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The Ultimate Guide to Bankruptcy – Chapter 7 & 13

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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During the peak of the financial crisis that started in 2007, bankruptcy was considerably more common than it is today. During the 12-month period that ended in September 2010, a shocking number of bankruptcies — 1.6 million — were filed.

In the year that ended March 31, 2018, annual bankruptcy filings totaled 779,828. That’s a 1.8 percent drop from the year prior, noting an ongoing decline in bankruptcies since 2010.

Fewer bankruptcies is good news for consumers and the economy, but not everyone is so lucky. Due to financial issues such as job loss, divorce, and chronic overspending, many consumers still opt for bankruptcy as a solution to their money problems.

This guide was created to help explain the different types of bankruptcy, how the process works and the type of consumer who would benefit most from the debt resolution that bankruptcy provides. If you’re considering bankruptcy to get your finances back on track, keep reading to learn more.

What is bankruptcy?

Bankruptcy is a process that helps consumers liquidate assets to pay off their debts when they can no longer manage them on their own. The process is outlined in Article 1, Section 8 of the U.S. Constitution. The Bankruptcy Code, which was enacted by Congress in 1978, is the uniform federal law that governs all bankruptcy cases in the U.S.

Besides consumer bankruptcy, bankruptcy laws also protect businesses that are struggling financially. The types of bankruptcy available to consumers, Chapter 7 and Chapter 13, help debtors resolve delinquent debts and shore up their finances, although they work in different ways.

While bankruptcy can result in the loss of personal property and assets through liquidation, it is often the best choice for consumers:

  • After a Chapter 7 bankruptcy, consumers are often able to enjoy a fresh start that is free from unsecured debts that previously plagued their finances.
  • After a Chapter 13 bankruptcy, consumers are typically able to begin repaying a percentage of what they owe and get back on track financially.

When should you file for bankruptcy?

While many consumers struggle to pay unsecured debts, bankruptcy is a solution intended for the most extreme cases — cases where families cannot get out of debt any other way. If a debtor has the financial means to repay their debts and gain a fresh start on their own, bankruptcy attorneys would likely counsel them on other options, such as meeting with a credit counselor and starting a debt management plan.

Yet there are plenty of cases when bankruptcy is the best option despite its consequences. For the most part, it makes sense to file for bankruptcy under the following circumstances:

  • You cannot pay down your debt on your own and you continue falling further and further behind. “It makes sense to file bankruptcy when you can no longer keep up with your bills,” said Leslie H. Tayne, a debt resolution attorney and founder of Tayne Law Group, based in Melville, N.Y. “If commercial creditors are breathing down your neck or if you are in danger of losing your home, it may then make sense to file bankruptcy.”
  • You have no real property and want to discharge your debts. While Chapter 13 bankruptcy requires you to reorganize your debts and pay them off, Chapter 7 bankruptcy allows you to discharge debts completely. For that reason, bankruptcy attorney Barry J. Roy of Rabinowitz, Lubetkin & Tully LLC in Livingston, N.J., said Chapter 7 makes sense when you don’t have many assets but desire to discharge your unsecured debts.
  • You are struggling with unsecured debts and don’t want to lose your home. Roy said Chapter 13 makes sense for consumers who need some help with their debts but have considerable equity in their homes they want to protect.

According to Kim Cole, community engagement manager at credit counseling agency Navicore Solutions, bankruptcy can make sense when life circumstances cause people’s finances to spiral out of control. Very often, she said, her company works with consumers who have racked up insurmountable amounts of medical debt that they couldn’t pay off if they tried. Other times, bankruptcy is the result of job loss or another unintended loss of income.

Insurmountable amounts of credit card debt can also be helped with bankruptcy, particularly when the consumer has so much debt that they cannot keep up with the payments and keep a roof over their head.

On the flip side, there are plenty of times it doesn’t make sense to file bankruptcy. For example:

  • Your debt doesn’t qualify for bankruptcy. Not all types of debt qualify for bankruptcy, which is why it’s not a solution for everyone. Cole said her company receives many inquiries about student loan debt because many people don’t realize student loan debt is not dischargeable in bankruptcy. Other types of debt that do not qualify for bankruptcy include alimony, child support, most taxes and debts resulting from fraud.
  • You have too many assets. Chapter 7 bankruptcy has a means test you must pass to qualify. If you earn too much, you may not be eligible. Chapter 13 bankruptcy also has a limit on the amount of assets you can have to qualify.
  • You can afford to pay down your debts. Cole said some families are better off with a debt management plan and credit counseling, provided they have the financial means to repay debt on their own.
  • The root cause of your debts hasn’t been settled. Florida consumer protection lawyer Donald E. Petersen said consumers should not file bankruptcy until the root cause of their financial distress is solved. “If a consumer has severe health problems and is incurring medical bills that they are unable to pay, do not file bankruptcy until after the course of treatment is complete,” he said. “Similarly, consumers who are unable to pay their bills because they are unemployed or underemployed should not file bankruptcy until their employment status has stabilized at compensation that they can live on without accumulating additional debts in order to meet ordinary living expenses.”

Chapter 7 vs. Chapter 13: What’s the difference?

The two most common types of bankruptcy — Chapter 7 and Chapter 13 — work differently to help consumers recover from too much debt. The charts below outline how each process works and why these two types of bankruptcy are geared at different consumers:

Chapter 7Chapter 13

Length of process

If you filed for Chapter 7 bankruptcy today, your meeting of creditors would be filed in three to four weeks. At this meeting, you will meet with your trustee.

“You can’t get your discharge until 60 days after that meeting,” Roy said. For that reason, Chapter 7 bankruptcy typically takes three to six months.

Chapter 13 bankruptcy is more complicated than Chapter 7 bankruptcy since it requires you to restructure your debts. This type of bankruptcy requires you to make a court-approved repayment plan to show how you will pay off your debt within the next three to five years.

Fees

With Chapter 7 bankruptcy, the courts levy several charges — a $245 case filing fee, a $75 miscellaneous administrative fee and a $15 trustee surcharge. You will also have to cover the costs of court-required credit counseling before and after you file, which will cost $50 to $100 per session.

Finally, you will likely need to hire an attorney to oversee your case. Attorney fees for Chapter 7 bankruptcy can vary widely depending on where you live, but can range from $800 to $5,000.

With Chapter 13 bankruptcy, the courts levy several charges — a $235 case filing fee and a $75 miscellaneous administrative fee. You will also have to cover the costs of court-required credit counseling before and after you file, which will cost $50 to $100 per session.

Since Chapter 13 bankruptcy is more complex and takes longer, attorney fees may be on the higher end of the scale (up to $5,000 and potentially more).

Types of debt forgiven

When you file for Chapter 7 bankruptcy, you have what is called “pre-filing debt” and “post-filing debt.” Pre-filing debt is debt you racked up before you filed for bankruptcy, whereas post-filing debt is debt you racked up since you filed. With Chapter 7 bankruptcy, only eligible pre-filing debt can be included.

Debts that can be included in a Chapter 7 bankruptcy are of the unsecured kind, meaning they are not secured with collateral. Debts that can qualify include but are not limited to:

  • Credit card debt, including late fees and interest charges

  • Accounts in collections

  • Medical bills

  • Personal loans

  • Utility bills that are past due

  • Auto accident claims that aren’t a result of drunken driving

  • Money owed under lease agreements, including past-due rent

  • Civil court judgments, provided they are not the result of fraud


Chapter 13 bankruptcy allows you to restructure your debts and catch up on late payments for secured assets. With that in mind, some of the debts that can be forgiven may only be partially forgiven through the Chapter 13 bankruptcy process.

Debts that can qualify for Chapter 13 bankruptcy include but are not limited to:

  • Credit card debt, including late fees and interest charges

  • Accounts in collections

  • Medical bills

  • Personal loans

  • Utility bills that are past due

  • Auto accident claims that aren’t a result of drunken driving

  • Money owed under lease agreements, including past-due rent

  • Civil court judgments provided they are not the result of fraud

  • Debts incurred through a property settlement agreement in divorce or separation proceedings

  • Outstanding debts from a prior bankruptcy if the court denied your discharge

  • Loans against a retirement account

  • Homeowners association or condominium fees


Eligibility requirements

To qualify for Chapter 7 bankruptcy, you must have little disposable income. A means test is applied that compares your income to the median income in your state. If your average monthly income for the six-month period leading up to your bankruptcy filing is less than the median income for the same household size in your state, you automatically qualify.

If your income is above the median, an additional means test is applied that deducts specific monthly expenses from your average monthly income over the previous six months. If you can prove you have little to no disposable income after repaying your debts, you may qualify for Chapter 7 bankruptcy.

To be eligible for Chapter 13 bankruptcy, you must reside in or own property in the U.S., have a regular income and have unsecured debts of less than $394,725. You must also have secured debts of less than $1,184,200.

Individuals are ineligible for Chapter 13 bankruptcy if, in the 180 days prior, the debtor had a bankruptcy case dismissed by the court. You must also receive credit counseling from an approved credit counseling agency within 180 days before filing Chapter 13 bankruptcy.

Credit impact

Roy said Chapter 7 bankruptcy is the “absolute worst thing you can do to your credit score.” But he also notes that if your debts are considerable enough and your income is so low that you cannot keep up, it could still be the best option for you.

Also note that a Chapter 7 bankruptcy will stay on your credit report for 10 years. Chapter 7 bankruptcy could also lower your credit score significantly (up to 200 points) at first.

Chapter 13 bankruptcy stays on your credit report for seven years. You may also see your credit score drop up to 200 points once you file.

Roy notes that Chapter 13 bankruptcy is also catastrophic for your credit score, but that you may be able to rebuild credit quickly with smart financial management.


What happens to your assets

Each state has a set of exemptions that apply in Chapter 7 bankruptcy. This set of exemptions and limits determines which assets you can keep once your bankruptcy has been completed.

These exemptions vary by state but typically let you keep a certain amount of personal property, automobiles up to certain limits and some level of equity in your home.

Your remaining assets will be sold as part of the Chapter 7 bankruptcy process. The monies raised will be used to satisfy part of your debt with your creditors.

With Chapter 13 bankruptcy, you are able to keep all your property. But you will need to restructure your debts and make payments toward some of the amounts you owe.

Chapter 13 bankruptcy also allows you to “exempt” some of your personal property, such as some of the equity you have in your home. But you will typically wind up paying an amount toward your debts that is equal to your nonexempt assets.

This process may allow you to discharge some debts while also staying in your home.

What happens to your debts

With Chapter 7 bankruptcy, most of your unsecured debts will be forgiven and discharged. But note that many debts — such as student loans, child support or alimony — do not qualify.

With Chapter 13 bankruptcy, your debts are restructured and a payment plan is conceived. The payment plan may offer some relief of your debts, meaning you may not have to pay back 100% of what you owe.

Which type of bankruptcy is right for me?

Both types of bankruptcy can be helpful for consumers struggling with debt, but the eligibility requirements for Chapter 7 bankruptcy make it so you will likely need to file Chapter 13 bankruptcy if your income is too high or you have significant assets.

With that in mind, here are some examples of when each type of bankruptcy might be best.

Chapter 7 may be best if …

  • Your income is low enough to qualify. Roy said that if someone has modest or low earnings and significant credit card debt they can never pay off, Chapter 7 bankruptcy can make sense. “It depends on their financial situation, income and debts,” he said.
  • You do not have significant assets or equity to protect. “People file Chapter 7 bankruptcy because they have no real property and want to discharge their debts,” Roy said.

Chapter 13 may be best if …

  • You have significant assets you want to keep. “You’re going to file a Chapter 13 if you have equity in real or personal property you want to keep,” Roy said. “Usually people file Chapter 13 because they want to continue living in their own home.”
  • You have enough income to repay some or all of your debts. Because Chapter 13 restructures most of your debts instead of discharging them, you need adequate income to be able to repay some of your debts.

How to file Chapter 7 bankruptcy

If you decide Chapter 7 bankruptcy is your best option, here are the steps you’ll take along the way.

Step 1: Gather all bills and financial information.

You’ll need documentation of your debts, your tax returns and your monthly bills before you move on to the next step.

Step 2: Receive mandatory credit counseling.

If you are a candidate for Chapter 7 bankruptcy, you will need to complete mandatory pre-filing credit counseling with an approved credit counseling agency. During this step, a credit counselor will go over your income, debts and regular bills to determine your best options, including alternatives to bankruptcy. The cost of this type of credit counseling session is typically $50 to $100.

Step 3: You will need to meet with a bankruptcy attorney.

Tayne recommends doing some research on attorney options ahead of time, including reading reviews and meeting with more than one to find the best one for you. Once you meet with an attorney, they will go over your financial information and debts and advise you on your next best steps.

Step 4: File for bankruptcy with your attorney.

Once you have completed credit counseling, you can start your bankruptcy case with your attorney. This involves filing a packet of forms with the local bankruptcy court. Required forms include the bankruptcy petition, forms for your financial information, a list of your income and expenses, and proof you have passed the Chapter 7 means test. You will also list your property exemptions based on limits in your state.

With Chapter 7 bankruptcy, you need to pay several charges upfront — a $245 case filing fee, a $75 miscellaneous administrative fee and a $15 trustee surcharge. You will also need to negotiate attorney fees and payment, which can vary widely depending on your unique case details and where you live.

Once you have taken this step to file for bankruptcy and your case is ongoing, creditors can no longer take collections actions against you.

Step 5: Your trustee works on your behalf.

Once your Chapter 7 bankruptcy is underway, a trustee takes over your case and begins reviewing your paperwork.

Step 6: You will have a meeting of creditors, also called a “341 meeting.”

After you begin the initial bankruptcy proceedings, you’ll receive a notice from the court about your meeting of creditors. You will need to be present at this meeting to answer questions from the trustee and any creditors who may be present at the meeting.

Step 7: You are determined eligible for Chapter 7 bankruptcy.

If the trustee deems you are eligible for Chapter 7 bankruptcy, you can move forward with Chapter 7 bankruptcy protection. If you are deemed ineligible for Chapter 7 bankruptcy due to your income or income-to-expenses ratio, you may have the option to file for Chapter 13 bankruptcy instead.

Step 8: Your trustee deals with nonexempt property, and you must also deal with secured debts.

If you have assets or property that is above the exempted amounts in your state, the trustee is charged with deciding which assets to seize and sell. Monies resulting from the sale of this property will be used by the trustee to satisfy some of your creditors.

If you have debts backed by collateral — such as an auto loan that is secured by a car — you must give it back, pay the creditor what it’s worth or reaffirm the debt. Reaffirming your debts is a process where you agree that you still owe an amount after your bankruptcy case is over.

Step 9: Take a credit counseling course.

Once your Chapter 7 bankruptcy case has been filed (but not discharged), you must complete a second credit counseling education course. This course may cost $50 to $100.

Step 10: Bankruptcy is over.

Once you file for Chapter 7 bankruptcy, it can take three to six months to receive your discharge. Your bankruptcy case will be closed now.

How to file Chapter 13 bankruptcy

Step 1: Gather all bills and financial information.

Pull together a packet of documentation that includes information on all your debts, your tax returns and your monthly bills.

Step 2: Receive mandatory credit counseling.

If you are a candidate for Chapter 13 bankruptcy, you will need to complete mandatory pre-filing credit counseling with an approved credit counseling agency. The cost of this type of credit counseling session is typically $50 to $100. During this meeting, a credit counselor will go over your finances, including your debts and your income, to counsel you on your options.

Step 3: You will need to meet with a bankruptcy attorney.

Conduct some research on attorneys ahead of time. Read reviews online and consider meeting with more than one attorney in your area. Your bankruptcy attorney will help put together the forms required to file Chapter 13. This includes a bankruptcy petition, debt and income schedules, and a Chapter 13 repayment plan you have worked on with your attorney to create.

You will also need to pay several court fees at this time, including a $235 case filing fee and a $75 miscellaneous administrative fee. Attorney fees are additional and may vary. Since Chapter 13 bankruptcy is so complex, it can cost up to $5,000 or more for attorney assistance.

Step 4: Get matched to a court-appointed trustee.

Your bankruptcy trustee will oversee your case and review your debt repayment plan. They will also collect payments on this plan once it’s underway, along with distributing funds to your creditors.

Step 5: Receive an automatic stay.

Once your bankruptcy is underway, an automatic stay will be in effect. This process stops creditors from pursuing collections actions against you.

Step 6: Begin your repayment plan.

Begin making monthly payments on your debt repayment plan within a month after you file for Chapter 13 bankruptcy.

Step 7: Attend a meeting of creditors.

You will receive notice about your meeting of creditors (or “341 hearing”) around a month after you file for bankruptcy. During this meeting, your trustee and any creditors that are represented will ask you questions about your income, your debts, and your monthly expenses.

Step 8: Attend a confirmation hearing for your bankruptcy.

Either you, your attorney or both of you will need to attend a court confirmation hearing. During this hearing, any objections from creditors or your trustee will be mentioned. Ideally, you will leave your confirmation hearing with your debt repayment plan and bankruptcy confirmed.

Step 9: File proofs of claim or object them.

During the Chapter 13 bankruptcy process, your creditors file proofs of claim that list debts owed with the goal of getting paid. You can either object proofs of claim that may be inaccurate or file proofs of claim so that you can pay a debt as part of your case.

Step 10: Begin debt repayment and meet with a credit counselor again.

Once your Chapter 13 bankruptcy is underway, you will make debt payments to your trustee according to your plan. You will also need to complete your second meeting with a credit counseling agency at an average cost of $50 to $100.

Step 11: Your bankruptcy case ends.

Most Chapter 13 bankruptcy cases take three to five years from start to finish. During that time, you will continue making debt payments until your plan is complete. At that time, the court will grant a discharge of your Chapter 13 bankruptcy.

Life after bankruptcy: 3 tips to recover

Bankruptcy may be a drastic solution to debt and income issues, but it is often the only way for consumers to get a fresh start. Roy implores you to consider what bankruptcy could mean to someone who is truly struggling.

“If you walked in here and told me you had $60,000 in credit card debt and you were only making minimum payments half the time and only make $20,000 per year, there’s no way you’re ever going to be able to pay off that debt,” he said.

The best thing you can do is file bankruptcy and discharge your debts so you can get a fresh start. “Otherwise, you’re just going to linger in credit card debt hell for years,” he said. “Better off to bite the bullet and file for bankruptcy so you can move on.”

Still, that “moving on” part can be difficult for consumers. Here are some tips that can help you recover from bankruptcy and get on better financial footing:

1. Listen closely to advice offered in your credit counseling sessions.

When you meet with a credit counselor before and after you file bankruptcy, you will receive counseling on how to improve your finances in the future. Take these lessons to heart and find ways to lower your expenses so that you are less likely to get in financial trouble in the future.

2. Strive to build a lifestyle without credit or debt.

Try to build a lifestyle that is less reliant on credit and debt. Believe it or not, many card issuers will grant you a credit card within months after your bankruptcy is discharged. It is up to you to fight off the temptation to borrow so that you can avoid getting back into debt.

3. Start using a monthly budget.

Try writing down all your monthly bills and expenses and estimating variable categories, such as food and entertainment. Set limits on how much you can spend and make sure you’re designating some of your monthly income toward savings and investments. Building up a reasonable emergency fund can also help you avoid debt in the future.

Frequently asked questions (FAQs)

These frequently asked questions and answers can help you learn more about filing Chapter 7 and Chapter 13 bankruptcy.

Filing for Chapter 7 or Chapter 13 bankruptcy can cause immediate damage to your credit score, often resulting in a loss of up to 200 points. But your credit score may have already been damaged due to late payments and other financial issues leading up to your bankruptcy filing.

Chapter 7 bankruptcy stays on your credit report for up to 10 years, while Chapter 13 bankruptcy stays on your credit report for up to seven years. Both types of bankruptcy will cause damage to your credit score.

Chapter 13 bankruptcy requires a $235 case filing fee and a $75 miscellaneous administrative fee, plus attorney costs. Chapter 7 bankruptcy comes with a $245 case filing fee, a $75 miscellaneous administrative fee and a $15 trustee charge, as well as attorney charges. With both types of bankruptcy, you are also required to pay for two credit counseling sessions that cost $50 to $100 each.

Both Chapter 7 and Chapter 13 bankruptcy can allow you to keep your house if requirements are satisfied. Chapter 13 bankruptcy is especially popular with homeowners who have considerably equity since it allows them to stay in their home and continue making payments while they pay off all, or a portion of, their other debts through a repayment plan..

Both Chapter 7 and Chapter 13 bankruptcy require you to go through credit counseling before and after you file. These sessions cost between $50 and $100 depending on the credit counseling agency with which you work, and they are mandatory.

You must reside in or own property in the U.S., have a regular income and have unsecured debts of less than $394,725 to qualify for Chapter 13 bankruptcy. You must also have secured debts of less than $1,184,200. You must not have had a bankruptcy case dismissed in court for 180 days before filing.

If your average monthly income for the six-month period leading up to your bankruptcy filing is less than the median income for the same-size household in your state, you automatically qualify. If your income is above the median, you must pass an additional means test that compares your income to specific monthly expenses to prove you have little to no disposable income.

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Holly Johnson is a writer at MagnifyMoney. You can email Holly here

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The Ultimate Guide to Debt Management Plans

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If you’re tired of struggling with debt and not making any real progress toward paying it down, you may want to consider debt management plans. These plans, which are typically administered by nonprofit third-party credit counseling agencies, can help you create a road map out of debt while lowering interest charges and fees.

To get the ball rolling on a debt management plan, explore and compare nonprofit credit counseling agencies that offer them. Once you settle on an agency you want to work with, you will sit down with a credit counselor (or chat online or on the phone) to go over your financial details and your debts, one by one.

One of the benefits of working with a nonprofit credit counseling agency is that, in addition to helping you create a debt repayment plan, these companies can advise you on issues that may have led you into debt in the first place. Your credit counselor may offer advice on how to cut your spending or create a monthly budget, for example.

At the end of the day, the main goal of debt management plans is helping consumers pay down their debts on their own. The credit counseling agencies that administer these plans help by offering financial advice and negotiating with creditors on their client’s behalf.

If you think you could benefit from professional guidance and advice, a debt management plan could be exactly what you need. Keep reading to learn more about how these plans work, where you can find them and how much they cost.

What is a debt management plan?

As mentioned, debt management plans are administered by third-party credit counseling agencies. Once you decide to work with a credit counseling agency on a debt management plan, you’ll need to go through several steps to get started:

  1. Think through all the debts you have and why they may have become a problem. Also keep in mind that debt management plans are typically for unsecured debts, so many secured debts like your mortgage will not qualify.
  2. You’ll meet with a credit counselor to go over all the details of your financial situation including your spending habits, regular bills, debts and income. Be prepared to be honest and forthcoming about your debts and your struggles.
  3. Once you share your story, your credit counselor will offer comprehensive advice on how you can improve your finances outside your debt management plan. This advice can include tips on budgeting, reducing your monthly expenditures and avoiding more debt.
  4. Next, your credit counselor will compile your data and ask you to commit to a debt management plan if they believe it’s the best option. If you choose to move forward, you will begin making a single monthly payment to the credit counseling agency who will disburse the funds on your behalf. Your credit counselor may also suggest alternatives to debt management plans if they believe a better option is available.
  5. If you move forward with a debt management plan, your credit counselor will negotiate with your creditors on your behalf with the goal of lowering your interest rate and reducing or waiving any fees associated with your accounts.
  6. You continue making monthly payments to the credit counseling agency that continues paying your debt obligations on your behalf. Since debt management plans can take 48 months or longer to complete, the process can be a lengthy one.
  7. Once you repay all your debts, your credit counseling agency can advise you on how to avoid debt and create a budget that works for your lifestyle and income.

While the steps above may seem lengthy and cumbersome, debt management plans exist because some consumers are simply unable to get out of debt on their own. Bruce McClary, vice president of communications for the National Foundation for Credit Counseling (NFCC), said that an array of circumstances can lead to situations where families need outside help. Job loss, chronic overspending, reduction in work hours, loss of income and unexpected major expenses are often the biggest culprits when consumers spiral into debt they cannot control.

While debt management plans may be an imperfect solution, these plans are often one of the best options for consumers since they ultimately lead them to a debt-free life, can help consumers learn better financial habits and won’t destroy consumer credit scores in the process.

With that in mind, it can make sense to sign up for a debt management plan if:

  • You’re struggling to keep up with credit card payments and your situation only seems to get worse each month.
  • You’re ready to commit to a debt repayment plan that could take 48 months or longer.
  • You earn enough income that you could feasibly pay down your debt with some outside help.

The pros and cons of debt management plans

There are some situations where debt is too far out of control for debt management plans to work. According to Kevin Gallegos, vice president of client enrollment for Freedom Debt Relief, consumers with more than $7,500 in unsecured debt that they are struggling to repay may want to consider an alternative, such as debt settlement.

However, the amount of debt that works best for debt management plans varies based on the consumer, their income and their unique circumstances. Bankruptcy is another extreme option for consumers to consider when they simply cannot pay off debts on their own.

This brings us to one of the main downsides of debt management plans — the fact that they won’t work for everyone. Here are some additional pros and cons of these plans you could consider before you sign up:

Pros

  • Credit counseling agencies may be able to negotiate down your interest rate and/or any fees charged to your accounts.
  • If you can reduce interest rates with a debt management plan, it’s possible you could get out of debt faster.
  • Debt management plans allow you to make a single monthly payment each month versus multiple payments. This can simplify your financial life and make it easier to budget.
  • Debt management plans offer more than a way out of debt; they also offer comprehensive financial advice and counseling that can help you stay out of debt in the future.
  • As McClary noted, past-due accounts you’re struggling to manage may become easier to pay off because of concessions (waived late fees, waived over the limit fees, etc.) creditors may make.
  • Your monthly payment could be lower with a debt management plan than the combined payments you were paying before.
  • If you’re truly struggling to get out of debt on your own, it helps to have a financial advocate by your side as your life changes, said McClary. Professional credit counselors can help you make adjustments and keep track over time.
  • While your credit score may take a hit before you get on a debt management plan, enrolling in a plan may not hurt your credit. In fact, your credit score will likely increase as you begin repaying your debts on a regular basis via your debt management plan.

Cons

  • Debt management plans are not free. These plans typically come with a monthly fee between $25 and $35. Some also charge a one-time enrollment fee.
  • Debt management plans only work for unsecured debts. For that reason, you cannot use a debt management plan to repay your mortgage or a car loan. However, McClary said your credit counselor can still advise you on how to repay these debts in addition to the debts in your debt management plan.
  • You need enough income to be able to make a monthly payment each month and commit to your program.
  • Rachel Kampersal said debt management plans require you to change your habits dramatically since you will have to stop using credit. “Per requirements from creditors, any card that is entered into a debt management plan will be closed, meaning you can no longer make charges to these cards. While difficult, it’s important to stop incurring new debt.”
  • Debt management requires a serious commitment. Most plans take 48 months or longer to complete.
  • Gallegos said that debt management plans require you to repay all the money you borrow, whereas some alternatives like debt settlement and bankruptcy may allow you to repay less than you actually owe.

How to find a debt management plan

Since debt management plans are individually tailored to each consumer, one plan can be wildly different than the next. McClary said your plan can vary depending on how much debt you owe, your current interest rates and payments and how your interest rates and fees are negotiated down. This is a huge benefit for consumers since debt management plans come with specific advice instead of blanket solutions that may or may not work.

“One of the benefits of talking to a nonprofit credit counselor is that the advice you get is going to be very specific to your situation,” said McClary. “If you enroll in a debt management plan, the counselor will work with you to make sure your plan is tailored to your unique set of circumstances.”

As we already mentioned, debt management plans often come with monthly administration fees in the $25 to $35 range. Some credit counseling agencies may charge more (or less) per month, and McClary said some also charge an upfront administration fee that can vary.

The good news is that, by choosing a nonprofit credit counseling agency, you can end up with an affordable option that will leave you better off. Despite the monthly fees these plans charge, debt management can help you save thousands of dollars through reduced interest rates and creditor concessions. Plus, you get valuable advice and financial guidance all along the way when you choose to work with a nonprofit credit counseling agency versus a for-profit agency who is “not directed to provide coaching or advice,” said McClary.

If you’re looking specifically for a nonprofit credit counseling agency to work with, explore NFCC member agencies, all of which are nonprofit. NFCC member agencies are required to meet eligibility criteria that ensure they are accredited by a third party, upfront about included fees and provide consumers with counseling and financial guidance that can help them improve their finances over time.

The NFCC also suggests tips that can help you find a credit counseling agency that will work on your behalf. Strive to find an agency that:

  • is a 501(c)(3) nonprofit agency (all NFCC member agencies must meet this criteria)
  • is accredited by a third-party agency and not self-accredited
  • offers debt counseling and comprehensive advice along with access to debt repayment resources
  • is upfront about their fees
  • hires only certified financial counselors
  • works with all creditors to negotiate down your interest rate and fees
  • will work with you regardless of how much debt you have
  • offers several debt relief solutions in addition to debt management plans
  • credits all your payments (outside of fees they charge) to your debts
  • is bonded and insured

As we mentioned already, all members of the NFCC are required to meet these strict guidelines and rigorously train the credit counselors they hire. For that reason, it’s smart to look closely at NFCC members when searching for a nonprofit credit counseling agency who can help.

Here are some of the agencies you can consider:

Agency

Availability

Fees
GreenPath Financial Wellness50 states by phone and internet; 50+ branches nationwideOne-time setup fee $0 to $50; $0 to $75 per month
American Consumer Credit Counseling50 states by phone and internet; in-person branches in 3 states (Massachusetts, California and Texas)$39 enrollment fee; $5 to $50 monthly fee
Clearpoint Credit Counseling50 states by phone or internet; 15 branches nationwideMonthly fee up to $50
Cambridge Credit CounselingAll 50 statesEnrollment fee up to $75; monthly fee up to $50
Advantage Credit Counseling Service50 states by phone or internet; 5 locations in PennsylvaniaOne-time $50 setup fee; $5 to $50 monthly fee
InCharge Debt SolutionsAll 50 statesOne-time $40 setup fee; $25 to $55 monthly fee

Finding and working with a credit counselor

Whether or not you choose to move forward with a debt management plan, you could benefit from working with a credit counselor. Nonprofit credit counseling agencies offer free consultations that can help you determine how much debt you have, potential solutions and whether a debt management plan is for you.

Many times, a credit counselor can offer insights into your financial situation that you may not see on your own. They may see obvious ways you can cut your spending that you may have overlooked, for example. Their extensive knowledge of debt relief options also makes them ideal mentors for consumers who need professional help when it comes to assessing their debts and figuring out a plan that will work.

Once you start working with a credit counselor, they will:

  • Help you review your credit report to confirm and take note of each of your debts and respective interest rates
  • Offer budgeting and spending advice that could help you improve your current financial state
  • Explain key financial topics
  • Create a tailored debt management plan that can help you pay down debt over several years
  • Help you find ways to build a new lifestyle that doesn’t rely on credit or debt
  • Offer support and encouragement

What types of debt are allowed?

Consumers can apply for a debt management plan regardless of their credit score. Once they set up an initial consultation with a credit counseling agency, they will go over the details of their debts and their income with their agency who will come up with an action plan on their behalf. If the consumer decides to move forward with a debt management plan, it can take a few hours or a few weeks to get started. “Once the recommendation for a debt management plan is made, it’s up to you to decide how quickly to enroll,” said McClary.

As we already noted, however, not all debts qualify for debt management plans since these plans are aimed at debts not secured by collateral.
Debts that are allowed in debt management plans typically include:

Debts not applicable to debt management plans usually include:

  • Mortgage debt
  • Auto loans
  • Home equity loans and home equity lines of credit (HELOCs)
  • Federal student loans

If you have unsecured debts that qualify for a debt management plan and secured debts that don’t qualify, a debt management plan can still work. When you sign up for a debt management plan with a nonprofit agency, the credit counselor assigned to your case will offer comprehensive financial advice that can help you pay down all your debts — not just debts governed by your debt management plan.

According to McClary, credit counselors are also trained to direct you toward government or other nonprofit resources that can help you manage and pay off secured debts like your mortgage or auto loan.

What to expect on a debt management plan

While starting a debt management plan may be a huge relief, consumers should be aware of how their lives may change — for better or for worse.

Those changes include:

  • You cannot sign up for new credit cards, nor can you use the ones you have. While it may sound unreasonable to bar you from using credit, the point of your debt management plan is helping you dig your way out. “The last thing you want to be doing is running up more high-interest debt on the side,” said McClary. “You’re not doing yourself any favors in that situation.”
  • Without credit as a crutch, you will need to learn how to live within your means. “Sticking with a debt management plan requires commitment and responsibility,” said Gallegos. You may need to learn how to use a budget each month, and you will likely have to cut some luxuries from your life.
  • You may be asked to start setting aside cash savings for emergencies during your debt management plan. You will have to get used to saving money and not spending it if times get tough.

While you’re on a debt management plan, you will likely check in with your credit counselor on a regular basis. Your counselor can help you stay on track while you find new ways to save and manage your budget each month.

Also, note how important it is for you to keep up with your monthly debt management payment. If you are late or skip a payment, you could end up putting your program at risk, said McClary.

Fortunately, most creditors will likely work with you if you miss a payment. They may provide you with some time to get back on track because they ultimately want to be paid back in the end.

And this is why working with a credit counselor can be so advantageous. “They can work on your behalf,” said McClary.

If you are working with a credit counselor and think you’ll miss a payment, they can take proactive steps to mitigate consequences and create a plan to get you back on track. They can even negotiate to have additional late payments or late fees reduced or waived if you miss a payment. The key to making this work is being completely open and honest about your situation and speaking with your credit counselor as soon as you realize your payment will be late.

What happens after your debt management plan ends

Let’s say you make it through a debt management plan to the end. What then?

The reality is, very little happens when you’re done. Once your debt management plan is paid off, you are debt-free. There is no probation period once your plan ends either, which means you are free to move forward without having to worry about making debt payments each month.

However, keep in mind that your credit counselor won’t automatically abandon you when your program is over. Nonprofit credit counseling agencies will continue to provide guidance and assistance if you need it, including advice on how to maintain the debt-free lifestyle you’ve worked so hard to achieve.

For some people, this is the hardest part. Once you’ve paid down a ton of debt, it can be far too easy to get comfortable and start borrowing money again. This is especially true since debt management plans do not ruin your credit, and your credit score may even surge once all your debt is paid off.

At this point, you will need to continue following the advice of the credit counseling agency you hired to help and remember the benefits of being debt-free. Life is a lot more difficult when you’re juggling credit card bills and other payments each month. If you want to avoid winding up back in debt, it’s crucial to remember how far you’ve come and how wonderful freedom feels.

Frequently asked questions

As you consider debt management plans and other debt relief alternatives, it can help to find out as many details about each program as you can. These frequently asked questions about debt management plan may help.

Since debt management plans are offered through many different credit counseling agencies, their fees can vary. However, most debt management plans charge a monthly fee of $25 to $35. Some credit counseling agencies also charge an upfront setup fee.
A credit counselor is a financial professional who is trained to help you manage your debts, budget your money and improve your finances over time. While credit counselors oversee debt management plans, they are also knowledgeable about alternative debt relief methods, such as debt settlement, debt consolidation and bankruptcy.
While your credit score may suffer if you’re falling behind on monthly payments before you get your debt management plan set up, starting your plan should provide some relief. Your credit score should increase as you begin making regular monthly payments and your debt balances drop. Experian does note that you may see some negative side effects when accounts are closed, usually due to changes with your credit utilization rate or credit mix.
Debt management plans can last 48 months or longer from start to finish. However, the exact timeline if your debt management plan will depend on how much debt you have, your interest rates and your income, among other factors.
You will continue paying interest to your creditors while you’re on a debt management plan. However, credit counselors work hard to negotiate lower interest rates and waive or reduce fees on your behalf.
You cannot use your existing credit cards while you’re on a debt management plan, nor can you open new accounts. McClary also said that if you do manage to open new credit card accounts during your debt management plan, existing creditors who find out may stop participating in your debt management plan and reset your account to its original terms and interest rate.
It’s possible you could qualify for a mortgage or car loan during a debt management plan. However, you will need to work with your credit counselor to determine eligibility and whether you should consider an alternative.

Advertiser Disclosure: The products that appear on this site may be 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 financial institutions or all products offered available in the marketplace.

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Everything You Need to Know About Debt Settlement

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If you’re struggling with consumer debt and can’t seem to dig your way out, you’re not alone. In fact, you are one of many millions of Americans who deal with debt and its consequences in any given year.

Fact: The average adult with a credit card carried $6,348 in debt, paying an average APR of 15.54%. So far in 2018, we have also paid $104 billion in credit card interest and fees, which is 35% more than Americans paid five years ago.

With these figures in mind, it’s no wonder so many of us continue to fall further and further behind.

The painful reality is that 70 million Americans were contacted about a debt in collections in 2017, which typically means their debt was in default for at least 180 days. Debt collectors call consumers to follow up on these debts over one billion times per year, with up to 15 calls made per account per day.

While consumers can sometimes figure out a way to pay debt off on their own, there are strategies that can expedite the process. Some opt to consolidate their debts with a new loan that offers better terms and a lower interest rate, for example. Others sign up for a debt management plan, which is a debt repayment plan operated by a third-party credit counselor.

Finally, some consumers opt to negotiate their debts down through a process known as debt settlement. This option comes with its own share of pros and cons, and risks for consumers.

Before you decide to settle your debts, understand how it works, what the consequences might be and who can help you manage the process. This guide was created to explain your options and offer all the information you’ll need to decide for or against debt settlement.

What is debt settlement?

Unlike debt management plans, which are often offered by nonprofit companies, debt settlement programs tend to be administered by for-profit organizations. With debt settlement, the company you work with aims to negotiate a “settlement” with your creditors that is less than the amount you owe.

Since you’re already behind on your debts before you begin this type of plan, the debt settlement company asks you to save a specific sum of cash each month in a dedicated savings account. You do maintain ownership over the funds you save as well as any interest that accrues in your account, though. Your debt settlement company may ask you to stop making payments on your debts during the negotiation process, resulting in you purposely putting yourself further in default.

The end goal of these programs is that once a settlement amount is reached, you would have saved enough cash to pay the lowered amount in full. Once the final lump sum payment is made, the accounts are considered satisfied.

While debt settlement is an imperfect solution to a complex problem, this strategy could be the best option for you. Here’s how you can decide if it’s right for you:

  • Determine the severity of your debt problems. According to Kevin Gallegos, vice president of client enrollment for Freedom Debt Relief, it’s important to make an honest assessment of whether you can pay down credit card balances and other debt on your own. Gallegos said that some people can use careful budgeting and belt-tightening or the debt snowball method to pay down debt without third-party help. Your first step should be figuring out how much you earn and comparing it with how much you owe on various debts each month. Look for ways to cut your budget and spending to free up cash you can use to repay your debts.
  • Ask yourself if another option could bring a better result. Take a close look at alternatives such as debt consolidation and debt management plans. Each plan has pros and cons (which are discussed below), so take the time to explore these options and how they might work in your situation.
  • Look closely at debt settlement if your situation warrants it. Gallegos said that generally speaking, debt settlement is a viable option for consumers who have significant debt ($7,500 or more) they can’t keep up with due to financial hardship.

When you should consider alternatives

While debt settlement can wipe away some of your debts if you’re struggling to keep up with minimum payments, there are times when you should look more closely at potential alternatives. Those instances can include:

  • The debts you’re struggling to repay are secured debts. Debt settlement is only an option for unsecured debts — or debts that are not secured by collateral. With that in mind, debt settlement won’t fix all your problems if you’re struggling to repay secured debts such as car loans, your mortgage, home equity loans or federal student loans.
  • You want to keep your credit score in good shape. Because debt settlement usually requires you to stop making payments on your debts until a settlement is reached, it’s likely your score will drop significantly as you move through the process. “If someone wants to protect credit scores more than put debt behind them, other options may be better,” said Gallegos.

How to settle your debts

Here are the main ways consumers can settle their debts by working with a third party or handling negotiations on their own.

Working directly with the debt collection agency

Mike Sullivan, a personal finance consultant with Take Charge America, a national nonprofit credit counseling and debt management agency that does not offer debt settlement services, said that consumers settling their own debts with collections agencies is very rare. This is partly because the process is complex, but also because it takes so long.

Still, here are the steps you need to take if you prefer to settle your debts on your own.

  • Determine exactly how much you owe and make a list of all your credits and debt balances. You may also want to create a new spreadsheet or document so you can keep track of all your communications.
  • Make a written offer to each creditor. Generally speaking, debt settlement requires you to make a specific written offer to each creditor. While there is no cut-and-dried amount creditors will take, you can often negotiate debts down to less than half of the balance you owe. However, creditors may not reply to offers for 60 to 90 days or even more than that after you’ve missed a payment.
  • Continue making written counteroffers until an agreement is reached. Once again, this back-and-forth process can take many months. Once you have agreed with each creditor on an amount to be repaid, make sure you receive this agreement in writing.
  • Be prepared to have funds available for a lump-sum settlement. Gallegos noted that if you owe a creditor $10,000 and they confirm they are willing to accept 50% of that amount, you must have the cash available immediately. “You will have to come up with $5,000, or the deal is off the table,” he said.
  • Pay your settlement and demand a letter noting your debt has been satisfied. Make sure to get a letter from each creditor noting your payment and the satisfaction of your debts. This letter should be signed by an authorized agent of the creditor and share details of your settlement as well as wording that notes you no longer owe anything on debts associated with the account.

Working with a debt settlement company

Working with an agency that offers debt settlement is an easier proposition for many consumers since the debt settlement firm will perform most of the steps involved on your behalf. However, you’ll need to do some research and legwork upfront. The main steps required to work with a debt settlement company include:

  • Research different debt settlement companies. Gallegos said that it’s a good idea for consumers considering debt settlement to do plenty of research and talk with a few different companies to see how they work. Make sure to confirm the company you work with offers individualized plans that are tailored to your needs, he said. Also, find out how long the company has been in business, any statistics about their success rate and how good their reviews are. Gallegos said that the American Fair Credit Council is a good resource to use when evaluating debt settlement companies.
  • Watch out for companies with unethical practices. The Federal Trade Commission (FTC) said to avoid debt settlement companies that ask for money upfront, pressure you, makes guarantees about how your debts will be handled or don’t go over your financial situation in detail.
  • Compare debt settlement fees. While debt settlement companies are prohibited by law to charge upfront fees for their services, they do charge a percentage of the enrolled debt amount — usually 18% to 25%. Make sure to compare companies and their fees before you move forward.
  • Sign up for debt settlement. If you decide this is a viable option for you, you will need to sign a debt settlement contract. Once you are under contract, your debt settlement company will begin contacting your creditors on your behalf. You may be asked to stop making payments toward your debts during this time, which can hurt your credit score.
  • Start saving money. Your debt settlement company will ask you to start saving a set amount of money in a separate bank account during the negotiation process.
  • Reach a settlement with your creditors. If your debt settlement company can reach a settlement with creditors, the cash you’ve saved will be used to settle your remaining debts. At this point, your accounts will be considered charged off or satisfied, although you will likely have considerable damage to your credit score at this point. Keep in mind that the entire process can take 36 months or longer.

Debt settlement: Pros and cons to consider

While negotiating a settlement that is less than what you owe might sound advantageous, and it can be, debt settlement comes with both pros and cons. Here are the main advantages and disadvantages of this strategy:

Advantages of debt settlement:

  • Repay less than you owe on your debts including the current principal, interest and fees. The main benefit of debt settlement is that if it works, you will pay less than you owe to have your debts settled and gone for good.
  • Pay one monthly payment instead of several. Debt settlement lets you go from juggling several monthly payments to making a single payment toward your “savings” for future debt settlement each month.
  • You won’t pay fees for debts that can’t be settled. According to the FTC, debt settlement companies can only charge you fees on debts they’ve successfully negotiated down and settled on your behalf. This means you won’t be charged fees on debts they weren’t able to settle.
  • If you work with a debt settlement company, they will take care of many of the tasks involved in this process for you. Debt settlement companies do charge fees, but they will make phone calls, negotiate with creditors and deal with the details of your debt settlement on your behalf.

Disadvantages of debt settlement:

  • Not all debts qualify for debt settlement. While most types of unsecured debt can qualify for debt settlement, secured debts like your mortgage, car loan and federal student loans do not. Many other types of debt such as child support, gambling debts and back taxes do not qualify.
  • Debt settlement can result in damage to your credit score that takes years to fix. Because you’re typically asked to stop making payments on your debt during debt settlement, you will likely see damage to your credit score. However, Gallegos said that consumers typically see their scores bounce back once their debts are settled and they begin paying them off.
  • Debt settlement may result in tax consequences. Some settled debts may be considered income and taxable as a result unless you are considered “insolvent.” The FTC notes that insolvency typically describes a situation where your total debts are worth more than your assets. This may sound clear-cut, but they report that insolvency is difficult to determine and prove.
  • Debt settlement isn’t free. As we noted already, debt settlement costs money. You are typically charged 18% to 25% of each debt handled by a debt settlement company.
  • Creditors are not required to settle with you. Creditors are under no obligation to settle your debts. For that reason, there’s a chance you could go through all the steps required for debt settlement only to end up without any resolution to your problem. The FTC also points out that debt settlement companies may try to negotiate smaller debts first, while interest and fees on large debts continue to grow. This could leave you worse off than when you began the process.
  • Debt collectors may continue pursuing you. According to the FTC, creditors and debt collectors may continue to hound you for payment during the process. You could even be sued for repayment — even if you’re saving up money to settle your debts. If you are sued and you lose, your creditors could garnish your wages or even put a lien against your home.

What happens when you settle your debt

If you can move through the debt settlement process successfully and put all your debts behind you, the time and energy spent could be worth it despite the potential downsides. Why? Because your debts could go away for good, granting you a chance at a fresh start to rebuild your finances.

As we noted already, you may find you are liable for income taxes on some of your forgiven debts. You should also be aware that your credit score may have taken a significant hit that will take months or years to recover from.

Make sure to get a copy of a debt settlement letter from each of your creditors so you’ll have proof of the settlement and your payment if they try to collect in the future. Once you have this proof, you should also check your credit report to ensure settled debts are reported as “paid off.”

Alternatives to debt settlement

While the information we’ve offered on debt settlement may have you excited about the prospect, you may also be worried about the long-term consequences. Perhaps you want to keep your credit score in good shape while you get out of debt, or maybe you don’t like the idea of escaping full repayment of the debts you owe.

In any case, there are several alternatives to debt settlement you can consider. Your options include:

Debt management plan

Debt management plans are debt repayment plans administered by third-party credit counselors who work for nonprofit agencies. These credit counselors call your creditors and negotiate more favorable terms on your behalf, including lower interest rates and reduced or waived fees. Once creditors agree to these concessions, consumers begin making a single monthly payment to the nonprofit agency overseeing their debt management plan. The nonprofit agency then distributes funds to their creditors on their behalf, taking care of the grunt work for them.

Debt management plans can take up to 48 months or longer to complete. Consumers are also asked to stop using credit cards and get on a budget or spending plan during the process. Ultimately, the goal of debt management plans is helping consumers escape high interest and fees, pay down their debt over time and learn positive money habits along the way.

Pros:

  • Nonprofit credit counseling agencies will work on your behalf to negotiate lower interest rates and reduced or waived fees.
  • You may be able to preserve your credit score since you continue making payments all along, albeit through the nonprofit agency that administers your plan.
  • Debt management plans typically cost only $25 to $35 per month, whereas debt settlement can cost you 18% to 25% of your debts.
  • There is usually an educational component to complete with debt management plans, which could mean you’ll get better at budgeting and cash flow management.

Cons:

  • Debt management plans can take 48 months or longer to complete.
  • Debt management plans may be affordable, but you still have to pay for the help you receive.
  • You will ultimately pay back all the money you borrowed, whereas debt settlement lets you pay less than you owe.

Debt consolidation

Debt consolidation is another option to consider if you are financially unable to repay your debts. With debt consolidation, you will replace your existing loans with a new loan with better terms and a lower interest rate. The goals of debt consolidation can include lowering your monthly payment, saving money on interest and simplifying your finances with a single loan instead of several.

Pros:

  • You may be able to qualify for a new loan with a lower interest rate and better terms. Some 0% APR credit cards also let you transfer balances to secure zero interest for anywhere from 12 to 21 months (balance transfer fees may apply).
  • Debt consolidation lets you handle and repay your debts without third-party oversight.

Cons:

  • You may not be able to qualify for personal loans or 0% APR cards with excellent terms if your credit score is in bad shape. Typically, the best loans and terms go to those with FICO scores of 740 or higher.
  • It takes a lot of discipline to pay off debt without any outside help. This makes this strategy difficult to execute if you’re already struggling.
  • Many debt consolidation loans, including home equity loans, personal loans and 0% balance transfer cards come with fees you have to pay to use them.

Bankruptcy

Bankruptcy is another last resort option to consider if you have considerable amounts of debt you can’t seem to handle on your own. However, it’s important to note there are two main types of bankruptcy to consider:

  • Chapter 7 bankruptcy may allow total discharge of your debts outside of other debts such as child support and back taxes. However, you may be required to sell assets to settle some of the amounts you owe.
  • Chapter 13 bankruptcy restructures your debt with a repayment plan instead of discharging your debts. You typically repay your debts over three to five years with this process, and you do not have to sell a property to settle amounts you owe.

Advantages and disadvantages of bankruptcy include:

Pros:

  • Discharge or restructure your debts depending on the bankruptcy option you choose.
  • Once your bankruptcy is complete, you can get a fresh start.
  • Certain assets such as your home, car, and retirement accounts are protected up to certain limits with Chapter 7 bankruptcy, so it’s possible you won’t lose everything in the process.

Cons:

  • There are requirements to qualify for Chapter 7 or Chapter 13 bankruptcy, meaning not everyone can access this option.
  • Chapter 13 bankruptcy stays on your credit report for seven years after you file, while Chapter 7 bankruptcy stays on your report for ten years.
  • Bankruptcy isn’t free since you will likely need to hire an attorney to walk you through the process. You must also receive credit counseling from a government-approved organization within six months before you file for bankruptcy, notes the FTC.

Frequently Asked Questions (FAQs)

As you continue researching ways to pay off your debt for good, it helps to educate yourself on debt settlement and its alternatives. This list of frequently asked questions could help you with your decision.

The FTC states that debt settlement companies are required to disclose certain information upfront such as the fees they charge, how long it will take to get results, how much you need to save before they can settle your debts and the consequences you will face when you stop making payments to your creditors. You should also be notified that the money you save — including interest — is yours and that the account you use for savings is not affiliated with the debt settlement company. You also have the right to withdraw your funds at any time for any reason without penalty.

Fees charged by debt settlement companies can vary based on how many of your debts they settle and the percentage they agree to charge upfront. However, many debt settlement companies charge 18% to 25% of their debts handled through the program. This could add up to thousands of dollars in fees once the program is complete.

Because debt settlement companies ask you to stop making payments on your debts and save up to settle them instead, your credit score will take a hit. Considering that your payment history makes up 35% of your FICO score, it should be no surprise that letting all your accounts go into default would damage your credit score.

While the answer is different for everyone, debt settlement is best for consumers with considerable unsecured debts they can’t seem to pay off on their own. These programs are often the last resort for consumers who struggle to keep up with minimum monthly payments and know they need help from a third party to avoid bankruptcy.

Debt settlement can take 36 months or longer to complete depending on how much debt you owe, how long your creditors take to negotiate and how long it takes you to save up the money you need to settle. Longer timelines are typically reserved for individuals with considerable debt and many creditors.

While you can settle your debts on your own, it’s not very common. Not only will you need to communicate back and forth with each creditor for many months, but you’ll have to negotiate with them to repay less than you owe. Many consumers don’t have the knowledge or confidence to negotiate on their own behalf, so they turn to debt settlement companies or nonprofit credit counseling agencies for help.

Typically, unsecured debts qualify for debt settlement. This can include credit card debt, unsecured personal loans, some private student loan debt, medical bills, auto repossessions, cell phone and utility bills from past providers and department and store charge card debt.

Debts that don’t work with debt settlement typically include secured debts. Common debts that don’t qualify are car loans, mortgage loans, federal student loans, utility bills from current providers, overdue taxes, gambling debts and debts resulting from lawsuits.

Debt consolidation involves getting a new loan with a lower interest rate and better terms with the goal of combining old, higher interest debts into a single new debt. Common financial products used in debt consolidation include personal loans, home equity loans, home equity lines of credit (HELOCs) and balance transfer credit cards.

Debt settlement is a long-term process that involves having a third-party debt settlement company settle debts on your behalf while you save the cash for your settlement instead of making payments on your debts. With debt settlement, you may be able to repay less than the amounts you owe.

A debt management plan is a third-party debt repayment plan that is typically administered by a nonprofit credit counseling agency. With a debt management plan, the credit counseling agency will negotiate with your creditors to lower your interest rate and remove late fees or over-the-limit fees from your account. During the program, you’ll make a single monthly payment to the nonprofit credit counseling agency who will disburse the funds on your behalf.

Advertiser Disclosure: The products that appear on this site may be 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 financial institutions or all products offered available in the marketplace.

Holly Johnson
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Holly Johnson is a writer at MagnifyMoney. You can email Holly here

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How to Get Out Of Debt – The Ultimate Guide

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What does the American dream look like to you? Does it include a home of your own, a car or two in the driveway and a career that helps you feel happy and fulfilled? Maybe you want or have children, too, regardless of how much it costs to raise them.

Unfortunately, pursuing these dreams can be a costly endeavor. A car and a house, for example, may each require a loan. If you want both, the cumulative effect of those loans can be devastating.

Consider the following debt statistics:

  • Average student loan debt for Class of 2017 graduates hit $39,400, according to Student Loan Hero, another LendingTree-owned website.
  • Americans have paid banks $104 billion in credit card interest and fees so far in 2018, representing a 35% increase from just five years ago.
  • The average new car loan among borrowers came with a payment of $525 a month in the second quarter of 2018, according to Experian’s State of the Automotive Finance Market report. And the bulk of new car loans (about 73%) were for 61 to 84 months long.

High debt could make it difficult to realize your financial dreams. But there are plenty of ways to borrow less, pay off debt you already owe and gain more financial freedom.

Here’s a deep dive into the kinds of debt you may face, as well as practical solutions to help you organize, reduce or pay off debt that stands in your way.

The difference between ‘good’ and ‘bad’ debt

Not all debt is created equal. There is debt that can help you build wealth, and there is debt that prevents you from building wealth. It’s important to know how to identify which is which. Consider the following.

Tony Liddle, a Wisconsin financial adviser who works for Prosper Wealth Management, said it’s important to note the difference between good and bad debt so that you can focus your debt payoff efforts on the debts that matter most.

Generally speaking, a mortgage for a home you live in is good debt, he said. Your home may go up in value, and everyone needs a place to live. It is also difficult and time-consuming to save up the money to pay for a home in cash, especially in areas of the country where real estate is pricey. So taking out a home loan may be necessary.

But there’s a limit to good debt, since it’s far too easy to borrow more than you can afford. There’s a fine line for sure, but it’s possible to buy more house than you need and wind up with a mortgage payment you can’t afford.

The same can be said for car loans, Liddle said. You may need a car to get to work, but you may not need to borrow the maximum a lender offers.

Student loans can also run in the same vein. Borrowing money to earn a college degree can pay off in spades over the course of your career, but borrowing more than you need to graduate isn’t always smart.

Regardless, it’s important to prioritize your debt so your money is going where it will count the most.

Which debt should you tackle first?

Financial adviser Don Roork, of AssetDynamics Wealth Management and Wisdom for the Wealthy, said consumers should focus on paying off unsecured debt first. This includes debt such as credit cards and personal loans. That’s because unsecured debt can make it difficult to build wealth, but it’s also because it tends to come with higher interest rates. The average credit card currently has an APR of 15.5%, for example.

Here’s one way you may want to prioritize your debt repayment:

  • Pay off unsecured debt first, particularly credit card debt with high interest rates.
  • Focus on personal loans and other unsecured debt as a secondary priority.
  • Tackle auto loan debt since cars depreciate quickly.
  • Leave mortgage debt and student loans for last since they tend to come with low interest rates.

Managing your credit card debt

While credit cards can be convenient to use, the exorbitant interest rates they charge can make it difficult to repay balances over time. We already mentioned how the average credit card interest rate is 15.5%, but many credit cards charge even higher rates — particularly to borrowers with poor or fair credit.

Liddle also noted that the gimmicks that credit card issuers come up with can make it hard to avoid them. Some cards offer rewards for every dollar you spend, for example. Offers for 0% APR could also tempt you into spending more than you planned.

If you do wind up with credit card debt that you’re struggling to repay, Liddle said it can interrupt your life in too many ways to count.

“You can’t advance your financial life with investing when you’re throwing all your money into debt and interest payments,” he said. And if you keep making the minimum payment, you’re mostly just paying interest and avoiding real progress. “You’re basically just treading water at that point, which will never help you get out of debt.”

If you want to pay off credit card debt, several strategies can help.

Consider a balance transfer credit card

Some credit cards offer 0% APR on balance transfers for a limited time — usually between 12 and 21 months. These cards let you avoid interest payments during that time, which can expedite your debt payoff process.

Liddle said balance transfer offers can be valuable tools if used strategically, but you should beware of balance transfer fees that can be as high as 5% of your balance. Also, note that your introductory APR only lasts for a while before resetting to a much higher rate.

You can also look for a balance transfer card that doesn’t charge any balance transfer fees. Nick Clements of MagnifyMoney said this option is best for consumers with relatively small amounts of debt ($5,000 or below) that they can pay off quickly.

Negotiate with your creditors

Mike Sullivan, a personal finance consultant with nonprofit credit counseling agency Take Charge America, said it’s possible to negotiate with your creditors if you’re falling behind on your payments.

“Most creditors have hardship programs that extend payments and reduce interest rates but do not reduce balances owed,” Sullivan said. You could negotiate down your interest rate or monthly payment, but you’ll still have to pay off your debts in the long run.

Negotiate for a debt settlement

Sullivan said no creditor wants to be the one left holding the bag while others collect. It’s best to notify all creditors that you cannot and will not be paying off entire debts if you don’t believe you will be able to do so.

From there, you can make an offer to pay about 50% of your balance over three years, or 20% immediately in exchange for a written statement that the amount has been accepted as payment in full for the debt.

That’s just a general suggestion, and this strategy doesn’t always work. But you may want to give it a try if you have credit card debt you truly cannot pay off. Also keep in mind that there are debt settlement companies who can assist you with this process.

Try the debt snowball or debt avalanche

If you have the means to pay off your credit card debt over time, you may make more progress if you’re strategic about it. These two debt repayment strategies may help you stay motivated as you get ahead on your finances.

  • Debt snowball: With this strategy, you’ll make large payments on your smallest balances first. This could help you stay motivated as you pay off debt.
  • Debt avalanche: You’ll pay off high-interest balances first. This could save you money in the long term.

Either method asks you to pay as much as you can toward the prioritized balance until it’s gone while making the minimum payment on the rest of your debt. Use this calculator to find out which method is better suited for you.

Consolidate credit card debt with a personal loan

Personal loans come with fixed interest rates, fixed repayment schedules and fixed monthly payments that can make paying off debt easier to plan. You may also qualify for a much lower interest rate depending on your creditworthiness. Clements said personal loans are good for people who need a longer timeline to repay their debts and prefer the stability of a fixed-rate, fixed-payment loan. Use our table below to compare multiple options to get the lowest interest rate!

LendingTree
APR

5.99%
To
35.99%

Credit Req.

Minimum 500 FICO

Minimum Credit Score

Terms

24 to 60

months

Origination Fee

Varies

SEE OFFERS Secured

on LendingTree’s secure website

LendingTree is our parent company

LendingTree is our parent company. LendingTree is unique in that you may be able to compare up to five personal loan offers within minutes. Everything is done online and you may be pre-qualified by lenders without impacting your credit score. LendingTree is not a lender.

— Learn more about the best ways to consolidate debt here

How to stay out of credit card debt once you pay it off

No matter what strategy you use to pay off credit card debt, it’s far too easy to fall back into old habits. Here are some strategies that can help you avoid getting into more debt once you’ve paid it off:

  • Stop using credit cards. Liddle said consumers who are prone to credit card debt may want to avoid using credit cards altogether. “It really depends on the person, but you need to be honest with yourself if you’re someone who can’t seem to use credit responsibly.”
  • Only use credit for emergencies. You can keep a credit card for emergencies, but refrain from using it for everyday purchases. Put your credit cards in your sock drawer or a safe so you’re not tempted to use them.
  • Set your credit card bill to be paid automatically. If you want to use credit cards for the perks or rewards once you’re out of debt, it would help to set up your bill on autopay so that it’s paid off each month no matter what.

Paying off your auto loan

A car loan can be a valuable tool if you need a vehicle to get to work and can’t afford to pay in cash. But not enough people realize just how harmful huge car payments can be, and far too many tend to buy more car than they can truly afford. Very often, those who take out car loans with bad credit have it the worst since they tend to pay higher interest rates.

Roork said that, most of the time, it boils down to self-image. Consumers want to look like they have money, so they take out car loans for tens of thousands of dollars and pledge to pay them off for up to 84 months. But those $500-plus payments can make it difficult to save money and keep up with other bills. And since automobiles are notorious for depreciating at a rapid pace, huge car loans are akin to setting money on fire.

If you haven’t borrowed money for a car yet and don’t want to make a life-altering car loan mistake, Liddle said it’s wise to limit your loan to just three years. That way, your larger monthly payments have a better chance of keeping up with depreciation as your car loses value. Plus, you’re not making such a lengthy commitment.

If you have a car loan already and you want to pay it off, consider these strategies.

Refinance your car loan

If your car loan has a high interest rate and you believe you can get a better deal, it may be possible to refinance your auto loan into a new loan with a lower interest rate and better terms. If you do get a lower interest rate, refinancing can help you secure a lower monthly payment or make it easier to pay your loan off faster if you continue paying the same amount you’re paying now.

Pay as much as you can each month

Paying more than the minimum payment on your car loan can help you get out of debt faster. Make sure your loan doesn’t have any prepayment penalties, then pay as much as you can each month, whether that means rounding up your payment to the next hundred dollars or adding whatever you can.

Sell your car and start over

If you owe less than your car is worth, you can also sell your car by owner (or through trade-in at a dealership) and start over with a less expensive car. If you owe more than your car is worth (e.g., you owe $10,000 on a car worth $8,000 according to Kelley Blue Book), you will need to make up the difference when you sell.

Tackling your student loan debt

According to the Bureau of Labor Statistics, Americans with a high school diploma earned an average of $712 a week in 2017, while those with a bachelor’s degree earned $1,173. Workers with a professional degree earned average wages of $1,836 a week last year, while doctoral graduates earned slightly less.

As you can see, student loan debt can be good debt if used wisely. While you are borrowing money to attend college, your loan can pay off in the form of higher earnings for your entire career.

The good news is, federal student loans tend to come with low interest rates and fixed repayment schedules. For that reason, it makes sense to focus on paying off higher-rate and unsecured debts first.

How to lower your student loan payments

But that doesn’t mean your monthly student loans are affordable or easy to handle — even if they’re at a lower interest rate. If you need your student loan payments to be lower, consider these strategies.

Opt for an extended repayment plan that lasts up to 25 years

While the standard repayment plans for federal student loans last 10 years, you can opt for an extended repayment plan that lasts for up to 25 years. You’ll secure a lower monthly payment this way, although you’ll need to pay on your loans for a longer stretch of time.

Check out income-driven repayment plans

Income-driven repayment (IDR) plans let you pay a percentage of your discretionary income for up to 25 years before forgiving your remaining loan balances. Read about the pros and cons of IDR plans before you consider this option.

Find out if you qualify for loan forgiveness

There are myriad student loan forgiveness options, ranging from Public Service Loan Forgiveness (PSLF) to special forgiveness for teachers and members of the military. Read about student loan forgiveness options to see if you qualify.

Refinance your student loans

If you have excellent credit (or a cosigner with excellent credit), you may be able to refinance student loans with a private lender who can offer a lower interest rate. But keep in mind that you give up federal protections such as forbearance and deferment, along with access to IDR plans, if you refinance federal loans with a private lender.

How to pay off your student loans

Let’s say you don’t care to lower your monthly payment but prefer to pay your student loans off as quickly as possible instead. Consider these tips.

Refinance your student loans

If you can refinance your student loans with a private lender and get a lower interest rate, you can pay less in interest each month and pay your loans off faster. As we mentioned already, you will give up federal student loan protections and benefits if you refinance federal loans into private loans.

Make additional payments

Paying as much as you can toward your student loans each month will help you get out of debt faster, particularly if you can make extra payments regularly. Since interest accrues on unsubsidized loans during school, making regular payments on those loans can save you even more.

Make payments as soon as you can

While some student loans don’t require payments until after you graduate or after your grace period is over, you should start making payments while you’re still in school if you can. Doing so will reduce your loan balance and help you get out of debt faster.

Sign up for auto-drafted payments

Some student loan servicers offer a .25% discount if you set up your payments to be done automatically.

Paying off your mortgage

The debate over whether to pay off your mortgage has waged on for years. Some experts suggest that you should take as long as possible to pay off your mortgage since you likely have a low interest rate and may be able to write off mortgage interest on your taxes. Others who are averse to debt would rather you pay off your mortgage loan early.

There is no right or wrong answer here, but you may want to focus on paying off your mortgage once your other debt is gone. If you have an adjustable-rate mortgage (ARM) and you worry interest rates may rise, for example, focusing on mortgage debt could be a smart move. Perhaps you are less than five years from retirement and want to make sure you have all debt paid off before you settle into a new life with a fixed income.

Maybe you just dislike debt and no longer want to owe anything to anyone. Provided other more important debts are paid off, this is OK as well.

But Liddle notes that you could be better off investing your money instead of prepaying your mortgage. If you have a fixed-rate mortgage loan at 4% APR but you could earn 8% in the stock market, then paying off your mortgage may not be a great deal over the long haul. But again, the right answer for you depends on your attitude toward debt, your appetite for risk and your goals.

If you are seriously considering paying your mortgage off early, here are a few ways to do it.

Review government-backed loan modification and refinance programs

Several government-backed mortgage modification programs exist to help homeowners, including the Home Affordable Refinance Program (HARP), Federal Housing Administration Streamline refinancing and Veterans Affairs Interest Rate Reduction Refinance Loans (IRRRL). These programs can help you qualify for a lower interest rate that can make paying off your mortgage faster a much easier task.

Refinance your mortgage

You can also refinance your mortgage through traditional means, either to reduce your interest rate, your repayment timeline or both. Refinancing a 30-year loan into a fixed-rate 15-year loan may help you secure a lower interest rate and cut years (or a decade or more) off your repayment timeline, for example. But keep in mind that you’ll have to pay closing costs on a new mortgage loan.

Sell your home and start over

You can also consider selling your home and starting over, keeping in mind that the average real estate agent will charge 6% to sell and market your home. If you were able to sell your home and turn a profit after real estate fees and moving expenses were factored in, you could purchase a less expensive home and start the process over.

Make biweekly payments or extra payments

Also keep in mind that you can pay off your mortgage faster by making extra payments or biweekly payments. With extra payments, you can either round up your payment each month to an amount you can afford or strive to make at least one extra mortgage payment each year. You could also opt for biweekly payments that would result in one extra mortgage payment being made every 12 months since you would make 26 half-payments instead of 12 full mortgage payments.

Dealing with debt sent to collections

No matter how hard you try to stay on top of your debts, there are times when it’s easier just to let things go. Unfortunately, late payments can hurt your credit score and result in late fees and fines that make catching up that much harder.

While creditors may try to collect on a late debt themselves for up to 180 days, your debts in default will eventually be sent to collections. “At that time, the company’s bottom line takes a hit for the amount owed,” Sullivan said.

Some creditors have in-house collections professionals, while others hire outside firms to contact consumers to see if they can get them to pay. Sullivan said, sometimes, creditors will just sell off their outstanding debts to collections companies. Either way, someone is eventually going to contact you about the amounts you owe.

What to expect with debt in collections

Debt collectors tend to get a bad reputation since they are known for hounding debtors at home and at their jobs. Sullivan even said many debt collectors will intentionally try to make the experience uncomfortable so you’ll just pay what you owe to get the calls to stop.

Fortunately, the Fair Debt Collection Practices Act (FDCPA) spells out limits for debt collectors, as well as penalties for those who threaten, call too late at night or contact employers and family members.

According to Sullivan, the FDCPA permits consumers to notify collectors in writing that they must stop all communication with that consumer, but many do not know this or fail to take advantage of it. Make sure to read up on the FDCPA at our parent company, LendingTree, and know your rights if you feel you are being unfairly targeted or the victim of abusive practices.

How to handle debt in collections

The best way to deal with debt in collections is to deal with debt collectors directly and honestly, Sullivan said. If you decide not to repay your debts and send a letter to ask debt collectors to cease communication per FDCPA rules, debt collections calls should theoretically come to an abrupt halt. If the calls do not end, keep careful records of all contact. “A consumer can take a collector to small claims court for violations of the law and cash awards can be substantial,” Sullivan said.

If you do want to pay off your debt and strike a deal, Sullivan said to put your negotiation cap on. Often, debt collection companies pay only a fraction of the price of your debt to take it over. With that in mind, you could offer a fraction of what you owe and still help them turn a profit. Imagine you owed $10,000 in credit card debt and it got sent to a collections agency that paid only $2,000 to acquire that debt, for example. Even if you offered $3,000 (30%) of the amounts you owed, the collections agency may be inclined to accept it.

The key is to agree on an amount that ends all collection efforts while helping the collection agency get its investment back.

While it may be tempting to ignore debt collectors altogether, this strategy can backfire. Keep in mind that debt collectors can take steps to have your future wages garnished until the debt is repaid, provided the statute of limitations for the debt isn’t up (varies by state), so you can’t just wish it away. Consumers also need to understand that if wage garnishment is successful, their total debt owed can balloon because of late fees, legal fees and interest, Sullivan said.

Bankruptcy: When and where to file

If you’re at the point in your journey where you know you need legal help to get out of debt, it might be time to explore bankruptcy. There are two main types of bankruptcy to consider:

  • Chapter 7 bankruptcy makes it possible to discharge your debts completely, although there are exceptions, such as student loans, child support and some tax obligations.
  • Chapter 13 reorganizes your debts instead of discharging them. This type of bankruptcy allows you to create a payment plan that will repay all or some of your debts over three to five years.

While both types of bankruptcy could be beneficial depending on your situation, it’s likely that you’ll only qualify for one or the other.

Chapter 7 bankruptcy has a “means test” that limits the amount of income you can have and still qualify, for example. You can only file for Chapter 7 bankruptcy if your income is lower than the median income in your state for your family size. This type of bankruptcy may require you to sell your assets, but your house and cars are protected up to certain amounts that vary by state. Retirement accounts, including 401(k), 403(b)s and IRAs, are also protected fully or up to certain limits.

With Chapter 13 bankruptcy, you need to be able to prove you can afford a repayment plan. You also must have filed both state and federal taxes in the last four years, and have total secured debts below $1,149,525 and total unsecured debts below $383,175. But you do not have to sell any property to make up for shortfalls when you file for Chapter 13 bankruptcy.

Filing for Chapter 7 or Chapter 13 bankruptcy requires an in-depth knowledge of the law and your finances. Further, the U.S. government said mistakes and misunderstandings in your case have the potential to threaten your rights. For that reason, it is strongly recommended that you hire a qualified attorney to help with your bankruptcy case.

Regardless, you can file for bankruptcy on your own and without an attorney’s help. Bankruptcy forms are also available for free online. Bankruptcy is best used as a last resort. Debt consolidation is an option that should be considered before filing bankruptcy. You can compare the two options here.

Setting yourself up for financial success

If you’re someone who is determined to pay off debt that you owe, it’s important to approach your goals with the right frame of mind. Clements said that without the right mindset, no debt-payoff strategy can help you. This is especially true if you’re thinking about refinancing your debt or reorganizing it with another loan.

“Before you think about any product that can reduce an interest rate or shorten a repayment term, you need to make sure you solve the budgeting problem first,” Clements said. “Far too many people think that a balance transfer or debt consolidation will solve their problem, but it won’t” — at least, not until the underlying spending problem is addressed.

If you use a balance transfer card to secure 0% interest and pay down debt but continue using credit cards for purchases you can’t afford, you’re not going to end up any better off once your card’s introductory offer is over, he said.

Here are some of the steps you can take to set yourself up for success:

A monthly budget can help you manage your income and your expenses while also keeping you accountable for each dollar you spend. While there are plenty of budgeting apps out there, you can also budget using a pen and paper. Write out all your bills and all your monthly expenses so you can keep track of where your money goes each month, and you’ll be much better off.

Also take the time to track your spending from the last few months. Break out your bank statements and credit card bills, then tally up how much you spent each month in fluctuating categories such as food and dining out, entertainment, transportation, cable television/internet, clothing, etc. You may be surprised at how much you’re spending in certain categories. If you find areas you can cut in your budget, you can reallocate those extra funds toward your debts.

Both Liddle and Roork suggested a similar approach to emergency funds. Build a $1,000 to $2,000 temporary emergency fund as you pay down debt by saving what you can each month, even if it’s just $50 or $100. Once you’re free from consumer debt, try to save up 3 to 6 months’ worth of expenses to cover emergency medical bills, surprise car repairs, job loss and other surprises life might throw your way.

Automating some of your important bills can also help you stay on track with your spending and goals, particularly if you’re using a budget each month. Automate recurring payments and keep track of them in your monthly budget so you never forget when they’re due and always have money set aside for them. And remember, you can automate payments toward recurring bills and your debts.

Life after debt

Life without debt can be a reality, but it takes a lot of work to get there. Not only do you have to focus on paying off the debts you’ve amassed, but you also need to learn how to avoid debt in the future.

Roork said the key to living debt-free is making sure your lifestyle aligns with your wages — not your wants. If you’re debt-free and budgeting each month, it should become very apparent how much you can afford for housing, food and fun, while also reaching your financial goals. And there’s nothing wrong with occasionally splurging, provided your bills are paid and your needs are met.

It’s all about balance.

“Balance today’s lifestyle with the life you want in the future,” Roork said.

Investing for retirement

To that end, both Liddle and Roork suggest getting on track with your retirement goals once you’re debt-free — or even while you’re paying off debt. If your employer offers a 401(k) or similar plan and you haven’t opened an account yet, doing so should be your first step.

Contribute at least enough to get an employer match if your employer offers one. But both advisers said to aim to save 15% or more, including your employer match, if you want to build up a nest egg you can retire on. Of course, it never hurts to save a lot more than that if you can afford it.

If you’re self-employed, you can open your own retirement account. Consider a SEP IRA, Solo 401(k) or similar retirement account to start saving on your own.

Also remember that anyone can open and contribute to a traditional IRA and may be able to deduct their contributions on their taxes depending on their income. You can also open a Roth IRA, provided you meet income requirements. Keep in mind, however, that you can only invest up to $5,500 a year across both a traditional and Roth IRA ($6,500 if you’re 50 and older).

Saving for other financial goals

Besides investing for retirement, you’ll also want to make sure you’re saving money for other goals you might have. After all, you will likely want to enjoy the spoils of your debt-free lifestyle to a certain extent. Perhaps you want to take a vacation, remodel your kitchen or upgrade to a nicer home. Once you are debt-free, all those goals become easier to accomplish provided you make savings a priority.

We already mentioned how you should strive to save three to six months of expenses for emergencies, but you can also set up savings accounts for other goals, such as for your child’s college education or travel. You may strive to put away at least 10% of your income in cash (outside your retirement accounts) for these goals.

Open a high-interest savings account (or several) and set up automatic deposits in amounts you can afford, whether that’s $100 a week or $100 a month. The key to building up savings is making sure your contributions are consistent and keeping your accounts out of sight so you aren’t tempted to spend money you’ve saved.

Final thoughts

A life without debt is entirely possible, and there are myriad benefits to enjoy on the other side. With enough time and hard work, you can build a life that requires few bills or financial stress. You can start saving and investing for a future you can be excited about, and you can break the paycheck-to-paycheck cycle that has plagued you so far.

But like anything else, this process won’t start on its own. Debt freedom won’t magically appear one day, just like money won’t fall out of the sky.

Believe in yourself and focus on the life you want, and you can get out of debt with enough time. Digging your way out of debt won’t be easy, but it will be worth it.

Disclaimer: MagnifyMoney and Student Loan Hero are LendingTree companies. This article contains links from Student Loan Hero and LendingTree.

Advertiser Disclosure: The products that appear on this site may be 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 financial institutions or all products offered available in the marketplace.

Holly Johnson
Holly Johnson |

Holly Johnson is a writer at MagnifyMoney. You can email Holly here

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Personal Loans vs. Credit Cards: Which is Right for You?

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If you need to borrow money and pay it back over time, you may want to consider an unsecured credit card or a personal loan. Neither option requires you to put down collateral, and you can spend the money however you want.

Before you choose between a personal loan or a credit card, however, it’s smart to take a close look at both options to see which one might leave you better off. The best option for your situation will probably depend on how you plan to use the money, how much you need to borrow, and how long you need to pay your loan back.

How do personal loans work?

Personal loans allow consumers to borrow money with a fixed interest rate, a fixed monthly payment, and a fixed repayment schedule. This means you’ll know exactly how much you need to pay each month as well as the date you’ll pay your loan off.

Most personal loan companies let you borrow up to $35,000, although some companies do extend higher amounts to those who qualify. Generally speaking, these loans are best for individuals who need to borrow a large amount of money and pay it back over a longer timeline.

Personal loan benefits

Personal loans can work well for a variety of situations, whether you need to borrow money to consolidate debt, pay for a major home repair, or cover unexpected medical bills. The main benefits of personal loans include:

  • With a fixed repayment plan, you know exactly when you’ll pay your loan off.
  • Securing a fixed interest rate means you will never have to worry about interest charges ballooning out of control.
  • Having a fixed monthly payment can make budgeting for your personal loan easier.
  • Interest rates on personal loans can be lower than other forms of debt, depending on your credit score.

Drawbacks of a personal loan

Personal loans can provide you with the cash you need, but that doesn’t mean they’re perfect. These loans come with costs you need to be aware of as well as their own share of downsides. For example:

  • Personal loans often come with fees, such as an origination fee of 1% to 8% of your loan balance.
  • You may not qualify for the best interest rates if you have poor credit.
  • You have to borrow a set amount upfront, versus credit cards that offer a line of credit you can borrow against.

Qualifications for approval

To qualify for a personal loan with the best rates and terms, you usually need good or excellent credit. Some personal loan companies will accept consumers with credit scores as low as 580, but only if they pay a higher interest rate.

In addition to having the credit to qualify, you also need to be able to prove your ability to repay by presenting pay stubs or other proof of employment. Since lenders prefer to loan money to borrowers who aren’t overly strapped for cash, you’ll also need a debt-to-income ratio that isn’t too high.

Your debt-to-income ratio is determined by taking your total monthly debts and dividing them by your monthly income. If you have $2,000 in total monthly recurring debt and your monthly income is $4,000, your debt-to-income ratio would be 50%. According to Discover Personal Loans, consumers with debt-to-income ratios below 36 percent may qualify for personal loans with the best rates and terms.

If you don’t meet the criteria to qualify for a personal loan on your own, you may be able to qualify with the help of a co-signer.

When is a personal loan better than a credit card?

A personal loan may be better than a credit card in the following situations:

  • You need several years to repay your loan and prefer a fixed interest rate and monthly payment you can count on. While credit cards also let you borrow money to make purchases, most come with variable interest rates and monthly payments that can go up and down based on interest rates and the amount you owe.
  • You need to borrow money to pay expenses you can’t pay with a credit card, such as repaying a family member you borrowed money from. A credit card can be a valuable tool, but it’s not ideal if what you really need is cash. A personal loan is better if you need cash deposited in your bank account.
  • You want to consolidate debt at a lower interest rate but need several years to pay it off. Some credit cards offer 0% interest on purchases or balance transfers for up to 21 months, but the interest rate will be reset after the introductory offer is over. If you need more time to pay off debt at a lower interest rate, a personal loan could make more sense.

Where to find the best personal loans

While you can check local banks and credit unions to compare their personal loan options, an easy way to research and assess offers is by doing it online. MagnifyMoney offers a comprehensive list of the best personal loan offers that makes it easy to see how each one stacks up.

Remember that the best way to find your ideal personal loan is to compare offers from several lenders, not just one. Make sure to compare loan terms, fees, and interest rates to find the best deal. LendingTree, the parent company of MagnifyMoney, allows you to compare mutliple offers at once without hurting your credit score. Use our table below!

LendingTree
APR

5.99%
To
35.99%

Credit Req.

Minimum 500 FICO

Minimum Credit Score

Terms

24 to 60

months

Origination Fee

Varies

SEE OFFERS Secured

on LendingTree’s secure website

LendingTree is our parent company

LendingTree is our parent company. LendingTree is unique in that you may be able to compare up to five personal loan offers within minutes. Everything is done online and you may be pre-qualified by lenders without impacting your credit score. LendingTree is not a lender.

How do credit cards work?

A credit card provides you with a line of credit you can use to make purchases, transfer a balance, or take out a cash advance. Credit cards usually come with variable interest rates, and interest is charged daily on your balance. If you pay your balance in full every month, however, you can avoid interest charges and use your line of credit over and over again.

Since the amount you borrow with a credit card will vary depending on the purchases you make, your payment can vary from month to month. However, you’re required to make a minimum monthly payment each month, which may be as low as 2.5% of your balance.

Benefits of a credit card

A credit card can be a valuable tool you can use to your advantage, particularly if you need to make a smaller purchase you can pay off in a short amount of time. The main benefits of credit cards include:

  • Some credit cards offer 0% APR on balance transfers and purchases for a limited time, usually 12 months or longer.
  • You pay no interest fees if you pay off the card in full every month.
  • Some credit cards offer rewards on your purchases, such as cash back or travel rewards.

Drawbacks of a credit card

Credit cards can be ideal if you get a 0% offer or can pay off a large purchase quickly, but there are downsides that come with them compared to personal loans. Some of the drawbacks include:

  • Even though some credit cards offer 0% interest for a limited time, credit cards charge an average interest rate of 15.5%.
  • Your monthly payment may be harder to plan for since it is based on a variable interest rate, as well as your credit card balance.
  • Some credit cards charge annual fees. You may be charged other fees as well, such as late fees, over-the-limit fees, cash advance fees, foreign transaction fees, and balance transfer fees.

Qualifications for approval

The qualifications to get approved for a credit card are typically the same as the ones for personal loans. You need good or excellent credit to qualify for a credit card with the best interest rates and terms, for example. You also need to be able to prove your ability to repay with proof of employment and a reportable income. Finally, you need to have a reasonable debt-to-income ratio since the bank won’t want to let you borrow more than you can afford. According to Experian, many lenders prefer a debt-to-income ratio below 36%.

If you’re curious to see whether you could get a credit card of your own, there are also several ways to check if you’re pre-qualified.

When is a credit card better than a personal loan?

While personal loans can make sense when you need to borrow money, there are times when a credit card can be a better deal. Examples include:

  • You can qualify for a 0% APR offer and repay your balance before your card’s introductory offer ends. If you only need to borrow money for a few months, a zero interest credit card can work as an interest-free loan.
  • You’re unsure how much you need to borrow and prefer a line of credit over a loan. Since credit cards only require you to repay amounts you borrow, they can make more sense if you need a line of credit to borrow against as needed.
  • You have the cash to repay your balance and avoid interest, so you want to rack up rewards. If you have the cash on-hand to repay amounts you borrow right away, a rewards card will let you earn points or miles for each dollar you spend. Keep in mind, however, that it’s a bad idea to pursue rewards if you plan to carry a balance, since the interest you’ll pay is likely more than the rewards you’ll earn.

Where to find the best credit cards

Credit cards are easy to apply for online, which is why it makes so much sense to start your research on the internet. MagnifyMoney breaks down the best credit cards in every category, which makes comparing cards and their benefits a simple task. Make sure to compare all factors before you decide on a card, such as the interest rate, 0% APR offer and terms, and any applicable fees.

Credit cards vs. personal loans

 

Credit Cards

Personal Loans

Average Interest Rate

The average annual percentage rate (APR) of credit cards is currently about 15.5%. However, credit card APRs can range from as low as 9.9% to as high as 29.99%

Personal loan rates can range from 5.99% to as much as 35.99% APR, depending on the borrower's credit history. For those with “good” credit (a FICO score between 680-720), APRs currently range from 10 to 13%.

Terms

Credit cards typically charge a variable rate. Credit card interest rates can change based on market rates and can change to a penalty rate if you miss payments.

Personal loans typically come with a fixed interest rate, fixed monthly payments, and a fixed repayment term.

Monthly Payments

Your monthly payment will depend on your balance and your interest rate. Formulas for minimum monthly payments differ among credit card issuers, but they can be as low as around 2.5% of the outstanding balance.

Your monthly payment is a fixed amount based upon the amount you borrow, the length of your loan, and your interest rate.

Average Loan Limit

Your credit limit depends on several factors, including your income and your debt-to-income ratio.

Many lenders offer personal loans up to $35,000, but some offer bigger loans to those who qualify.

Fees

Credit cards can come with annual fees. You may also have to pay late fees, over-the-limit fees, cash advance fees, and foreign transaction fees. Consumers who transfer a balance pay an average balance transfer fee of 3.46%.

Personal loans have an origination fee of 2% to 5% of the amount borrowed (some can go as low as 1% or as high as 8%). Not all lenders charge origination fees, however.

Personal loans vs. credit cards: Which one is right for you?

Before you decide between a personal loan and a credit card, think long and hard about why you need to borrow money and what kind of terms you’d require to pay it back. Some questions to ask yourself as you continue your research include:

  • What do you need the funds for? While personal loans can work better if you need actual cash to spend, a credit card could also work if you need a line of credit to make a purchase.
  • How much can you afford to repay every month? If you can only afford to repay a set amount of money each month, a personal loan with a fixed monthly payment could be ideal. To find out how much you could borrow and still get a monthly payment you can afford, check your options with this personal loan calculator.
  • Are you consolidating debt? If you’re consolidating debt, you need to be able to qualify for a lower interest rate than the average rate you’re paying now. Compare credit cards and personal loan offers to see which ones offer the lowest interest rates for your credit score and situation.
  • How much do you need to borrow? A personal loan could be better if you need to borrow a larger amount and pay it back over several years.
  • How long do you need to repay your loan? If you believe you can repay borrowed funds within the span of a year or slightly longer, a balance transfer card that offers 0% on purchases and balance transfers could work as an interest-free loan. Keep in mind, however, that you may need to pay a balance transfer fee if you transfer a balance, depending on the card you apply for.

The bottom line

Should you get a personal loan or a credit card? At the end of the day, only you can decide. Both options can work well in the right situation, but your specific financial needs will determine which one is best. As always, make sure you read through the terms and conditions along with the fine print before you sign up for any financial product.

Advertiser Disclosure: The products that appear on this site may be 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 financial institutions or all products offered available in the marketplace.

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How to Finance a New Air Conditioning Unit

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There are many reasons homeowners choose to replace their existing air conditioning or HVAC unit, including a desire for greater energy efficiency or better functionality. Homeowners wishing to sell their properties may also want to consider upgrading their HVAC system first — especially if it’s old. Six percent of real estate professionals who participated in the 2017 Remodeling Impact Report from the National Association of the Remodeling Industry (NARI) and National Association of Realtors noted that an upgraded HVAC system recently helped them close a sale.

While it’s obvious a new HVAC system can lead to greater comfort in your home and perhaps even a more attractive resale proposition for buyers, there is one problem that comes with replacing your HVAC — the cost.

While the NARI remodelers estimated that replacing an HVAC unit ran consumers approximately $7,475 nationally in 2017, you may pay more (or less) depending on the size of your home and where you live. For example, HVAC system company Trane quotes a standard XR Series HVAC system for $5,600 to $7,800 (including installation) if you live in central Indiana and have a home that’s 2,000-3,000 square feet. If your ZIP code is 90210 and you live in Beverly Hills, Calif., on the other hand, the same system is estimated to cost $8,800 to $12,000. For a smaller-sized home — less than 1,000 square feet in this example — you would pay considerably less, however. In central Indiana, Trane estimates an HVAC system would set you back $4,600 to $6,600. In Beverly Hills, you would pay $6,800 to $9,400.

With these costs in mind, you may be wondering about the best ways to pay for a new HVAC system. Should you save up the cash or pull from your emergency fund? Or, would financing with a credit card or personal loan leave you better off?

At the end of the day, the right way to pay for a new HVAC system depends on your goals and your personal finances. Consider these loan and financing options as you move forward with your research.

Credit cards

A credit card can be a valuable tool when used with careful thought and consideration. It can make sense to finance an HVAC unit with a credit card in many situations, including ones where you can qualify for a low interest rate or even an introductory 0% APR on purchases.

Some consumers who have the cash to pay for their HVAC unit in full may choose to use credit for additional reasons such as earning cash back or travel rewards. If a consumer uses a cashback card that earns 2% back to purchase a $7,475 HVAC unit, they would pocket $149.50 in rewards with little effort on their part.

What to watch out for

While it could be smart to use a credit card to pay for an HVAC unit, there are several pitfalls to watch out for. Risks include:

  • Length of introductory 0% APR offers: If you’re using a card that offers an intro 0% APR on balance transfers or new purchases, you’ll want to read the terms of your offer to see how long it lasts. Once your introductory 0% APR offer ends, the regular purchase APR will apply to any balance remaining after the end of the intro period. Some credit cards charge deferred interest, meaning you have to pay interest on the remaining balance and interest that would have been charged to the amount you paid off during the 0% APR period.
  • High interest rates on rewards cards: While earning rewards on your HVAC system can make sense if you have the cash, it is not a smart move if you plan to carry a balance. Considering the average credit card APR is 15%, the rewards you earn would be dwarfed by the interest you’ll pay over the long run.

What to look for in a credit card when financing an HVAC unit

If you’re looking for a credit card to cover your HVAC purchase, it makes sense to consider your goals first. Are you hoping to secure 0% interest on purchases to save on interest?

If you’re seeking a card that offers 0% on purchases, you’ll want to understand how long the interest offer will last as well as any applicable fees. You can compare credit card offers right here on MagnifyMoney.

Personal loans

A personal loan is another option you can use to finance an HVAC system. This financial product offers many benefits that can be advantageous if you need some time to pay for your HVAC unit, including fixed interest rates, a fixed repayment schedule and a fixed monthly payment.
Depending on your credit score, a personal loan may also offer a lower interest rate than you might receive with a credit card or other types of financing.

What to watch out for

While a personal loan could be ideal if you need to borrow money for a new HVAC system, there are several details you’ll want to watch out for and understand:

  • Fees: Some personal loans come with fees such as an origination fee. However, not all personal loans come with this fee or any upfront fees, so make sure to check.
  • Precomputed interest: Precomputed interest is a complicated interest scheme that may leave you paying more interest than you would with a loan that doesn’t precompute interest — especially toward the beginning of your loan. You should avoid personal loans that compute interest this way.
  • Prepayment penalties: Some personal loans may charge fees if you pay your loan off early. You should avoid personal loans that employ this “gotcha.”

What to look for in a personal loan when financing an HVAC unit

How much you’ll pay to access a personal loan depends on the interest rate and the fees you’re charged. With that in mind, you should compare offers to find personal loans with the lowest interest rate and lowest fees (or no fees). Also, make sure your personal loan doesn’t have a prepayment penalty so you won’t suffer financial consequences if you pay your loan off early.

Finally, make sure your personal loan comes with a monthly payment and repayment timeline you can live with. To compare loans and estimate the costs of borrowing, you can browse here.

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Home equity loans

A home equity loan works similarly to a personal loan in the fact that both offer fixed interest rates, fixed monthly payments and a fixed repayment timeline. However, personal loans are unsecured loans, whereas home equity loans are secured by the equity in your home. Another option is a home equity line of credit (HELOC), which is a revolving line of credit secured by your home. HELOCs have variable interest rates, and you only pay interest on the amount you borrow, so your monthly payments will vary.

— Read more on the differences between a Personal Loan vs. Home equity Loan here!

The amount you can borrow with a home equity loan is typically limited to 85% of your home’s value. For this reason, this option may not work for you unless you have considerable equity in your property. On a positive note, the interest rate you can qualify for may be lower than other financial products because the loan is secured by the value of your home. The interest you pay on your home equity loan may also be tax-deductible.

What to watch out for

Before you apply for a home equity loan, make sure you understand both the advantages and any potential pitfalls. Here are some downsides you’ll want to be aware of:

  • Fees: Home equity loans come with many of the same fees as a traditional mortgage, including application fees, loan processing fees, origination or underwriting fees, lender or funding fees, appraisal fees, document preparation and recording fees, and broker fees. If these fees are wrapped into the cost of your loan instead of being charged upfront, you’ll pay more interest to finance them. HELOCs may have low (or no) closing costs.
  • You could lose your home: Because home equity loans are secured by the value of your home, you could lose your home to foreclosure if you don’t repay the home equity loan.
  • You may not qualify: These loans are intended for consumers who have considerable equity in their homes, which is why you can only borrow up to 85% of your home’s value in most cases. If you don’t have a lot of home equity, you cannot qualify for a home equity loan.
  • Unpredictable costs: With a HELOC, your interest rate could change at any time. And because you don’t have fixed monthly payments and can carry a balance, you could end up with a hefty bill when it comes time to repay what you’ve borrowed.

What to look for in a home equity loan when financing an HVAC unit

If you’re considering a home equity loan to finance your HVAC purchase, you’ll want to shop around to find a loan with the lowest interest rate and fees you can find. The Federal Trade Commission (FTC) also notes you should ask if you’re paying any points (a fee you can pay to secure a lower interest rate), since points and other finance charges can lead to higher costs upfront.

The FTC also suggests comparing several loan offers to ensure each lender or broker is competing for your business with the best loan terms possible. Fortunately, you can compare home equity loans online with our parent company, LendingTree.

Company or contractor financing

Because some consumers need to borrow money to purchase a HVAC system, many companies that manufacture and install HVAC units offer their own financing plans. In most cases, they partner with a lender to offer in-house loans. While the terms of these offers vary, company financing can be a good deal if you can secure a low interest rate or 0% APR financing for enough time to pay your HVAC unit off.

What to watch out for

While financing your HVAC system through the company you purchase it from may sound convenient, there are several potential downsides. Watch out for:

  • Short introductory offers: While some HVAC companies may be able to offer 0% APR on their products for up to 60 months, not all companies will offer zero-interest terms that long. Make sure you understand how long your 0% APR offer lasts, as well as how high your interest rate will be once it resets.
  • High interest rates: Like other loans, the terms of your HVAC loan will depend on your credit score and income. Make sure to compare offers to find the best interest rate possible, whether that comes with company financing or another type of loan.
  • Fees: Make sure to ask about any fees you may be charged for your HVAC loan.

What to look for in a company financing when financing an HVAC unit

If you decide you want to compare company financing for an HVAC unit with other financial products, you’ll probably want to call around and ask HVAC vendors in your area. You can also research HVAC companies that offer in-house financing online. If you decide to dive into this option, make sure to ask specifically about financing plans, interest rates and any fees you’ll have to pay to secure a loan. Since HVAC vendors use different banks to fund their consumer loans, the terms of these offers can vary widely.

Fortunately, it’s a lot easier to find information on credit cards, personal loans and home equity loans online. A quick internet search can pull up a treasure trove of information that can help you compare loan and financing offers to find the best deal. Having your HVAC financing lined up before you shop, you can be choosy when it comes to selecting an HVAC unit and the company you want to install it.

Will my credit score take a hit?

Several factors make up your credit score, including ones that can be impacted when you make a large purchase. “New credit” makes up 10% of your FICO score, for example, and opening new lines of credit in a short amount of time can make you seem like a greater risk. As a result, you may see an impact to your credit score if you open a new credit account to pay for your HVAC system.

How much you owe in relation to your credit limits makes up another 30% of your FICO score, and this figure will skew higher if you charge an HVAC system to an existing revolving line of credit (like a credit card). Many experts recommend keeping your credit utilization below 30% to keep your credit score in the best shape possible.

The bottom line

If you know you need to replace your HVAC system and don’t want to wind up suffering without heat or AC while you research loans, time is of the essence. To find the best HVAC financing options for your needs, make sure you read through the terms and conditions of any loan you’re considering and compare more than one loan option at once.

HVAC units aren’t cheap by any means, but you can avoid overspending if you can secure financing with a low interest rate and favorable terms.

Advertiser Disclosure: The products that appear on this site may be 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 financial institutions or all products offered available in the marketplace.

Holly Johnson
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Holly Johnson is a writer at MagnifyMoney. You can email Holly here

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The Pros and Cons of Debt Consolidation & Methods

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Pros and Cons of Debt Consolidation
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As of June 2018, Americans carry over $1 trillion in revolving debt, according to data from the Federal Reserve. And carrying debt can be troublesome if it has high interest rates. Credit cards, for example, had an average rate of 15.54% in the second quarter of 2018. That can make it hard for you to manage payments and pay down your debt sooner.

While it would be nice to wish our debt away, you may be considering the next best option: debt consolidation. It could help you save money and potentially pay down debt faster.

Like any financial strategy, debt consolidation isn’t perfect. There are pros and cons to consider anytime you restructure your debt or take out a new loan.

Pros of debt consolidation

The advantages of debt consolidation are often important enough for consumers to overlook any potential downsides. That’s because debt consolidation has the potential to save you money while getting you out of debt.

Here’s a rundown of how debt consolidation could help you save money, along with the additional advantages that come with this strategy.

1. You could repay your debt sooner

One of the biggest advantages of debt consolidation is the potential to save money and time on your debt, said financial planner Justin Pritchard of Approach Financial in Montrose, Colo. One goal of debt consolidation is to get a lower interest rate. With a lower rate, more of your payments are going toward your principal balance each month.

Imagine you have $6,000 in credit card debt at an APR of 15%. If you made a minimum payment of $120 each month, you’d pay a total of $9,473 over seven years. But if you consolidated your debt into a personal loan with an 8% APR and made the same monthly payment, you’d repay a total of $7,323 over five years instead. That’s a savings of more than $2,000 and two years of loan payments.

Pritchard notes that high interest rates make it difficult to pay down debt, whereas a lower rate can help you make a bigger dent in your balance with each monthly payment you make. If you’re able to consolidate to a lower rate and keep making the same monthly payment, you can make a lot of progress in a shorter amount of time. Use our table below to compare multiple offers in minutes to get the lowest interest rate!

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5.99%
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Credit Req.

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Minimum Credit Score

Terms

24 to 60

months

Origination Fee

Varies

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2. You could simplify your finances

Financial planner Neal Frankle of Credit Pilgrim said debt consolidation can simplify repayment. If you have a lot of different accounts, he said, it’s easy to get disorganized and miss a payment. This could lead to both late fees and a ding to your credit score, which wouldn’t help your situation.

By consolidating your debt into a single new loan, you can go from multiple monthly debt payments down to one. This could make it easier to stay on top of your payments and focus on your end goal, Frankle said.

3. You may be able to secure a fixed repayment schedule

Financial adviser Fred Leamnson noted that revolving debt, such as credit card debt, may be harder to pay off if you’re still using credit. If you continue spending on your credit card while you make payments, you can get stuck in a cycle where your new credit card charges outpace any progress you make.

If you consolidate debt with a personal loan, you could opt for a fixed interest rate. That would make your monthly payment and repayment period easier to manage. Plus, you couldn’t tack on more debt to your personal loan. Just be wary of accumulating new debt on your paid-off credit card.

Cons of debt consolidation

While securing a lower interest rate can help you save money on your debt, consolidating with a personal loan or another financial product does come with risks.

Some of the main disadvantages of consolidating your debts include:

1. Consolidating your debt won’t solve your financial problems on its own

Financial planner Dan Kellermeyer of New Heights Financial Planning said debt consolidation may not provide a long-term solution if you have trouble controlling your spending.

“For people who have bad spending habits, I would recommend seeking help from a budget coach or financial planner first,” he said. That way, you can get to the root of your problem and prevent a situation where you consolidate debt but continue racking up new debt.

2. Debt consolidation can cost money on its own

Depending on how you choose to consolidate your debt, you may have to pay upfront costs. For example, personal loans can come with origination fees from 1 percent to 8 percent. Home equity loans, on the other hand, come with closing costs similar to those of a traditional mortgage.

These costs or fees can offset your savings, Pritchard said. For that reason, you should factor in any fees you’ll pay to ensure debt consolidation is worth it. Also consider looking for debt consolidation options that don’t charge any fees.

Pros & Cons of each debt consolidation method

Before you consolidate debt to save money or speed up your repayment timeline, you may want to consider the different loan options available. Consider this breakdown of the popular debt consolidation methods, along with their pros and cons.

What it is

A balance transfer card is a type of credit card that offers 0% APR for a limited time. These cards may let you transfer multiple credit card balances and loans over to the new rate, helping you save money on interest and score a single monthly payment.

Pros

  • If you can pay off your debt during your card’s 0% introductory term, this option is basically an interest-free loan.

  • It’s easy to research and apply for balance transfer cards online.

  • Some balance transfer cards don’t charge any fees to transfer your balance.


Cons

  • Most balance transfer cards charge a 3% to 5% fee to transfer your balance.

  • If you continue using your credit card after you consolidate, you may have trouble paying off your debt before the promotional period ends.

  • You could temporarily impact your credit because you’re adding hard inquiries to your credit report, noted Pritchard. “If you’re in credit-building mode, that may impact your ability to get a great deal on a mortgage or car loan,” he said.

  • Your introductory APR won’t last forever. While you may get 0% for up to 20 months, your card’s rate will rise after the promotional period.

Who is it best for?

Balance transfer cards make the most sense for people with high credit scores because they can usually qualify for the promotional rates. These cards are also best for consumers who can stop using their credit cards so that they can focus on paying off their debt for good.

Where to find the best offer

Check our marketplace for balance transfer cards. Consider the length of each promotional period and fees.

What it is

A debt consolidation loan is a personal loan used to consolidate debt. Personal loans come with a fixed interest rate, monthly payment, and repayment schedule.

Pros

  • Personal loans can offer attractive interest rates that can help consumers save money in debt repayment.

  • Debt consolidation loans help you create a debt payoff plan. “These loans can help set a timeline for wiping out your debt,” Frankle said. “That structure is really helpful for some people.”

  • While a balance transfer card could leave you tempted to continue using it for purchases, this isn’t an option with a personal loan. That could mean you’re better able to stick to your financial goals.


Cons

  • While debt consolidation loans can lower your monthly payments, you may end up paying more in interest if you stretch out your repayment timeline, Kellermeyer said.

  • Consolidating debt only moves your debt, and it could make it easier to rack up more. “You don’t actually reduce the amount you owe, and consolidating can free up your credit cards and tempt you to spend more,” Pritchard said.

  • The interest rate may be higher on these loans than with some other options.

Who is it best for?

Debt consolidation loans are best for consumers who need a structured way to pay off their debt. They’re also a smart option for consumers with high credit scores since they may be able to qualify for the lowest interest rates.

Where to find the best offer

Compare lenders using our personal loan marketplace. Double-check lender fees, rates, and borrowing limits.

What it is

A home equity loan is a fixed-rate debt that uses the equity you have in your home as collateral. You’ll have a fixed monthly payment and repayment timeline.

Pros

  • Since this is a secured loan, you may qualify for a lower interest rate than you could get with other debt consolidation options.

  • You can refinance revolving debt such as credit card debt into a loan product with a fixed interest rate and fixed monthly payment.


Cons

  • You can only borrow up to 85 percent of your home’s value with a home equity loan. So this option may not be available to some homebuyers.

  • Home equity loans may come with costs such as an application or loan processing fee, an origination or underwriting fee, a lender or funding fee, an appraisal fee, document preparation and recording fees, and broker fees.

  • You could lose your home to foreclosure if you don’t repay this loan.

Who is it best for?

“A home equity loan might make sense if you have significant equity in your house, a secure income source that’s going to keep you out of foreclosure, and you really want to minimize your interest rate,” Pritchard said.

Where to find the best offer

Start your search by reviewing our guide to home equity loans. Weigh the benefits of a home equity loan compared with the idea of using your home as collateral.

What it is

A home equity line of credit (HELOC) is a line of credit that lets you borrow against the equity in your home. HELOCs typically come with variable interest rates.

Pros

  • Since HELOCs are secured by the equity in your home, they can offer attractive interest rates.

  • HELOCs don’t require you to borrow a set amount. Instead, you get the option to borrow amounts that you need up to a preset limit.


Cons

  • HELOCs can come with fees, including for applications, title searches and appraisals. But not all HELOCs charge these fees, so make sure to shop around.

  • Since you only have to repay amounts you borrow, your monthly payment can vary widely.

  • HELOCs typically come with variable interest rates, meaning your payment could go up or down throughout the life of your loan.

  • You can only borrow up to 85 percent of your home’s value, so this option is only good for those who have a lot of home equity.

Who is it best for?

HELOCs are best for consumers who have a lot of equity in their homes and want a line of credit to borrow against.

Where to find the best offer

Kick-start your search by learning more about HELOCs. Consider comparing your options for a HELOC with a balance transfer card. Review rates as you shop lenders and ensure you’re comfortable with using your home as collateral.

What it is

Debt management plans are overseen by credit counseling agencies, according to Kevin Gallegos, vice president of new client enrollment at Freedom Debt Relief. With these plans, consumers make a monthly payment that’s used to pay their creditors based on a payment plan that’s agreed upon by all parties. This type of plan may land you a lower interest rate and reduced fees.

Pros

  • Gallegos said a debt management plan could “simplify bill-paying by combining debts to obtain one interest rate and one payment.”

  • Joseph Martin, a credit counselor with Take Charge America, a national nonprofit credit counseling and debt management agency, said credit counseling agencies do a lot of the work for you with these plans. “With a debt management plan offered through a nonprofit credit counseling agency, a credit counselor works on your behalf to negotiate more favorable terms with each creditor. ... Once you make your single payment each month, they also take steps to disburse the funds for you on your behalf.

  • A debt management plan could help you secure a lower interest rate, Gallegos said. “As a result, you can more easily meet your monthly budget, or pay more than the minimum to repay your debt more quickly.”


Cons

  • Debt management plans typically charge a monthly administration fee. These fees can add up over the course of a debt management program. But these fees can be offset by the interest you save.

  • If you enroll in a debt management plan, you need to stop using your credit cards to receive the full benefit. “That can be a big challenge for some,” Gallegos said.

Who is it best for?

Gallegos said debt management plans are best for consumers with less than $7,500 in unsecured debt who can make monthly payments, and who would benefit from a slightly lower interest rate.

Where to find the best offer

Martin said you can take part in a confidential, free credit counseling session at a nonprofit agency. Consider checking in with the National Foundation for Credit Counseling.

The bottom line

Consolidating debt can be a good move if it helps you save money or repay your debt faster. But it’s important to consider all your options before you pull the trigger.

The right debt consolidation method for you can vary. Consider what kind of debt you have and how much you have of it, your current interest rates and which consolidation methods are available. By doing some research, you can wind up with the best debt consolidation product for your unique needs.

Advertiser Disclosure: The products that appear on this site may be 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 financial institutions or all products offered available in the marketplace.

Holly Johnson
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Holly Johnson is a writer at MagnifyMoney. You can email Holly here

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When you need cash but don’t want to raid your emergency fund, it’s only natural to consider tapping into what could be your greatest source of wealth — your home equity.

It’s entirely up to you how you use it, but many consumers use home equity to remodel their homes, consolidate debt or cover expensive bills, such as college tuition. It’s your equity to use how you please, so the options are endless.

But because there’s more than one way to access your home equity, it’s wise to compare available options to find the right fit. Two of the most popular ways are a home equity line of credit (HELOC) and a cash-out refinance. Both of these loans can work if you want to access your home equity, but they do work rather differently.

Cash-out refinancing: How does it work?

Cash-out refinancing involves replacing your current home loan with a new one. The “cashing out” part of the equation requires you to take out a larger home loan than you currently have so you can receive the difference as a lump sum. Like HELOCs, this strategy works for people who have equity in their homes due to paying down their mortgage balances or appreciation of their property.

To qualify for a cash-out refinance, you need to meet similar requirements as you would if you were applying for a first mortgage. This typically means having a credit score of 620 or above, a debt-to-income ratio of 50% or less (i.e. the sum of all your debt payments, including housing, divided by your gross monthly income), and a loan-to-value ratio on your home of 80% or less after the cash out refinance is complete.

The equity part of the equation can be a roadblock since you need to have a lot of equity in your home to qualify for a cash-out refinance. Let’s say your home has a value of $300,000 and you want to take cash out. In that case, you could only borrow up to $240,000 through a cash-out refinance. If you owe that much or more on your home already, you wouldn’t qualify.

Like any other loan, you’ll need to prove your employment status via recent pay stubs and gather other documentation such as W-2 tax forms, two months of recent bank statements and two years of tax returns.

Cash-out refinance pros and cons

Pros:

  • You can use the money from a cash-out refinance for anything you want, including home upgrades, college tuition, a vacation or debt consolidation.
  • If rates have gone down or your credit has improved since you took out your original home loan, you could refinance your mortgage into a new loan with a lower interest rate.
  • You can choose from different types of loans for your refinance, with various terms and fixed or variable rates available.
  • Interest on your first mortgage may be tax-deductible.
  • Interest rates on first mortgages tend to be lower than other options, such as home equity loans or HELOCs.

Cons:

  • You may face substantial closing costs for a cash-out refinance, which typically work out to 2% to 6% of the loan amount.
  • If interest rates have gone up since you purchased your home, you could be trading your mortgage for a higher interest loan that will be more expensive.
  • Refinancing your home to take cash out may leave you in mortgage debt longer.
  • You won’t qualify for a cash-out refinance unless you have at least 80% equity in your home after the process is complete.
  • Refinancing your home to take cash out could leave you with a larger monthly mortgage payment.

Home equity line of credit (HELOC): How does it work?

While a cash-out refinance requires you to replace your current mortgage with a new one, a HELOC lets you keep your first mortgage exactly how it is. Acting as a second mortgage, a HELOC lets you borrow against your home equity via a line of credit. This strategy allows you to withdraw the money you want when you want it, then repay only the amounts you borrow.

To qualify for a HELOC, you need to have equity in your home. The Federal Trade Commission (FTC) notes that, depending on your creditworthiness and how much debt you have, you may be able to borrow up to 85% of the appraised value of your home after you subtract the balance of your first mortgage.

For example, let’s say your home is worth $300,000 and the balance on your mortgage is currently $200,000. A HELOC could make it possible for you to borrow up to $255,000, because you would still retain 85% equity after accounting for your first mortgage and your HELOC.

Generally speaking, HELOCs work a lot like a credit card. You typically have a “draw period” during which you can take out money to use for any purpose. Once that period ends, you may have the option to repay the loan amount over a specific amount of time or you might be required to repay the balance in full. You may also have the option to renew your draw period at that time. All these factors can vary, so make sure to ask your HELOC lender about specifics before you move forward.

Like credit cards, HELOCs also tend to come with variable interest rates. This can be a good thing when rates are low, but you have to be prepared for your rates to rise.

To qualify for a HELOC, you must be able to borrow the money you need and still maintain 15% equity in your home. Having a credit score of 680 or above can also help the process along, although some lenders offer home equity loans to borrowers with scores as low as 620.

Generally speaking, you also need to have a debt-to-income ratio of less than 43%, including your first mortgage and your HELOC payment. The Consumer Financial Protection Bureau (CFPB) reports that lenders implement this “43% rule” based on the idea that borrowers with higher levels of debt often have trouble keeping up with their housing payments.

HELOC pros and cons

Pros:

  • Applying for a HELOC allows you to maintain the terms of your original mortgage, which can be an advantage if your rate is low.
  • You can use money from a HELOC for anything you want, and you only have to repay amounts you borrow.
  • HELOCs tend to come with lower closing costs than traditional mortgages and home equity loans.
  • Interest may be tax-deductible if you use the funds to improve your property. Make sure to check with your accountant.

Cons:

  • Taking out a HELOC means you’ll need to make two housing payments every month — your first mortgage payment and your HELOC payment.
  • Interest on a HELOC is no longer tax-deductible, unless the funds are used for acquisition or updating your home.
  • Since you only repay what you borrow and the interest rate on HELOCs is typically variable, you may not be able to anticipate what your monthly payment will be. Your monthly payment could also be interest only at first, meaning your payment won’t go toward the principal or help pay down the balance of your loan.
  • The interest rate on HELOCs tends to be higher than first mortgages, and their variable rates can seem riskier. You may also be required to pay a balloon payment at the end of your loan, so make sure to read and understand the terms and conditions.
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At a glance: Cash-out refinancing and HELOCs

At the end of the day, either borrowing option can get you what you need — access to the equity in your home. But, one option can easily be better than the other, depending on your situation.

Before you choose between a HELOC or a cash-out refinance, here are all the details you should consider:

 

Cash-out refinance

HELOC

Loan term

You get to select the loan term when you go through a cash-out refinance. Among other options, you can get a fixed-rate mortgage with a 15-year or 30-year term.

Most HELOCS come with a draw period of up to 10 years. After that, you will have a repayment period that varies by lender.

Borrowing limits

You can borrow up to 80% of your home’s value.

HELOCs allow you borrow up to 85% of your home’s value, including your first mortgage.

How long it takes to get the money

The average refinance takes between 20 and 45 days, and you’ll get a lump sum for the amount you borrow at closing.

The average HELOC can close in less than 30 days, at which point you’ll have access to your new line of credit.

Credit score

You need a credit score of 620 or higher to qualify for a cash out refinance.

You need a credit score of 620 or higher to qualify for a HELOC.

Equity requirements

You need to have at least 20% equity in your home after the cash-out refinance is complete.

HELOCs require you to maintain at least 15% equity after borrowing.

Interest rates

Mortgage rates can be fixed or adjustable, with rates ranging from 3.75% to 4.25%.

HELOC interest rates are variable, currently ranging from 4% to 5.87%.

Closing costs

Closing costs for a traditional mortgage range from 2% to 6% of the loan amount.

HELOCs tend to have little or no closing costs.

Risks

Since you’re using your home as collateral, you run the risk of losing your home if you default. If you extend your repayment timeline, you will also spend more time in debt.

HELOCs require a lower amount of equity (15%) in your home, which means you can borrow more. However, you could lose your home if you default, because you’re using the property as collateral.

Which choice is right for you?

Before you decide between a HELOC or a cash-out refinance, it helps to take a holistic look at your personal finances and your goals.

A cash-out refinance may work better if:

  • Your current home loan has a higher rate than you could qualify for now, so refinancing could help you save on interest
  • You prefer the stability of a fixed monthly payment or only want to make one mortgage payment every month
  • You have high-interest debts and want to consolidate them at the same rate as your new mortgage
  • What you save by refinancing — such as savings from a lower interest rate — outweighs the fees that come with refinancing

A HELOC may work better if:

  • You are happy with your first mortgage and don’t want to trade it for a new loan
  • Your first mortgage has a lower interest rate than you can qualify for with today’s rates
  • You aren’t sure how much money you need, so you prefer the flexibility of having a line of credit you can borrow against
  • You want to be able to borrow up to 85% of your home’s value versus the 80% you can borrow with a cash-out refinance

In addition to these options, you can also consider a home equity loan. While HELOCs come with variable rates and work as a line of credit, a home equity loan comes with a fixed rate and fixed monthly payment.

Whatever you decide, make sure to compare lenders, interest rates and terms to get the best deal possible when accessing your home equity.

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Holly Johnson is a writer at MagnifyMoney. You can email Holly here

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College Students and Recent Grads

The Ultimate Guide to Paying off Medical School Debt

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Part I: Is Medical School Worth It?

Getting accepted to medical school is a major accomplishment, but graduating from medical school can be life-changing for your finances. According to The College Payoff, a collaborative study conducted by the Georgetown University Center on Education and the Workforce, individuals with a doctoral-level degree enjoyed median lifetime earnings of $3,252,000 in 2009 dollars. This figure compares favorably to degrees that require a smaller commitment of time and resources, showing that pursuing a medical degree can pay off.

Now on to the bad news. While earning more money over a lifetime is advantageous, there’s a notable downside to going to medical school. While doctoral-level degrees can pay off with a lifetime of higher wages, the costs of pursuing this degree can be astronomical.

As the Association of American Medical Colleges notes, the average indebted 2017 medical school graduate left college with a median medical school debt of $192,000. No matter how you cut it, that’s a lot of money to borrow and spend.

Are you currently suffering from high-interest rates on your medical school loans? Jump down to our top picks for refinancing med school debt in 2018.

Medical school debt in the U.S.

The Association of American Medical Colleges shares statistics on average medical school debt. As of 2017, indebted medical school graduates left school with a median debt loan of $192,000. At public schools, the median debt load worked out to $180,000. Private medical schools, on the other hand, reported a slightly higher level of debt with a median debt load of $202,000.

The high levels of debt many medical school graduates endure are caused by myriad factors, including the rising costs of tuition. While average medical school tuition hasn’t been tracked since 2009, the price tag of a medical education was $29,890 that year.

In addition to the price of tuition, medical students need to pay for countless other expenses, some of which only apply to those in the medical field:

  • Room and board
  • Rent and utilities
  • Food
  • Travel and transportation
  • Health care
  • Instruments and supplies
  • Textbooks
  • Lab fees
  • Test fees
  • Relocation for residency

Lifetime earnings for a doctor

While the costs of medical school are high, doctors’ higher salaries can take the sting out of the long-term costs. In 2016, for example, family and general practitioners earned an annual mean wage of $200,810, while physicians and surgeons earned $210,170, on average. Several medical specialties earned even more.

The following table highlights profitable medical careers alongside careers that require only a bachelor’s degree:

Careers & Degree Requirements

Annual Mean Wage in 2016 (National)

Medical Careers:

Family and general practitioners

$200,810

Physicians and surgeons

$210,170

Anesthesiologists

$269,600

Surgeons

$252,910

Bachelor’s Degree Careers:

Petroleum engineers

$147,030

Biomedical engineers

$89,970

Registered nurses

$72,180

Market research analysts

$70,620

Elementary school teachers

$59,020

Is medical school worth the cost?

If you’re trying to decide between degree programs with varying costs and educational outcomes, it’s important to consider the ROI, or return on investment, for your education. While there’s no hard and fast rule to help you decide, figuring out your post-education monthly payment for medical school debt and comparing it to your potential salary can help.

As an example, the average medical school graduate with $192,000 in debt with a 6% interest rate would need to pay $2,131.59 per month toward their loans if they chose standard, 10-year repayment. According to the Bureau of Labor Statistics, however, the median weekly earnings for someone with a doctoral degree worked out to $1,664 in 2016.

During a month with four weeks of paydays, a doctoral graduate would bring in $6,656 before taxes and $4,659.20 after taxes, considering a 30% tax rate. While a $2,131.59 payment represents nearly half of this person’s income, it’s only for 10 years. Further, the percentage of income will only decrease as their income grows. And if they choose a higher paying medical specialty, the difference could be even greater.

Also keep in mind that doctors don’t have to choose 10-year, standard repayment as there are plenty of other options available, including repayment plans that span up to 25 years. If the graduate with the same level of debt as above chose to repay their loan over 25 years at the same interest rate, for example, they would pay only $1,237.06 per month.

Part II: Paying for Medical School

Federal student loans are usually the first source of funding medical students turn to as they seek to finance their education. Several different types of federal student loans are available, and each has their own benefits, drawbacks and practical limitations. Federal student loans tend to be a good option for medical students since they offer relatively low, fixed interest rates and help students qualify for federal perks like income-driven repayment, student loan forgiveness programs, deferment and forbearance.

Pros of federal student loans:

  • Fixed interest rates that can be competitive
  • Access to federal loan repayment and student loan forgiveness programs
  • Qualifying for subsidized loans means the government may pay the interest on your loans during school
  • Access to student loan forbearance and deferment (if you qualify)
  • No credit check

Cons of federal student loans:

  • Caps on how much you can borrow
  • You may need to take out private loans once you exhaust federal loans
 

Interest Rates

Maximum Annual
Borrowing Amount

Perkins Loans

5%

Up to $5,500 per year for
undergraduate students, depending
on financial need and other aid
received; up to $8,000 per year
for graduate students

Direct Subsidized Loans

4.45% for undergraduate
loans first disbursed on or
after July 1, 2017,
and before July 1, 2018

$3,500 to $5,500 per year for
undergraduate only

Direct Unsubsidized Loans

4.45% for undergraduate
loans first disbursed on or
after July 1, 2017, and before
July 1, 2018; 6% for graduate
loans

$5,500 to $12,500 per year for
undergraduate students;
up to $20,500 per year for
graduate students

Direct PLUS Loans

For Direct PLUS Loans first
disbursed on or after July 1, 2017,
and before July 1, 2018,
the interest rate is 7%

Maximum loan amounts
are limited to the cost of
attendance in school minus
financial aid received

Direct Consolidation Loans

Weighted average of the
loans being consolidated

No minimum or maximum
loan limits

Private student loan debt for medical school

Private student loans are commonly used once medical students max out the amount of federal money they can borrow for school. These loans are offered through private lenders, which means their rates and repayment terms are not fixed by the government. As a result, they can vary greatly but may be lower than rates offered through government programs.

Pros of private student loans:

  • Interest rates may be lower than federal student loans
  • Loan limits can be high enough to cover the entire cost of medical school
  • Loan disbursement may be faster
  • You can shop around among lenders to find the best deal

Cons of private student loans:

  • You need good or excellent credit to qualify on your own
  • Without good credit, you may need a co-signer
  • Interest rates can be fixed or variable
  • Private loans do not offer federal student loan forgiveness, income-driven repayment, or federally sponsored deferment or forbearance
  • You may need to make payments or pay interest while still in school

When to consider private student loans:

  • You’ve maxed out on federal student loan amounts
  • Private loans offer a better interest rate
  • You don’t plan to take advantage of government programs when it comes to repaying your loans

Private student loan lenders to consider

 

Interest Rates*


Borrowing Limits


Credit Requirement


Discover
Student Loans

Variable rates from 4.62%
to 8.62% APR; fixed rates
from 6.49% to 9.99% APR

Limited to 100% of the
cost of attendance minus
other aid

You may need a co-signer
to qualify if you don’t
have excellent credit


Sallie Mae
Student Loans

Variable rates available
from 3.62% to 8.36% APR;
fixed rates from
5.74% to 8.36% APR

Borrow up to 100% of
the cost of attendance

You need good or
excellent credit to qualify
without a co-signer


Wells Fargo
Student Loans

Variable rates available
from 4.59% to 9.10% APR;
fixed rates available from
6.66% to 10.18% APR

The lifetime limit for this
loan and all other
education-related debt,
including federal loans,
is $250,000 for allopathic
(M.D.) or osteopathic
(D.O.) medicine; $120,000
for all other disciplines

You have a better
chance to qualify if you
have a co-signer;
excellent credit required


Citizens Bank
Student Loans

Variable rates available
from 3.53% to 9.69% APR;
fixed rates available from
5.26% to 10.24% APR

Lifetime limit is $225,000
for medical school loans

Good or excellent credit
required without a
co-signer


College Avenue
Student Loans

Variable rates available
from 4.07% to 9.60% APR;
fixed rates available from
6.22% to 10.66% APR

Borrow up to 100% of the
cost of attendance

Good or excellent credit
required without a
co-signer

Grants for medical students

Grants for medical school students are offered through the government, research facilities, corporations and institutions of higher education. Students can seek out information on available grants by asking their school’s financial aid office, searching the internet, or checking government resources that cover the medical field.

Here are some popular grants available to medical students:

This Medical Scientist Training Program grant was created to assist students pursuing degrees in clinical and biomedical research. This program is offered at over 47 universities that help facilitate the grant.

  • Award amount: Amounts vary
  • Qualifications: Available to qualified M.D.-Ph.D. dual-degree students with a GPA of 3.0 or higher
  • Deadline to apply in 2018: Depends on the participating institution

The Ford Foundation Fellowship Program seeks to increase diversity and offers grants to medical students pursuing a Ph.D. with the goal of participating in medical research or teaching. Other Ph.D. students are considered as well.

  • Award amount: $20,000 to $45,000, depending on the specific program
  • Qualifications: Medical students in pursuit of a Ph.D. can apply
  • Deadline to apply in 2018: Applications closed January 9, 2018 at 5 PM EST

This American Medical Women’s Association grant awards four AWMA student members every year. This two-year fellowship focuses on global health and includes a trip to Uganda.

  • Award amount: $1,000 to fund local project planning and subsidize experiential education in Uganda
  • Qualifications: Must be AWMA member pursuing a medical education
  • Deadline to apply in 2018: The next application cycle is Aug. 1, 2018, to Oct. 30, 2018

This grant, which is offered through the Radiological Society of North America, was created for medical students considering academic radiology.

  • Award amount: $3,000 to be matched by a sponsoring department for a total of $6,000
  • Qualifications: Must be a full-time medical student and RSNA member
  • Deadline to apply: Feb. 1, 2018

This program, which is offered through the American Medical Women’s Association, is available to medical students and residents working in clinics around the world.

  • Award amount: Up to $1,000 in transportation assistance costs
  • Qualifications: Students must work in an off-campus clinic where the medically neglected will benefit, be an AMWA member in at least their second year of school, and must spend four weeks to one year serving the medically underserved
  • Deadline to apply in 2018: The next application deadline available is July 5, 2018

Scholarships for medical students

Scholarships are available to medical students from all walks of life and all backgrounds, although requirements vary based on the program. Medical students can seek out merit-based scholarships, institution-based scholarships and various other scholarships offered through research facilities and corporations.

Here are a handful of popular scholarship options for medical students:

This grant, offered through the American Medical Association, doles out scholarships to medical students who meet certain criteria. The goal of this program is to reduce the debt burden on medical school students across the country.

  • Award amount: $10,000
  • Qualifications: Must be a medical student who is nominated by their school dean and approaching their last year of medical school
  • Deadline to apply in 2018: Nomination applications are available every fall

The Herbert W. Nickens Award is available to third-year medical students who have shown proven leadership in the area of medical equality for all.

  • Award amount: $10,000
  • Qualifications: Must be a medical student who is nominated for excellence in leadership; checklist is available here
  • Deadline to apply in 2018: Applications due in April each year

This scholarship is open to all students pursuing a service career in health care, including medical students considering any medical field.

  • Award amount: $5,000 to $10,000
  • Qualifications: Must be a medical student with at least one year of medical school remaining
  • Deadline to apply in 2018: Application opens at the beginning of May each year and closes at the end of June

This scholarship is available to all medical students with financial need regardless of their gender, race or ethnicity. Applicants are judged on financial need, achievements, essays and community service records.

  • Award amount: $2,000 to $5,000
  • Qualifications: Must be a medical student who can demonstrate financial need and complete the application process
  • Deadline to apply in 2018: Applications are due by April 1, 2018

The Harvey Fellows Program was created for Christian students pursuing higher education in important fields such as medicine.

  • Award amount: $16,000
  • Qualifications: Must be a student who identifies as Christian and attends service regularly
  • Deadline to apply in 2018: Application deadline is Nov. 1 of each year

Part III: Medical School Loan Repayment Programs

Income-driven repayment (for federal student loan debt)

Income-driven repayment programs allow medical students to pay only a percentage of their income toward their federal student loans for 20 to 25 years no matter how much they owe. These programs can be advantageous since they let medical students with large debt loads pay a smaller percentage of their income every month than they would with standard, 10-year repayment. Several different income-driven repayment programs are available, each with their own rules and benefits. The following table highlights each program and how it works:

 

Payment Amount

Repayment Period

Eligibility

Pay As You Earn
Repayment Plan
(PAYE Plan)

10% of your
discretionary income,
but never more than your
payment on 10-year
Standard Repayment

20 years

Your payment must be
less than what you would
pay under standard,
10-year repayment

Revised Pay As You
Earn Repayment
Plan (REPAYE Plan)

10% of your
discretionary income

20 years for
undergraduate loans
and 25 years “if any
loans you’re repaying
under the plan were
received for graduate
or professional study”

Any borrower with
eligible federal student loans
can qualify

Income-Based
Repayment Plan
(IBR Plan)

10% of your
discretionary income
if your loan originated
after July 1, 2014,
but never more than
the 10-year Standard
Repayment Plan;
generally 15% of your
discretionary income
if you’re not a new
borrower on or after
July 1, 2014; either way,
you’ll never pay more
than the payment on a
standard, 10-year
repayment plan

20 years if you’re a
borrower on or after
July 1, 2014; 25 years
otherwise

To qualify, your
payment under this plan
must be less than what you
would pay under standard,
10-year repayment

Income-Contingent
Repayment Plan
(ICR Plan)

20% of your
discretionary income or
what you would pay over
the course of a fixed
12-year repayment plan

25 years

Any borrower with
eligible federal student loans
can qualify for the ICR Plan

Pros of income-driven repayment:

  • Pay a smaller amount of your income for up to 25 years
  • Have your student loan balance forgiven once you complete the program
  • Pay off your debts slowly and at your own pace

Cons of income-driven repayment:

  • You may have to pay income taxes on forgiven loan amounts
  • You may not qualify if you earn too much

Who is eligible?

These programs are available to graduates who have federal student loans and meet income requirements.

How to apply

You can apply for income-driven repayment programs using the U.S. Department of Education website.

Medical school loan forgiveness for doctors

There are numerous loan forgiveness programs available to doctors, each with their own criteria for applicants. Commonly, these programs offer loan forgiveness in exchange for service in a specific field or for a certain type of employer.

Some examples include:

Who is eligible?

Since loan forgiveness programs vary in their details and requirements, you’ll need to read terms and conditions of applicable programs to determine if you qualify.

Is this option right for you?

If you are willing to relocate or know that a loan forgiveness program is already available in your area, then loan forgiveness programs offer a great way to earn a living while having part of your debt forgiven. For this option to be right for you, however, you have to be willing to meet special program requirements such as working in an urban, rural or underserved community.

National Health Service Corps Loan Repayment Program

This program offers loan repayment assistance for individuals entering qualified healthcare careers in medical or dental fields. Licensed health care providers may earn up to $50,000 of tax-free loan forgiveness for a two-year commitment to NHSC-approved employment in a high-need area.

Who is eligible?

Medical graduates who agree to work in an NHSC-approved career for at least two years may qualify for this assistance.

How to apply

Contact the National Health Service Corps or visit the NHSC website for tips on the application process.

Is this option right for you?

If you’re willing to work in an area of high need after you graduate, this program may work well at the beginning of your medical career.

U.S. military loan repayment programs

United States Army

Army Student Loan Assistance offers up to $45,000 per year in loan assistance, along with a monthly stipend of up to $2,000. This assistance is available to U.S. residents working to complete an accredited residency.

The U.S. Army also offers up to $120,000 to pay down medical school debt in exchange for three years of service.

Lastly, the U.S. Army offers a Health Care Professionals Loan Repayment Program that provides up to $250,000 for repayment of “education loans for physicians in certain specialties who are serving in an Army Reserve Troop Program Units, AMEDD Professional Management Command, or the Individual Mobilization Program.”

How to apply

For additional information, contact your local Army recruiter, call 1-800-USA-Army, or visit Healthcare.GoArmy.com.

United States Navy

The Navy Student Loan Repayment Program offers up to $65,000 in repayment assistance, depending on your loan amount and year in school. Eligible applicants serve in the U.S. Navy and have federal student loans.

You may also qualify for the U.S. Navy’s loan forgiveness and repayment program, which offers up to $40,000 per year in loan assistance before taxes. You must be a final year medical student ready to join the U.S. Navy.

Lastly, the Navy Financial Assistance Program offers up to $275,000 in loan repayment assistance plus a monthly stipend to medical residents who agree to serve in the U.S. Navy. Physician sign-up bonuses may also be available.

How to apply

Contact your local Navy recruiter or visit the Navy Recruiting Command website.

United States Air Force

The Air Force Health Professions Scholarship Program offers up to $45,000 per year plus a monthly stipend up to $2,000 for medical students who join the U.S. Air Force and serve their country as a medical professional. Once you complete your residency, you’ll have a one-year obligation for each year you participate in the program plus one extra year.

How to apply

Contact a U.S. Air Force recruiter for more information, or visit the U.S. Air Force application page to apply.

State-level loan repayment programs for doctors

 

Program

Eligibility

Alaska


The SHARP Program offers new doctors
up to $35,000 in loan repayment
assistance per year.

Doctors must agree to work at least two
years in a high-need shortage area.

Arizona


The Arizona State Loan Repayment
Program
offers up to $65,000 per year in
repayment assistance for doctors for two
years, with lower repayment amounts
offered in subsequent years. You must
work in outpatient care to qualify.

The doctor must be a U.S. citizen who
agrees to work in a state-approved high
need position.

Arkansas


The Arkansas Department of Health
offers up to $50,000 in loan forgiveness
in exchange for a two-year contract.

You must agree to work in an
underserved area approved by the state.

California


The California State Loan Repayment
Program
offers doctors up to $50,000 in
loan forgiveness.

Applicants must be medical school
graduates and agree to at least a
two-year commitment in an eligible,
state-approved position.

Colorado


The Colorado Health Service Corps
offers up to $90,000 for doctors who
qualify.

Doctors must practice in a
state-approved shortage area that
accepts public insurance and offers
discounted services to the poor for three
years.

Delaware


The Delaware State Loan Repayment
Program
offers between $70,000 and
$100,000 in loan forgiveness for doctors
who qualify.

Doctors must agree to work in an area
with a substantial yet underserved
medical need for two years.

Georgia


The Georgia Physician Loan Repayment
Program
offers up to $25,000 per year
for two years.

Physicians must practice in a shortage
area and in one of the following medical
fields: family medicine, internal medicine,
pediatrics, OB/GYN, geriatrics or
psychiatry.

Hawaii


The Hawaii State Loan Repayment
Program
is a federal grant you can use
to pay off educational loans. Amounts
vary.

Applicants must agree to a two-year
commitment in a state-designated
shortage area.

Idaho


The Idaho State Loan Repayment
Program
offers doctors $2,000 to $25,000
per year in loan repayment assistance.

Doctors must agree to work in a health
care shortage area designed by the
state of Idaho.

Illinois


The Illinois National Health Service Corps
State Loan Repayment Program
offers up
to $50,000 in loan repayment assistance
for doctors who qualify.

Doctors must agree to a two-year
commitment in a health care shortage
area.

Iowa


Iowa’s Primary Care Recruitment and
Retention Endeavor
offers up to $50,000
for full-time doctors and up to $25,000 in
assistance for those who agree to work
part time.

Doctors must agree to work in a shortage
area approved by the state.

Kansas


The Kansas State Loan Repayment
Program
offers doctors up to $25,000 in
assistance per year.

Applicants must agree to a two-year
commitment in an eligible position.

Kentucky


The Kentucky State Loan Repayment
Program
awards up to $300,000 in loan
repayment assistance to up to 13
applicants who work in primary care.

You must agree to work in a designated
health care shortage area.

Louisiana


The Louisiana State Loan Repayment
Program
offers up to $30,000 annually for
up to a three-year commitment.

Applicants need to work in a traditionally
underserved health care shortage area.

Maryland


The Maryland Loan Repayment Assistance
Program
for Physicians offers up to
$50,000 per year for a two-year
commitment.

Applicants must be medical graduates
who are current on their student loans
and willing to work in a health care
shortage area.

Massachusetts


The Massachusetts Loan Repayment
Program
for Health Professionals offers
up to $50,000 for a two-year contract.

You must work in an area experiencing
exceptional medical need.

Michigan


Through the Michigan State Loan
Repayment Program
, doctors can receive
up to $200,000 in loan repayment
assistance.

Doctors must agree to a two-year,
full-time commitment in a health care
shortage area.

Minnesota


The Minnesota State Loan Repayment
Program
offers up to $20,000 in loan
assistance per year. Programs for rural
doctors
and urban physicians in
Minnesota also offer up to $25,000 per
year in assistance.

Dentists must agree to work in a
shortage area for at least two years to
qualify.

Missouri


The Missouri Health Professional State
Loan Repayment Program
offers up to
$50,000 in loan repayment assistance.

Doctors must agree to a two-year
commitment in a health care shortage
area.

Montana


The Montana Rural Physician Incentive
Program
offers up to $20,000 per year in
assistance for up to five years.

You must agree to work in a designated
rural or underserved community.

Nebraska


The Nebraska Loan Repayment Program
offers up to $60,000 per year in loan
repayment assistance.

Physicians must agree to work in
designated shortage areas for at least
three years.

Nevada


The Nevada Health Service Corps offers
varying amounts of loan repayment
assistance based on the term of service.

Doctors must agree to work in assigned
areas of need.

New Hampshire


This state program offers doctors up to
$75,000 in loan repayment for a full-time
commitment.

Applicants must agree to work in a
health care shortage area for at least
three years.

New Jersey


The Primary Care Practitioner Loan
Redemption Program
of New Jersey
helps doctors earn up to $120,000 in loan
repayment assistance.

Doctors must agree to a two- to
four-year commitment.

New Mexico


The Health Professional Loan Repayment
Program
of New Mexico offers up to
$25,000 in assistance per year.

Applicants must agree to a two-year
service agreement in a state-approved
position.

New York


Through Doctors Across New York, you
may qualify for up to $150,000 in
assistance over five years.

You need to work in a health care
shortage area for at least two years.

North Carolina


The state of North Carolina doles out
$100,000 in loan repayment assistance
for doctors who qualify.

Physicians must agree to work at least
four years in a health care shortage area.

North Dakota


North Dakota’s Federal State Loan
Repayment Program
offers up to $50,000
per year for up to two years.

Doctors must agree to work in a health
care shortage area for the duration of
the program.

Ohio


The Ohio Physician Loan Repayment
Program
offers $25,000 per year in
assistance for two years of service
followed by up to $35,000 per year for
third and fourth years.

You must agree to work in a health care
shortage area to qualify.

Oklahoma


The Oklahoma Medical Loan Repayment
Program
offers up to $160,000 for a
four-year commitment.

To qualify, physicians must work in a
rural or underserved area.

Oregon


The Oregon Partnership State Loan
Repayment program
offers tiered levels
of assistance based on a variety of
factors.

Applicants must agree to work in a
shortage area for at least two years.

Pennsylvania


The Pennsylvania Primary Health Care
Loan Repayment Program
offers up to
$100,000 in loan repayment assistance in
exchange for a full-time commitment.

Doctors need to agree to work in a
qualified position for at least two years.

Rhode Island


The Rhode Island Health Professionals
Loan Repayment Program
offers financial
assistance for doctors who qualify.

Doctors must agree to work in a shortage
area for at least two years.

South Carolina


South Carolina’s Rural Physician
Incentive Grant Program
offers $60,000
to $100,000 for a four-year contract.

Physicians must work in a rural or
underserved area of the state.

South Dakota


The South Dakota Recruitment Assistance
Program
offers up to $208,754 in
repayment assistance for doctors. The
benefit of the program changes annually.

Doctors must practice full time in a
health care shortage area for at least
three years.

Tennessee


The Tennessee State Loan Repayment
Program
offers up to $50,000 in
assistance for a two-year commitment.

Doctors must work in a designated
shortage area.

Texas


The state’s Physician Education Loan
Repayment Program
offers up to
$160,000 for a four-year commitment.

You must work in a designated
shortage area to qualify.

Utah


Utah’s Rural Physician Loan Repayment
Program
offers up to $15,000 per year in
assistance for doctors who qualify.

Doctors must work in a qualified rural
hospital.

Vermont


The Educational Loan Repayment for
Health Care Professionals program
of
Vermont gives out up to $20,000 in loan
repayment assistance per year.

Doctors in Vermont must work in
medically underserved communities for
at least 12 to 24 months.

Virginia


The Virginia Department of Health offers
loan repayment for doctors of up to
$140,000 for a four-year commitment or
up to $100,000 for a two-year
commitment.

Doctors must work in a state-approved
shortage area.

Washington


Washington’s Health Professional Loan
Repayment Program
offers a maximum
award of $75,000.

A commitment in a health care shortage
area is required.

Wisconsin


Wisconsin’s Health Professions Loan
Assistance Program
offers a maximum
award of $50,000 for doctors who qualify.

This program requires a three-year
commitment in a health care shortage
area.

Part IV: Paying Down Your Medical School Debt

While the very idea of medical school debt could have you feeling overwhelmed, it’s important to understand the many options available when it comes to paying off your loans sooner rather than later. In addition to paying off your loans faster, some strategies can help you save money on interest or secure a more manageable monthly payment.

Here are some tips that can help as you pay down medical school debt:

#1: Refinance your student loans to a lower rate.

Refinancing your student loans to a new loan product with a lower interest rate and better terms can help you save money and possibly even lower your monthly payment. With a lower interest rate, you’ll save money on interest each month, which could help you save money and pay off your loans faster, provided you keep making the same monthly payment.

Keep in mind, however, that there are notable disadvantages that come with refinancing federal loans with a private lender. When you refinance federal loans with a private lender, you lose out on special protections afforded to federal loan borrowers like deferment and forbearance. You also disqualify yourself from federally sponsored income-driven repayment and loan forgiveness programs.

Recommended lenders for refinancing your medical school loans

LenderTransparency ScoreMax TermFixed APRVariable APRMax Loan Amount 
SoFiA+

20


Years

3.90% - 7.80%


Fixed Rate*

2.48% - 6.99%


Variable Rate*

No Max


Undergrad/Grad
Max Loan
Learn more Secured
EarnestA+

20


Years

3.89% - 6.97%


Fixed Rate

2.47% - 6.23%


Variable Rate

No Max


Undergrad/Grad
Max Loan
Learn more Secured
CommonBondA+

20


Years

3.20% - 7.25%


Fixed Rate

2.72% - 7.25%


Variable Rate

No Max


Undergrad/Grad
Max Loan
Learn more Secured
LendKeyA+

20


Years

3.49% - 8.72%


Fixed Rate

2.47% - 8.05%


Variable Rate

$125k / $175k


Undergrad/Grad
Max Loan
Learn more Secured
Laurel Road BankA+

20


Years

3.50% - 7.02%


Fixed Rate

2.95% - 6.37%


Variable Rate

No Max


Undergrad/Grad
Max Loan
Learn more Secured
Citizens BankA+

20


Years

3.75% - 8.69%


Fixed Rate

2.72% - 8.32%


Variable Rate

$90k / $350k


Undergraduate /
Graduate
Learn more Secured
Discover Student LoansA+

20


Years

5.24% - 8.24%


Fixed Rate

4.87% - 8.12%


Variable Rate

$150k


Undergraduate /
Graduate
Learn more Secured

#2: Find ways to save on monthly expenses.

While graduating from medical school can be a momentous occasion, you can put yourself in a better financial position by living a modest “student” lifestyle as long as you can. Ways to save money include, but aren’t limited to, finding a roommate to share living expenses, skipping pricey dinners out, living without cable television, driving your older car as long as you can, and preventing lifestyle inflation as you start earning more.

#3: Pay all of your monthly payments on time.

Federal Direct Loans and some private lenders offer interest rate discounts after you complete a specific number of on-time monthly payments. Check with your lender to see if they offer this option. If not, you should still make on-time monthly payments to avoid late fees and keep your loans in good standing.

#4: Pay extra toward the principal of your loans.

If you don’t want to go through the trouble of refinancing, you can still pay off your loans faster by paying more than the minimum payment on your student loans each month. Throwing extra money at the principal of your loans reduces the amount of interest you owe with each passing month, helping you save money while paying off your loans faster.

#5: Pay interest while in school.

Some medical student loans let interest accrue while you’re still in school. If you have the financial means to make interest-only payments while you’re still in school, doing so can help you prevent your student loan balance from ballooning before you graduate.

Frequently Asked Questions

Tuition at medical schools is not fixed, meaning it can pay to shop around before you choose an institution. Private schools tend to be more expensive than public schools as well, meaning you can usually save money if you decide on a public education for your medical degree.

The amount you can save depends on your current interest rate and your new loan rate and its terms. To find out how much you could potentially save by refinancing, enter your old loan and new loan information in a student loan calculator.

You can lower the payment on your student loans in a few different ways. First, you can refinance your student loans into a new loan product with a lower interest rate or longer repayment timeline. Second, you can choose an extended repayment plan or even income-driven repayment.

Federal student loans come with important federal benefits and protections such as deferment and forbearance. They also leave you eligible for income-driven repayment plans and federal loan forgiveness.

As you shop for student loans for medical school, remember that the terms of your loan can make a big difference in how much you’ll pay over time. Compare loans based on the interest rate, any applicable fees, and the monthly payment amount you’ll need to make. You can also check student loan providers’ profiles with the Better Business Bureau and read student loan reviews for even more insight.

According to the Association of American Medical Colleges, some of most popular pre-med majors include biological sciences, physical sciences, social sciences and humanities.

According to Swarthmore College, medical schools are interested in students with excellent academic ability, strong interpersonal skills, leadership skills, and demonstrated compassion and care for others.

Advertiser Disclosure: The products that appear on this site may be 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 financial institutions or all products offered available in the marketplace.

Holly Johnson
Holly Johnson |

Holly Johnson is a writer at MagnifyMoney. You can email Holly here

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College Students and Recent Grads

The Ultimate Guide to Paying off Dental School Debt in 2018

Editorial Note: The editorial content on this page is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Part I: Dental School Debt in the U.S.

How much debt do dental students have?

The American Dental Education Association (ADEA) shares numerous statistics about dental school debt and the profound impact it can make on new dentists’ lives. According to the agency, the average dental school debt for indebted dental school graduates from the class of 2017 reached $287,331. Large debt loads were reported at both public schools and private schools — $239,895 and $341,190, respectively.

Even more startling is the fact that more than 30% of indebted dental graduates from the class of 2017 reported debt loads of more than $300,000.

These statistics show just how expensive dental school can be, but they also make us wonder if dental school is truly worth the cost. This guide was created to show how a dental education can pay off with proper loan and money management. If you’re considering a future in dental school and worrying about the high price tag, keep reading to learn more.

Are you a dental school graduate currently suffering from high-interest loans? Jump down to our top picks for refinancing your dental school debt.

Is dental school worth it?

Before anyone can gauge whether dental school is worth it, it’s crucial to consider the level of income one can expect in this career. According to the U.S. Department of Labor’s Bureau of Labor Statistics, dentists earned an annual mean wage of $173,860 nationally as of May 2016. It is important to note, however, that the bottom 10% of earners brought in only $67,690 that year, while the bottom 25% of earners made an average of $106,180.

The key to deciphering dentist income is figuring out how much you might earn after you gain some experience and the type of dentistry role you might take on. It’s only natural to expect dentists to earn more as they progress through their careers, but the industry they work in can also impact their earnings.

As the BLS reports, some industries paid dentists considerably more in 2016, including residential intellectual and developmental disability, mental health, and substance abuse facilities ($184,620) and offices of dentists ($176,470).

Location matters, too, of course. Some states reported consistently higher incomes for dentists that year, including Delaware ($236,130), North Carolina ($236,020), Alaska ($234,240), New Hampshire ($220,480), and Nevada ($210,690).

With these salaries in mind, it’s easier to see how one might overcome $200,000+ in educational debt compared to workers in other, lower-paying industries.

Still, it’s important to note that dental school debt can still make a big impact on any dentist’s finances after graduation. A dentist with the average debt load of $287,331 at 6% APR would need to fork over a minimum of $3,189.96 per month if they chose standard, 10-year loan repayment after graduation per LendingTree’s loan calculator (Note: LendingTree is the parent company of MagnifyMoney). Because of this, some dentists choose alternative repayment options that allow them to pay smaller monthly payments for a lengthier timeline. How long it takes a dental graduate to repay their debt depends on whether they choose standard, 10-year repayment or opt for an alternative repayment plan instead.

Is dental school right for you?

Part II: How to Pay for Dental School

If you answered “yes” to all or most of the questions above, considering a dental education could be a smart move. Still, it’s important to learn more about the different ways to pay for dental education and the debt repayment options that may be available to you. We’ll cover these concepts and more in this section.

Federal vs. Private Student Loans for Dental School

Federal student loans for dental school

Federal loans can be valuable for students who need to borrow money for dental education. Several different types of student loans are available, each having their own benefits and drawbacks. Federal student loans are often a good option for dental students since they offer relatively low interest rates and help students qualify for federal perks like income-driven repayment and student loan forgiveness programs.

Pros of federal student loans:

  • Fixed and competitive interest rates
  • Access to federal loan repayment and student loan forgiveness programs
  • The government can pay your interest while you’re in college if you qualify for subsidized loans
  • Flexible repayment plans
  • Access to student loan forbearance and deferment (if you qualify)
  • You don’t need a credit check to qualify for most federal student loans
  • You can defer repayment until you graduate college or drop down to half-time

Cons of federal student loans:

  • Borrowing caps that limit the amount of federal loans you can take out
  • You may need to take out more loans to cover the costs of dental school
  • The government can garnish your wages if you miss payments

When to consider federal student loans:

  • You are gearing up for dental school and want a low, fixed-interest rate
  • You haven’t surpassed borrowing limits on federal loans yet
  • You want options in terms of deferment, forbearance, and income-driven repayment in the future

Type of Loan


Interest Rates


How much you can
borrow each year

Perkins Loans

5%

Up to $5,500 per year for undergraduate students, depending on your financial need and other aid you receive; up to $8,000 per year for graduate students

Direct Subsidized Loans

4.45% for undergraduate loans first disbursed on or after July 1, 2017, and before July 1, 2018

$3,500 to $5,000 per year

Direct Unsubsidized Loans

4.45% for undergraduate loans first disbursed on or after July 1, 2017, and before July 1, 2018; 6% for graduate loans

$5,500 to $12,500 per year for undergraduate students; up to $20,500 per year for graduate students

Direct PLUS Loans

For Direct PLUS Loans first disbursed on or after July 1, 2017, and before July 1, 2018, the interest rate is 7%

Maximum loan amounts are limited to the cost of attendance in school minus other financial assistance you receive

Private student loans for dental school

Private loans offer an alternative option for dental students to use instead of, or in addition to, federal student loans. Private student loans are offered through private lenders, which means their rates and repayment terms vary. Many dental students wind up taking out private student loans once they have borrowed as much federal aid as they could receive.

Pros of private student loans:

  • Rates can be lower than federal loans if you have excellent credit and/or a co-signer
  • Loan limits can be high enough to cover your entire cost of admission
  • The application process and loan disbursement may happen faster than federal student loans

Cons of private student loans:

  • You typically need good or excellent credit to qualify
  • You may need a co-signer
  • Interest rates can be fixed or variable
  • You don’t qualify for federal student loan forgiveness, income-driven repayment, or federally sponsored deferment or forbearance
  • You may need to make payments or pay interest while still in school

When to consider private loans:

  • You’ve tapped out your federal student loan limits but still need to borrow money
  • You qualify for a lower interest rate
  • You don’t want to take advantage of federal plans or protections on your student loans
 

Interest Rates


Borrowing Limits


Credit Requirement

Discover Student LoansDiscover Student Loans

Variable rates from 4.62% to 8.62% APR; fixed rates from 6.49% to 9.99% APR

Borrow up to 100% of the cost of attendance minus other aid

Students may need excellent credit to qualify without a co-signer

Sallie Mae Student Loans Sallie Mae Student loans

Variable rates available from 3.62% APR to 8.37% APR; fixed rates from 5.75% APR to 8.37% APR

Borrow up to 100% of the cost of attendance

You may need excellent credit to qualify without a co-signer

Wells Fargo Student LoansWells Fargo Student Loans

Variable rates available from 4.59% APR to 9.10% APR; fixed rates available from 6.66% APR to 10.18% APR

Lifetime limit for this loan combined with all other education-related debt, including federal loans, is $120,000

You may have a better chance to qualify if you have a co-signer; excellent credit required

Citizens Bank Student Loans
Citizens Bank Student loans

Variable rates available from 3.53% APR to 9.69% APR; fixed rates available from 5.26% APR to 10.24% APR

Loan amounts from $1,000 to $295,000

Good or excellent credit required

College Avenue Student LoansCollege Avenue Student loans

Variable rates available from 4.07% APR to 9.60% APR; fixed rates available from 6.22% APR to 10.66% APR

Borrow up to 100% of the cost of attendance

Good or excellent credit required without a co-signer

*Rates current as of Feb. 28, 2018.

Grants & fellowships for dental students

This program is offered through the Dr. Anthony Volpe Research Center and is open to 1-2 dental students per year. The goal is to help students apply classroom and lab experiences to real-world scenarios students will find in the field of dentistry.

  • Award amount: Award varies.
  • Qualifications: You must be a dental student to qualify.
  • Deadline to apply in 2018: Application period opened in mid-January and closes in mid-March.

This award was created to encourage dental students to conduct important research in their field by creating a financial incentive. The goal of the award is to promote advances in preventative dentistry.

  • Award amount: A $5,000 grant is awarded to one student each year.
  • Qualifications: According to the American Dental Association Foundation, dental students pursuing this grant must be in pursuit of one of the following dental degree programs at an eligible institution: D.D.S. or D.M.D., D.D.S./D.M.D. and Ph.D. dual degree, Ph.D. or equivalent, or M.P.H., M.S. or equivalent.
  • Deadline to apply in 2018: The application period opens the first Friday of each April and closes the last Friday of each June.

The Intel International Science and Engineering Fair Special Awards is a partnership between the Society for Science & the Public and the Intel Foundation. Students in high school can win a variety of prizes including scholarships, summer internships, equipment grants, and educational trips.

  • Award amount: Cash prizes total $3,500 for outstanding projects related to dentistry and oral health. The American Dental Association Foundation sponsors these awards.
  • Qualifications: The award is open to any student presenting at the Intel International Science and Engineering Fair.
  • Deadline to apply in 2018: Winners are selected among those who present at the fair.

Scholarships for dental students

This ADA Foundation scholarship helps select students defray the overwhelming costs of dental education and is meant to apply to academically gifted students.

  • Award amount: Scholarships up to $2,500 are available.
  • Qualifications: Students must be in their second year of school, must be enrolled full time, must demonstrate financial need, and must have a GPA of at least 3.25. References and minority status are also required.
  • Deadline to apply in 2018: Applications were due by 11:59 p.m. Central time on February 2, 2018.

This program offers two $5,000 awards to dental students who are nominated by someone else after demonstrating leadership skills in pursuit of their dental education.

  • Award amount: Two $5,000 awards are granted each year.
  • Qualifications: Students must be nominated and be in the process of earning a D.D.S. or D.M.D. degree from a dental school accredited by the Commission on Dental Accreditation. Students must also be under the age of 40 and a student, graduate student, or resident in their first five years of residency.
  • Deadline to apply in 2018: The nomination period begins the first Friday in April and ends the last Friday in June.

This scholarship is open to 27 dental students nominated by the dean of their school.

  • Award amount: Awards come in the form of $5,000 scholarships.
  • Qualifications: Students must be nominated by the dean of their school and must be in the class of 2018 or class of 2019 at a dental school accredited by the Commission on Dental Accreditation. Students must also demonstrate financial need.
  • Deadline to apply in 2018: A 2018 deadline will be announced soon.

The TYLENOL Future Care Scholarship is open to U.S. students who are actively seeking a degree that will help them treat patients.

  • Award amount: Scholarships are awarded in both $5,000 and $10,000 amounts.
  • Qualifications: Students must be in pursuit of a degree that leads to a career treating patients. Students must also have at least one year left in school.
  • Deadline to apply in 2018: The application period opens May 1, 2018 and ends on June 28, 2018 for the following school year.

This scholarship, which was created to commemorate Senator Barry Goldwater, is open to students who pursue research careers in natural sciences, mathematics, and engineering.

  • Award amount: Scholarships of up to $7,500 per year are available.
  • Qualifications: You must be a full-time sophomore or junior student pursuing a dental degree or a degree at a four-year or two-year school. Medical research must be a central part of your career goals.
  • Deadline to apply in 2018: Application period opens the first Tuesday in September and ends the last Friday in January.

Part III: How to Pay Back Dental School Debt

Due to the many federal and private loan programs available, students entering dental school have plenty of options to compare and contrast. Since dental school funds borrowed need to be repaid eventually, however, it’s important for students to educate themselves on their many repayment options as well.

Repayment programs to consider

Here are the repayment programs students can choose as they wrap up their dental degrees.

Income-Driven Repayment Plans

For federal student loan borrowers, there are several different income-driven repayment programs, each with their own stipulations and intended audience. The following table highlights each program and how it works.

 

Payment Amount

Repayment Period

Eligibility

Loan Forgiveness

Pay As You Earn Repayment Plan
(PAYE Plan)

Generally 10% of your discretionary
income, but never more than your payment on 10-year Standard Repayment Plan

20 years

Your payment under this plan must be less than what you would pay under standard, 10-year repayment

Yes

Revised Pay As You Earn Repayment Plan
(REPAYE Plan)

Generally 10% of your discretionary income

20 years for undergraduate loans and 25 years “if any loans you’re repaying under the plan were received for graduate or professional study”

Any borrower with eligible federal student loans can qualify

Yes

Income-Based Repayment Plan
(IBR Plan)

Generally 10% of your discretionary income if your loan originated after July 1, 2014, but never more than the 10-year Standard Repayment Plan; generally 15% of your discretionary income if you’re not a new borrower on or after July 1, 2014; either way, you’ll never pay more than the payment on a standard, 10-year repayment plan

20 years if you’re a borrower on or after July 1, 2014; 25 years otherwise

Your payment under this plan must be less than what you would pay under
standard, 10-year repayment

Yes

Income-Contingent Repayment (ICR Plan)

20% of your discretionary income or what you would pay over the course of fixed 12-year repayment plan

25 years

Any borrower with eligible federal student loans can qualify

Yes

Is an income-driven repayment plan right for you?

Income-driven repayment may be a good option for dental students who want to make lower monthly payments than they would with standard, 10-year repayment plans. These plans are also a good option for students who want their loans forgiven after 20-25 years. Keep in mind, however, that forgiven loan amounts are considered taxable income in the year they are forgiven.

How to apply

Apply for income-driven repayment programs using the U.S. Department of Education website.

Public Service Loan Forgiveness Program

The Public Service Loan Forgiveness Plan offers students the opportunity to have their student loans forgiven after 10 years provided they work in an approved public service position during that time. Once a student finds eligible employment and starts working, they can have their loans forgiven after 10 years and 120 months of timely loan payments.

While this program can be advantageous for dental graduates, it’s important to note that changes to this program could be on the way. It still works as promised for the time being, but budget cuts of the future could bring this program to an end or bring on considerable changes to benefits.

Who is eligible?

Dentists who agree to work in government-approved public service positions may be eligible for the Public Service Loan Forgiveness (PSLF) Program. You can learn more about qualifying employment here.

Is this program right for you?

This program can work well for dentists who want to work in public service or in an area with a high need for dentists and other health care workers. After 10 years, your loan balances will be forgiven, and you are free to move on to other employment if you wish.

How to apply

Fill out an application for PSLF with the U.S. Department of Education as soon as you can.

Army Dental Corps Program

This program offers tuition assistance up to 100% for individuals who serve in the U.S. Army while working on their degree. The Army will pay your tuition, your required books, and most academic fees while offering a monthly stipend of up to $2,000.

Who is eligible?

Dental students who qualify to serve in the U.S. Army may qualify for this program. You must be 21-42 years of age, be a U.S. citizen, and meet prescribed medical standards.

How to apply

For additional information, contact your local Army recruiter, call 1-800-USA-Army, or visit Healthcare.GoArmy.com.

National Health Service Corps Loan Repayment Program

This program offers tax-free loan repayment assistance for individuals entering qualified health care careers. Licensed health care providers may earn up to $50,000 for a two-year commitment to NHSC-approved employment in a high-need area.

Who is eligible?

Dentists who agree to work in an NHSC-approved career for at least two years can qualify for this assistance.

How to apply

Contact the National Health Service Corps to apply. You can also explore the NHSC website for tips on the application process.

State Loan Repayment Programs for Dentists

 

Program

Eligibility

Alaska


The SHARP Program for dentists offers new dentists up to $35,000 in loan repayment assistance per year.

Dentists must agree to a commitment of at least two years in a high-need shortage area.

Arizona

The Arizona State Loan Repayment Program offers up to $65,000 per year in
repayment assistance for dentists for two years, with lower repayment amounts offered in subsequent years.

You must be a U.S. citizen and dentist who agrees to work in a state-approved high-need position.

California

The California State Loan Repayment Program offers up to $50,000 in loan forgiveness for dentists.

Applicants must be a dental graduate who agrees to at least a two-year commitment in an eligible, state-approved dental position.

Colorado

The Colorado Health Service Corps offers up to $90,000 in loan forgiveness for dentists who qualify.

You must agree to practice for three years in a state-approved shortage area for a practice that accepts public insurance and offers discounted services to those with low incomes.

Delaware

The Delaware State Loan Repayment Program offers up to $70,000 for mid-level practitioners and up to $100,000 in loan forgiveness for advanced practitioners in dentistry.

Dentists must work full time for two years in a state-approved, high-need position.

Georgia

The Dentists for Rural Areas Assistance Program provides up to $25,000 in loan repayment assistance per year for dentists who work in high-need areas.

This program is available to dentists who agree to work in shortage areas in the state of Georgia.

Illinois

The Illinois National Health Service Corps State Loan Repayment Program offers up to $50,000 in loan repayment assistance.

Applicants must be licensed dentists or health care practitioners who commit to at least two years of service.

Iowa

The Iowa Loan Repayment Program offers up to $50,000 in loan repayment
assistance for individuals who agree to a full-time commitment and less for a part-time commitment.

This program requires a two-year commitment in a state-approved shortage area.

Kansas

The Kansas State Loan Repayment Program offers up to $25,000 in assistance per year.

Applicants must agree to a two-year commitment in an eligible position.

Kentucky

The Kentucky State Loan Repayment
Program
awards up to $300,000 in loan repayment assistance to up to 13 applicants.

Applicants must agree to a two-year commitment to work in a shortage area where dentists are in demand.

Louisiana

The Louisiana State Loan Repayment
Program
offers up to $30,000 in annual loan repayment assistance for up to three years.

Applicants need to work for three years full time in a designated high-need area approved by the state.

Maine

The Maine Dental Education Loan Repayment Program offers up to $20,000 per year in loan repayment assistance for up to four years.

Applicants must agree to at least a two-year commitment in an underserved area.

Maryland

The Maryland Dent-Care Loan Repayment Assistance Program for Dentists offers up to $23,740 per year in repayment assistance.

Dentists must agree to work in an underserved area for a minimum of three years.

Michigan

Dentists who qualify for the Michigan
Loan Repayment Program
can receive up to $200,000 in loan repayment assistance.

Applicants must work full time in a high-need area for at least two years.

Minnesota

The Minnesota State Loan Repayment Program offers up to $20,000 in loan assistance per year.

Dentists must agree to work in a shortage area for at least two years to qualify.

Missouri

Dentists who qualify for the Missouri
Health Professional State Loan
Repayment Program
can receive up to $50,000 in loan repayment assistance.

Dentists must agree to a two-year commitment in a shortage area.

Montana

The Montana NHSC Student Loan
Repayment Program
provides up to $15,000 in loan repayment assistance for up to two years.

Dentists must agree to a two-year commitment in a shortage area.

Nebraska

This state program offers up to $20,000
per year in loan repayment assistance for up to three years.

Applicants must agree to a three-year commitment to employment in a designated shortage area and accept Medicaid patients.

New Hampshire

New Hampshire’s state program offers up to $75,000 in loan repayment for a full-time commitment.

Dentists must agree to work in a designated shortage area for at least three years.

New Jersey

The Primary Care Practitioner Loan Redemption Program of New Jersey helps certain health care practitioners earn up to $120,000 in loan repayment assistance.

Eligible candidates must agree to at least a two-year service commitment, and up
to four years for higher levels of loan repayment.

New Mexico

New Mexico’s Health Professional Loan Repayment Program offers up to $25,000 in assistance per year.

Applicants must agree to a two-year service agreement in a state-approved position.

North Carolina

The state of North Carolina offers up to $100,000 in loan repayment assistance for dentists.

Dentists must agree to a four-year commitment in a shortage area.

Ohio

The Ohio Dentist and Dental Hygienist
Loan Repayment Program
doles out up to $50,000 in exchange for a two-year commitment.

Dentists must agree to work full time for two years in a high-need area.

Oklahoma

The Oklahoma Dental Loan Repayment Program can help you qualify for up to $25,000 per year in loan repayment assistance.

This program is available to dentists who serve in rural or underserved areas.

Oregon

Oregon Partnership State Loan Repayment offers tiered levels of
assistance based on candidate and site eligibility.

Dentists must agree to a two-year service commitment.

Pennsylvania

The Pennsylvania Primary Health Care
Loan Repayment Program
provides dentists with up to $100,000 in loan repayment assistance in exchange for a
full-time commitment.

Dentists need to agree to a two-year
service agreement.

Rhode Island

The Health Professionals Loan Repayment
Program
provides varying levels of assistance for dentists who qualify.

Dentists must agree to at least a two-year commitment in an underserved community.

South Carolina

The Rural Dentist Loan Repayment Program offers loan repayment
assistance to dentists who agree to work in underserved areas.

Eligible dentists will agree to work full time in a qualifying position. Priority is given to those who can demonstrate financial need.

South Dakota

The Recruitment Assistance Program
offers up to $208,754 in repayment assistance currently, but the amount changes annually with the price of college admission at the University of South Dakota School of Medicine.

Dentists must agree to practice full time in a shortage area for at least three years.

Tennessee

Dentists who apply for the Tennessee
State Loan Repayment Program
may qualify for up to $50,000 in assistance for a two-year commitment.

Dentists must agree to work for two years in a designated shortage area.

Vermont

The Educational Loan Repayment for
Health Care Professionals
gives out $20,000 in loan repayment assistance per year.

Dentists must agree to work at a qualified site. Eligibility requirements change annually.

Virginia

The Virginia Department of Health offers
loan repayment of up to $140,000 for a four-year commitment or up to $100,000 for a two-year commitment.

Dentists must work in a shortage area orqualified site approved by the state.

Washington

Dentists in Washington can apply for a
Health Professionals Loan Repayment Program with a maximum award of $75,000

Dentist must work in an approved site for at least 24 hours per week for at least three years.

Wisconsin

Wisconsin offers a Health Professions Loan Assistance Program with a maximum award of $50,000 for dentists.

Dentists must work at least three years in a designated shortage area.

5 tips to pay off your student loans faster

While loan repayment programs can help you whittle away your student loans, there are several strategies that can help you reduce the amounts you owe whether you sign up for special programs or not. Here are five tips to pay your loans off faster no matter your situation or how much you owe:

#1: Start paying right away.

According to the U.S. Department of Education’s blog, paying your loans right away – whether you have to or not – can be a smart move. While student loan payments may not be required until you graduate, you can reduce the amount of interest you’ll pay over time by paying any amounts you can toward your loans as you can.

#2: Refinance your loans to a lower rate.

Refinancing student loans into a new loan product with a lower interest rate and better terms can help you save money on interest over the long haul. This is especially true with private student loans since rates tend to be competitive and can change over time. Keep in mind, however, that refinancing federal student loans with a private lender can cause you to miss out on certain federal perks and protections including income-driven repayment, deferment, or forbearance.

Signing up for automatically debited payments can take the stress out of repaying your student loans. By setting up automatic bank drafts, you can rest assured your loan payment is taken care of and you won’t face late fees or penalties. Some lenders also offer an interest rate reduction for enrolling in their automatic payment plan. This is where savings come into play since a lower interest rate means less of your payment goes toward interest over time.

Our top picks for refinancing dental school debt

LenderTransparency ScoreMax TermFixed APRVariable APRMax Loan Amount 
SoFiA+

20


Years

3.90% - 7.80%


Fixed Rate*

2.48% - 6.99%


Variable Rate*

No Max


Undergrad/Grad
Max Loan
Learn more Secured
EarnestA+

20


Years

3.89% - 6.97%


Fixed Rate

2.47% - 6.23%


Variable Rate

No Max


Undergrad/Grad
Max Loan
Learn more Secured
CommonBondA+

20


Years

3.20% - 7.25%


Fixed Rate

2.72% - 7.25%


Variable Rate

No Max


Undergrad/Grad
Max Loan
Learn more Secured
LendKeyA+

20


Years

3.49% - 8.72%


Fixed Rate

2.47% - 8.05%


Variable Rate

$125k / $175k


Undergrad/Grad
Max Loan
Learn more Secured
Laurel Road BankA+

20


Years

3.50% - 7.02%


Fixed Rate

2.95% - 6.37%


Variable Rate

No Max


Undergrad/Grad
Max Loan
Learn more Secured
Citizens BankA+

20


Years

3.75% - 8.69%


Fixed Rate

2.72% - 8.32%


Variable Rate

$90k / $350k


Undergraduate /
Graduate
Learn more Secured
Discover Student LoansA+

20


Years

5.24% - 8.24%


Fixed Rate

4.87% - 8.12%


Variable Rate

$150k


Undergraduate /
Graduate
Learn more Secured

#3: Sign up for automatic payments.

Signing up for automatically debited payments can take the stress out of repaying your student loans. By setting up automatic bank drafts, you can rest assured your loan payment is taken care of and you won’t face late fees or penalties. Some lenders also offer an interest rate reduction for enrolling in their automatic payment plan. This is where savings come into play since a lower interest rate means less of your payment goes toward interest over time.

#4: Pay more than the minimum payment.

This tip might seem obvious, but it’s extremely important. Whether you start paying your loans off right away or wait until you graduate and have to start making payments, paying more than the minimum will let you pay off your loans faster. The more you can pay toward the principal of your loan balance, the more you save on interest and the faster your loans will disappear.

#5: Consider a loan repayment program.

Some of the programs we listed above (such as the PSLF Plan or state loan repayment assistance programs) can help you get out of debt faster while gaining valuable work experience. These programs typically require you to work in a specific shortage area for a predetermined length of time, so they’re not for everyone. If you do qualify and apply, however, you could have your loans forgiven completely or earn tens of thousands of dollars in loan repayment assistance.

Frequently Asked Questions: Paying for Dental School

Determine your current interest rate and compare it to the new rate you could qualify for. If the difference is substantial, refinancing can make a lot of financial sense. With a lower interest rate, you could save money and pay off your debts faster. However, it’s important to remember that you’ll lose federal student loan benefits if you refinance federal loans with a private lender.

The amount you’ll save depends on the amount you owe, your old interest rate, and your new rate and loan terms. A student loan calculator can give you a general idea of your savings.

One of the best ways to reduce the amount of money you owe for dental school is to spend less on your education to begin with. As you consider dental schools, make sure to compare program details such as the price of tuition, room, and board. How much you pay for school has a direct correlation to how much you’ll need to borrow.

Start by filling out a FAFSA form, or Free Application for Federal Student Aid. This form helps schools determine how much federal aid you might qualify for. You should also contact the financial aid office at your dental school. They can point you toward applicable school-based scholarships and grants you may not even know about.

While the amount of time it takes dental students to find employment varies, the ADEA reports that dental school graduates typically enter the workforce much faster than colleagues in many other health professions.

According to the ADEA, any college major that offers a well-rounded education or fosters a foundation in science is appropriate for future dental students. This goes against the common wisdom that a major in biology or a similar subject is required.

The ADEA reports that both designations mean the same thing – that the dentist graduated from an accredited dental school. Universities determine which degree they award, and it has no bearing on employment opportunity or earnings.

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Holly Johnson
Holly Johnson |

Holly Johnson is a writer at MagnifyMoney. You can email Holly here

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