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Should You Report Your Rent Payments to Credit Bureaus?

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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Building credit can be a frustrating endeavor for many: Too short a credit history or too low a score, and you’re bound to be excluded them from many lending opportunities.

At the same time, it’s a truism that one of the very best ways to build credit is to use credit. This gets complicated, though, for those struggling to stay on top of loan payments or even get approved for credit because their credit file is too thin.

One potential answer? Some consumer advocates are pressing landlords to report tenants’ on-time rent payments to the credit bureaus.

In recent years, property management companies and landlords across the country have individually started using electronic payment services that let tenants have their payment information reported to credit agencies including the big three: Equifax, Experian and TransUnion.

It’s still a long way from a ubiquitous practice, but it is catching on.

Recently, the New York City Comptroller’s Office issued a proposal to give all New York tenants the opportunity to add their rent payments to their credit reports using an opt-in system. (Some two million households in the city pay rent every month.)
Through the proposed program, the city hopes to improve economic opportunities for renters, especially those lower-income residents with poor credit or no real credit history facing limited access to common financial services.

For people who may have a thin credit file, or whose negative credit behavior has dragged down their scores, adding rent payment information to credit reports could be a welcome boost. An estimated 76 percent of New York City renters who have chosen to report their rent payment to credit bureaus will see their credit scores improve by more than 11 points, according to the Comptroller’s Office. Many others might not see a numerical change, but would nonetheless add depth to their credit histories, the office added.

A 2014 TransUnion report suggested that eight in every 10 subprime consumers — whose who may be considered having higher credit risks — experienced an increase in their score one month into their new apartment lease.

Of course, the opposite might be true if tenants slip up and miss a rent payment or pay late. Credit expert John Ulzheimer cautions that this practice may hurt some consumers as much as it might help others. He calls the report’s 11-point increase findings “purely speculative.”

“This is another example of government not truly understanding the mechanics of the consumer credit reporting system and the potential downside to such a mandate,” Ulzheimer tells MagnfiyMoney. “The presumption is that rent will always help someone. That’s without basis.”

However, there’s evidence that reporting rental payments to credit bureaus might encourage renters to stay on top of their payments.

In a 2015 study of a rent reporting pilot program, researchers found rent reporting led to a higher timely rent payment rate among residents. The majority of the participants in the pilot program of more than 1,250 residents saw their credit scores increase, though 14 percent of them didn’t experience any change, and another 7 percent even experienced a drop. The study was piloted by Credit Builders Alliance, a national nonprofit dedicated to helping low- and moderate-income households and businesses build credit and financial access.

How to report your rent payments to credit bureaus

Get your landlord involved. If you are renting, ask your property management company or landlord about whether rental data is being reported to credit bureaus. Some may work with rent payment services that share information to some or all of the three major credit reporting bureaus and some pay a fee — if there is one — so that it’s free for tenants. These services allow landlords to collect rent electronically. They also give renter the option to report his/her payments to credit agencies.

Take matters into your own hands. If your landlord or property manager doesn’t report rental data, urge him or her to do so. Meanwhile, you can enroll in a rent payment service yourself. With some services, you can tell the agency the rent amount and its due date. And the firm will deposit the money into the bank account of your landlord or property manager for you. With others, they don’t process your payment, but only verify your rent history with your landlord and do the rent reporting. Just watch out for fees, as they will might charge registration, wire transfer or other fees for paying via credit or debit.

The list of agencies below report rental data to credit agencies, with a cost ranging from free up to $10 per month. You will have to opt in for credit reporting. Some report payments to all three credit bureaus, and others only do so with one.

Company

Who signs up?

Fees

Which credit bureaus
they report to

RentTrack

Renter

$6.95 for payments made
via ACH transfer
2.95% per credit card payment
2.75% per debit card payment

 
 

Rental Kharma

Renter

Sign-up fee: $25 per person

$6.95 per month for ongoing reporting

Rent Reporters

Renter

Sign-up fee: $94.95 per person,
$9.95 per month for ongoing
reporting

ClearNow

Landlord

Free

PayYourRent

Landlord

$9.95 per month
2.75% per credit card payment

 
 

RentPayment

Landlord

$4.95 per eCheck
2.95% per credit card payment
0.95% per debit card payment

PayLease

Landlord

$0-$9.95 per eCheck
(Rate set by the property
management company)
3.5% per credit/debit
card payment

 

eRentPayment

Landlord

$3 per transaction
Or $10 per month (up to 5 transactions)

 

Rentler

Landlord

$1.95 per transaction
2.9% per credit card payment
1.9% per debit card payment

Should you pay to have your rent payments reported to credit bureaus?

As you can see from the table above, there are a few services that allow tenants to take the initiative on reporting.

But the cost might not be worth the potential benefit. Rent Reporters, for example, charges a hefty sign-up fee just shy of $95. On top of that, you’d have to pay close to $10 each month for ongoing reporting.

There may be other better low-cost ways to improve your credit:

Applying for a secured credit card
To open a secured credit card, you have to provide the bank with a deposit (typically $200 or more). The bank will keep the deposit as collateral and give you a credit limit equal to your deposit. Once open, this card works just like any other credit cards. Your credit limit, balance and payment information are reported to the credit bureaus. But if you don’t pay your credit card on time, the bank can take your deposit and apply it toward the debt.

Check out our secured credit card database here.

Getting a store card
You might have been asked if you’d like to open a credit card at various department stores. Those store cards usually come with really high interest rates, but there is a big perk: Approval of people with low credit scores is more likely. Once you get a store card, make sure you only use it to make one small purchase a month and pay it off on time and in full. If you find it difficult to resist temptation, unsubscribe to emails about deals and don’t even carry your plastic around with you.

Opening a college credit card
If you are a college student, you can apply for a credit card, perhaps by having a parent co-sign, or take out a loan to help cover education costs. You can find a list by filtering for college students on our Cash Back Rewards page.

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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New Court Ruling Allows Obama-Era Student Loan Protections to Take Effect

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.

A U.S. district court ruled Oct. 16 that Obama-era rules to protect student loan borrowers defrauded by colleges will take effect without further delay.

Initially slated for July 1, 2017, this policy was put on hold by Education Secretary Betsy DeVos, who said the rules made it too easy for borrowers to have their student loans canceled.

With this new ruling, the delay has come to an end, meaning that students who attended predatory for-profit schools might now qualify for cancellation of their student loans.

No more delays: Borrower defense to repayment will take effect

The legal decision impels the Department of Education to enact borrower defense to repayment, a policy approved during the Obama administration that offers student debt forgiveness to students found to have been misled by for-profit schools.

Critics of the decision to delay the policy say these schools target vulnerable populations such as veterans and those living in poverty, with former for-profit college enrollment officer Tressie McMillan Cottom telling NPR that these groups are the focus because they “qualify for the maximum amount of student aid.”

The policy is meant in part to address cases in which students take on debt to attend but leave without the skills or certifications they were promised or credits that could transfer to another institution. CNN cited an estimate from The Century Foundation that more than 1,400 schools closed between 2013 and 2015 and meet this description, and that their former students might now be eligible for loan forgiveness.

Almost 48,000 claims for debt forgiveness have been granted so far, most of which were processed under the Obama administration. Currently, 106,000 applicants are waiting for a decision, which should come faster with this latest ruling.

Consumer advocates celebrate ruling; conservatives uncertain

The latest court ruling is a major victory for students, according to consumer advocates.

“Today’s decision is a huge win for defrauded borrowers around the country,” said Julie Murray, an attorney who represented students who sued the Department of Education, in a statement after the announcement. “The rule is finally in effect. No more excuses. No more delays.”

Murray added, “Industry will continue to challenge the rule in court, but we will work as long as it takes to defeat those corporate interests and an administration beholden to them.”

But while students and their advocates support the ruling, it represents a defeat for DeVos and her fellow conservatives, many of whom claim loan cancellation could hurt taxpayers.

Although DeVos’ office said it wouldn’t argue against the ruling, it signaled that it intends to revise these regulations.

“Regardless of what the court decides, many provisions of the 2016 regulations are bad policy, and the department will continue the work of finalizing a new rule that protects both borrowers and taxpayers,” DeVos spokesperson Elizabeth Hill said in a statement.

The policy is one of many dealing with borrower protections that the Department of Education under DeVos has sought to roll back.

News comes on the heels of startling student loan statistics

Student protections such as the borrower defense to repayment policy are more important than ever, as the national student loan debt burden has never been heavier.

According to a report by Bloomberg based on data from the Federal Reserve, student loan debt, which stood at $1.5 trillion as of mid-2018, is the only debt category that has grown continuously since the Great Recession.

Student loan debt has increased by 157% in the past 11 years, while mortgage and credit card debt have gone down.

At the same time, rates of student loan delinquency and default have seen increases. This time last year, there were 4.6 million student borrowers in default on their educational debt.

Find ways to protect yourself as a student loan borrower

If you think you qualify for borrower defense to repayment, you can complete the application on Federal Student Aid.

You will need to provide documentation to support your case, including transcripts, enrollment agreements, promotional materials from the school and the school’s course catalog. If you have questions, contact your loan servicer or BorrowerDefense@ed.gov for guidance.

More generally, if you have student loans, educate yourself about your options for repayment and forgiveness. There are a variety of ways to get your loans discharged or forgiven, especially if you commit to working in a public service organization or a high-need area. Plus, some employers now offer a student loan repayment assistance benefit to help employees shed their debt.

Even if you don’t qualify for loan forgiveness, you could adjust your payments on an income-driven repayment plan or extended repayment plan. Or if your budget allows, you could make extra payments to get out of debt faster.

Many consider our national student debt to be a crisis, and Federal Reserve Chairman Jerome Powell has said it has long-term negative effects on borrowers and could hurt economic growth. But by finding the right strategy for your debt, you can avoid default and the harmful consequences that go with it. And hopefully, U.S. education officials will implement rules to help borrowers manage their debt and not stand in their way.

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.

Rebecca Safier
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Study Shows Student Debt Can Kill 75% of Millennials’ Average Net Worth

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.

It’s no secret that millennials are swamped with student loan debt. While more millennials have obtained bachelor’s degrees than those in generations past, they also borrowed the most to earn those degrees. As of 2018, outstanding student loan debt in the U.S. surpassed $1.48 trillion, almost one-and-a-half times what Americans owe on credit cards.

According to a MagnifyMoney analysis of Federal Reserve data, all this debt is hampering millennials’ chances for long-term financial success.

In fact, this study revealed that the average net worth of a millennial with student loans is only 25% of the net worth for a fellow millennial without them. What’s more, the data suggest student loan debt is preventing some millennials from saving for retirement or buying homes.

And while it’s likely that those without student loans tend to include more people from wealthy homes, the massive disparity between those who owe and those who don’t suggests that educational debt can supercharge the difference in income.

If you’re a millennial, your financial journey since graduation has probably been an uphill battle. Here’s how student loan debt has held your generation back, along with our advice on how to conquer your debt once and for all.

Key facts

Millennial households with student loan debt have…

  • An average net worth of $29,087, compared with $114,376 for student loan-free households.
  • 46% less in their savings and checking accounts (median balance of $5,500 vs $10,180 for those without student loans).
  • $21,160 in retirement savings versus an average of $39,905 for those with no student loan debt.

 

Student loans weigh heavily on millennials’ net worth

The wealth divide between households with student loan debt and those without it has been widening over the past few decades.

In 1989, under-35 households with student loan debt had just 13% less in average net worth than households without any student loan debt.

That difference had nearly tripled by 1998, when under-35 households with student loan debt had a net worth 36% less than their debt-free peers. The former had an average net worth of $68,687, while the latter held an average of $108,146.

In 2016, the gap had grown to 75%, with student loan-saddled millennial households having an average net worth of $29,087, compared with $114,376 for student loan-free households. In other words, millennials unburdened by student loans held over $85,000 more than those who still had debt from college or graduate school.

Even though a college degree typically leads to a higher-paying job, the student loans that often go with it can significantly undermine your ability to build wealth after graduation.

Student loans mean less money in the bank (and more credit card debt)

If you’ve got student loans, you know those payments can be a struggle to make month after month. According to our analysis, millennials with student loans are putting a significant amount of their paychecks toward their debt — leaving them with less money in the bank.

In fact, holders of student loans had 46% less in their savings and checking accounts in 2016 than millennial college graduates without debt. The former group had a median bank balance of $5,500, while the median for other millennial grads was nearly twice that, at $10,180.

Perhaps because millennial borrowers have less liquid cash, they also end up taking on more credit card debt. Fifty-five percent of those with education debt also had credit card debt, compared with just 32% of those without student loans. They also carried larger balances — $2,888 — as opposed to $1,476 for debt-free millennial graduates.

If student loan bills are eating up a big part of your income, you might use credit cards to finance big purchases. But credit card debt tends to be even harder to pay off than student loan debt because of high interest rates and the temptation to overspend. Caution is key when it comes to paying with plastic.

Student loans get in the way of saving for retirement

Considering that millennials with student loans have less money in the bank, it should come as no surprise that they also have less saved for retirement. After all, once you’ve paid your student loan bill and other recurring monthly expenses, you might not have much left over to contribute to your 401(k), individual retirement account (IRA) or other nest egg account.

Our analysis found that millennials with education debt have an average of $18,745 less in retirement savings than their debtless counterparts. The average grad with debt had saved $21,160 in 2016, while those without student loans had an average of $39,905 in their retirement savings accounts.

When it comes to preparing for the future, the earlier you can start, the better. Thanks to the power of compound interest, any amount you can set aside today can grow significantly over time.

Student loans seem to be an obstacle to homeownership

When it comes to buying a home of their own, millennials can encounter many challenges.

The high cost of rent is one of them, with nearly 21 million households paying more than 30% of their income on rent, according to Harvard’s Joint Center for Housing Studies. While rent costs have gone up, wage growth has remained stagnant, even for those with college degrees. This makes it all the more difficult to save for a down payment and other costs associated with buying a home.

And student loans create further obstacles, resulting in lower rates of homeownership among millennial graduates with student loans (34%) than among those without (36%). Those who have managed to buy a home end up with a lower-value home and a bigger mortgage, compared to their contemporaries who don’t carry education loans.

According to MagnifyMoney’s analysis, the home values of millennials younger than 35 with student loan debt are 5% lower than those without student loan debt. The median value for those with student loans was $157,000 in 2016, while millennial homeowners without student debt had homes with a median value of $165,000.

What’s more, homeowners with student loans had to take on even more debt to buy their homes, possibly because they weren’t able to save as much for down payments. Their median mortgage was $104,000, versus $98,000 for those without student loans.

Not only does student loan debt get in the way of buying a home, but it also forces millennials to take on even more debt to realize their goal of owning a home.

Get proactive about reducing your student loan burden

Although you might feel you got tricked into taking on debt at a young age, burying your head in the sand about your student loans will only make a difficult situation worse. Instead of giving up hope, try to get proactive about paying off your debt.

If you can make extra payments, you can get out of debt faster and save money on interest. Create a budget to see if you can spare any extra cash each month. Look for areas where you can cut down on spending. Some people even take drastic steps, such as downsizing their apartment or selling their car, to get rid of debt as fast as possible.

If you’re working, find out what steps you can take to get a pay raise. Or consider changing jobs altogether to boost your salary. Alternatively, you might take on a side hustle, such as driving for Lyft or running errands for TaskRabbit, to increase your income and throw that extra money toward your loans.

Another option is to move into a career that could qualify for student loan forgiveness. For instance, those who work in public service fields or as teachers in qualifying schools could be eligible for federal student loan forgiveness.

You can also look into state-based and private programs that offer student loan repayment assistance for your private or federal student loans. And some employers even offer a student loan matching benefit to help you pay off debt.

Finally, some borrowers could benefit from refinancing their student loans. If you have decent credit and a steady income — or can apply with a cosigner who does — you could qualify for a lower interest rate than what you have now, as well as choose new repayment terms. As a result, refinancing could save you money on interest and help you pay off your student loans ahead of schedule.

Whatever you decide, make sure you’re being strategic about the best way to manage student loan repayment. Even though student debt has held back millennials in major ways, there are steps you can take to overcome this obstacle and reclaim your financial freedom.

Methodology: MagnifyMoney examined the Federal Reserve’s Survey of Consumer Finances to compare households headed by someone under age 35 with student debt versus those without. All monetary amounts are expressed in 2016 dollars (the date of the latest survey).

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.

Rebecca Safier
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Rebecca Safier is a writer at MagnifyMoney. You can email Rebecca here

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The Best Place to Exchange Currency

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.

The most affordable way to spend money in a foreign country is by using your credit card, exchange rate-wise. However, credit cards may not be widely accepted in your travel destination, or perhaps you simply want to have foreign money on hand before you arrive for peace of mind.

You can purchase foreign currency from your local bank, at an airport kiosk or from an online currency exchange. You tell them the particular amount of foreign currency you need and pay for it in U.S dollars just like buying anything else.

Not every place offers the same exchange rate, though, and some places charge extra fees. It’s important to compare rates and avoid additional fees to make sure you are not paying a high price on the foreign money.

In this post, we will compare the pros and cons, and the cost of each currency exchange option for you before, during and after your travel.

Ways to exchange currency before your trip

Bank or credit union

Exchanging foreign currency before traveling gives many people peace of mind. Ordering foreign cash from your bank or credit union is a common way to do so.

This will save you time and headaches from queuing up at money-exchange facilities at the airport and sweating over the math on the spot. Most banks and credit unions offer somewhat similar exchange rates. The trickier part is to compare fees. Some banks don’t charge fees, but others do. Fees will affect the exchange cost significantly if you don’t exchange much money in the first place.

Pros

  • Banks offer relatively competitive rates compared with retail currency exchange bureaus or airport exchange kiosks because of the bigger volume they sell and buy.
  • Some banks offer online currency order and delivery. Constraints and fees may apply. For example, Bank of America customers can order up to $10,000 in foreign currency online over 30 days. But if they need more, they have to stop by a Bank of America location.
  • You can choose to receive your order in small, large or mixed denominations depending on availability.

Cons

  • If you go to a bank branch, they may not have the amount of foreign cash you need. It would usually take a few days for the bank to get the money ready for you. Don’t wait too
    long to exchange currency. Call your bank in advance for availability of specific currencies.
  • Each institution limits on amounts. With Bank of America, for instance, your order amount must be at least $100.
  • Some banks charge additional service or delivery fees.
  • Banks offer less competitive foreign exchange rates compared with credit/debit card rates.

Costs

The difference in rates offered by different banks is small. So the major factor that will affect the efficiency of your exchange is fees. We look into the fees for four major banks (they’re the largest by assets):

Bank of America

Rate: On Sept. 19, Bank of America provided an exchange rate of 1:1.2304 between euros and U.S. dollars. Purchasing 1,000 euros would cost $1,230.40. You can check the daily rates BOA offers here.
Fees: If you choose to get the foreign currency delivered, there is a delivery fee of $7.50 on all foreign currency orders less than $1,000; this fee is waived if the currency you buy is worth $1,000 or more.
Ways to purchase: You can order online if you have a BOA checking or savings account. BOA credit card holders only can order currency at a physical bank branch, but the purchase needs to paid in cash.

Chase

Rate: The exchange rate for buying euros at Chase on the same day was 1:1.251. The cost for 1,000 euros would be $1,251.
Fees: $0.
Ways to purchase: You have to show up at a branch to make an order; you can’t order online and have to pick up the cash later if they don’t have the currency you need in stock.

Citibank

Rate: On Sept. 20, Citibank offered a rate of 1:1.2462 for you to buy euros. That means if you bought 1,000 euros, the cost in U.S. dollars would be $1,246. You can check the rate of the day by calling its 24-hour Exchange Rate Hotline: 1-800-756-7050, option #1.
Fees: If you are a client with the Citigold® or Citi Priority Account Package, there are no additional fees. But if you are not, $5 service fee will be charged if the transaction amount is $1,000 or less. Additionally, Citi charges a fee from $10-$20 to deliver to your address, depending on the delivery option.
Ways to order: You will have to be a Citi client to buy foreign currency. To order, visit your nearest Citibank branch or call 1-800-756-7050, option #2.

Wells Fargo

Rate: On Sept. 19, buying 1,000 euros would cost $1,229.80 at Wells Fargo, not much different than other major banks. You can check the rates of the day here.
Fees: No fees.
Ways to purchase: Besides physically visiting a branch, Wells Fargo clients can also exchange currency through the bank by ordering money online or by phone to get it delivered to your home or a branch near you within 2-7 days.

Order cash online

No other method can beat ordering foreign currency online in convenience. You just click buttons and purchase foreign currency at your fingertips. But the rates are slightly higher than what banks have. The major player that dominates the online currency exchange space is Travelex.

Travelex charges delivery fees if you order a small sum of foreign currency. If you are seeking the convenience of getting foreign currency delivered, you will be better off ordering foreign currency from a bank that offers free delivery or charges a lower delivery free.

Pros

  • You can exchange currency without having to step out of your house.
  • Rates are better than kiosks at airport or hotels.
  • You can earn United MileagePlus® bonus miles if you buy currency through Travelex.
  • You can pick up money in a retail facility or get currency delivered as early as the very next day after you put in an order.

Cons

  • There’s a $9.99 shipping fee if the transaction is less than $1,000.
  • You have to order in advance for delivery.
  • The exchange rates won’t beat what banks offer.
  • Travelex does not give small denominations of foreign currencies for delivery, so you’re limited to converting to round numbers in the foreign currency.
  • The minimum amount required in each order is $50.

Costs

Rate: On Sept. 19, the euro-U.S. dollar exchange rate provided by Travelex was 1:1.285. The price of 1,000 euros would be $1,284.69. That’s $54 more expensive than you would pay Bank of America for the same amount of euros.
Fees: A UPS Standard Delivery fee of $9.99 is charged if the order is less than $1,000. The fee is waived on transactions of more than $1,000.

Airport kiosks

Departure or arrival terminals at major airports all have plenty of choices for exchanging currencies. Those are the places you should avoid because the exchange rates they offer are typically higher than bank rates and online rates. And oftentimes, those kiosks levy an additional transaction or service fee, making your purchase all the more expensive.

Take Travelex as an example, its physical locations offer different rates than its online rates. And the specific rate depends on the amount of foreign currency you order. The more you buy, the better the rate you will get. In addition, a flat $9.95 service fee applies to each transaction.

However, if you need cash but did not budget enough time ahead of your trip to order foreign currency from your bank, the currency-exchange kiosks would pretty much be your last option before departure. Many of these exchange facilities also have locations in downtown areas, hotels, train and bus stations. They may or may not carry the same rate and fees as the airports. One thing you can do to save money on exchanging money at the airport is to visit the airport’s website before you get there to compare fees from different merchants.

Pros

  • They are easily accessible at airports.
  • Their opening hours are long, if not 24 hours. Many stay open from 5 a.m. to 11:00 p.m. everyday.
  • Those physical kiosks usually have more denominations available than online orders.
  • There is no minimum amount required at a physical store; you can change small amounts of cash, but the transaction fee will still apply.

Cons

  • They offer worse rates than banks and online shops.
  • You likely will have to pay an added service fee

Costs

Rate: On Sept. 19, buying 1,000 euros at a Travelex kiosk would cost $1,370. The rate was 1:1.37. This is more expensive than what you’d get via its website (1:1.285). And if you buy 600 euros at the kiosk, the rate would be even higher — 1:1.38.
Fees: There is a flat service fee of $9.95 per transaction, however little money you exchange through Travelex. If you factor in the service fee, the cost for 1,000 euros would be 12% higher than what you would pay for the same amount of currency at Bank of America.

Ways to exchange currency during your trip

ATM

The least expensive way to access any local currency in cash is by using an ATM on the ground with a checking account that has no fee for out-of-network ATMs and no foreign transaction fees.

You would get the same exchange rate you’d get if you used a credit card at a merchant. Most ATM networks use either the Visa or Mastercard exchange rate, which is the best because it’s very close to the interbank rate banks give each other.

For example, the Mastercard euro-to-U.S. dollar exchange rate on Sept. 19 was 1:1.171, and the Visa offered a pretty close rate of 1:1.172, if the credit/debit card charges 0% fees. These rates were lower than rates of U.S. banks that day.

You don’t have to make this account your primary checking account — just transfer the money you need to your no-fee account in U.S. dollars before the trip, and withdraw on location in local currency.

For security purposes, it’s safer to withdraw cash on the ground as you need it than carrying a large sum of cash with you during the trip. It’s also better to have a separate checking account just for travel. That way if there is fraud, it’s less likely to hit your main account.

Aspiration Summit and Charles Schwab Checking are two nationally available accounts with no out-of-network ATM fees or foreign transaction fees.

With most U.S. debit cards, however, the banks levy a foreign transaction fee up to 3% of the withdrawal amount each time and a flat third-party ATM fee of $1-$5. The ATM operator may also charge a fee.

Still, ATMs would be a cheaper option than exchanging currency at banks or airport kiosks. Let’s say you withdrew 1,000 euros Sept. 19 through Visa at an ATM, if you factor in the exchange rate, the 3% transaction fee and the $5 ATM fee, the total cost would be $1,207 — less expensive than exchanging the same amount of euros at Bank of America.

To save costs on your trip, look for a debit card with low or no foreign transaction fees and no out-of-network ATM fees. If they do charge fees, try to take out a high amount of cash at one setting to avoid multiple fee payments if you need to access more cash later on.

Credit card

The reason why credit cards are the best option to spend money overseas is that a credit card’s exchange rate will certainly beat banks and kiosks, as we discussed above. More important, credit cards offer significantly better protection against fraud than debit cards. Many credit cards charge no foreign transaction fees, and even better, you may earn miles or cashback rewards by using credit cards. Here we’ve rounded up the best travel credit cards with no foreign transaction fees.

Pro tip: One of the key recommendations for international travelers is to make sure your transaction is done in the local currency, not in U.S. dollars. Your credit card will always have a better exchange rate in the local currency than what merchants can offer in U.S. dollars. Plus, a merchant may even slide in an extra fee that you might not know about.

Cash

If you have U.S. dollars in cash, you can also exchange the local currency when you are in your host country. In fact, exchanging money in your host country gives you a better exchange rate than exchanging foreign currency in the U.S. before you go.

This is because the local currency is more common than your U.S. dollar is in that country, and therefore it’s cheaper to buy there. Meanwhile, your U.S. dollars are worth more in a foreign country because it’s a less common currency. Therefore, you will get more local money for your U.S. dollars.

Banque de France, the central bank of France, showed that on Sept. 19, the euro-to-USD exchange rate was 1:1.1667. That means it would cost you $1,167 to get 1,000 euros in France, excluding fees, which is less than you would pay for the same amount of euros at a major U.S. bank.

What to do with your leftover currency after your trip

Try to use up the foreign currency before you return to the U.S. If you have leftovers after your international trip, there are several ways to handle it.

Sell it back to your bank or Travelex

Banks and Travelex will buy the major foreign currencies; but they may not be able to purchase some foreign currencies, such as Argentinian pesos (ARS) Cuban pesos (CUP) at Travelex.

The big caveat here is that you will inevitably lose money by returning the foreign currency. The banks and Travelex make money from the difference between the purchase and sale of foreign currency. The rate they would offer for buying foreign currency from you is always lower than their selling rate

For example, Chase would buy 1,000 euros for $1,085 on Sept. 19, whereas it sold 1,000 euros for $1,251. Travelex would buy 1,000 euros for $1,020 that day. But if you wanted to buy the same amount of euros from a kiosk, the cost would be $1,370.

On top of that, additional fees may be attached to your sale. Citi, for instance, charges $5 if you exchange less than $1,000. Travelex bureaus don’t charge a service fee when you return your foreign currency. However, if you choose to send your leftover currency in the mail, a $5 fee will be deducted from your final proceeds and a delivery fee may also apply.

Keep it

You will be better off keeping the leftover currency: you’ve already bought it with extra cost, and selling it at a cheaper price means you will lose even more money. Why not save the hassle and save it for your next trip?

Sell it to friends and family

Ask your friend, family and neighbors whether they have international travel plans. If they will make a trip to the country you have visited, offering to sell them the local currency at a better rate than what banks provide.

Donate it

You can donate your leftovers after you finish your vacation — brighten up someone else’s day.

On many American Airlines international flights, flight attendants pass around to collect unused currencies from travelers as donations to UNICEF “Change for Good” charity program.

“Change for Good” charity donation barrels are also available at 10 international airports. As you walk around the airport, look out for those barrels to drop your leftover currency.

If you were not able to donate your foreign currency on a flight or at an airport, you can still support the cause by sending your money to:

UNICEF USA
ATTN: Change for Good Program
125 Maiden Lane
New York, NY 10038

Key takeaway

International travel is expensive already. Finding an affordable way to exchange foreign currency can save you some money. For that, you want to look for the option with the most competitive rate and avoid extra fees. When you are on your foreign trip, use a credit card that carries no foreign transaction fees as often as possible. As far as cash goes, the best way to access foreign currency to withdraw money at an ATM using a debit card that doesn’t charge out-of-network ATM fees or foreign transaction fees when you are on the ground. If you need a small sum of cash on hand before traveling, your local bank would be your best option. Ordering foreign currency online can be convenient, but mind the delivery fee that may apply. Our last piece of advice: Avoid airport or hotel exchange kiosks whenever possible.

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Hurricane Florence Aftermath: The Best Financial Options for Repairing Your Home

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.

Hurricane Florence aftermath
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More than two weeks after Hurricane Florence’s devastating crawl across the Carolinas and Virginia, many homeowners are assessing the damage and beginning to make repairs.

According to real estate data provider CoreLogic, the storm affected 624,000 homes, the vast majority unprotected by flood insurance. Standard homeowners and renters insurance policies do not cover damage from storm surges and other flooding. That requires separate policies, typically purchased from the U.S. government, but consulting and actuarial firm Milliman said fewer than 10% of homeowners in the Carolinas had such coverage.

Many families facing large out-of-pocket storm costs may be wondering what the next steps are to begin rebuilding. To help you get started, we’ve rounded up advice for how to proceed, sort out what insurance will — or won’t —cover and tap financial resources available to the underinsured.

Step 1: Figure out your coverage

Amy Bach, co-founder and executive director of United Policyholders, a national insurance consumer advocacy organization, said the first thing you should do is print out a complete copy of the most recent policies you may have on your home.

Many homeowners make the mistake of calling the insurance company and getting things started before they know what coverage they have, said Bach. “A lot of these adjusters, especially in a catastrophe situation, are overworked. They have lots of clients and sometimes they try to take shortcuts to tell you what coverage you have. Sometimes they may be right, but they may be wrong.”

She added: “You have the biggest stake in getting the most money out of your insurance so it’s up to you to do your homework.”

If your printer was ruined along with other belongings in the storm, you can generally contact the insurance company directly and ask them to email you a complete copy of your policy. If you worked with an agent, you can try contacting them directly for a copy, too. If you can’t remember who your insurer is or how to get in touch with them, Bach recommends you contact your state’s Department of Insurance for help.

The declaration page

Once you have a copy of the policy in hand, focus on the declaration page, a summary of the policy and how much coverage you have available.

Coverage is usually split into four main buckets:

  • Dwelling: Covers the home itself.
  • Contents (personal property insurance): Covers the items you own inside the home.
  • Other structures: Covers items that are not part of the dwelling but on the property such as detached garages, driveways, fences, sheds and pools.
  • Loss of use: Coverage for any expense you have to incur because you cannot live in your home.

You may or may not have each type of coverage and the extent to which you’re covered will depend on your policy. It may also include personal liability protection and coverage for guest medical payments (when someone else gets hurt at your home).

Flood insurance vs. homeowners insurance

While standard homeowners and renters insurance policies do not cover damage from storm surges or other flooding, they should cover damage from, say, a neighbor’s tree that fell on your house and left a hole on the roof where water came through. South Carolina residents with questions about claims may visit the S.C. Department of Insurance. North Carolinians can visit NCHurricClaims.com for information. Insured residential damages in that state may total as much as $7.5 billion while uninsured damages may nearly be twice as much. Total storm damage in the Carolinas and Virginia is expected to add up to $28.5 billion.

Flood insurance

Homes financed with a federally-insured mortgage in a high-risk flood area, also called a special flood hazard area (SFHA), are required to buy flood insurance from the National Flood Insurance Program, run by the Federal Emergency Management Agency (FEMA), or as a separate policy through a private insurer. SFHAs are areas that have a minimum 1% chance of flooding in any given year. These are also known as 100-year flood plains.

If you live in a moderate- to low-risk area or don’t have a federally-backed mortgage, purchasing flood insurance is optional. However, a lender can also require you to purchase flood insurance, even if you live in a moderate- to low-risk area.

National Flood Insurance provides up to $250,000 of coverage for the structure of a single-family home and up to another $100,000 for personal possessions. Alternatively, or in addition to NFIP flood insurance, you can purchase “first dollar” or primary flood insurance policy from a private insurer.

According to federal data, the average paid loss to NFIP policyholders after the four most-recent major hurricanes in 2016 and 2017 were:

  • $55,193 to 563 policyholders after Hurricane Maria in September 2017
  • $115,104 to 75,749 policyholders for Hurricane Harvey in September 2017
  • $46,989 to 21,749 policyholders for Hurricane Irma in September 2017, and
  • $39,217 to 16,542 policyholders for Hurricane Matthew in October 2016

Issues with flood insurance

“The problem with flood insurance is that it does have some very nit-picking requirements,” Bach told MagnifyMoney. “Many adjusters will say they only pay for damage from water physically coming into contact with the damaged object.”

Bach said that means sometimes flood insurance won’t pay for a damaged foundation or water that ran up a wall. Or, it may only provide coverage that can seem partial to homeowners. For example, the coverage may replace the lower cabinets in your kitchen, but they may not match the cabinets that weren’t affected by the flooding.

Problems meeting code. Flood insurance also may not cover code upgrades. If your home was built in the 1960s, for example, and had an old electrical system, the insurance company usually won’t pay to upgrade it, but the county may not allow you to put back old wiring either.

In those cases, Bach said to “go back to the policy and say ‘I cannot replace unless I comply.’” The insurer may require you to provide documentation from the local government as proof. And sometimes, flood insurance policies only cover code upgrades if the damage done to the system is 50% or more.

Finally, Bach tells MagnifyMoney flood insurance generally does not cover the costs of living elsewhere while your home is repaired. In those cases, your homeowners insurance policy may cover your displacement costs.

Wind. Wind must be insured separately and sometimes this coverage is available only from a state-run insurer of last resort. In North Carolina, the Coastal Property Insurance Pool is available to coastal homeowners, with a similar wind pool in South Carolina.

What if I don’t have flood insurance?

Excluded from homeowners insurance coverage is flooding caused by rising water, which Bach said is going to be most people’s problem. But, the United Policyholders executive director added: “A little argument goes a long way.”

Homeowners whose insurance does not cover hurricane-related expenses may qualify for disaster aid or low-interest loans, which we’ll cover below.

Step 2: Document the damage

Do the best you can to document all of the damage using pictures and videos. Do this before you start cleaning up or making repairs.

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Step 3: Prevent further damage

Do what you can, within reason and with consideration of your health and safety, to prevent further damage to your home. At this point, you may want to reach out to the insurer and begin the claim process. If your policy covers the cost, the insurer can send someone to help drain the water, patch up holes and dry out your home.

“You want to try to get that done as quickly as possible so that you don’t have a mold problem,” said Bach.

If the insurer cannot get out to your area quickly or your coverage does not cover temporary repairs and drying out, then you may elect to do what you can on your own or hire a professional in your area.

Either way, take care to keep swatches of carpeting, wallpaper, furniture upholstery and window treatments — things that may impact the amount payable on the claim. Try to avoid tossing out damaged items until you file a claim and the insurance adjuster pays a visit to your home (described below). You can learn more about proper flood cleanup in this federal Homeowner’s and Renter’s Guide to Mold Cleanup After Disasters.

“If you can afford it, you should hire somebody and get them to do it as soon as you can,” said Bach. “But don’t hire the first person you can, because disasters do bring out scam artists.

If FEMA or state emergency services are in your area, they may be able to assist you with drying out your home. And, if there is a local assistance center set up near you, you can go there for help and information. Go here to find a disaster recovery center near you.

Step 4: File a claim with your insurance company

If you didn’t notify your insurance company before you started cleaning, you should contact them to file a claim as soon as possible. The insurance company should send you claim forms to fill out and you should try to return them as soon as possible to avoid delay in service.

The insurer should then arrange for an insurance adjuster to come out and assess the damage to the property. The adjuster will inspect the property to estimate how much the insurance company will pay for the loss. They will likely also interview you, too.

Be prepared to show the adjuster any structural damage and compile a list of damages so the visit is efficient and you don’t forget anything. If you have receipts for any of the damaged items you should present copies to the adjuster. Be sure to ask any questions you may have about your policy and the coverage it may provide.

Finally, if you had to relocate and your policy covers loss of use, keep those receipts and record all additional expenses you had to take on as part of your temporary relocation as you will need to provide proof of those costs.

Step 5: File for federal disaster assistance

If your home is in a declared presidential disaster area, you can apply for FEMA individual disaster assistance. If you do not have internet access, you can call 800-621-3362.

Disaster aid may cover:

  • Temporary housing
  • Lodging reimbursement
  • Home repairs
  • Home replacement
  • Permanent or semi-permanent housing construction
  • Child care expenses
  • Medical and dental expenses
  • Funeral and burial expenses
  • Essential household items, clothing, tools required for your job and necessary educational materials
  • Heating fuel
  • Cleanup items
  • Damage to an essential vehicle
  • Moving and storage expenses

However, FEMA disaster grants are generally low — see the following chart for average amounts from recent storms. The organization emphasizes that housing grant money is intended to help survivors get a roof over their heads and not to rebuild a home to its pre-disaster condition. FEMA encourages homeowners to consider the federal grant program as a last resort, after insurance and federal loan programs, and not to factor federal grant assistance into disaster preparedness planning.

Below is a breakdown of the average grant payout for recent disasters from the Individuals and Households Program, one the of several disaster assistance programs FEMA offers. The information provided by FEMA includes the average payout for Hurricane Florence as of this writing.

DisasterAverage IHP award

Hurricane Sandy (2012)

$7,950.17

Hurricane Matthew (2016)

$3,409.11

Hurricane Harvey (2017)

$4,365.75

Hurricane Irma (2017)

$1,354.72

Hurricane Maria (2017)

$2,666.10

Hurricane Florence (2018)

$3,467.22*

*As of Oct. 2, 2018

You can find information about other kinds of Individual Assistance FEMA provides like disaster unemployment assistance and crisis counseling in this factsheet.

As of this writing, DisasterAssistance.gov shows residents in the following North Carolina counties may be eligible for disaster assistance after Hurricane Florence:

  • Beaufort
  • Bladen
  • Brunswick
  • Carteret
  • Columbus
  • Craven
  • Cumberland
  • Duplin
  • Greene
  • Harnett
  • Hoke
  • Hyde
  • Johnston
  • Jones
  • Lee
  • Lenoir
  • Moore
  • New Hanover
  • Onslow
  • Pamlico
  • Pender
  • Pitt
  • Richmond
  • Robeson
  • Sampson
  • Scotland
  • Wayne
  • Wilson

In South Carolina, Chesterfield, Darlington, Dillon, Florence, Georgetown, Horry, Marion and Marlboro counties are federally declared disaster areas. As of this writing, there are no declared disaster areas in Virginia.

FEMA may require you to provide evidence that your insurance company declined your loss claim and will not cover your disaster-caused loss. When you apply for disaster assistance, you’ll need to provide identifying information like your Social Security number and a current mailing address.

Delays with disaster assistance.

It’s important to remember some FEMA funds are funneled through the state government, so depending on how your state allocates its resources, your reimbursement or assistance may take months. Some survivors are still waiting on FEMA disaster assistance aid from Hurricane Matthew in 2016.

According to a FEMA spokesperson, those still waiting on aid from a previous disaster may still qualify for FEMA assistance::

“No matter whether someone is waiting for assistance from FEMA’s Hazard Mitigation Grant Program or HUD’s Community Development Block Grants as a result of Hurricane Matthew, if they have damage as a result of Hurricane Florence and need assistance with housing or other unmet needs, they should register at www.DisasterAssistance.gov to see if they qualify for assistance from FEMA or other agencies. If they prefer, they can call 1-800-621-FEMA (3362) to register.”

Where else can you turn for help?

“It’s clear that more and more people do need to take on loans to get back on their feet after disasters because insurance does fall short a lot more than you would expect,” said Bach, who has been working in insurance consumer advocacy for 26 years.

Below are a few options you can turn to for help.

Government assistance programs

The U.S. government provides the following programs that may assist eligible borrowers who need assistance with home repair, replacement, restoration or improvement financing. Homeowners with an existing mortgage may also find relief with their loan servicer — many lenders will temporarily reduce or suspend payments in a process called forbearance. The Mortgage Bankers Association says one of your first calls following a hurricane should be to your mortgage servicer. The Consumer Financial Protection Bureau provides information on this and other financial problems following a natural disaster here.

SBA disaster loans

The U.S. Small Business Administration provides financial assistance to not only business owners, but also to homeowners and renters in federally declared disaster areas. These low-interest loans may cover up to $200,000 to repair or replace the primary residence to its pre-disaster condition. Collateral is required to secure loans over $25,000. Secondary homes and vacation properties are not eligible for an SBA home disaster loan. Homeowners may also borrow up to an additional $40,000 with a property disaster loan to replace damaged personal property.

For some homeowners, the SBA may be able to refinance all or part of an existing mortgage up to $200,000 if they:

  1. Don’t have credit available anywhere else.
  2. Suffered a substantial amount of disaster damage that isn’t covered by insurance.
  3. Intend to repair the damage.

If you were already paying back a previous SBA disaster loan, the SBA is offering loan deferments of up to nine months to those in federally declared disaster areas impacted by Hurricane Florence. If you already have an SBA disaster loan, you can take out another as long as your home was in a declared disaster area and you are current on all of your payments.

FHA 203(h) mortgage

The Federal Housing Administration’s 203(h) loans are government-insured mortgages that may be used to purchase, improve, remodel or rebuild a home. To be eligible, the borrower must reside in a federally designated disaster area and the home must be damaged or destroyed to an extent that requires reconstruction or replacement.

One of the biggest benefits of a 203(h) mortgage is that it does not require a down payment. However, borrowers must pay closing costs — the seller could help by picking up 6% of the cost at most for those buying a new home — and mortgage insurance, which is collected as one upfront charge at the time of purchase and monthly premiums tacked onto the regular mortgage payment. FHA mortgage limits apply and can be found here.

Other types of government loans

SBA disaster loans and the 203(h) mortgage are programs specially designed for disaster victims, but there are other government programs — available to anyone — to help homeowners who want to make repairs.

FHA 203(k) loans

The Federal Housing Administration’s 203(k) program is designed to fund a home renovation — homeowners could use the loan to refinance their current mortgage in order to pay for repairs. The minimum credit score to qualify is relatively low, but there are several requirements you will have to meet, including working with an FHA-approved lender and, possibly, a 203(k) consultant. Read more about the different types of 203(k) loans here.

You can use the Section 203(k) rehabilitation mortgage program along with the HUD Title I Property Improvement Loan program, described here by LendingTree, MagnifyMoney’s parent company.

USDA Home Repair program

The Department of Agriculture offers the Section 504 Home Repair program for low-income homeowners. The program provides loans to repair, improve or modernize homes. It also provides loans or grants to low-income elderly homeowners to remove health and safety hazards.

The USDA offers repair loans up to $20,000 and grants up to $7,500. You can combine a loan and grant to borrow a total of up to $27,500. The property must be in an eligible area. To learn more about the home repair program, you can contact a USDA home loan specialist in your area. You can check income eligibility here.

VA rehab loans

The Department of Veterans Affairs in April 2018 updated its alteration and repair purchase and refinance loan program. The VA allows eligible borrowers to refinance a mortgage based on what the appraised value of the property would be after renovations, up to $227,500. The borrower can also finance closing costs. You can apply for a VA loan through a VA-approved lender.

Fannie Mae HomeStyle® Renovation mortgage.

Fannie Mae offers a HomeStyle® Renovation mortgage that can help finance home repairs. Homeowners could, for example, refinance the costs into an existing mortgage. Borrowers can finance up to 75% of the appraised value of the property after the renovations are completed. Read more about the HomeStyle® program here.

Nonprofit and charitable aid

You may be able to get assistance from national and local nonprofit organizations or charitable institutions. Such groups include the American Red Cross, Habitat for Humanity, Mennonite Disaster Service and the Saint Bernard Project.

Beyond meeting hurricane victims’ immediate needs, these organizations and others may help rebuild homes in your area, so it may be worth it to reach out to a local charity regarding grants and other services.

Habitat for Humanity helps low-income survivors rebuild or repair their home if they meet Habitat’s requirements. Contact your local Habitat for Humanity office.

Other financing options

If you have a good credit score and the project’s costs are relatively low (a few hundred to a few thousand dollars) you may want to consider taking out a personal loan or using a credit card to finance repairs. Bach told MagnifyMoney you may also elect to do this if you don’t have cash on hand to cover temporary living, cleanup and minor repairs that may be later reimbursed by insurance.

Personal loans

Personal loans typically have fixed rates and terms. You can usually borrow anywhere from $1,000 to $35,000 at rates between 6% and 36% APR. There are a few pros and cons with personal loans:

Pros

  • Unsecured: Meaning you won’t risk losing an asset if you are unable to repay a personal loan.
  • Fast turnaround: You can generally apply for a personal loan in minutes online and, if you qualify, you may receive the lump sum amount in your bank account as soon as 24 hours later.

Cons

  • Credit requirements: Borrowers generally must have a good credit score and a low debt-to-income (DTI) ratio to qualify. Borrowers with the highest credit scores and lowest DTI ratios generally receive the best terms.
  • Fees: You may be charged a loan origination fee or a prepayment penalty.

To get the best offer available to you, compare loan terms and rates at LendingTree.

Credit cards

If you plan to use a credit card for storm-related expenses, one idea is to apply for a new credit card with a 0% introductory offer on all purchases. Note that If you’re still carrying a balance once the promotion ends, the new interest rate on the card will apply to whatever balance is left, and some lenders may charge deferred interest, meaning they may charge interest on everything you’ve charged during the promotional period.

Credit cards charge an average 15.54% APR, according to the Federal Reserve, but there are cards with lower (and higher) rates. Generally, lenders offer the lowest interest rates to borrowers with the highest credit scores.

Credit cards generally charge a variable rate and it may change based on your daily balance, so the minimum amount you are required to pay back each month may fluctuate.

When to consider bankruptcy

John C. Colwell, a bankruptcy attorney and president of the National Association of Consumer Bankruptcy Attorneys, told MagnifyMoney a homeowner may consider bankruptcy in the event that the cost of repairs exceeds the value of the property, comparing it to a vehicle that’s been totaled in a car accident.

“If or when the insurance monies, if any, or the FEMA, federal or state relief funds are exhausted or not available, those lack of resources to financially recover would be indicators that a bankruptcy should be considered,” Colwell said.

But first, Colwell said, homeowners should check for any state protection that may make bankruptcy unnecessary.

California law, for example, protects homeowners after a foreclosure. If a $600,0000 house with a $400,0000 mortgage burns down in a fire, the homeowner can walk away and let the bank foreclose on the home. If the bank forecloses for $300,000, the original homeowner does not owe $100,000 to the bank to satisfy the mortgage. While the homeowner must face the consequences of a foreclosure, they would not need to file for bankruptcy. North Carolina has similar protections in place for homeowners.

But in most other states, including South Carolina, the mortgage company has the legal right to try and sue the homeowner to collect the remaining balance on the mortgage. Colwell said in those cases it may be appropriate for a homeowner to file for bankruptcy.

“Of course, there are other variables that impact the final decision, but that’s one strong indicator that a bankruptcy could help,” said Colwell.

In conclusion

If you were one of the estimated 624,000 homeowners affected by Hurricane Florence, help is available. Sources of financial assistance range from your own insurance policies to government assistance and loans to charitable organizations or simply borrowing from a private lender. Rebuilding may be costly and seem overwhelming, so look to resources like United Policyholders and the Insurance Information Institute or your state’s emergency management office. North Carolina residents may visit ReadyNC. South Carolina residents may go here.

If you need advice when deciding between options, consult a fee-only financial professional who has experience working with homeowners following a disaster.

If you are considering bankruptcy, it’s recommended you speak with a bankruptcy lawyer about the options available to you and any protections provided by your state.

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.

Brittney Laryea
Brittney Laryea |

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

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Student Loans vs. Mortgages: Which Weigh Heaviest?

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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Student loan debt has mushroomed dramatically over the last two decades. The total amount of outstanding student debt just passed $1.5 trillion earlier this year, putting it second only to mortgages as the type of loan on which Americans owe the most.

The amount of average student debt per person has also exploded, with a substantial number of borrowers owing mortgage-like sums above $100,000, according to a recent student debt study from MagnifyMoney parent company LendingTree.

But, as the study also noted, this student loan burden isn’t spread evenly across the country.

“Student loan debt varies pretty widely between metros,” said LendingTree senior research analyst Kali McFadden. “With student loan balances shooting up, we wanted to know how these types of debt stacked up against mortgages for people who carry both.”

To find out, we compared student debt to mortgage debt, using borrower data from the 50 biggest metros. Specifically, we wanted to identify cities where borrowers’ student loans are more likely to rival — or even surpass — their mortgages.

Key takeaways:

  • Across all 50 metro areas surveyed, 5.7% of borrowers have a larger balance on their student loans than on their mortgage. The average student loan balance across these cities was $18,435.
  • In just 6 of the 50 metros we reviewed, more than 10% of borrowers carry a larger debt load on their student loans than on their mortgage. The Rust Belt and the South regions dominate the top of this list.
  • A whopping 12.6% of borrowers in Pittsburgh owe more for their educations than they do for their homes. Rounding up the top three are Buffalo, N.Y. (12.2% owe more on student loans) and Cleveland (11.7%).
  • The West Coast occupies the other end of the spectrum. In both Seattle and Sacramento, California, just 1.4% of borrowers owe more in student loans than on their mortgages. Los Angeles and San Diego are tied for third place, at 1.6%.

The 11 cities where student loan debt exceeds mortgage debt

The cities with the highest student loan debt compared to mortgage debt (looking only at borrowers that hold both types of loans) aren’t necessarily just the ones with the cheapest real estate, and therefore the lowest mortgages.

“Clearly, property values pay a part in the ratio of student loan to mortgage debt … [however] we do see that higher student loan balances are a factor where more people owe more for their educations than they do for their houses,” said McFadden.

Of course, the blend of these two influences — heavy school debt and low home prices — is different for each city. However, when student debt balances are high compared to mortgage debt, it does suggest a tough environment for student loan borrowers.

Here’s a look at these top-ranking metro areas.

1. Pittsburgh

People who owe more on student debt than mortgage debt: 12.6%

Pittsburgh tops our list, and for good reason — 1 in 8 borrowers owes more on their student loans than on their mortgage. Specifically, the median ratio of student debt to mortgage debt is 22.3%.

Here, the culprit could be the low median home price of $125,000, as reported by Kiplinger — tied for the lowest of the 50 metro areas we compared. This likely results in lower mortgage balances for Pittsburgh relative to the median student loan balance of $18,927.

2. Buffalo, N.Y.

People who owe more on student debt than mortgage debt: 12.2%

Buffalo joins Pittsburgh at the bottom of the median home-price rankings of the metro areas covered in this study, at $125,000. These borrowers are likely to owe less on their home and also have below-average student debt, at a median balance at $17,256.

It’s no surprise, then, to see that a typical Buffalo borrower’s student loan balance is equal to 21.9% of their mortgage debt.

3. Cleveland

People who owe more on student debt than mortgage debt: 11.7%

Cleveland borrowers have a median student loan balance of $18,743, compared to an average home price of $135,000, according to Kiplinger. With above-average student loan balances and lower home prices, a typical Cleveland borrower’s student loan balance is nearly a quarter (23.2%) of their mortgage debt.

4. Memphis, Tenn.

People who owe more on student debt than mortgage debt: 11.0%

Borrowers in Memphis have the highest student loan balances relative to mortgage debt in any city we studied. In fact, the median $18,866 student loan balance is equal to 24.2% the median mortgage debt. Memphis is also among the cities with lower median home prices, at $137,000.

5. Birmingham, Ala. (tie)

People who owe more on student debt than mortgage debt: 10.2%

One of the main factors putting Birmingham at the top of this list is the high average student loan balance. A typical borrower in this metro owes $20,679, the fifth-highest median student loan balance among any of the cities we surveyed.

This amount is equal to 21.8% of the median mortgage debt balance in Birmingham, where the median home price is $131,000.

5. Detroit (tie)

People who owe more on student debt than mortgage debt: 10.2%

Detroit and Birmingham have the same percentage of borrowers who owe more on student loans than they do on their mortgages. However, borrowers in Detroit have a lower ratio of student debt to mortgage debt, at 19.9%.

This reflects both the lower student loan balances in this city, with the median at $18,552, as well as higher home prices (the median is $145,000, per Kiplinger).

7. Atlanta (tie)

People who owe more on student debt than mortgage debt: 9.5%

Atlanta tied with Oklahoma City for the No. 7 spot, due largely to borrowers with some of the highest student loan balances.

The city’s median student loan balance of $22,232 is second only to Washington, D.C. This high level of student debt is due largely to loftier levels of educational attainment among Atlanta residents.

These large student debt loads are high even when compared to Atlanta’s median home price of $190,000. For a typical borrower here, their student debt is about one-fifth (19.6%) of the balance on their mortgage.

7. Oklahoma City (tie)

People who owe more on student debt than mortgage debt: 9.5%

Oklahoma City residents have below-average student debt, with the median balance at $17,278. Overall, this median student debt is equal to 18.4% of the local median mortgage debt.

9. St. Louis

People who owe more on student debt than mortgage debt: 8.9%

The local median student loan balance in St. Louis is a relatively large $19,229, while the local median home price is $155,000, according to Kiplinger. Overall, a typical St. Louis borrower’s student debt is equal to 18.5% of their mortgage debt.

10. New Orleans (tie)

People who owe more on student debt than mortgage debt: 8.3%

The median student debt among New Orleans borrowers is $18,592, about on par with the average across all cities. This debt is equal to 19.0% of the median balance on borrowers’ mortgages.

10. San Antonio (tie)

People who owe more on student debt than mortgage debt: 8.3%

Borrowers in San Antonio have some of the smallest student loan balances overall among these cities in these rankings, with the median at $17,089. However, that balance is still 17.1% of the median mortgage debt for local borrowers who have both.

Cities where student debt is lowest, compared to mortgage debt

A look at the cities where student loan balances are smallest, compared to mortgage debt, also reveals some insights.

Not surprisingly, the list includes cities with some of the highest home prices in the nation. San Francisco, for example, has a median home price of $750,000. Los Angeles homes come in at $605,000, while San Diego’s median home prices is $530,000, and Seattle’s is $417,000, reports Kiplinger.

These significantly higher home prices mean that many local borrowers are taking out mortgages with much higher balances that overshadow their student debt.

But while higher home prices result in more mortgage debt, the high cost of living doesn’t necessarily affect how much local residents borrow in student loans.

In fact, borrowers in these 10 cities also tended to have lower median student loan balances overall. Providence, R.I., for example, had the lowest median student loan balance of the group, at $15,025, and Seattle and San Diego had median student loan balances of $16,003 and $15,984, respectively.

Dealing with high student loan balances

Mortgage debt is still larger than student debt for most Americans, both at the national and individual level. However, the results of this study show that in some places, a relatively large proportion of people face student debt that outweighs even their mortgage, which can be a significant financial burden.

No matter how your own mortgage debt compares to your student loans, you can benefit from taking steps to more effectively manage your school debt. It could be wise to pay off student loans faster, if you can afford to do so. You can also explore options such as student loan refinancing or pursuing student loan forgiveness.

On the other hand, it’s encouraging to see that many borrowers are buying homes while repaying student debt — even when they have enough student loans to eclipse their housing debt. While rising student loans are slowing the financial progress of many, it’s not stopping them in their tracks.

Methodology

We looked a sample of over 90,000 anonymized users who logged into My LendingTree (LendingTree is our parent company) in July 2018 and who had both active student loan balances of any size and mortgage balances greater or equal to $10,000 to calculate the ratio of student to mortgage balances. Median student loan balances were calculated using a sample of users who logged into My LendingTree during Q1 2018, and were originally reported here. These results were then aggregated with the 100 largest metropolitan statistical areas by population. My LendingTree has more than 9 million users. Credit report information is provided by TransUnion.

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Elyssa Kirkham
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Elyssa Kirkham is a writer at MagnifyMoney. You can email Elyssa here

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APR vs. Monthly Payment: Which Should You Focus On?

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.

APR vs. monthly payment
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When shopping for a loan, it’s tempting to cast your eyes to the monthly total. That low monthly payment may fit into your budget, but it’s more important to look at each loan’s annual percentage rate. The APR will provide a much clearer picture of how much the loan will actually cost you in the end.

The monthly payment is determined by the loan amount, the interest rate and your loan term, but it doesn’t tell you how expensive the loan is. While a low monthly payment on a loan may appear to be a good deal, the total cost of a loan may be much higher than you think if it carries a high APR and the payments are spread out over a long period.

What is APR anyway?

APR is the annual rate of interest paid on a loan. It tells you how much it costs to borrow for one year. The reason why APR gives you a true picture of how expensive your loan is is because it factors in not only the interest costs but other fees lenders charge for a loan. The APR is determined by lenders’ fees, the risk of the business that is borrowing the money and the length of the loan’s term.

If a lender doesn’t charge additional fees, the loan’s APR and interest rate are the same. But if the lender charges a 5% loan origination fee, the APR can be higher than the simple interest rate. For example, you can probably find a personal loan that has an 8% interest rate, but if the lender bundles fees into the total loan amount, the APR may be 9% or even higher.

Longer-term loans have higher APRs because the risk of default is somewhat higher. Lenders make lending decisions based on a borrower’s creditworthiness — the higher the credit score, the better the rates and terms. Lenders perceive those with subprime credit scores as risky borrowers, and that’s why those with less-than-stellar credit often are subject to higher APRs and longer terms.

Why a low monthly payment may not be cheap at all

A low monthly payment doesn’t necessarily mean the loan is inexpensive, but a high APR definitely means a higher cost of borrowing because it tells you how much interest and fees you pay on a loan.

Here’s an example of why the monthly payment is not the only factor you should consider while borrowing money:

Earnest, an online lender, offers no-fee personal loans with fixed rates from 6.99% to 18.24% APR. On a hypothetical $10,000 loan amount, the monthly payment is $210 if Borrower A gets a five-year loan with a 9.49% APR. The borrower will have to pay $12,598 by the end of the loan term. That translates to a total interest cost of $2,598.

In contrast, if Borrower B takes the same loan with a 6.99% APR — the lowest rate — and a three-year loan term, the borrower has a $309 monthly payment. Borrower B’s monthly payment is higher than Borrower A’s, but the total interest paid over the loan’s life span is only $1,114, less than half of what Borrower A will pay over five years in interest.

Now, let’s say Borrower C picks a $255 monthly payment for a five-year, $10,000 loan that carries an 18.24% APR, the highest rate. The total cost of the loan is $15,301, with $5,301 paid in interest — more than half of the loan principal and $4,187 more than Borrower B will pay. This is the most expensive loan option offered by Earnest, but the monthly payment isn’t the highest.

Borrowers A and C have the same five-year loan term, but because they qualify for different APRs, Borrower C ends up paying about $2,700 more in interest, or more than twice of what Borrower A pays in interest on the loan, even though their monthly payment amounts are closer.

 

Earnest personal loan

Scenario

Loan amount

Loan term

Monthly payment

APR

Total payment

Borrower A

$10,000

5 years

$210

9.49%

$12,598

Borrower B

$10,000

3 years

$309

6.99%

$11,114

Borrower C

$10,000

5 years

$255

18.24%

$15,301

Monthly payment vs APR: What should I focus on when shopping for a loan?

Your monthly payment doesn’t really tell you much about your loan. If you focus only on whether you can afford a loan on a monthly basis, you may be vulnerable to sneaky sales tricks that make it seem like you’re getting a good deal when you’re really not.

When you borrow money, If you are looking for nothing but a monthly payment that will fit your monthly budget, the easiest way is to stretch out the loan over a few more years. Instead of a two-year loan, you may take a five-year loan with lower monthly payments but a higher APR. Unfortunately, by doing so, you will end up paying more for borrowing money over the life of the loan.

Instead of settling on a monthly payment, you should look at the APR and the long term. Lower APRs on the same loan amount always mean lower interest payments. Although you won’t get the lowest monthly payment with the shortest-term loan, you will spend less in the end.

How do I reduce loan costs?

Improve your credit

Before you shop for a loan, check your credit score. Lenders offer better terms and lower rates to borrowers with higher credit scores because they are less likely to default on their debt. A recent LendingTree study estimated that someone with a fair credit score paid $29,106 more than someone with a “very good” credit score for the same $234,437 mortgage loan and $5,629 more in interest for the same $5,265 credit card debt. LendingTree is the parent company of MagnifyMoney.

If you have a subprime credit score, you can save money on loans by improving your credit score. The key to increasing your score is to make on-time payments on bills, keep your credit utilization ratio at or below 30%, have a mix of credit accounts and don’t apply for too many loans too frequently. Read more about how to improve your credit score.

Pay off your debt faster

If you have already taken on an expensive loan and if your lender doesn’t charge prepayment penalties, you can reduce your interest payment by paying off your debt fast. There are two ways to save money: pay extra each month or make a large lump-sum payment when you get a windfall.

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.

Shen Lu
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Shen Lu is a writer at MagnifyMoney. You can email Shen Lu at shenlu@magnifymoney.com

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Student Loan Officials Warn of New Phishing Scam

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A new phishing scam is targeting students entitled to financial aid refunds, the Department of Education warned in a statement.

Multiple colleges and universities have reported to the department that students have received emails seeking information necessary to gain access to student portals. Attackers who gain access change direct deposit information so that financial aid refunds are sent to the attacker’s accounts.

Fraudulent emails target student sites

Students targeted by the phishing scam receive an email sent through password-protected student websites. The email appears to come from their college or university, the department said in the statement, dated Aug. 31 but not widely reported until the Washington Post published coverage of it Saturday. The Post said the authorities it spoke with had declined to identify which schools reported the attacks.

A sample email provided by Federal Student Aid, an office of the Department of Education, asks students to confirm their updated 2018 bill to avoid late fees. The nature of the emails suggests attackers have researched the targeted academic institutions to understand their communication practices, the statement said.

Redacted sample phishing email posted by the Department of Education (Source: Federal Student Aid)

When students fall victim to the scam, attackers can use their provided information to redirect financial aid refunds to the attacker’s accounts by changing direct deposit information. Many students are entitled to financial aid refunds if they receive loans in larger amounts than necessary to cover tuition, room, and board. The school refunds this excess aid to students so they can use it to pay living expenses.

The Department of Education has warned that federal aid funds distributed inappropriately may become the responsibility of the institution that disbursed the funds.

Student aid portals at colleges and universities are vulnerable to this type of phishing scam because enough do not use two-factor or multifactor authentication to verify that login attempts are legitimate. The Department of Education has urged higher education institutions to impose more stringent security measures, such as requiring students to answer security questions or to provide a PIN number in addition to a username and password.

The department is also urging institutions subject to the attack to consider freezing refund requests or blocking changes to direct deposit information. Taking precautions is essential, as evidence suggests attackers are refining their scheme and may target more institutions as financial aid refunds are distributed in large volumes as the school year gets underway.

Students should also protect their account security by refraining from clicking email links or providing personal identifying information in response to email requests. Instead of using links, always visit websites directly by typing the site’s address into your browser to avoid falling victim to this or any phishing scam.

Federal Student Aid said it would “continue to monitor this situation and will send out additional information as appropriate. That information may include additional examples of the phishing emails, training resources, and best practices about how to avoid falling victim to phishing attacks.”

Beware of other scams, too

The phishing attack on loan refunds is one of many scams aimed at student loan borrowers. These can range from the notorious “Obama student loan forgiveness” scam popular during the previous presidential administration to promises that your loan can be discharged if you’re disabled.

Watch out for red flags such as unnecessary fees or requests for excessive information. And if you do think you’ve fallen victim to a scam artist, follow these steps to protect yourself from further harm.

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Christy Rakoczy
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Everyone Can Now Freeze Their Credit Reports for Free

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If you have been holding off on freezing your credit report because you’d have to pay a fee, wait no longer. Today — one year and 14 days since Equifax originally announced hackers had exposed the sensitive information of more than 146 million consumers — a federal law making it free for consumers to freeze and thaw their credit reports goes into effect.

The provision rolled into the federal Economic Growth, Regulatory Relief and Consumer Protection Act makes it free to place, lift and permanently remove a freeze on your credit report with credit reporting agencies, regardless of the state you live in.

How will the new law affect me?

Before the law went into effect, it cost consumers anywhere from $2 to $12 to freeze, thaw or permanently remove a freeze a credit report depending on the law in the state they lived in. Only three states (Indiana, Maine and South Carolina) allowed free credit freezes.

Barring protected consumer status or proven identity theft, a consumer generally needed to pay a fee to each of the three major credit reporting bureaus — Equifax, Experian and TransUnion — to complete each credit freeze-related action. For example, it could have cost someone living in Colorado $30 to simply freeze their credit reports (paying $10 to each reporting bureau) and another $36 to thaw or permanently lift the credit freeze on each report.

Now, the big three credit reporting bureaus and other smaller credit reporting agencies are required by federal law to allow all consumers to freeze, thaw and permanently unfreeze their credit reports, free of charge.

Under the law, a reporting agency must notify a consumer of the placement or removal of a credit freeze within one business day if the request was made online or over the phone and within three business days if the request was made by mail.

The new law also applies the following changes:

  • The credit reporting bureaus must also provide a webpage that allows consumers to request a credit freeze or place a yearlong fraud alert on their credit report. Prior to the law, initial fraud alerts lasted 90 days.
  • The webpage must also allow a user to opt out of sharing their information with companies for the purpose of advertising credit or insurance.
  • The Federal Trade Commission must also set up a webpage that will list the links to the credit freeze pages for each credit reporting agency.
  • The law requires credit reporting agencies to provide free electronic credit monitoring to all active duty members of the U.S. military.

What is a credit freeze?

A credit freeze, or security freeze, restricts access to a consumer’s credit report. This prevents others from using your information to commit financial fraud.

Neither you nor fraudsters will be able to open new accounts in your name while the credit freeze is in effect. If you are applying for new credit, you can temporarily lift the freeze from your credit report, which is also referred to as thawing the freeze.

A credit freeze does not affect your existing creditors’ access to your credit report if the creditor is conducting account activities like credit monitoring and credit line increases or if they need to place the account in collections.

A warning: The credit freeze doesn’t prevent thieves from using your information to commit all forms of identity theft. The credit freeze only protects against forms of fraud that require access to your credit report.

The credit freeze also won’t stop you from getting prescreened credit offers. However, the new law requires reporting agencies to allow you to opt out of sharing information with companies for the purpose of advertising credit or insurance to you.

How to freeze your credit report

To freeze, thaw or permanently unfreeze your credit report you need to notify each of the three major credit reporting agencies separately. You can contact each bureau online, via phone or by mail.

Online

Equifax
Experian
TransUnion

Phone

Equifax: 1-800-685-1111 (1-800-349-9960 for New York residents)
Experian: 1-888-EXPERIAN (1-888-397-3742). Press 2.
TransUnion: 1-888-909-8872

Mail

Send a letter to each credit bureau by certified mail requesting the freeze. Here are the addresses.

Equifax: Equifax Security Freeze/P.O. Box 105788/Atlanta, GA 30348
Experian: Experian Security Freeze/P.O. Box 9554/Allen, TX 75013
TransUnion: TransUnion LLC/P.O. Box 2000/Chester, PA 19016

Mobile app options exist to put restrictions on consumer’s credit report information, as well:

Note: A credit report lock isn’t exactly the same thing as a credit freeze, though they serve the same purpose. Freezing your credit reports can only be done by phone, mail or the online portals above. Lock/unlock services allow you briefly grant or prohibit access to your credit report using online and mobile apps.

TrueIdentity app by TransUnion — Allows those enrolled in free True Identity service to instantly lock and unlock credit reports.

Lock & Alert by Equifax — Allows consumers to lock and unlock credit reports for free.

IdentityWorks by Experian — Allows those enrolled in IdentityWorks Plus or IdentityWorks Premium services to lock and unlock credit reports. The IdentityWorks Plus and CreditWorks Premium services charge fees.

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.

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

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