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Best of, Building Credit

The Best Options for Rebuilding Your Credit Score – July 2018

Editorial Note: 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 prior to publication.

The Best Options for Rebuilding Your Credit Score

A strong credit score is a vital part of your overall financial health. But rebuilding a damaged (or non-existent) credit score can feel impossible. Don’t despair. There are plenty of avenues you can take in order to rehabilitate your credit score and it all begins with identifying your starting point.

How Bad is Your Bad Credit Score?

Before you start to panic about rehabilitating your bad credit score, let’s determine if it’s even bad. Where do you fall in the range of FICO® credit scores? Below you’ll find what your credit score is considered, with ranges from Experian.

  • Above 740: Excellent Credit
  • 670 – 739: Good Credit
  • 580 – 669: Fair Credit
  • Below 579: Bad Credit or No Credit Score/Thin File

Your credit score isn’t the only thing that will keep you from being approved for credit. These factors are common reasons for being declined.

  • Your debt-to-income ratio is above 50%
  • You have no credit score
  • You have been building up a lot of debt recently
  • You are unemployed

In order to focus on rehabilitating your credit score, you’ll need to start with getting a line of credit. This may sound impossible because you’re constantly getting declined. Fortunately, there are options tailored specifically for people looking to re-establish credit.

[Read more about bad credit scores here.]

Rehabilitating a Bad Credit Score (579 and under)

Get a Secured Card

You’ll use your own money as collateral by putting down a deposit, which is often about $150 – $250. Typically, the amount of your deposit will then be your credit limit. You should make one small purchase each month and then pay it off on time and in full. Once you prove you’re responsible, you can get back your deposit and upgrade to a regular credit card. Read more about secured cards here.

Check out two of our favorite secured cards below, and our secured credit card database here.

Discover it® Secured

Annual fee

$0

Minimum Deposit

$200

Regular APR

24.74% Variable

APPLY NOW Secured

on Discover Bank’s secure website

Rates & Fees

Perhaps our favorite secured card, Discover it® Secured, has numerous benefits for those looking to rebound from a bad credit score. There is a $200 minimum security deposit that will become your line of credit, which is typical of secured credit cards. Your deposit is equal to your credit line, with a maximum deposit of $2,500. Additional perks include a rewards program (very rare for secured cards) that offers 2% cash back at restaurants or gas stations on up to $1,000 in combined purchases each quarter, plus 1% cash back on all other credit card purchases.

This card has another great feature: Discover will automatically review your account, starting at month eight, to see if your account is eligible to transition to an unsecured card. Discover will decide if you’re eligible based on a variety of credit factors, and if you are, you will receive notification and get your security deposit back.

Capital One® Secured Mastercard®

Annual fee

$0

Minimum Deposit

$49

Regular Purchase APR

24.99% (Variable)

APPLY NOW Secured

on Capital One’s secure website

The Capital One® Secured Mastercard® is another option for those who want to strengthen their credit score. This card offers a potentially lower minimum security deposit than other cards, starting as low as $49, based on creditworthiness. Be aware the lower deposit is not guaranteed and you may be required to deposit $99 or $200. You can deposit more before your account opens and get a maximum credit limit of $1,000.

There is a feature that will assist your transition from a secured to an unsecured card. Capital One automatically reviews your account for on time payments and will inform you if you’re eligible for an upgrade. However, there is no set time period when they will review your account — it depends on several credit activities. If you receive notification that you’re eligible, you will be refunded your security deposit and will receive an unsecured card.

Rebuilding from a Fair Credit Score (580 – 669)

Apply for a Store Credit Card

You might be used to checking out at a store and being asked if you’d like to open a credit card. While these credit cards come with really high interest rates and are great tools to tempt you into buying items you don’t need, there is a big perk to store credit cards: they’re more likely to approve people with low credit scores. Just be sure to only use the card to make one small purchase a month and then pay it off on time and in full. Unsubscribe to emails about deals and don’t even carry it around everyday in your wallet if you can’t resist the desire to spend. Read more here. 

Find all the details about how to improve your score here.

Those unable to get a store credit card should apply for a secured card to build credit. With proper credit behavior, you can see your score rise and then you may qualify for a store card.

Here are our picks for two store credit cards:

Walmart Credit Card®

Annual fee

$0 For First Year

$0 Ongoing

Cashback Rate

3% cash back on Walmart.com purchases (including purchases made on the Walmart app), 2% back on fuel purchases made at Walmart or Murphy USA (excluding Murphy Express) gas stations and 1% at Walmart & anywhere your card is accepted

Regular Purchase APR

24.40%

Variable

APPLY NOW Secured

on Walmart’s secure website

The Walmart® Credit Card offers a three-tiered cashback program to benefit avid Walmart shoppers. You receive 3% cash back on Walmart.com purchases (including purchases made on the Walmart app), 2% back on fuel purchases made at Walmart or Murphy USA (excluding Murphy Express) gas stations and 1% at Walmart & anywhere your card is accepted. Your cash back will be issued monthly as a statement credit for all earnings during that period. Note: This card can only be used at Walmart Stores, Walmart Supercenters, Neighborhood Markets, Walmart.com, Walmart and Murphy USA Gas Stations and Sam’s Clubs.

Target REDcard™ Credit Card

Annual fee

$0 For First Year

$0 Ongoing

Cashback Rate

5% at Target & Target.com

Regular Purchase APR

24.40%

Variable

APPLY NOW Secured

on Target’s secure website

The Target REDcard™ Credit Card offers great perks that are sure to please frequent Target shoppers. You receive 5% off every eligible transaction made at Target and Target.com. The discount automatically comes off your purchase — no redemption needed. Other benefits include free shipping on most items, early access to sales and exclusive extras like special items, offers, and 10% off coupon as a gift on your REDcard anniversary each year.* Recently, cardholders received early access to Black Friday deals. Reminder: This card can only be used at Target and on Target.com.

Check If You Pre-Qualify

If you’re on the higher end of the spectrum, you may want to consider checking to see if you’re pre-qualified for any cards. This will help minimize your chance of rejection upon applying because pre-qualification performs a soft pull on your credit. This doesn’t harm your credit score.

Your goal in this credit range should be to use no more than 20% of your total available credit. Pay your bills on time and in full. And keep pumping that positive information onto your credit report until you reach the 700+ category. 

Who You Need to Avoid

Access to credit and loans may come easier than you expect, but that should also be a danger sign. There are several lenders who are willing to provide lines of credits or loans to people with poor credit. These options are often very predatory. If you’re simply trying to rebuild your credit history and improve your credit score, then there is no need to take this offers. If you’re in desperate need of a line of credit for an emergency, but have bad credit, please email us at info@magnifymoney.com for a tailored response.

Here are the options you need to avoid when trying to rebuild credit:

1. Payday and Title Loan Lenders – There is never a need to take out a payday or title loan if you’re trying to merely rebuild or establish credit history. Most of these lenders don’t report to the bureaus and you’ll likely end up in a painful vicious cycle of borrowing and being unable to pay it down.

[How to get out of the payday loan trap.]

2. First Premier – The bank claims to want to offer people a second chance when it comes to their finances, but its fee structure and fine print prove the exact opposite. First Premier charges you a $95 processing fee just to apply for a credit card. Then it levies a $75 annual fee on the credit cards and most cards only come with a $300 limit. You’re paying $170 for a $300 credit line! The APR is a painful 36%. In year two the annual fee reduces to $45, but then you’re charged a monthly servicing fee of $6.25. And to top it all off, you’ll be charged a 25% fee if your credit limit is increased. Stay away from this card! Use the $170 it would take to open the card and get a secured card instead.

[Read more about First Premier here.]

3. Credit One – Credit One does an excellent job of confusing consumers into thinking they’re applying for a Capital One card. The logos are eerily similar and easily confused.

Creditone

Capital one

While Credit One is not as predatory as First Premier or payday loans, there is really no need to be using it to rebuild your credit score. Credit One makes it a bit tricky to get to its terms and conditions without either going through the pre-qualification process or accepting a direct mail offer. You’ll see this when clicking to look at its credit card option.

Screen Shot 2015-08-17 at 4.34.54 PM

A quick Google search yielded this terms and conditions sheet, which may be slightly different than the one you’d receive if you applied for a card. According to the one we found, Credit One charges an annual membership fee from $0 to $99. Credit line minimums are between $300 and $500. So you could be paying $99 for a $300 credit limit. APR is relatively standard, but on the high side, with variable 19.15% to 25.24%. Given the high annual fees, we recommend saving your money and using a secured card with no annual fee to begin rebuilding your credit score.

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Erin Lowry
Erin Lowry |

Erin Lowry is a writer at MagnifyMoney. You can email Erin at erin@magnifymoney.com

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Personal Loans

Getting Loans from Someone Other than a Bank

Editorial Note: 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 prior to publication.

Getting Loans from Other Bank

Updated November 06, 2017

Personal loans allow borrowers to have access to a fixed amount of money at a fixed interest rate, with a fixed monthly payment and you know when you’ll have completely paid off the loan. They are a great resource for someone looking to refinance debt and can’t use a balance transfer. If you need cash, personal loans are usually the best way to borrow. Personal loans tend to be much cheaper and simpler than a credit card.

How to get a personal loan?

Step 1: Check and see if you can get a loan with an Internet-only lender.

Ideally, you should start your shopping with a site like LendingTree, which lets you shop at dozens of lenders with just one simple online form (described below). LendingTree is the parent company of MagnifyMoney.

Step 2: Go to your local credit union and see if they can match or beat your P2P loan

Step 3: Take the loan with the lower interest rate

If you aren’t eligible for a P2P loan from an Internet-only lender then try your local credit union.

Internet-only lenders

The rise of technology allowed a new wave of lenders to offer an alternative to traditional bank loans. Peer-to-Peer lending (or P2P for short) allows borrowers to receive loans from “peers” often in the form of individual investors or hedge funds, endowments and pension funds.

Peer-to-peer loans are interesting because they were developed specifically for the digital environment. This makes them accessible with a few clicks on a computer and a relatively simple application process. Companies like Prosper, LendingClub and Upstart facilitate matching borrowers with investors. There is no need to visit a bank branch. The aim of P2P lending is to give a borrower lower interest rates while giving investors higher returns.

Interestingly, some big banks have acquired or built their own online lenders which are offering consumers even better rates. SunTrust has done that with the acquisition of LightStream, and Goldman Sachs Bank USA has recently invested in building Marcus.

Step 1: Shop Online for a Personal Loan (without hurting your score)

[Disclosure: LendingTree is the parent company of MagnifyMoney.] At LendingTreee, you can shop for a loan at dozens of lenders with just one online form (that takes less than 5 minutes to complete). LendingTree will perform a soft credit pull (with no impact to your score), and you can get real offers – including how much you can borrow and the interest rate. We think this is one of the best places to start your personal loan shopping journey.

LendingTree
APR

5.99%
To
35.99%

Credit Req.

Minimum 500 FICO

Minimum Credit Score

Terms

24 to 60

months

Fees

Varies

LEARN MORE Secured

on LendingTree’s secure website

LendingTree is our parent company.... Read More

LightStream

Pro:

  • If you have excellent credit, LightStream offers some of the lowest interest rates in the market. Rates start as low as 3.09% with autopay (to finance an auto) and 5.49% with autopay (to refinance credit card debt).
  • You can get the money by the next business day. This is a remarkably fast process.
  • LightStream has a rate match promise: if you find a lower interest rate somewhere else, they will match it.
  • There is no pre-payment penalty and No origination fee.

Con:

  • You must have excellent credit to qualify.
  • LightStream does not have “soft pull” functionality. If you apply for a loan, there will be a Hard Pull on your credit report.
LightStream
APR

3.09%
To
14.24%

Credit Req.

660

Minimum Credit Score

Terms

24 to 144

months

Fees

No origination fee

LEARN MORE Secured

on LendingTree’s secure website

Advertiser Disclosure

LightStream is the online lending division of SunTrust Bank.... Read More


Your APR may differ based on loan purpose, amount, term, and your credit profile. Rate is quoted with AutoPay discount, which is only available when you select AutoPay prior to loan funding. Rates under the invoicing option are 0.50% higher. Subject to credit approval. Conditions and limitations apply. Advertised rates and terms are subject to change without notice. Payment example: Monthly payments for a $10,000 loan at 3.09% APR with a term of 3 years would result in 36 monthly payments of $291.21.

LendingClub

Pro

  • Their interest rates are most likely lower than other loans with an APR range of 6.16% to 35.89%.
  • You can find out your interest rate without a hard inquiry on your credit score. Prosper uses a “soft pull” so there will be no point reductions on your credit score, nor an inquiry left on your report for finding out the interest rate.
  • There is no pre-payment penalty(fine if you pay off the loan early), but they won’t refund your loan fee.

Con:

  • You must have a high credit score (600 or higher) to be eligible to get a personal loan from LendingClub.
  • You probably won’t be accepted if you have a history of missed payments.
  • There is an upfront fee, but your APR will include the fee. Be sure to compare the APR and not just the interest rate when you’re shopping around.
Lending Club
APR

6.16%
To
35.89%

Credit Req.

600

Minimum Credit Score

Terms

36 or 60

months

Fees

1.00% - 6.00%

LEARN MORE Secured

on LendingTree’s secure website

LendingClub is a great tool for borrowers that can offer competitive interest rates and approvals for people with credit scores as low as 600.... Read More

Upstart

People with minimal credit history can turn to Upstart for an opportunity to be eligible for a personal loan.

Upstart evaluates where you went to school, your area of study, your grades and employment history to determine your eligibility for a loan and your interest rate.

Upstart
APR

8.85%
To
29.99%

Credit Req.

640

Minimum Credit Score

Terms

36 to 60

months

Fees

0.00% - 8.00%

LEARN MORE Secured

on LendingTree’s secure website

Upstart’s initial focus was to help recent graduates that were struggling with debt, but they have expanded to provide options for those with strong credit profiles as well. They have a unique algorithm that takes into account things such as education, career, job history, and standardized test scores, but you will still need a minimum FICO score of 640.

Step 2: Credit Unions

Credit unions are not-for-profit organizations that offer alternatives to traditional banks. They have more of an emphasis on serving their community than worrying about a corporation’s bottom line. Unlike banks, credit union members own the credit unions.

Credit unions do offer loans, but first you must become a member of the credit union. Some credit unions are closed. But others (like PenFed) will let you join if you make a $15 donation to a charity.

Pros

  • Loans from a credit union usually have lower interest rates than a bank, and possibly the lowest you can find.

Cons

  • You will need to join a credit union, and may not qualify for a loan so you could be out the cost to join.

PenFed offers a 6.49% interest rate with no upfront fee for a term of 60 months. However, you will need to have a 700+ credit score to be competitive for this personal loan.

Non-bank lenders

OneMain is a non-bank lender owned by Citigroup. You will have to physically visit a branch to get approved. But, the process usually takes less than 30 minutes. Borrowers with high credit scores should first explore the P2P space and credit unions before turning to OneMain, because it will be a more expensive form of borrowing.

Pros:

  • If having face-to-face contact is important to you, then you can visit physical branches.
  • OneMain will approve people with credit scores as low as 550, so it is possible to get a loan when other reject you. Although expensive, OneMain will be much less expensive than payday loans or title loans.

Cons:

  • You have to visit a branch, even if you’re preapproved online. If you don’t have a branch near you, this could be a serious hassle.
  • There will be a hard inquiry on your credit report
  • Likely higher interests rates (APRs) than a loan from P2P lenders like Prosper or LendingClub
  • A few complex terms and conditions

Warning:

  • Don’t bother with the insurance products they’ll try to sell you.
OneMain Financial
APR

16.05%
To
35.99%

Credit Req.

Varies

Minimum Credit Score

Terms

24 to 60

months

Fees

Varies

APPLY NOW Secured

on OneMain Financial’s secure website

If you have a credit score below 600, OneMain Financial is one of the few lenders that you can use to get a personal loan.... Read More

Step 3: Take the Lowest Interest Rate

Personal loans can be valuable tools to help pay down debt, reduce interest rates and save you hundreds to thousands of dollars. But remember; don’t rush into a personal loan just because it seems like a good deal. Take the time to do your research, shop around and ensure your getting the absolute best interest rate you can. Even the difference of .01 can make a difference in the long run.

Read where to find the best personal loan rates online here.

promo-personalloan-wide

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Erin Lowry
Erin Lowry |

Erin Lowry is a writer at MagnifyMoney. You can email Erin at erin@magnifymoney.com

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Get A Pre-Approved Personal Loan

$

Won’t impact your credit score

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Earning Cashback

How to Earn and Receive Cashback with Discover

Editorial Note: 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 prior to publication.

How to Earn and Receive Cashback with Discover

Discover has a wide range of credit card options, including student cards, travel cards, secured cards, and cashback cards. When it comes to its cashback card, Discover offers some special features for cardholders looking to cash in on rewards.

For starters, the Discover it® Cash Back card has a $0 annual fee, earn 5% cash back in select, rotating categories up to the quarterly maximum, and 1% unlimited cash back automatically on all other purchases. Cardholders can also redeem their cash back at any time.

If you have the Discover it® Cash Back card in your wallet, the Discover website is the one-stop shop for managing your credit card and checking on your cash back and redeeming it.

In this article, we’ll touch on:

  • How to earn cash back with your Discover it® card
  • Navigating the Discovercard.com portal
  • How to redeem your cash back

How to Earn Cash Back with Discover

It’s easy to earn cash back with your Discover it® Cash Back, which can make it a top contender when choosing which card you’ll use to make everyday purchases.

In order to take advantage of the 5% cashback offer year-round, you’ll need to spend in certain rotating categories throughout the year.

  • January – March 2018 – Gas Stations and Wholesale Clubs
  • April – June 2018 – Grocery Stores
  • July – September 2018 – Restaurants
  • October – December 2018 – Amazon.com & Wholesale Clubs

With Discover’s 5% cash back, there’s a spending cap of $1,500 each quarter, meaning you can earn a maximum of $75 in cash back each quarter or $300 per year.

However, you can also earn 1% unlimited cash back automatically on all other purchases, and there’s no cap on how much you can spend or how much cash back you can receive, so if you want to maximize cashback rewards, you could possibly earn more than $300 per year.

Don’t Forget …

Discover cardholders have to “opt in” each quarter to start receiving 5% cash back when spending in the rotating spending categories. This is important to remember and easy to do by simply following the prompts in Discover’s reminder email or logging on to your account.

Cash back also doesn’t expire as long as your account is in good standing, so you can stack up your rewards over time if you forget.

New customers may receive special offers like cashback matching, which is when Discover it® matches all the cash back you earn dollar for dollar at the end of your first year. The double cash back will be applied to your account balance after the end of the twelfth billing cycle.

How to Access Cash Back Rewards

When you start earning cash back with your Discover it® card, you can check your available Cashback Bonus right on Discover’s online portal, which is called the Account Center.

Go to Discover.com and type in your login information. Make sure the drop-down menu below the password field says “credit card” so you can access your online account for your Discover it credit card.

discover cash back 1

After you log in, you should see a screen similar to the one shown below. Below you can see the Cashback Bonus available is clearly displayed on this first page along with information about the current quarter’s spending categories and a link to the Cashback Bonus calendar, which provides more information about each 5% cashback spending category.

discover cash back 2

You can click on the button underneath your cashback rewards summary to see a more detailed page, which should look similar to the one below.

Here, you can learn more about earning cash back and redeeming your Cashback Bonus.

discover cash back 3

 

Options for Redemption

Discover it® cardholders can redeem their Cashback Bonus at any time, and you have a variety of options to choose from.

  • Statement credit
  • Amazon.com purchases
  • Gift cards and eCertificates
  • Donation
  • Cash deposit to your bank account

Transferring cash back to your bank

To redeem your cashback rewards for cash, you’ll have to click on the “Redeem For Cash” button after scrolling down to view your redemption options for your credit card account on Discover’s Account Center portal.

When you see a screen similar to the one shown below, enter the amount of cash back you’d like to redeem and click the option that says “Direct deposit to your bank account” if you want to receive the cash instead of applying it to your credit card balance.

Your checking account that you use to pay your credit card bill each month should already be connected to your Discover it®.

account, so you can select it from the drop-down menu below. For the time being, Discover, won’t let you add another account to transfer your Cashback Bonus to.

discover cash bank 7

When you’ve selected the amount you’d like to redeem and the account you’d like to transfer it to, click “Continue” and approve and confirm the transaction.

If you don’t want to use Discover’s online portal, you’ll have to call 1-800-DISCOVER (1-800-347-2683) to redeem your Cashback Bonus.

After you redeem your Cashback Bonus, the time it takes to receive your reward can vary based on the redemption method you chose.

  • Partner gift cards will be mailed to your billing address within 10 business days
  • Electronic deposits will appear in your bank account within 72 hours
  • Account credits will post to your account within 2 business days

Final Word

The Discover it® Cash Back card is a great option for people who like to earn cashback, thanks to its 5% cashback rewards and no annual fee, and it also provides a flexible range of redemption options.

Whether you want to apply your Cashback Bonus to your current balance, use it to shop online or at your favorite department store, or deposit the cash straight to your checking account so you can spend it however you please, you can do all of that and more.

The Account Center portal is also very user friendly and easy to navigate when trying to redeem cash back.

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Erin Lowry
Erin Lowry |

Erin Lowry is a writer at MagnifyMoney. You can email Erin at erin@magnifymoney.com

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Credit Cards

How to Make a Payment on Your Citi Costco Credit Card

Editorial Note: 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 prior to publication.

Citi Costco Card

Confused about how to set up online payments for your Citi Costco credit card? You may be on a wrong, and confusing, landing page when trying to set up your online profile.

Here’s a step-by-step guide to setting up your new Citi Costco card account:

If you’re Googling the term “Pay my Citi credit card”, or something similar, you could be inclined to click on the link for “Citibank®: Online Bill Payment”.

Screen Shot 2016-07-18 at 1.43.43 PM

This is NOT the right page. This will take you to Citi’s option to sign up for Online Bill Payment or eBills. This is a separate service and not actually where you sign up to pay your Citi credit card online.

Screen-Shot-2016-07-18-at-1.38.00-PM

Here’s what the right landing page looks like:

Click the button that says “REGISTER”. You’ll be prompted to enter your card info and set up your account.

Screen-Shot-2016-07-18-at-5.40.13-PM

 

Next: Set up your payment account

Once you’ve registered, click ahead to your account page. There, you can set up a payment account from the options on the left.

Screen Shot 2016-07-18 at 1.52.52 PM

From there, it’s easy to link a checking or savings account to the account in order make your payment.

Screen Shot 2016-07-18 at 1.52.57 PM

Now you’re ready to pay off your credit card!

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Erin Lowry
Erin Lowry |

Erin Lowry is a writer at MagnifyMoney. You can email Erin at erin@magnifymoney.com

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Advertiser Disclosure

Pay Down My Debt

Home Equity Loan or Personal Loan: How to Choose the Right Fit for You

Editorial Note: 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 prior to publication.

Home Equity Loan or Personal Loan

One of the most important things you can do when making any personal finance decision is to remember that it’s called personal finance for a reason. We all have different financial circumstances, priorities, and goals, and what’s right for one person – or even what’s right for most people – may not be right for you. Such is the case with choosing between a home equity loan and a personal loan. As with most important financial decisions, especially those that involve borrowing money, there is no “right” answer, only the right answer for you.

Before determining what’s right for you, let’s first take a look at what each option entails and examine the key differences between the two.

Home equity loans

A home equity loan is fixed amount of money borrowed against the equity in your home. So, for example, if you owe $300,000 on a home valued at $500,000, a home equity loan enables you to borrow against that $200,000 in equity. Home equity loans are fixed-rate installment loans, meaning they’re repaid in equal monthly payments over a fixed period of time – usually in the neighborhood of 15 years. While they’re commonly used to finance home improvement projects, borrowers are free to spend the money on whatever they choose, including education costs and debt consolidation.

In many ways, a home equity loan functions similarly to your original mortgage loan, and is often referred to as a second mortgage. Like a mortgage, home equity loans are secured against the borrower’s home. You can apply for and receive a home equity loan from most banks, mortgage companies and credit unions. Many apply for a home equity loan from the same lender that provided their mortgage, but you’re free to shop around for the best offer.

Remember, too, that a home equity loan is not to be confused with a home equity line of credit, or HELOC. Though a HELOC is likewise money borrowed against the equity in your home, it functions as a revolving line of credit, much the way a credit card does. Your lender sets a credit limit based on the equity in your home, and you can borrow against that limit at any point while the line of credit it still open. Because it’s a revolving line of credit and not an installment loan like home equity and personal loans, let’s set HELOCs aside for this comparison.

Personal loans

Rapidly emerging as an alternative to home equity loans, personal loans are direct-to-borrower loans that are not secured by collateral such as a home or automobile. Often referred to as unsecured loans, personal loans are typically fixed-rate loans, and, like home equity loans, involve borrowing a lump sum of money to be used at the borrower’s discretion and repaid in equal installments over a defined period of time. Interest rates on personal loans are typically determined by a borrower’s credit score and history. Some traditional financial establishments such as banks and credit unions offer personal loans, but there’s also a growing market of non-traditional personal loan providers such as online and peer-to-peer lenders.

Understanding the differences and trade-offs

Though they share some similarities, there are key differences between home equity loans and personal loans. As noted earlier, home equity loans are secured against the borrower’s home, so, just as is the case with your mortgage, if you default on your home equity loan, your lender can foreclosure 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.

Because they’re secured against your home, however, home equity loans usually feature lower interest rates and longer loan terms than personal loans. In addition, provided you have the necessary equity, you can usually borrow more money with a home equity loan than you can with a personal loan. Personal loan amounts tend to cap out in the neighborhood of $100,000, whereas home equity loan amounts are limited only by the available equity in your home. In other words, the trade-off for the peace of mind that comes with unsecured debt is usually a smaller loan amount and a larger monthly payment.

Speaking of trade-offs, though home equity loans may deliver lower interest rates, (generally starting slightly north of the going mortgage rate), the application process is typically far more arduous than that of a personal loan. For starters, you’ll need to arrange and pay for an appraisal of your home to determine the available equity. That won’t be the only upfront cost either, as you’ll incur a variety of application costs and processing fees, just as you would with a traditional mortgage. It all adds up not only to higher upfront costs, but a longer process and thus a longer wait for your money. From start to finish, the process of securing a home equity loan can take weeks or longer. By comparison, some personal loans process in days or less.

Advantages to each

So, to recap, the typical advantages of a home equity loan include lower interest rates, longer loan terms, lower monthly payments, and, provided you have necessary equity, the ability to borrow larger amounts of money.

Personal loans, on the other hand, have advantages of their own, including what is usually a faster and less stressful application process, lower – if any – upfront application costs or fees, and the peace of mind that comes with not having to put your home up as collateral.

The verdict

If you have significant equity in your home, have the cash needed to pay upfront fees, and are willing to navigate a longer and more tedious loan process, a home equity loan is likely your best choice, as it will usually yield a lower interest rate, longer loan term, and lower monthly payment. Likewise, if you need a sizable amount of cash (think north of $100,000) and have the requisite equity, a home equity loan is probably the way to go.

On the other hand, maybe you don’t have equity in your home, or you just don’t want to drain the equity you do have. Maybe you’re not interested in having another lien against your home. Maybe you need the money fast, in days as opposed to weeks. Or maybe you just plain don’t want to deal with the hassles of a more traditional loan process. If any of those things apply to you, then a personal loan might be just what you need, especially if you have excellent credit and can score an interest rate comparable to what you would get with a home equity loan.

All of which to brings us back to where we started, for the verdict really is that most boring of answers: it depends. Fortunately, it depends on something you know better than anyone else – you. Focus on what’s right for you, based on your specific situation, and the “right” answer is sure to follow.

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Consumer Watchdog

Consumer Watchdog: The IRS Reveals Dirty Dozen Tax Scams

Editorial Note: 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 prior to publication.

The IRS Reveals Dirty Dozen Tax Scams

Updated for 2016

Tax time is high season for scams and identity theft. In fact, tax-refund fraud is expected to hit $21 billion this year. We’ve alerted you to some of the tactics crooks use during tax season like pretending to call as an IRS agent demanding payment, email scams saying your tax payment got rejected or that you owe back taxes, or simply stealing your W2 then filing your tax return and routing your refund to another bank account. The IRS also has its own list of 12 scams used to part you with your hard-earned money (or that they think you might be tempted to do).

We want you to be aware of every way a thief might try to take advantage of you during the often frustrating and trying time of filing taxes.

Here are the Dirty Dozen tax scams from the IRS:

1. Phone Scams

This scam is the most prevalent way a crook will try to use tax time to get your money. A fraudster will call you impersonating an IRS officer claiming you owe more money (or back taxes) and need to pay it now or risk being arrested, deported, getting your driver’s license revoked or whatever clever scare tactic he can come up with. Stay calm, never give out personal information and immediately hang up and report the incident to the Treasury Inspector General for Tax Administration at 1.800.366.4484 and file a complaint using the FTC Complaint Assistant (choose “Other” and then “Impostor Scams”).

[Learn how to protect yourself from tax scams here.]

2. Phishing

If it smells fishy, it probably is! The IRS won’t send you an email out of the blue about a refund or back taxes. In fact, first contact from the IRS almost always still comes via snail mail and not email or phone. If you get an email claiming to be from the IRS, don’t click any links until you contact the IRS directly to confirm it’s valid. The crooks are looking to steal your personal information.

[Read more about how to protect against Phishing Scams here.]

3. Identity Theft

Getting your identity stolen at any point during the year is a major hassle and could be costly. But getting your identity stolen at tax time is probably because a crook is filing for a tax return using your name and getting your refund first (or a fake version of your refund). One of the best ways to defend against this is to file your taxes as early as possible. Also be sure to track all your W2 or 1099 forms and reach out to an employer immediately if you haven’t received your forms by early February. Crooks are not above stealing your tax forms and using them to file.

[Learn how to prevent and deal with identity theft here.]

4. Return Preparer Fraud

Looking for a good deal is great, but don’t go to cheap tax preparer (accountant) if he or she isn’t credible. Do your due diligence before giving over all your personal information to an accountant. Unfortunately, some of them use tax season as a chance to steal people’s identities.

5. Offshore Tax Avoidance

This one is on you. Don’t hide your money offshore, because you’ll be paying big time when Uncle Sam tracks it down. You can voluntarily admit to having an offshore account (even if you had one by accident – perhaps while working internationally) through the Offshore Voluntary Disclosure Program.

6. Inflated Refund Claims

It’s fine if a tax prep software company promises the biggest return compared to competitors, but don’t trust anyone claiming to get you an inflated refund. Never sign a blank return and be wary of anyone promising a big return without even looking at your information. Also, don’t agree to pay fees based on a percentage of a refund. This scam is typically perpetuated via word of mouth, flyers in storefronts and targets community and church groups.

7. Fake Charities

Check out any charity before donating. This is good practice year-round, but fake charities become especially popular during tax season to prey on people receiving refunds. Use tools like GuideStar.org to see if a charity is legit.

8. Hiding Income with Fake Documents

Much like hiding money offshore – this tax scam is on you to avoid. Don’t attempt to fake taxable income by filing false Form 1099s or other documents to inflate your tax refund. You are legally responsible for what is on your returns, regardless of who prepares them.

9. Abusive Tax Shelters

The IRS is committed to cracking down on abusive tax structures/ tax avoidance schemes and persecuting people who create and sell them. Be wary of anyone pushing tax shelters that sound like a great deal.

10. Falsifying Income to Claim Credits

Just report what you’ve earned. It’s really basic. Falsifying your income in anyway will not end well for you, no matter what a con artist tells you.

11. Excessive Claims for Fuel Tax Credits

Some prepares may try to talk you into making a fuel tax credit claim on your return. Be wary! The fuel tax credit is generally limited to off-highway business use, typically for farming. If you aren’t a farmer, it’s doubtful this tax credit is for you.

12. Frivolous Tax Arguments

Yes, you have the right to contest your tax liabilities in court. But don’t let a scam artist sell you snake oil. Often times frivolous tax arguments not only fail to hold up in court but filing a frivolous tax return results in a penalty of $5,000.

Be sure to check out the Dirty Dozen tax scams directly on IRS.gov and contact the IRS and FTC directly if you believe you’ve been a victim of a tax scam.

Think You’re a Victim of a Tax Scam?

Scams need to be reported immediately to the Federal Trade Commission (FTC). You can also hear an example of a scam IRS call here.

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Erin Lowry
Erin Lowry |

Erin Lowry is a writer at MagnifyMoney. You can email Erin at erin@magnifymoney.com

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Consumer Watchdog

Protect Yourself from Tax Scams

Editorial Note: 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 prior to publication.

 

Tax return check

Updated for 2016

Tax time is coming which means crooks are looking to part you and your money. There are a myriad of tax scams, but two of the most common right now are early filing and fraudulent calls.

File Early to Protect Yourself

Consider this scenario: you put off filing your taxes until April. You go through filling out all the information with your preferred tax filing software and as you click the final submit button a screen tells you that you’ve already filed and received your refund.

There is a rise of scammers using personal information to file early and steal refunds. In fact, it’s predicted tax-refund scams will net $21 billion by this year.

The best way to prevent your return from being stolen is to file as soon as your tax documents arrive.

Decoding a Fake Call Scam

Another common scam comes in the form of fake calls or threatening text messages claiming to be the IRS. Often, the caller/texter will demand the taxpayer makes a payment to the IRS or face being arrested, deported, or suspension of a driver’s license.

Crooks ask for money to be sent via wire transfer or a pre-paid card. This money is nearly impossible to recover once it’s sent, so victims who do give into the demands are likely to never see the money again.

The IRS issued a statement in 2013 stating the agency never asks for credit card numbers over the phone nor requests pre-paid debit card or wire transfers. In fact, the first communication about a tax-related issue is through the mail.

These scammers sure aren’t rookies though. In 2013 the IRS reported some of the characteristics of these scams include sophisticated tactics to convince potential victims the IRS was indeed calling.

Here are some characteristics of the call scam:

  • Scammers use fake names and IRS badge numbers. They generally use common names and surnames to identify themselves.
  • Scammers may be able to recite the last four digits of a victim’s Social Security Number.
  • Scammers spoof the IRS toll-free number on caller ID to make it appear that it’s the IRS calling.
  • Scammers sometimes send bogus IRS emails to some victims to support their bogus calls.
  • Victims hear background noise of other calls being conducted to mimic a call site.
  • After threatening victims with jail time or driver’s license revocation, scammers hang up and others soon call back pretending to be from the local police or DMV, and the caller ID supports their claim

Information found in a 2013 IRS press release

What to do if you receive an phone call from the IRS you suspect is a phony:

  • First, stay polite but firm on the phone (just in case it really is the IRS). Say you have heard IRS scams are prevalent and you’ll need to ensure this isn’t a scam by reaching out yourself to the IRS and then hang up.
  • Second, if you’re sure you don’t owe any additional taxes to the IRS, report the incident to the Treasury Inspector General for Tax Administration at 1.800.366.4484.
  • If you think you may actually owe back taxes to the IRS, call the IRS directly at 1.800.829.1040 and work with an employee to pay back what you owe.
  • Be sure to report the scam by filing a complaint using the FTC Complaint Assistant; choose “Other” and then “Impostor Scams.” Be sure to note if it included an IRS impostor by writing “IRS Telephone Scam” in the notes.

Tips taken from IRS.gov.

Don’t Download Email Attachments

Stay vigilant about email scams as well. Any email that’s sent to you claiming your tax payment was rejected or you owe back taxes need to be verified before clicking on links or downloading attachments that likely contain malware. Call the IRS directly to see if the email is legitimate.

Protect Your W2

Thieves can also use mail theft to wreak havoc on your financial life. A W2 or 1099 features nearly all the information an identity thief would need to impersonate you. Social Security number, check. Address, check. Full name, check. Employer and salary, check, check.

Because of this, it’s not uncommon for thieves to pull tax forms right out of the mail.

Your employer was required by law to send you tax forms by February 1, 2016

Keep a list throughout the year of companies that should be sending you a W2 or 1099. If you don’t receive your documents by February 8, 2016 — then be sure to reach out and inquiry when you should expect your tax forms and ensure they were sent to the correct address.

If you’re concerned your identity may have been compromised, you can put a credit alert or credit freeze on your credit report with all three bureaus (Experian, TransUnion and Equifax). You can also download your credit reports for free to look for any suspicious activity at annualcreditreport.com.

Don’t wait to report scams 

Scams need to be reported immediately to the Federal Trade Commission (FTC). You can also hear an example of a scam IRS call here.

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Erin Lowry
Erin Lowry |

Erin Lowry is a writer at MagnifyMoney. You can email Erin at erin@magnifymoney.com

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Outreach

4 Financial Pain Points for College Students

Editorial Note: 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 prior to publication.

Financial Pain Points for College Students

This week, I had the opportunity to visit New York Institute of Technology’s Long Island campus to do a presentation about personal finance basics and student loans. After talking with some students both before and during the session, I figured out that their pain points boiled down to four main categories.

1. Building and Protecting a Credit Score

Credit scores are frequently a section of our presentations that we have to stop and field a lot of questions. There are so many myths out there that cause a lot of confusion, plus a general fear about how to properly use credit cards. I emphasized the fact you don’t need to take out a loan to build your credit score and diligent using a credit card is a free way to get a 700+. Just remember: pay on time and in full!

[6 simple steps for building your credit]

2. Digging Out of Consumer Debt Already Incurred

It’s not uncommon for college students to fall victim to the credit card debt trap. Some students had already started to utilize balance transfers to move debt over to 0% APR. This is a great strategy – but only if you can properly use the balance transfers. I overviewed some of the traps banks are hoping to lure you into with a balance transfer.

[Learn more about balance transfers]

3. Understanding Income-Driven Repayment Programs

Most of the students had federal student loan debt, but hadn’t heard about income-driven repayment programs. These programs, such as IBR, REPAYE, PAYE and ICR can help make payments affordable – especially in the early years after graduation when salaries are likely to be low. The income-driven repayment programs restrict payments to a percentage of discretionary income and then discharge any remaining debt after 20 to 25 years.

[How to set up income driven repayment plans]

4. How to Refinance Student Loans

Not all students can pay for tuition by just using federal loans, which leaves them turning to the private sector. Not only are private student loans likely to come with higher interest rates, but they definitely come with fewer protections and perks. Federal loans offer grace periods, forgiveness, income-driven repayment plans, forbearance and deferment. Private loans lock you in and aren’t always so lenient. However, refinancing does provide the opportunity to reduce interest rates on private and/or federal loans. Students just need to be wary about giving up the protections of federal loans.

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Erin Lowry
Erin Lowry |

Erin Lowry is a writer at MagnifyMoney. You can email Erin at erin@magnifymoney.com

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Life Events

Overcoming the Struggles of Unpaid Maternity and Paternity Leave

Editorial Note: 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 prior to publication.

Overcoming the Struggles of Unpaid Maternity and Paternity Leave

Preparing for baby can be an exciting time. You might start nesting by washing and folding new baby clothes, outfitting a themed nursery with furniture and wall decor, and taking a little time for some much-needed R&R. You may also be getting stressed trying to make financial preparations as well to ensure a smooth transition to a family of ‘plus 1’ (or two or three!). We sit down with our pen and paper or laptop and calculate many of the first-year costs of baby. We total the prices of diapers, formulas, and other goodies to ensure that we’re adequately prepared for the financial pressures ahead.

But many of these same parents also have to consider the strains of unpaid maternity and/or paternity leave. Some jobs and employers simply don’t allow for paid leave after a birth, and even those who offer maternity or paternity leave may only offer a sliver of what we’d want or need.

America has been notorious for coming out on bottom when it comes to paid maternity and paternity leave, offering folks on average 12 weeks of leave. According to 2013 data from the National Partnership for Women & Families, just 60% of the U.S. workforce qualifies for benefits under the Family and Medical Leave Act (FMLA) of 1993, which provides 12 weeks of unpaid leave with the guarantee of getting your job or job equivalent back.

So what can one do to overcome the struggles of unpaid maternity and paternity leave? Are there better ways to spend some quality time with baby without sacrificing your career or your paycheck?

Take on a little extra work

This one requires a little planning and foresight, but it could be well worth the effort for those who want to spend more time comfortably at home after the arrival of baby. There are a few ways to earn a little extra, and depending on your schedule and the opportunities you may have, one or more of these ways may be better suited for your needs:

  • Acquire a second job: Some mothers and fathers will take on a seasonal or part-time job in addition to their full-time commitments. These buffer jobs can help to pad your bank account, although you will need to consider how long you’d like to stay employed at these occupations as well as how much the strain on your schedule is worth.
  • Accept extra duties at your current job: Some occupations allow for bonuses or overtime pay when one takes on extra duties. Try to pick up projects or participate in overtime events if your job allows for it before baby, and put the extra money into your savings to allow for an easier transition after baby (and maybe buy yourself a little extra time at home when your paid leave expires!).

Just ask!

Sometimes what’s holding us back is our own anxiety about asking the questions in the first place. Employers who don’t meet the criteria for FMLA aren’t necessarily required to provide maternity or paternity leave, but they may be willing to do so anyway! The downside is that many employees may be too timid to simply ask. Valued employees tend to have more negotiating power when it comes to acquiring some extra time off, so be confident enough to ask for what you want, and be prepared to accept a compromise should it present itself.

Schedule your leave wisely

Before using your 12 FMLA weeks, it may make sense to instead return to work earlier – albeit on a reduced workweek schedule. Rather than using all 12 of your weeks and returning to work as usual, you can also opt to return after perhaps 6 or 8 weeks and then take a reduced salary, using the remainder of your FMLA days to support a part-time work week (until your FMLA hours are all used up).

Spend less and save more

There are always the usual culprits nicking away at your wallet. Think about the costs of cable, unused gym memberships, coffee dates, etc. Instead, consider cutting the cord, freezing your membership at the gym, and opting for coffee at home to help you pad your wallet to handle the burden of unpaid leave time. When you think about the cost of a coffee compared to what that money can buy in terms of time spent with your little one, it’s easier to forego the usual spending habits in favor of saving for baby.

As with any financial goals in your life, you’ll want to plan as much ahead of time as you can. It’s easier to plan and project than it is to try and compensate after-the-fact, especially when it comes to unpaid maternity and paternity leave.

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Erin Lowry
Erin Lowry |

Erin Lowry is a writer at MagnifyMoney. You can email Erin at erin@magnifymoney.com

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College Students and Recent Grads, Pay Down My Debt, Student Loan ReFi

Are Parent PLUS Loans Eligible for Income-Driven Repayment Plans?

Editorial Note: 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 prior to publication.

mortar board cash

Income-driven repayment plans provide a way for student loan borrowers to seek a little relief from the burden of debt. These programs are primarily focused on student borrowers, which can leave parents saddle with Parent PLUS loans dealing with hefty monthly payments and seemingly no way to get them under control.

But there is a way to make a Parent PLUS Loan eligible for both an income-driven repayment plan and even Public Service Loan Forgiveness.

Current Income-Driven Repayment Plans

There are four income-driven repayment plans:

  • Income Based Repayment (IBR)
  • Pay As You Earn (PAYE)
  • Revised Pay As You Earn (REPAYE)
  • Income Contingent Repayment (ICR)

Each plan comes with stipulations about which borrowers and which loans are eligible based on dates of disbursement, income and type of loan.

Parent PLUS loans are only eligible for ICR, but not in their current state.

[How to Set Up Income-Driven Repayment Plans]

What makes you eligible for ICR?

ICR is the loosest of the three income-driven repayment plans and therefore also has the longest repayment period before forgiveness and the highest payments.

IBR payments (for borrowers before and after July 1, 2014) will either generally be 15% or 10% of discretionary income and never more than what you’d pay on the standard 10-year repayment plan. PAYE will generally be 10% and never more than what you’d pay on the standard 10-year repayment plan.

ICR will generally be 20% or what you would pay on a repayment plan adjusted to your income with fixed payments for 12 years. ICR also doesn’t have income caps in order to enroll, anyone with eligible student loans can make payments with this plan.

The Parent PLUS loan itself is not eligible for ICR, but you could use Federal Direct Consolidation in order to enroll in ICR. Both Federal Family Education Loans (FFEL) PLUS and Direct PLUS loans are eligible for consolidation and therefore refinancing with ICR.

Which loans are eligible for Federal Direct Consolidation?

These loans are all eligible for Federal Direct Consolidation:

  • Direct subsidized and unsubsidized loans
  • Subsidized and unsubsidized Federal Stafford Loans
  • Direct PLUS loans
  • PLUS loans from the Federal Family Education Loan Program
  • Supplemental loans for students
  • Federal Perkins and Nursing loans
  • Health Education Assistance Loans
  • Select existing consolidation loans

If you’ve already left school, fell below part-time employment, or graduated, you can consolidate your loans.

Private loans are not eligible.

[Learn How to Track Down all Your Student Loans Here.]

How many loans do you need to consolidate?

Consolidation seems like it would imply needing more than one loan, but you can actually consolidate just one loan. You need to have at least one Direct Loan or FFEL Program loan that’s either in repayment or a grace period.

How much will it cost?

There is no application fee for consolidating your loans. You can also prepay your loan at any time without a penalty.

How much will my monthly payments be?

ICR is typically based on 20% of your discretionary income. Discretionary income is calculated as the difference between your income and 150 percent of the poverty guideline for both your family size and state of residence. You can also use the StudentLoans.gov Repayment Estimator to get an idea.

How is family size determined?

According to StudentLoans.gov’s Repayment Estimator:

“Family size includes you, your spouse, and your children (including unborn children who will be born during the year for which you certify your family size), if the children will receive more than half their support from you. It includes other people only if they live with you now, they receive more than half their support from you now, and they will continue to receive this support from you for the year that you certify your family size. Support includes: money, gifts, loans, housing, food, clothes, car, medical and dental care, and payment of college costs. For the purposes of these repayment plans, your family size may be different from the number of exemptions you claim on your federal income tax return.”

How long will consolidation take?

It could take two to three months to finalize the consolidation process and begin repayment, so this isn’t an immediate fix. You will also need to continue making minimum payments on your loans until the consolidation takes effect.

Can I lose benefits by consolidating?

Parent PLUS loans aren’t exactly full of benefits to begin with, but consolidating does make some loans ineligible for interest rate discounts, principal rebates, or some loan cancellation benefits. It’s unlikely you have these benefits with a Parent PLUS loan, but if your child is interested in consolidating, you should review if he or she would lose any benefits.

What are the steps to get a Parent Plus Loan on ICR?

Step 1: Apply for Federal Direct Consolidation Loan

You can do it electronically or via snail mail.

If you prefer to keep everything digital, you can complete the electronic version of the Federal Direct Consolidation Loan Application and Promissory Note by logging into StudentLoans.gov.

Those who would rather handwrite all the information and mail it in can download the Federal Direct Loan Consolidation Application and Promissory Note here.

Step 2: Choose the loans to consolidate and the servicer

Fill out which loan (or loans) you plan to consolidate and your loan servicer.

The loan servicers responsible for Federal Direct Consolidation are:

You can also list any loans you don’t want to consolidate on the form.

IMPORTANT: If you’re planning to do Public Service Loan Forgiveness (PSLF), then you want to work with FedLoan Servicing (PHEAA) as that’s the servicer for PSLF.

Step 3: Pick your repayment plan

Those filling out the application online can select ICR when prompted.

If you’re using the paper form, you’ll need to complete the Income-Driven Repayment Plan Request form that accompanies the application. You may need to contact your servicer to get the paper form.

Step 4: Review the terms & conditions of your consolidation

This step is self-explanatory. Be sure to read all that fine print!

Step 5: Borrower and reference information

If you’re filling out the paper form, this step is at the top of your form.

Those filling it out online will now need to submit personal information including:

  • Name
  • Social Security Number
  • Date of birth
  • Address
  • Phone number
  • Driver’s License State and Number
  • Employer’s name and address
  • Work phone number

The references need to be two people with different U.S. addresses that do not live with you and have known you for at least three years. You’ll provide their names, addresses, phone numbers and describe their relationship to you.

Step 6: Review and sign

Check to make sure all your information is accurate and then sign and submit your forms.

[Have more questions? Check out studentaid.ed.gov or studentloans.gov]

Tax Implications of ICR

The IRS could tax student loans forgiven after 25 years of repayments. By current IRS regulations, any outstanding balance forgiven can be considered income and therefore taxable. Outstanding balances forgiven under the Public Service Loan Forgiveness program are not consider income and thus aren’t taxable.

You can also refinance Parent PLUS Loans

Those with excellent credit could be eligible for competitive rates by refinancing a Parent PLUS loan with private companies like SoFi or Citizens Bank. This means you will need to repay the loan and it won’t be forgiven after 25 years of payments. But a lower interest rate could also help make your monthly payments more manageable.

Advertiser Disclosure: The card offers that appear on this site are from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all card companies or all card offers available in the marketplace.

Erin Lowry
Erin Lowry |

Erin Lowry is a writer at MagnifyMoney. You can email Erin at erin@magnifymoney.com

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