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.
If you’re deep in debt, you may have looked into getting some outside help to find relief. Frequently, your search for aid will bring you to debt settlement firms.
Debt settlement firms negotiate directly with your creditor to reduce your debt. If they succeed in settling your debt for a lesser amount, you will then be required to make one lump-sum payment, effectively wiping out your obligation.
Using these firms may sound like a lifesaver to someone struggling to pay off many debts at once. But debt settlement firms can actually cause more harm than good to your finances if you aren’t careful.
“Based on all the evidence we’ve seen, it is extremely rare that anyone benefits from using a debt settlement firm,” says Andrew Pizor, a staff attorney with the National Consumer Law Center.
Before you agree to work with a debt settlement firm, it’s important to know the risks:
5 Risks of Working with a Debt Settlement Firm
1. You will have to stop paying your debts. When you begin working with a debt settlement firm, many firms will encourage you to stop paying your debts and start paying into a third-party bank account. The idea is that you will eventually build up enough money in that account to be ready to make a lump-sum payment when the firm succeeds in convincing your lender or collections agency to settle.
This, of course, means that your accounts are going to become increasingly delinquent. It can take up to 36 months to fully fund a debt settlement firm account, according to the Federal Trade Commission.
While you are not paying your debt, your creditor can send your account to collections or even file a lawsuit against you before the settlement firm gets a chance to negotiate. You could also be responsible for any interest, late fees, and legal fees that have accrued over that time as well.
2. They may not succeed in settling your debt. Once you have saved up enough money to make a lump-sum offer to the creditor, the debt settlement firm will attempt to enter negotiations. What they may not tell you is that some creditors will not work with these firms as a rule. That means it’s possible that after you’ve saved enough money for the payment — meanwhile, allowing your accounts to become severely delinquent and your credit score to tank — you could be left without a resolution at all. To avoid this, call your lender or collections agency directly to ask if they work with debt settlement agencies before you sign up for their services.
3. They’ll take a portion of your debt savings. If the firm is able to successfully negotiate, they will often take a cut of your savings in return. For example, if you owe $10,000 and they are able to negotiate a lump-sum payment of $8,000 with $2,000 of your original debt forgiven, the firm would take a percentage cut of that $2,000.
4. Your credit will tank. It is important to note that debt settlement shows up on your credit report when it is reported to the credit bureaus. It will serve as a red flag to future lenders that in the past, you have not paid your debts in full. This could result in higher interest rates, smaller lines of credit, or even failure to get approved for credit at all.
5. You could face a hefty tax bill. If the amount forgiven is $600 or more, you will most likely have to report it as taxable income. Let’s look back at our earlier example. When that person settled their $10,000 debt for $8,000, the lender effectively forgave $2,000. To the IRS, that forgiven debt could be treated as additional income and you could owe taxes on it.
What to Look for in a Debt Settlement Firm
There are six things you should consider red flags when it comes to debt relief services, according to the FTC:
The company charges any fees before it settles your debts
The company advertises that they are part of a “new government program” to bail out personal credit card debt. There are no such programs.
The company guarantees it can make your unsecured (credit card) debt go away
The company tells you to stop communicating with your creditors, but doesn’t explain the serious consequences
The company tells you it can stop all debt collection calls and lawsuits
The company guarantees that your unsecured debts can be paid off for pennies on the dollar
Almost all states have some form of regulation for debt relief services. Some states ban them altogether.
A debt settlement firm may be licensed to operate in your state, but that does not mean they are necessarily the best for your needs. Because state licensing agencies are not federally regulated, quality standards can vary widely from state to state.
What should you look for, then?
A best-case scenario, according to Pizor, is finding a company that only takes a percentage of your debt reduction in exchange for their services. “This setup helps better align their interests with your own,” Pizor says. If you do well, they do well.
How to Avoid Debt Settlement Scams
Most debt settlement firms focus on unsecured consumer debt, like credit card debt. The most common scams in these situations involve telemarketing. You’ll receive a call from a company posing as a debt settlement firm that promises to reduce the amount of debt you owe as long as you pay an upfront free. They may even tell you that you don’t have to pay a fee until later as long as you’re saving money in a third-party account.
The latter sounds legitimate, but in both these situations, the supposed debt settlement firm can easily run with your money. There was a flurry of these telemarketing scams following the 2008 financial crisis, prompting the FTC to add further federal regulations under their Telemarketing Sales Rules.
If you can’t sit down with someone in person, it’s difficult to judge their legitimacy. In these situations, it’s best to just hang up.
Another tactic scammers perpetrate is using a lawyer as a front. This lawyer may be licensed to practice in your state, but will outsource your debt woes to companies across the country, or even the world, that have no legal background.
In order to avoid this scam, make sure you can sit down with the lawyer face to face in their office. Pizor recommends asking probing questions to get a feel for their legitimacy, including, “Who will be working on my case?”
If the lawyer or a paralegal in their office will be doing the work, that is much more acceptable than someone they cannot immediately supervise in person, or someone without a background in law.
Scams also frequently happen in the student loan sector. You’ll often see settlement firms advertising that there is a “new government program” that could help you settle your student loan debt. This is tricky because there are legitimate government programs that can help those with federal student loans defer payments or even forgive their remaining debt, but you should never have to pay anyone a fee in order to access these programs.
As long as you’re aware of the effect it may have on your credit, you can negotiate a settlement on your own. Many creditors have a floor for how much they’ll reduce your debt in favor of a lump-sum payment. This floor applies to debt settlement firms and consumers alike. By entering negotiations without a third party, you can save yourself the fees and potential victimization that you would risk by working with a debt settlement firm.
There are two important things to remember before you settle your debt:
You will likely need to provide a lump sump payment right away. It’s unlikely a debt collector or lender will accept installments. Also, having the ability to make a lump sum payment could give you additional bargaining power.
As we mentioned before: If the debt is settled for a lesser amount, you may be taxed on the portion of the original debt that was forgiven.
Consider Paying Your Debt in Full
Debt settlement leaves a scar on your credit report that will take years to fade. If possible, attempt to negotiate a lower interest rate and/or longer terms that may decrease your monthly payment. Just be aware that a longer term may lower your monthly payments but increase the amount of interest you pay over the course of your loan, even if your interest rate goes down or stays the same. However, you’ll more likely be able to afford your payments and possibly save your credit report.
That being said, some debts may have passed their statute of limitations in the state in which they originated. Once that statute of limitations has been passed, it is no longer possible for the lender or collections agency to sue you for those unpaid debts. Furthermore, they may have already fallen off your credit report. However, if you make any further payments, the clock will restart and the debt will be revitalized. Consult a consumer law attorney or a credit counselor before deciding whether to make a payment on an old debt.
It’s no secret that financial education is sorely lacking in the U.S. However, this does not mean that you can’t seek financial education from reputable sources. If you have little to no knowledge on the topic of personal finance and are struggling with your finances, then you may consider credit counseling.
Credit counseling can involve a variety of services including educational materials and real-world application to your finances. Credit counselors can help you to set a budget and advise you on how to manage debt and your money in general.
According to the Federal Trade Commission (FTC), reputable credit counseling organizations have certified counselors who are trained in consumer credit, money and debt management, and budgeting. Credit counselors will work with you to come up with an individualized plan to address the money issues you are facing.
Seeking credit counseling is typically voluntary but can be required when filing for bankruptcy. In this guide, we’ll answer some key questions you might have about credit counseling and whether it’s right for you.
How Do You Find a Credit Counselor?
Before settling on a credit counseling organization, do your homework to make sure they are not only reputable but will also be the most helpful for your particular financial circumstances. Check with your state’s attorney general and the consumer protection agency present in your state to see if there have been any complaints filed.
When looking for a good credit counseling agency, first ask about what information or educational materials they provide for free. Organizations that charge for information are typically more interested in their bottom line than helping you. Also, ask about the types of services they offer. Limited services can be a red flag. The fewer services they offer, the fewer solutions they may provide you.
You do not want to be pushed into a debt management plan simply because that is their top service. And make sure you understand the organization’s fee system, not only how much services will cost but also how employees are paid. If employees make more based on the number of services you receive, look for another credit counseling organization.
MagnifyMoney has come up with a list of some of the best credit counseling options, which are a great place to start. If you are looking for credit counseling as a pre-bankruptcy measure, the U.S. Trustee Program has a list of approved credit counseling agencies that can provide pre-bankruptcy counseling.
How Much Does Credit Counseling Cost?
Credit counseling can involve both start-up and monthly maintenance costs. The Department of Justice has said that $50 per month is a reasonable fee. Further, the National Foundation for Credit Counseling (NFCC) has suggested that a start-up fee should not exceed $75 and monthly maintenance fees should not be more than $50 per month.
Credit counseling agencies may offer fee waivers or fee reductions, depending on your income levels. Where credit counseling is required, the DOJ requires that if the household income is less than 150% of the poverty line, then the client is entitled to a fee waiver or reduction. While the poverty line varies depending on household size, it ranges from $11,880 for a single person family household to $24,300 for a family of four.
Other regulations, such as when fees can be collected and circumstances that would warrant fee reduction or waiver, may also be set forth by your state.
How Long Does Credit Counseling Last?
While the length of your credit counseling session depends on the complexity of your financial problems, sessions typically last 60 minutes. After the initial session, credit counselors will then follow up to ensure you understand the actions you needed to take and that you have been able to get started on the plan they developed. Another session may be necessary if you see a significant change to your financial situation.
What Do You Accomplish with Credit Counseling?
According to the NFCC, reputable counseling involves three things. First, a review of a client’s current financial situation. You cannot move forward unless you know where you are starting. Second, an analysis of the factors that contributed to the financial situation. You don’t want bad habits to undermine your progress. Lastly, a plan to address the situation without incurring negative amortization of debt. This gives you a place to start in improving your financial situation.
What Is the Difference Between Credit Counseling and Debt Management Programs?
A debt management plan is just one solution a credit counselor may recommend based on your financial situation. Having a debt management plan is not the same as credit counseling.
A debt management plan involves the credit counseling organization acting as an intermediary between you and your creditors. Each month you will deposit an agreed upon amount of money to your credit counseling agency, which will, in turn, apply it to your debts. The credit counseling agency works with your creditors to determine how the amount will be applied each month as well as negotiates interest rates and any fee waivers. It’s important to call your creditors directly to check whether they are open to negotiating interest rates or offering waivers for fees. In some cases, a credit counseling firm may promise to negotiate those things for you but be stonewalled when they discover a creditor isn’t even open to the discussion.
Before agreeing to a debt management plan, make sure you understand any fees associated with the debt management plan and any choices you might be giving up. For example, some debt management plans may have you agree to give up opening up new lines of credit for a specified period of time. Remember that a debt management plan is just one of many solutions a credit counselor may advise you to consider.
How Does Credit Counseling Impact Your Credit Score?
Not directly. While the fact you are in credit counseling may show up on a credit report, that fact does not affect your score. The actions you take as a result of credit counseling can impact your score. For example, if you don’t choose a reputable credit counseling agency, the agency may submit the payment on your behalf late to your creditors, which can damage your credit score. So even though you submitted your payment on time to the credit counseling agency, it is possible that the credit counseling agency will issue a late payment on your behalf. This is why it is important to make sure you use a reputable credit counseling agency.
Who Should Consider Credit Counseling and When?
While credit counseling is sometimes required, like in instances of bankruptcy, you always have an ability to seek credit counseling. Bankruptcy attorney Julie Franklin, based in Boston, Mass., explains, “For bankruptcy purposes, there are two course requirements — a debtor must complete the first credit counseling course prior to filing and obtain a certificate that is filed with the court in their initial bankruptcy petition documents. Post bankruptcy filing, the debtor is required to take a second course, and upon completion, the certificate that is issued must be filed with the court in order for the debtor to obtain an order of discharge.”
Anyone struggling with personal finance should consider credit counseling as a viable option so long as they use a reputable credit counseling agency. Franklin also notes that “the first credit counseling course is a tool for debtors as it compels the individual taking the course to closely examine the household assets, income, liabilities, and spending habits to determine if there’s a way to ‘save’ the debtor from having to file bankruptcy.” If you are considering bankruptcy, you will have to attend some credit counseling anyway, but it could also help you to avoid filing for bankruptcy.
Voluntary credit counseling might not help if you are already being sued to have a debt collected. However, you may be able to negotiate terms with the debt collector that result in a withdrawal of the suit if you agree to enroll in credit counseling and possibly a debt management program. Not all creditors will agree to such terms, but it is possible.
Most of us start the year with high hopes for the health of our bodies, minds, careers, and — of course—bank accounts. But you probably don’t need a statistician to tell you that when it comes to keeping your New Year’s resolutions, the odds are stacked against you.
[Are you ready to become debt-free in 2017? MagnifyMoney has created a FREE online guide to help you get out of debt.]
Why do these plans fall apart so easily? We talked to two certified financial planners to find out what held people back from sticking to their self-improvement plans in years past — and what can be done to overcome these obstacles in 2017.
No. 1: Your resolutions are unrealistic or unclear.
Vague, lofty goals like “lose weight” or “save money” can do more harm than good; undefined targets can leave you overwhelmed and discouraged when you don’t immediately succeed. That’s why resolutions should start small, according to Kristen Euretig, certified financial planner and founder of Brooklyn Plans in Brooklyn, N.Y., a company specializing in helping today’s women with their finances. “Take into account a realistic but ambitious goal that can be achieved in a year and would be forward momentum toward an even larger goal,” says Euretig. “Buying a house may be too much to tackle in a year, but saving the first 10% of a down payment could be a realistic starting point that would also be quite an accomplishment.”
Another trick to keep you from getting overwhelmed? Be as specific as possible. Euretig recommends breaking up big resolutions into defined subgoals with set deadlines. Rather than resolving to pay off student debt, says Euretig, start by figuring out if your payment plan is working to your advantage. That way, you’ll better understand the time and effort required to reach your goal and appreciate any incremental progress along the way.
No. 2: Your resolutions don’t align with your needs or lifestyle.
Ever find yourself rationalizing your way out of a behavioral change? Maybe you can’t go to the gym today because you have important errands to run, or you neglect that book on your nightstand because there is a movie on Netflix you’ve been meaning to watch. Your reasons may be legitimate, but using them as a means of abandoning your self-improvement plan is detrimental to you in the long term.
Melissa Ellis, certified financial planner at Sapphire Wealth Planning in Overland Park, Kan., knows that a thorough understanding of your current behaviors and lifestyle can help you anticipate the setbacks you will face throughout the year and think up solutions that will keep you on track when challenges arise. If your goal is to max out your Roth IRA, Ellis notes, you need to make sure you have the discretionary income to make it happen; if you know at the start of the year that you’ll have to cut back somewhere else in your budget (like your take-out habit) to find the extra money, you’re more likely to stick to the plan.
No. 3: You sacrifice your future well-being for your present happiness.
Most of us treat our future self as a different person. Unfortunately, it’s often a person we don’t seem to care much about. This phenomenon — our willingness to sacrifice our future well-being for immediate gratification — is called myopia temporal discounting. It’s one reason why many people continually put off diets, start saving for retirement later than they should, or rack up credit card debt for items or experiences they can’t afford. In fact, credit cards are the ultimate trap for people who like to live in the present vs. think about the future.
“It’s easier to put off the intangible, because it’s not an immediate need,” says Ellis. Try connecting with your future self by visualizing what you would like your life to look like at age 40, 60, or 75, and think about what steps, however small, you can take today to make that vision a reality.
You should know your financial personality — that is, how you perceive time and how that perception impacts your financial habits — before you make any financial resolutions. The better you understand your strengths and weaknesses, the more likely you will be to succeed.
Can you remember what your resolutions for last year were? It typically only takes about three weeks for most of us to get back into our old routines and forget all our intentions for the new year, especially if you don’t have a time frame for achieving the goal or a way to measure your progress.
“The best way to stick to resolutions is to make them real and to hold yourself accountable,” says Euretig. “Write goals down. Make a vision board. Put a picture of the vision board as the wallpaper of your phone. Share your resolutions with an accountability partner who you can check in with along the way or with your social media community.” Setting aside time each week or each month to check in with yourself about your success will help you remember the resolutions throughout the year. If you need an extra boost, tap a friend or family member who can help remind you to stay on track or, even better, join you on the journey.
No. 5: You forget to reward yourself.
It’s easy to lose motivation as the year goes on and you settle into old routines. Any sense of urgency goes away, and you can end up putting off behavioral changes indefinitely until it’s January again.
That’s why Ellis recommends rewarding yourself throughout the year if you are successfully sticking to your resolution. If you meet your goals of, say, paying off a department store credit card, maybe buy yourself a pair of shoes — but be sure to do it in cash, so you’re not buying something you can’t afford and racking up more debt. “It’s something concrete you can look at to remind you that you have made a change,” Ellis says.
Whether your goals are about money, your career, relationships, or fitness, it’s important to remember that good things typically don’t come easily. Taking time to set the right goals, define an execution plan, and regularly track your progress will make sticking to your resolutions a little less painful — and a lot more likely to happen.
Are you ready to become debt-free in 2017? MagnifyMoney has created a FREE online guide to help you get out of debt.
With the holiday season drawing to a close, some Americans are going to find themselves nursing a pretty serious debt hangover.
In our second annual holiday debt survey, MagnifyMoney found consumers who took on debt this holiday season will kick off the New Year with an average of $1,003 worth of new debt. That is up from $986 in 2015, for a year-over-year increase of 1.7%.
Our survey consisted of a national sample of 552 Americans who reported they added debt during the holidays.
Here are key findings:
Most people who went into debt didn’t plan on it
Racking up credit card debt isn’t exactly a problem in and of itself, so long as you have the cash on hand to pay it off quickly. But in our survey, we found the vast majority — 65.2% — of consumers who took on debt did so unexpectedly this year, and didn’t budget for the extra expenses.
It’s easy to imagine scenarios in which people might spend more than they can afford over the holidays. Last-minute gifts, family emergencies, and, for some, fewer work hours, can all add up to a hefty credit card bill if not planned for in advance.
Most people will be paying off their debt for 4 months or more
Less than one-quarter of those surveyed said they can pay off their debt within one month. Nearly half (46%) predict they’ll need four months or more to pay off their holiday debt, or will only make the minimum monthly payments.
Nearly 12% of respondents said they only plan on making minimum monthly payments, which can extend repayment for years.
A person carrying an average debt load of $1,003 who makes one $25 minimum payment per month would need 58 months (4.8 years) to pay off their debt. That calculation assumes an average APR of 16%.
On top of paying off their principal balance of $1,003, over that time they would pay an additional $442 worth of interest for a grand total of $1,445.
Credit cards were the most common form of debt
For another year, credit cards reign as the most popular source of holiday debt. In fact, even more consumers reported using credit cards for holiday debt this year than in 2015 — 59.9% vs. 52%.
Unfortunately, the number of consumers who turned to payday loans this year increased, from 6% in 2015 to 7.1% in 2016. Payday and title loans are hands down the most costly options for people who find themselves in need of cash.
We did find one bright spot, however. This year, the rate of consumers who said they used store credit cards fell dramatically, from 30% in 2015 to 17.1% in 2016. Store credit cards can often come with painfully high interest rates and other gotchas like dreaded deferred interest policies.
Shoppers are stuck with higher rates this year
This year, half of survey respondents (50%) said their debt carries an APR of 10% and above. Among those, 34.7% have APRs between 10-19% and 16% carry APRs above 20%.
The rate of people who are stuck with 20% or higher APRs rose significantly year over year, from 9% in 2015 to 16% this year.
But most people won’t bother to get a lower rate
Despite the fact that almost half of respondents expect to take 4 months or more to pay off their debt, a mere 13% of respondents said they plan to shop around to find a better rate with a different bank or loan. That’s even worse than last year, when 22% of respondents said they would shop around for a better rate.
The most cited reason for not wanting to shop around is not wanting to deal with another bank, noted by 20.9% of respondents this year.
Using the MagnifyMoney credit card payoff calculator, we found a consumer with $1,003 in debt at a 16% rate making minimum payments would shave over a year off debt repayment and save over $400 in interest payments by finding a 0% balance transfer.
Millennials were most likely to go into debt over the holidays
Among all age groups, people ages 24-35 were most likely to say they went into debt this holiday season with a rate of 14.3%. With the exception of 45-54-year-olds, the likelihood of going into debt decreased with age. Seniors were least likely to say they went into debt, with a rate of 7.6%.
How to free yourself from holiday debt:
In preparation for the new year, MagnifyMoney released the 2nd edition of its free 45 page Debt Free Forever eBook – that you can download to prepare your action plan, tailored to whether your situation calls for a quick switch to a lower rate, or more significant debt payoff advice.
Key tips for beating the debt cycle include:
Understand where your money actually went. The best way to fix your spending problem is to understand where the money has actually gone. And there are great apps, like LevelMoney or Mint, which can help you understand where your money has gone over the last 3 months. We particularly like LevelMoney, because it splits your expenditure into fixed, recurring expenses and variable expenses.
Review your credit report from all three reporting agencies. You need to know what is on your credit report in order to build a good credit score. You can download your report for free at AnnualCreditReport.com for all three bureaus.
Understand your credit score and put together a plan to improve your score during 2017. People with the best scores never charge more than 10% of their available credit and pay their bills on time every month. Not only is that good for your score, but it is good for your wallet. And you can now get your official FICO score for free in a number of places. Otherwise, you can get your VantageScore at sites like CreditKarma.
If you have a good credit score, your debt can probably be refinanced. Mortgages, student loans, auto loans and credit cards (with a balance transfer or personal loan) can all be refinanced. Find ways to lock in much lower interest rates now before rates go up to help you pay off your debt faster. But avoid extending the term to get a lower payment. The biggest trap people fall into with refinancing is that they lower their rate and extend their term, like taking a 30 year refinance on a mortgage that’s set to be paid off in 15 years. By doing this, you might end up paying more money in the long run. Second, be careful before you refinance federal student loans, because you give up valuable protection.
Paying off the debt with the highest interest rate first will save you the most money (the debt ‘avalanche’ method), but a recent study shows you’re more likely to stick to paying off your debt if you pay the debt with the smallest balance in full first (the debt ‘snowball’ method), even if it doesn’t have the highest interest rate. That’s because small ‘wins’ help build momentum to keep you motivated.
Automate all of your payments. Data has consistently shown that automating decisions greatly increases the likelihood of achieving your goals. To build that emergency fund, set up automatic transfers from your checking to your savings account. (Even better, get a higher interest rate online account and keep it completely separate from your checking account). To build your retirement savings, automate your 401(k) or IRA contributions. And to pay your credit card bill, automate your monthly payments.
‘Net worth’ is not just a concept for the rich, and you need to focus on your net worth now. Net worth is a simple concept: it is what you own minus what you owe. Building wealth and being financially responsible means you are building your net worth. A good salary doesn’t help your net worth if you’re spending it all on your car and clothes and not saving each year. Focus on the right number: building your net worth.
Before you consider a balance transfer:
If you need to buy yourself more time while you trim expenses and work on paying down your debt, a balance transfer can be a useful tool, but one that can backfire if you’re not disciplined. A balance transfer is simply a process where you transfer the balance from one or more credit cards onto a single new credit card with a different rate.
You can use our balance transfer calculator to estimate whether getting a balance transfer credit card will help you save money and pay off your debt faster.
If it will help, you’ll first need to check your credit score to see where you stand since you’ll be applying for another credit card. Balance transfer offers typically require a credit score of 680 or higher to be approved.
It’s also important to do the math before signing up for a new credit card. Be honest about how much you can afford to pay each month to determine how much a balance transfer will save you in the long run.
And keep these tips in mind:
Many balance transfer offers have fees of 3% or more. While that can be worth it for large balances, make sure you compare the fee versus what you will save in interest and when you think you’ll pay off the debt.
On most cards, balance transfer offers are only valid if you complete the transfer within the first 60 days.
One month before your rate expires, look for another offer because when the 0% period expires, the interest rate will rise significantly.
Don’t spend on the new card. Unless the 0% offer extends to purchases, you will be charged interest on your spending and rack up more debt.
2016 Post-Holiday Debt Survey Questions
Methodology: MagnifyMoney surveyed 552 U.S. adults who reported they added debt over the holidays via Google Consumer Surveys from December 26 – 27.
Average Debt Among Shoppers Who Said They Went into Debt Over the Holidays
Did you go into debt this holiday season?
Age 25-34: 14.3%
Age 35-44: 10.9%
Age 45-54: 12.5%
Age 55-64: 8.5%
Age 65+: 7.6%
If you went into debt, did you plan to go into debt this holiday season?
If you’re struggling to pay off several debts at once, a group of researchers may have found the best strategy for success.
In the study, which was highlighted in the Harvard Business Review in December, researchers found people who concentrated on paying off just one of several debts before moving on to the others repaid their debt 15% faster than people who consolidated their debts and tackled them all at once.
The researchers, who hailed from Boston University, University of Alberta, University of Manitoba, and Georgetown University, collected anonymous data from more than 6,000 HelloWallet users over 36 months. HelloWallet is an online financial program that allows employees to make financial goals and track their spending and debt payments.
By analyzing the methods HelloWallet users used to pay off their debt — focusing on one small debt at a time or paying all debts at once — the researchers could tell which method worked best.
“Our research suggests that people are more motivated to get out of debt not only by concentrating on one account but also by beginning with the smallest,” Boston University professor Remi Trudel, co-author of the report, told the HBR.
If this strategy sounds familiar, it should. It’s exactly how the popular “debt snowball” strategy works. In this method, the key lies in building momentum early on by achieving small “wins,” paying off tiny debts first and working your way up to larger debts.
When you pay off your first $200 account balance, you’re more likely to be excited to tackle the credit card with $500 on it, then the card with a $1,500 balance, and so on. Likewise, by focusing on smaller debts, consumers are doing the crucial work of building good financial habits at an early stage. Once those habits become ingrained in their financial picture, they are more likely to keep them up, even as they take on larger debts.
If anything, Havard’s research simply supports why the snowball method is so popular — it really works.
Of course, if you are a fan of the other popular debt payoff methods like the debt avalanche or debt consolidation, this doesn’t necessarily mean you’re on a path to failure. If you have the option to consolidate all of your debts into one single loan at a lower rate (for example, by taking advantage of a balance transfer), math is on your side. By consolidating your debts at a lower interest rate, you will spend less money on interest over time.
However, if your high interest debts also happen to be the largest of your debt balances, you run the risk of getting discouraged early on and losing momentum because it will take so much more time to pay them off. If you are not confident that you’ll be motivated to pay off one large debt balance, you might be better off — as the Harvard study shows — working on your smallest debt first, even if it means paying more interest in the long run.
When you snowball debt, you order all of your debts by balance and prioritize paying off the account with the lowest amount first. The method was made popular by Dave Ramsey and is the approach many use when tackling debt. The hope is that paying off lower balance loans will motivate you to pay off the remainder of the debt.
Mathematicians would likely argue in favor of the debt avalanche method. The avalanche approach has you order your debt by interest rate in order of the balance. Then, you prioritize paying off the account balance with the highest interest rate and attack the rest of your debt that way. The argument for this method is that it saves you money in the long run since you can avoid paying the most interest and will likely address the principal of your debt faster.
If your account with the highest interest rate is also your highest or one of your highest accounts by amount, the “avalanche” could have the opposite effect of the snowball method. It can be difficult to stay motivated if you don’t feel as if you are making much progress, and you could be discouraged early on.
The payday loan trap begins innocently enough. You’re low on cash, you’ve maxed out your credit cards, and none of your family or friends can loan you the money. Borrowing $250 from a payday lender seems like a logical solution. As long as the $250 plus a $37.50 fee is paid at the end of the two-week term – the time your next paycheck comes due – you’ll be debt free. No harm, no foul.
Before you know it, you run out of money again and can’t repay the loan two weeks later. So you pay a fee to extend the loan for another 14 days. When the next term is up, you can have the lender cash your check or draw from your account for the initial amount of $250 plus the $37.50 fee, or you can pay to extend, yet again, with another fee payment.
This plot replays itself over and over again for months on end. After a year, you will have paid $975 to borrow $250. Effectively, you borrowed money with an annual percentage rate (APR) of 390%.
“It’s important to note that payday loans are structured intentionally to make it very difficult to walk away from,” says Diane Standaert, executive vice president and director of state policy at the Center for Responsible Lending. “The lender takes direct access to a borrower’s bank account in order to establish the loan, either through a check or direct access to their online account. This leverage creates a business model that makes it nearly impossible to walk away.”
This is the payday loan debt trap, but it can get worse. In this guide, we’ll explain how to get out from under a payday loan and avoid falling into the trap again.
How to Get Out of the Payday Loan Trap
There are several strategies to get out of the vicious payday loan cycle, and the strategy you choose to implement will largely depend on your financial situation.
To free up funds to pay back your loan, you’ll have to cut expenses where you can. Start by creating a budget and look at costs that are easy to cut like restaurants and other discretionary spending such as shopping trips and travel.
Next, move to some medium-cost necessities like the cable, internet, and cellphone bill or auto and rental insurance premiums. Call these companies and negotiate with them to lower costs or see if you qualify for a discount.
If you’re still having a difficult time coming up with the extra cash to pay down your loans, look to some larger expenses like your car payment and rent. It may be in your best interest to sell your car and find a more affordable mode of transportation or a less-expensive car. Consider moving or getting a roommate to reduce the cost of rent.
Finding extra money in your budget will allow you to put more income toward the debt you have acquired and catch up on your payday loans.
Work with your lenders
While you create a budget, go to your payday lender and ask if they can provide you with an extended payment plan (EPP). EPPs give the borrower more time to pay off a loan without added fees and interest and without getting turned over to a collections agency, as long as the borrower doesn’t default on the EPP.
If your lender doesn’t offer an extended payment plan, you may want to turn to any other entities you owe money to. If you have non-payday loan debt, like credit card debt, auto loans, student loans, and the like, talk to the lenders of these debts to see if they can help restructuring your debt.
Restructuring means your lender could extend the term of the loan to reduce the cost of monthly payments, or reduce the frequency of payments being made. For some student loans, you may be allowed to make income-based repayments. By reducing other required monthly payments, you will be able to put more money toward paying down your payday loans. Note that restructuring could impact your credit score, but will not be as costly as bankruptcy.
Other lenders who might be able to help
Whether you choose to work with a credit counselor or tackle the payday loan repayment on your own, another option is to seek alternative lenders who may be able to assist with getting you out of the payday lending debt cycle.
Alternative Lender #1: Friends and Family Financing
Receiving a small loan from your family is a popular option suggested on the credit website message boards. This can help you make a one-time payment to the payday lender and close your payday loan once and for all. After which, you can pay back your family in small payments made up of the fees you would have otherwise been paying to the payday lender. Typically, friends and family won’t charge you added fees or interest, so this is the most preferred and affordable route for a borrower who is strapped for cash.
Alternative Lender #2: Faith-Based Organizations and Military Relief
If you are a military servicemember or veteran or a have a religious affiliation, your participation could open up short-term lending and relief opportunities.
A few faith-based lenders have cropped up around the U.S. that are primarily focused on helping borrowers refinance their payday loans and get out of the payday lending debt cycle. One example is Exodus Lending, a nonprofit organization in Minnesota that pays off their clients’ payday loans in exchange for their clients’ paying Exodus for the loan balance over the course of 12 months without interest or additional fees.
Military service members also have protections and emergency relief assistance through various veterans organizations.
With a 600+ credit score, you may be able to secure a personal loan with an average APR between 6% and 36%, a range considerably lower than the 400% to 700% APRs that come with payday lending. Use the funds you receive through your personal loan to pay off all outstanding payday loans and close the door to payday lending for good.
Then make the minimum monthly loan payment for your new personal loan on time and in full.
Once you’ve built your credit above the 600 threshold, visit your local credit union to apply for a personal loan.
Continue to improve your credit score with responsible personal loan and credit card repayments. Over time, your score will improve yet again. Once your score is over 700, you will be eligible for even more affordable personal loans with APRs as low as 4%.
Are there times it makes sense to walk away?
There are times when bankruptcy is the best option to relieve debts you are not able to pay back. If you choose to go this route, you will be required to obtain a pre-bankruptcy credit counselor before you file.
It’s important to find a government-approved credit counselor through the U.S. Trustee Program (USTP) to ensure a reasonable counseling rate – a fee of less than or equal to $50 is considered reasonable. USTP-approved agencies are required to inform clients that services are available for free or at a reduced rate, based on the client’s ability to pay, prior to the exchange of any information and the counseling session.
A credit counselor will help evaluate your personal financial situation, create a personal budget plan, and look into alternatives to filing for bankruptcy, like restructuring debt or negotiating with your payday lender. After all options have been exhausted, your counselor can help you explore your options for bankruptcy.
Many borrowers have been told that bankruptcy is irrelevant for payday lending. They also fear that they could be arrested if they fail to make payments. This is a common myth spread by debt collectors for payday lenders. These threats are illegal, and if they happen to you, make sure to contact your state attorney general and the Consumer Financial Protection Bureau.
Low credit ratings and the absence of access to a bank account can lead to exceedingly expensive financial products. A Vanderbilt University Law School studyfound evidence that access to payday loans increases personal bankruptcy rates, doubling Chapter 13 bankruptcy filings for first-time payday loan applicants within two years.
How payday loans can lead to bankruptcy
Most payday loans are secured by getting access to a borrower’s online checking account or by receiving a signed check from the borrower for the amount of the loan plus the loan borrowing fee.
When borrowers fail to make their payment upon the loan due date, and don’t pay the extension fee, the lender can withdraw the amount due through the borrower’s online account or cash the signed check.
If the borrower doesn’t have enough funds in their account to cover the amount rendered, their check will bounce and they will incur a bounced check fee and a returned check, which impacts the borrower’s credit report and credit rating. With a record of bounced checks, the bank can go as far as shutting down the borrower’s bank account and make it difficult for the borrower to obtain any new accounts.
What are your rights with a lender?
To begin the fight against payday loans, we must review the borrower’s rights when they enter the loan agreement, understand how lenders get away with hemorrhaging money from borrowers, and what legislation is doing about it.
Payday lending isn’t legal in every state. Fifteen states and the District of Columbia (see the map above) have effectively capped payday loan interest rates at 36% APR. Residents of the remaining states without APR caps stay unprotected against the harm of the inescapable payday lending debt cycle.
According to the Consumer Financial Protection Bureau (CFPB), payday lenders are not required by federal law to offer borrowers the lowest rates available. This is because lenders charge a fixed-fee price. Some states, as Standaert mentioned, cap these fees such that the annual rate for a two-week loan doesn’t exceed the enforced rate cap.
Although lenders are not legally bound to offer the lowest rates available, federal law requires payday lenders to disclose the cost of the loan in terms of an annual APR, so the borrower will see on the website or on their contract that the interest rate is 300% or more, according to Standaert.
“Though, disclosures of the price alone do not alleviate the concerns about the predatory structures of this product,” says Standaert. “Payday loans are marketed as a quick fix to a financial emergency, but payday lenders know that their business model is built on keeping people trapped in debt they can’t repay.”
Fees versus interest
It’s important to note the language lenders use in how they structure these financial products. Payday lenders are able to charge excessive amounts in “interest” because in reality, they aren’t charging interest, they’re charging a fee.
If your payday loan were treated as a loan with a designated payback period, interest rate, and amortization schedule, then for every payment you made over the course of time you borrowed the money, a portion of your $37.50 would go to pay down your $250 loan balance.
In the case of payday loans, every payment you make to extend the loan is purely a fee-based payment, or interest-only payment with a 100% principal payment at the end of the term.
What legislation has done and will do
“A rate cap, such as what the fifteen states and D.C. have enforced, is the strongest protection they can enact on the state level. There is activity at the federal level as well,” says Standaert.
“The CFPB, has been working for the past several years to rein in the harms of the payday lending debt trap,” adds Standaert. “While the CFPB doesn’t have authority to enforce a rate cap, their strongest role is to establish rules that enforce payday lenders to assess whether the loan is affordable in light of a borrower’s income and expenses prior to issuing a loan.”
“While states have the ability to address cost, the CFPB can address the harmful nature of these loans,” says Standaert. “Restricting the predatory business practice of payday lending can allow better financial products to come to the forefront for borrowers who need financial relief.”
Standaert said that the Center for Responsible Lending and other organizations dedicated to fair financial products for consumers have seen overwhelming support for the CFPB and states to crack down on payday loans.
“Seventy-five percent of voters in South Dakota went to the ballot box this November and voted to reduce the cost of payday lending from 500% to 36%,” says Standaert. “This was the first time voters have reached a conclusion of this sort.”
“Whether the cost is too high, they have issues with how their bank account is being treated, or they have experienced unfair debt collection tactics, the CFPB accepts complaints for people from all around the country struggling with payday loans for all kinds of reasons,” says Standaert.
Improving a low credit score can feel like an overwhelming task. But you only need to follow these five simple rules to improve your credit score.
Rule 1: Keep your utilization rate low
Utilization is the amount of your credit limit you spend each month. For example, if you have a $500 credit limit and spend $50 in a month, you’re utilization will be 10%. Your utilization is part of what determines your credit score.
Your goal should be to never exceed 20% of your total credit limit across all of your cards. That means if you have three credit cards with a total available limit of $5,000, you should never carry more than a combined total of $1,000 across the three cards. The lower your utilization rate, the better your score will be.
We recommend you make one small purchase a month to keep your utilization low and help increase your credit score at a faster rate.
Rule 2: Pay in full and on time each month
Being late on your payments has a huge, negative impact on your credit score.
There is also no advantage to only paying the minimum amount due on your card. That will only result in your paying more interest and does nothing to help your credit score. So just save yourself money and pay your entire bill. The easiest way to prove you’re responsible is to only charge what you can afford. Never use your credit card to buy an item you won’t be able to pay off on time and in full each month.
Rule 3: Eliminate lingering debt
If you’re already in debt you can’t afford to pay off, make sure you continue to pay at least the minimum due on time each month. Paying on time is the number one way to boost your credit score.
Balance transfer: A balance transfer or personal loan can help you consolidate your debt and reduce your interest rate. 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 annual percentage rate (APR). You need to have a good credit score, and you might not get approved for the full amount that you want to transfer.
Personal loan: Consider applying for a personal loan and using the money from the loan to pay off your credit card debt. Personal loan companies have interest rates that start as low as 4.25%, and they approve people with credit scores as low as 550.
After you pay off your credit cards with the proceeds on the loan, do not build up your debt again. Instead, just make one purchase each month and pay it off in full.
Once you pay off your cards, resist the urge to close them. Closing your cards will not only lower your utilization but also remove history which damages your score in the “length of history” category.
Rule 4: Resist temptation
You’ll start to get credit card offers as you begin to build your credit history and improve your score. Beware of any offers, especially for cashback cards, while your score is below 650. These cards typically provide little value and can smack you with high interest rates if you fail to follow Rule 3 above.
Once you get your credit score above 680, the good credit card offers will start rolling in. You can have your pick of the top-tier reward credit cards and start using your regular spending to get cashback or rack up points for travel.
Rule 5: Protect your score
Once you’ve achieved a higher credit score, be sure to protect it by following these simple steps:
Charge a small amount to the card each month and pay it off in full.
Aim to carry a balance that is no more than 20% of your available credit limit.
The typical American household carries $15,762 of credit card debt. With the average credit card interest rate hovering around 13.35% today, that means households could easily spend more than $2,000 each year on credit card interest alone.
As more and more interest accrues, paying off what might have once been a relatively small amount of debt can easily start to feel like an impossible feat.
That’s why getting out of debt — especially when you have several different types of debt to deal with — requires a strategy.
Two of the most popular debt payoff strategies out there are the “debt snowball” and the “debt avalanche.” The snowball method has been popularized by personal finance celebrities like Dave Ramsey. By comparison, the debt avalanche is lesser known.
But which method actually works best? We did the math to find out.
First, list your debt from the smallest balance to the largest balance. Your goal is to eliminate the smallest debt first. You accomplish that by making only the minimum payment required on all your other debts. Then, take every extra dollar you have and put it toward the smallest debt. Once it’s paid off, you will throw everything into the next largest debt, plus an additional amount that is equal to whatever the previous debt’s minimum required payment was.
As you move from one debt to the next, you are creating an even bigger “snowball” to tackle your larger debts. That’s because you’re not only paying however much you can afford to set aside each month. You’re also adding to that amount when you add in the minimum required payments for each card that you pay off.
Why it works:
The snowball has two advantages. First, it provides you with a clear plan. Second, you build a lot of positive momentum by achieving wins early on, which will help you keep going. A recent study found most people do better with this approach because of the positive reinforcement of quick wins.
To create a debt avalanche plan, list your credit card debt from the highest interest rate to the lowest. Pay the minimum due on all debt except the card with the highest interest rate. Put all extra money toward the most expensive debt until it is eliminated. Once that debt is paid off, take whatever you were paying on that bill and apply it to the next debt on your list, plus the minimum required payment from the debt you just paid off.
Why it works:
By dealing with debt that has the highest interest rates first, you can get out of debt faster and actually save more money on interest in the long run. It can feel more challenging than the snowball method, because you might be facing larger debt balances to start with. But the payoff is how much you’ll save on interest charges.
MagnifyMoney created a calculator that can easily help you see the difference between the snowball and avalanche methods.
Imagine you have three credit cards and can afford to pay $500 a month toward your debt:
$2,000 on a credit union credit card with a 6% interest rate
$6,000 on a credit card with a 19% interest rate
$8,000 on a store card with a 28% interest rate
Using the MagnifyMoney calculator, you see you could save $1,301 by using the avalanche method instead of the snowball method. And that is not surprising: by eliminating high interest rate debt first, you will end up paying less interest overall. You would also be out of debt faster.
The bottom line:
Both strategies will work, but you should pick the one that best fits your personality. If you easily feel overwhelmed by debt and feel like quitting, you should probably try the snowball method. You’ll get early “wins” and feel lots of motivation to keep going. If you’re more disciplined, the debt avalanche strategy might be your best fit.
Best Egg is a personal loan company trying to make the borrowing process fast and simple for people looking to refinance credit cards or who need funds for personal use. In this review, we will examine the costs and loan application process for applying for a loan through Best Egg. We encourage everyone to shop around for the best rate, and you can find the best personal loans here.
Best Egg offers unsecured personal loans. These are installment loans with a fixed monthly payment for the life of the loan, but like a credit card, are not secured with property such as a car or home. Meaning you don’t have to provide collateral in order to receive a loan.
Best Egg offers loans up to $35,000 with up to a 5 year term. Your interest rate is determined by your credit history and can range from 5.99%-29.99% with an origination fee ranging from 0.99%-5.99%.
Best Egg loans are originated through Cross River Bank, which is located in New Jersey. You do not need to be a New Jersey resident to apply for a Best Egg loan.
The best features of Best Egg are the simple terms and competitive interest rates for borrowers with a strong, positive credit history. Beyond the interest charge and origination fee, there are virtually no fees with Best Egg.
The company charges $15 for a late payment and $15 for a returned payment, which is lower than the typical $25 fee. There are no application fees and the origination fee is deducted from your starting loan proceeds, so there is no out-of-pocket cost to get started. However, this does mean you need to factor in the origination fee when you request the amount you need for a loan.
There are no pre-payment fees, so if you are able to make extra payments or pay off your entire balance early, you will not be charged any additional fees.
Best Egg only offers payback periods of 3 years or 5 years. If you want a shorter loan payback period than 2 years or a longer payback period than 5 years, Best Egg will not meet your needs.
As a borrower, your interest rate is based on your credit score and is locked in at the time of origination. While some borrowers may qualify for a 5.99% interest rate and 1% origination fee, Best Egg does not disclose the requirements to qualify for its best rates.
Even at 1%, the origination fee is certainly a negative considering other personal loans like SoFi offer no origination fee and no pre-payment penalty.
The highest interest rates are nearly 30% with a 6% origination fee. These rates are comparable to the worst credit card interest rates and may not offer you any benefit compared to using a credit card, which has no origination fee.
At the worst interest rates, this is still much better than typical payday loans or auto title loans, but you may have lower cost options available including lending platforms like Avant.
What Do I Need to Qualify?
Best Egg loans are approved based on your credit history. If you qualify, you are assigned a letter grade which corresponds to an interest rate between 5.99% and 29.99%. Current rates are available here.
The application process requires giving your email, and Best Egg uses a “soft pull” on your credit report to determine whether you qualify and find out your interest rate. A soft pull does not impact your credit score.
When you apply, you will need your Social Security number and current contact information handy for the application process, which is typical for any loan application.
Who is this Best For?
If you have credit card debt with a high interest rate, refinancing with Best Egg could save you a lot of money on interest over the life your debt. If you can lower your interest rate and set a fixed payback period compared to the open ended time frame on a revolving credit account, you could easily save thousands of dollars.
The site suggests using loan proceeds to help pay for a move, vacation, home improvement, debt consolidation, home purchase, or vehicle purchase. This product may save you money compared to credit cards, but it is a best practice to avoid debt where possible, particularly for optional luxury purchases like a vacation.
What About the Fine Print?
One of the biggest benefits of using Best Egg compared to competitors is that loans with Best Egg do not come with a mountain of fine print. There is almost no fine print actually.
You do not pay unless you get a loan and the only fees you will encounter are the origination fee and from late payments and rejected payments from your bank account. That is really it. There is no catch.
Unless you’re in Massachusetts, then the fine print states that your minimum loan amount is $6,000.
[Disclosure: LendingTree is the parent company of MagnifyMoney.]Every personal loan company has its own unique underwriting and pricing rules. That means you can get very different loans offers from different lenders – regardless of your credit score. We recommend starting your search with LendingTree. With just one application form, dozens of lenders will compete for your business. LendingTree uses a soft credit pull – which means you can get multiple rates from multiple lenders without hurting your score.
People with excellent credit can find low rates (even below 6%) because lenders like SoFi participate in the LendingTree program. But don’t worry if you don’t have excellent credit – there are many lenders participating in this program who accept people with less than perfect credit. It should take less than five minutes to see if you qualify. And most lenders can fund the loan quickly – and directly to your banking account.
Always Shop Around
It doesn’t hurt your score to see your offer with Best Egg, but there are other personal loan providers who also offer a soft pull. Don’t just take the first offer you receive. You should always be shopping around for the best possible rate, especially because lenders offering a soft pull don’t harm your credit score.