dumping Debt

Editorial Disclaimer: 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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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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Balance Transfer, Best of, Pay Down My Debt

9 Best 0% APR Credit Card Offers – June 2017

Editorial Disclaimer: 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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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. Barclaycard Ring™ MasterCard® – 0% Introductory APR for 15 months, $0 Introductory Balance Transfer FEE

BarclaycardThis card is available if you have excellent credit. Be aware that you have 45 days to complete this transfer after opening the account.

You can also nominate and vote on charity partners to donate card profits each year and there are no foreign transaction fees if you use the card abroad.

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

ChaseSlateScreenThis 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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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, 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 similar $0 introductory terms.

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

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

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

edwardjonesYou’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% rate. This deal expires 11/30/2017.

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

firsttechrewardsAnyone 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.

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

La Capitol Federal Credit UnionAnyone 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.

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

Quorum Federal Credit UnionQuorum is a New York based credit union anyone can join by joining the Select Savers Club during the application process – just choose ”I would like to join through an association” on the application page. All of Quorum’s credit cards offer the 0% for 12 months with no fee deal.

Just be aware the 12 months starts from when your account opens, not when you make the transfer, so if you wait a month to do the transfer, you’ll only get the zero deal for 11 months.

And the 0% deal isn’t prominent on the Quorum site, you’ll see it buried in the fine print. Look for the sentence “The introductory purchase and balance transfer APR is 0% for 12 months from account opening and applies to ALL Quorum MasterCard credit cards” at the very bottom of their page.

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

purdue-credit-union-visaThe 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 minimum credit line on the Visa Signature card offering 0% is $5,000, so if approved the $50 would be like a transfer fee of 1% or less. The good news is you can apply and get a decision before you become a member of the Alumni Association.

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9. 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.

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10. First Tennessee Bank Credit Card – 0% APR for 12 months, NO FEE

If you want to apply online for this deal, you’ll need to live in a state where First Tennessee Bank Credit CardFirst Tennessee has a branch though. Those states are: Tennessee, Florida, Georgia, Mississippi, North Carolina, and South Carolina.

You need to have an existing First Tennessee account to apply online, but if you don’t have one, you can print out an application and mail it into their office to get a decision. You’ll find a link to the paper application when the online form asks you whether you have an account or not.

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

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.

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

You’ll have a choice to apply for the Andigo Visa Platinum, Platinum Rewards, or Platinum Cash Back. The Platinum without rewards has a lower ongoing APR, starting as low as 10.15%, compared to 12.15% 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.

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13. Aspire Credit Union Credit Card – 0% APR for 6 months, NO FEE

You don’t have to be a member to apply and get a decision from Aspire. Once youAspire Credit Union Credit Card do, Aspire is easy to join – just check that you want to join the American Consumer Council (free) while filling out your membership application online.

Make sure you apply for the regular ‘Platinum’ card, and not the ‘Platinum Rewards’ card, which doesn’t offer the introductory deal. Aspire says people with fair credit can apply for its card.

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14. Elements Financial Credit Card – 0% APR for 6 months, NO FEE

Elements Financial Credit CardTo 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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15. Justice Federal Credit Union – 0% APR for 6 months, NO FEE

Justice Federal Credit UnionIf 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% no fee deal, 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.

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

Xcel Platinum Visa credit cardAnyone 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.

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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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Mortgage, Pay Down My Debt

Should You Use a Mortgage to Refinance Student Loans?

Editorial Disclaimer: 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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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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Balance Transfer, Best of, Pay Down My Debt

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

Editorial Disclaimer: 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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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

Longest with $0 Intro balance transfer fee and 0% Intro APR

Chase Slate®

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

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.

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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Barclaycard Ring

Good 0% intro period with no intro fee

Barclaycard Ring™ MasterCard®, 15 months 0% introductory APR, $0 transfer fee

A no fee alternative if you already have a Chase balance or are looking to take care of additional balances is the Barclaycard Ring™ MasterCard® 0% introductory APR for 15 months. There’s no fee for the transfer, and you get the intro rate if you complete the transfer within 45 days. New purchases also get the intro rate for 15 months.

You need excellent credit to get this card so it might be tougher to get than some other options, but it has a decent ongoing APR at 13.74% and there’s no penalty APR if you miss a payment.

Transparency Score
Transparency Score
  • Interest is not deferred during the balance transfer period
  • You know the ongoing rate upfront – it’s a variable 13.74% APR for all cardholders
  • 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 transfer will happen 10 days after your card is mailed. You can also cancel the request within that 10 day period.

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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.

79_cardSpherecardbySantander

Longest 0% intro balance transfer card

Santander Sphere, 24 months, 0% APR, 4% 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 30.74% 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 (13.24% – 23.24%) 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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Decent 0% intro balance transfer period

Discover it® – 18 Month Balance Transfer Offer: 0% for 18 months, 3% balance transfer 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 (11.74% – 23.74% 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.

Signal Financial

Longest low rate balance transfer card

Unify Financial Credit Union, As low as 5.74% APR, no expiration, $0 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 5.74% with no expiration and no fee to transfer. 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.

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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SunTrust Prime Rewards

Long low rate balance transfer card

SunTrust Prime Rewards, 4.00% APR for 36 months, No 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 balance transfer fee. That’s currently 4.00% 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 3%. 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.

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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.

aspire credit union card image

For less than perfect credit

Aspire Credit Union Platinum,
0% APR for 6 months, 0% transfer 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.

3 Steps for Setting up a Balance Transfer

Nick Clements of MagnifyMoney, who once ran a large credit card business, explains how to set up 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 see a list 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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Life Events, Pay Down My Debt

What Happens to Loans When We Die?

Editorial Disclaimer: 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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You may not have to pay loans after you pass away, but that doesn’t mean they disappear into thin air. There isn’t a one-size-fits-all answer as to what happens to your loans when you die, but there are many factors that can affect them. Where you live, the types of loans you have, as well as who applied for them can determine what happens.

While it’s not fun to think about your eventual demise, it’s necessary to know if your debt could be passed onto another person.

Gathering Up Loans

When you pass on, your executor will notify creditors, hopefully as soon as possible. Whatever known creditors you have, the executor will notify them and forward a copy of your death certificate and request that they update their files. He or she will also notify the three major credit reporting agencies to notify them that you are no longer alive, which will help prevent identity theft. As well, the executor will then get a copy of your credit report to figure out what debts are outstanding.

When that is completed, the executor will go through probate, which means that your estate goes through a process of paying off bills and dividing what’s left to the state or whoever you named in your will.

When Someone May Be Responsible for Paying Back Your Loans

Simply put, your loans are the responsibility of your estate, which means everything that you owned up until your death. Whoever is responsible for dealing with your estate (usually your executor) will use those assets to pay off your debts. This could involve selling off property to get money to pay it off or writing checks to do so. The rest of it then will distributed according to the wishes in your will. If there isn’t enough money to pay off the debtors, then they’re usually out of luck.

However, this isn’t always the case. If you co-signed a loan or have joint accounts (like credit cards), then the account holders may be fully responsible to pay off the whole debt, no matter who incurred it.

If you live in a community property state, then your spouse could be responsible for paying off your loans. If you have property in Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin, your spouse may have to pay back half of any community property from a marriage. This doesn’t include any loans you have that came before the marriage. However, Alaska only holds a spouse responsible if they enter into a community property agreement. All states have different rules, so it’s best to check what will apply to your situation.

There is also the “filial responsibility” law that could hold your adult children responsible for paying back loans that are related to medical or long-term care. The same works in reverse. Currently, there are around 30 states that enforce this law, including Maryland, Pennsylvania, and Virginia. Some enforce this law pretty strictly, so it’s best to check with your state to see what could happen.

For more details on the different types of loans, read on to find out about what could happen to each when you pass on.

Credit Card Debt

If the credit card debt was yours and yours alone, then your estate is responsible for paying off the debt. Depending on which state you live in, creditors may only have a limited time to file a claim after you have died. If your estate goes through probate, then the executor will look at your assets and debts and determine which bills should be paid first, according to the law.

If there isn’t money left when it comes time to pay off your credit cards, those companies unfortunately have to call it a loss. Credit card companies cannot legally force family, friends, or heirs to pay back your debt unless you live in a community property state. In that case, your surviving spouse may be liable.

However, if the credit card is joint, the other account holder is responsible for it. That means if a family member or business partner signed the card application as a joint account owner, then he or she will need to help pay back the loan along with your estate. However, if your partner is just an authorized user (meaning he or she didn’t sign the application), then they’re not held responsible.

Mortgages and Home Equity Loans

There are several options for dealing with an outstanding mortgage after you have passed away. Due to the complexity of these options, it may be worth speaking with a local estate attorney.

If you are the sole owner and your mortgage has a due-on-sale clause, your lender may try to collect the entire balance of the loan or foreclose on the property. However, the CFPB has expanded protection for heirs who have inherited a home. The transfer of property after your death won’t trigger the Bureau’s ability-to-repay rule, making it easier for your heirs to pay off your loan or refinance.

In contrast, a home equity loan against your home is different. A lender may have the right to force someone who inherits the home to pay back the loan right away. Some lenders may work with your heirs to take over the payments or work out a plan, but you shouldn’t assume that will be the case. In a worst-case scenario, your heirs may have to sell your property to pay back your home equity loan.

Car Loans

Car loans are similar to the other types of debt we have discussed. The steps for handling this type of debt will depend on whose name is on the loan and where you live. If your heirs or co-signer are willing to take over your payments, the lender won’t need to take any action. However, the lender can repossess the car if the loan isn’t paid back.

Student Loans

If you have federal student loans, these will be discharged when you die. It will not be passed onto anyone else. If you were a student recipient of Parent PLUS loans, you’re also eligible for a death discharge. These loans will not be the responsibility of your estate. Your executor simply has to present an original death certificate or certified copy of your death certificate to your loan servicer.

However, if you and your spouse co-signed Parent PLUS loans on behalf of a student, your spouse will still be responsible for the balance.

Some private lenders may also offer a death discharge if you don’t have a co-signer. However, these policies vary by institution. You should review the terms of your loan for the specifics. Wells Fargo is an example of a company that may allow student loan forgiveness in the case of death.

However, if your private loan has a co-signer, your co-signer may be legally responsible to pay back your debts. Some companies may ask for the balance immediately. Also, if you live in a community property state, your spouse may be held responsible for your student loans if the debt was acquired during the marriage.

Medical Bills

If you have outstanding medical bills, nursing home bills, or any expense related to your long-term care, your spouse or family members may be responsible for paying it back per your state’s filial responsibility laws.

Your children could be held responsible for your medical bills if the following scenarios are true:

  • You receive care in a state with a filial responsibility law.
  • You don’t qualify for Medicaid while receiving care.
  • You can’t afford your bills, but your children can.
  • Your caregiver sues your children to collect on your unpaid bills.

Final Thoughts

The last thing your family members want to think about after you have died is outstanding loans. This is why it is essential to get organized in advance. It may be worth speaking with a financial planner regarding the specifics of your individual situation. They can help you review which options could best protect your heirs from your unpaid debt. Once you have passed away, your heirs should seek assistance from a qualified estate attorney.

Sarah Li Cain
Sarah Li Cain |

Sarah Li Cain is a writer at MagnifyMoney. You can email Sarah Li here

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Balance Transfer, Pay Down My Debt

The Fastest Way to Pay Off $10,000 in Credit Card Debt

Editorial Disclaimer: 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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Before you read on, click here to download our FREE guide to become debt free forever! 

Screen Shot 2015-02-03 at 1.30.44 PM

Digging out of the debt hole can feel frustrating, intimidating and ultimately impossible. Fortunately, it doesn’t have to be any of those things if you learn how to take control.

Paying down debt is not only about finding the right financial tools, but also the right psychological ones. You need to understand why you got into debt in the first place. Perhaps it was a medical emergency or a home repair that needed to be taken care of immediately. Maybe you’d already drained your emergency fund on one piece of bad luck when misfortune struck again. Or maybe you’re struggling with a compulsive shopping problem, so paying down debt will likely result in you accumulating more until the addiction is addressed.

Understanding the why and how of your debt isn’t the only reason psychology plays a role in how you should create your debt attack plan.

You also need to understand what motivates you to succeed. Do you want to pay down your debt in the absolute fastest amount of time possible that will save more money or do you want to take some little wins along the way to keep yourself motivated?

The common terms for these debt repayment strategies are:

  • Debt avalanche: starting with the highest interest rate and working your way down, which saves both time and money.
  • Debt snowball: paying off small debts first to get the warm and fuzzies that will motivate you to keep going.

Whichever version you pick needs to set you up to be successful in your debt repayment strategy. Now it’s time to find the proper tools to help you dump that debt for good.

The first step in crafting a debt repayment strategy is to understand what you’re eligible to use. Your credit score will play a big role in whether or not you’ll qualify for products like balance transfers or competitive personal loan offers.

A credit score of less than 600 will make it difficult for you to qualify for a personal loan and will eliminate you from taking on a balance transfer offer.

If you have a credit score above 600, you have a good chance of qualifying for a personal loan at a much lower interest rate than your credit card debt. With new internet-only personal loan companies, you can shop for loans without hurting your score. Use this tool to see if you can get approved for a loan without hurting your score. Click here to get rates from multiple lenders in just a few minutes, without a credit inquiry hurting your score. For people with the best scores, rates start as low as 4.80%.

If you have a score above 700, you could also qualify for 0% balance transfer offers.

[Click here if you’re looking to rebuild your credit score.]

Not sure what your credit score is? Click here to learn how to find out.

Now let’s talk about the financial tools to add into your debt repayment strategy in order to dig out of the hole.

Let’s say you have $10,000 in credit card debt, and are stuck paying 18% interest on it.

You already know that putting as much spare cash as you can toward paying down your debt is the most important thing to do. But once you’ve done that, so what’s next?

Use your good credit to make banks compete and cut your rates

MagnifyMoney’s Paying Down Debt Guide has easy to follow tips on how to put banks to work for you and get your rates cut.

You could save $1,800 a year in interest and lower your monthly payments based on several of the rates available today. That means you could pay it off almost 20% faster.

Here’s how it works.

Option One: Use a Balance Transfer (or Multiple Balance Transfers)

If you trust yourself to open a new credit card but not spend on it, consider a balance transfer. You may be able to cut your rate with a long 0% intro APR. You need to have a good credit score, and you might not get approved for the full amount that you want to transfer.

Your own bank might not give you a lower rate (or only drop it by a few percent), but there are lots of competing banks that may want to steal the business and give you a better rate.

Our favorite offer is the Barclaycard Ring credit card from Barclays. There is a $0 intro balance transfer fee and 0% APR for 15 months. The card charges no annual fee. It also has a low APR after the balance transfer period is over, just in case you have a balance remaining.

Another great option is Chase Slate®. You can save with a $0 introductory balance transfer fee and get 0% introductory APR for 15 months on purchases and balance transfers, and $0 annual fee. Plus, receive your Monthly FICO® Score for free.

If you think it will take longer to pay off your debt, consider Discover, which offers an intro 0% APR for 18 months (with a 3% balance transfer fee). MagnifyMoney keeps the most complete list of the longest and lowest rate deals available right now, including deals with no fees. Just answer a few questions about how your debt and much you can afford to pay, and you’ll get a personal list of the deals that will save you the most.

promo-balancetransfer-halfIt also has six tips to make sure you do a balance transfer safely. If you follow them you’ll save thousands on your debt by beating the banks at their game.

You might be scared of a balance transfer, but there is no faster way to cut your interest payments than taking advantage of the best 0% or low interest deals banks are offering.

Thanks to recent laws, balance transfers aren’t as sneaky as they used to be, and friendlier for helping you cut your debt.

Sometimes the first bank you deal with won’t give you a big enough credit line to handle all your credit card debt. Maybe you’ll get a $5,000 credit line for a 0% deal, but have $10,000 in debt. That’s okay. In that case, apply for the next best balance transfer deal you see. MagnifyMoney’s list of deals makes it easy to sort them.

Banks are okay with you shopping around for more than one deal.

Option Two: Personal Loan

If you never want to see another credit card again, you should consider a personal loan. You can get prequalified without hurting your credit score, and find the best deal to pay off your debt faster. With just one application, you can get multiple loan offers with rates as low as 5.99% here.

Personal loan rates are often about 10-20%, but can sometimes be as low as 5-6% if you have very good credit.

Moving from 18% interest on a credit card to 10% on a personal loan is a good deal for you. You’ll also get one set monthly payment, and pay off the whole thing in 3 to 5 years.

Sometimes this may mean a higher monthly payment than you’re used to, but you’re better off putting your cash toward a higher payment with a lower rate.

And you’ll get out of debt months or years faster by leaving more money to pay down the debt itself. One of our favorite lenders is SoFi, which has some of the lowest interest rates on the market if you have good or excellent credit. Variable interest rates start as low as 4.99%*. You can apply now on their website, without impacting your credit score, by clicking on the apply button below.

SoFi logo

Apply Now

Brian Karimzad
Brian Karimzad |

Brian Karimzad is a writer at MagnifyMoney. You can email Brian at brian@magnifymoney.com

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Balance Transfer, Featured, News, Pay Down My Debt

Can a Balance Transfer Hurt Your Credit Score?

Editorial Disclaimer: 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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Can a Balance Transfer Hurt Your Credit Score?

When you are carrying a balance on a high-interest credit card, receiving a 0% balance transfer offer can be enticing. After all, shifting the balance from a high-interest credit card to a no-interest card means saving money on interest and paying down the balance faster.

But how will the balance transfer impact your credit score?

First, you should understand three crucial elements that go into determining your credit score: inquiries, credit utilization, and length of credit history.

  • Inquiries – How many new accounts have you opened lately? Whenever you apply for new debt, the lender performs a “hard inquiry” to determine whether they will approve your application. According to FICO, hard inquiries account for about 10% of your credit score.
  • Credit utilization ratio – How much do you owe? Your credit utilization ratio is calculated based on your total outstanding balances compared to your total credit limit. It is calculated both per card and across all of your credit accounts and makes up about 30% of your credit score.
  • Length of credit history – How long have you been using credit? This factor looks at the age of your oldest account as well as the average length of all of your credit accounts. The longer your history, the higher your score. According to FICO, the length of your credit history accounts for about 15% of your credit score.

How balance transfers can hurt your credit score

Balance transfer applications count as a hard credit inquiry

When you open a new account for a balance transfer, the lender will perform a hard inquiry. One hard inquiry is unlikely to have a large impact on your credit score. If you have excellent credit and haven’t applied for a card in the last six months, one hard inquiry may not impact your score at all. Inquiries could have as much as a ten-point impact, but that would be very rare. The typical impact of one hard inquiry is about five points. However, if you apply for several cards at once, the applications could have a big impact.

Balance transfers lower the average length of your credit history

Opening a new credit account will lower the average age of your credit accounts, which can negatively impact your credit score in the short term.

For example, if you have one 5-year-old credit card, one 3-year-old credit card, and one 10-year-old credit card, the average age of your cards is 6 years.

When you open a new credit card for a balance transfer, you now add a less-than-one-year-old account to your balance. At the most, your average credit age will drop down to 4.75 years.

How balance transfers can improve your credit score

All in all, the benefits of balance transfers can far outweigh the negatives.

You will likely lower your utilization rate

Opening new credit accounts decreases your overall credit utilization ratio, which positively affects your credit score over time. For example, if you have one credit card with a $5,000 limit and a $2,500 balance, your credit utilization ratio is 50%. When you open a second account with a $5,000 limit and transfer the $2,500 balance to the new card while leaving the old account open, your total available credit is $10,000 ($5,000 + $5,000), and your outstanding balance is still just $2,500. You’ve reduced your credit utilization rate to 25%.

What happens if the new account’s limit is just $2,500 and you transfer the full $2,500 balance? You’ve still reduced your overall credit utilization ratio. Now you’re using 33% of your available credit ($2,500 / $7,500). However, the negative is that there are still some points taken away if you max out one card. You didn’t have any maxed out cards before, and now you do. Credit scores are very sensitive to people who max out their credit cards as they’re seen as high risk. Maxing out a new card could reduce your credit score by about 30 points in the short term.

You will be paying off debt faster, improving your score dramatically

Where balance transfers get exciting is that more of your money is going to paying off the balance of your debt as opposed to interest. Ultimately, the best credit score comes from carrying as little debt as possible.

Using our previous example of the $2,500 balance on one card, assume that card had a 21% interest rate and you could afford to pay $220 per month toward paying it off. According to MagnifyMoney’s balance transfer calculator, if you did not take advantage of a balance transfer, the card would be paid off in 13 months, and you would pay $309 in interest. If you transferred that balance, even with a 3% balance transfer fee ($75), you could pay off that balance one month sooner and save $234.

In the end, your goal should be to pay off your debt as quickly as possible. Over the course of a year, as long as you stick to your strategy, you can eliminate that debt in a year, and your score will go up a whole lot faster than it otherwise would.

When to avoid balance transfers

The short-term impact of a balance transfer on your credit score should only concern you if you are planning on applying for a mortgage in the next six to nine months. During this period, every point on your score counts. Just a 0.2% difference in your interest rate can cost a ton of money over the life of your mortgage. In that case, wait until after you get the mortgage to do the balance transfer.

The bottom line

People are so programmed to think about their score that they sometimes lose sight of what they want the high score for. A higher score saves you money and gets you out of debt faster. Don’t focus on short-term fluctuations of 10 to 20 points. Use your good credit score to save money. That’s what it’s there for.

Janet Berry-Johnson
Janet Berry-Johnson |

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

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