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Create a Budget Designed Just for Dumping Debt

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Even if you hate spreadsheets and numbers, coming up with a debt-destroying budget can be simple with a single rule: always apply excess funds to debt.

This rule can work with two of the most common debt repayment methods: the debt snowball or the debt avalanche.

The debt snowball method attacks smaller debts first, regardless of interest rate. The goal is to motivate you with small victories in order to go on and gain confidence to pay off larger debts. The debt avalanche method focuses on paying down debt with the highest interest rate until you pay off the balance with the lowest interest rate.

How Much Can I Throw Toward My Debt?

The math for your budgeting process is super-simple: Monthly income minus monthly expenses equals the amount of extra money you can apply toward your debt each month. The emphasis is on extra money because you’ll still want to pay your minimum debt obligations to avoid getting behind on your payments.

Note: If you still need help with the math because you’ve got to actually figure out how much you spend each month, you can use an app that connects with your bank to add up all your expenses. Check out services like Mint.com, YNAB, or Personal Capital to help you get quick figures around your income and spending along with categories for each.

Though the math is not too complicated, the harder part could be increasing the gap between your income and expenses to actually have a surplus in your budget.

Unless you’ve got little to no wiggle room in your budget, you don’t have to start cutting expenses quite yet. However, there are some expenses that are discretionary and should be omitted from your equation until you’ve tamed your debt load.

For now, just get a baseline of what you should have left over at the end of each month once all your bills and expenses are accounted for. If it’s $15, great. Start there. If it’s more, even better.

Once you get this number, use it to pay more on your debt than is required. So if your minimum payment is normally $50, pay $65 with your $15 surplus. It can be the smallest debt or the account with the highest interest rate. What matters now is that you do something to get into the habit of making extra payments on debt and accounting for it in your monthly budget.

How to Apply This Rule in Various Scenarios

If you budget with a goal in mind, the purpose of your money becomes clearer. Any kind of money that turns out to be extra should be applied to debt to reduce your balances. But the key is being mindful of extra money, even when it doesn’t seem to be extra.

For example, getting a raise is a reason for some people to increase their standard of living. They might move to a place with a view or buy that lavish SUV they’ve been eyeing for a while. If you’ve committed extra funds to a purpose (paying off debt), the decision is made for you far in advance of you actually getting the money.

The same goes for your income tax refund check. You might bank on this money every time income tax filing season comes around. While many people are planning spring break trips and shopping sprees with this money, you’ve got to make up your mind that this money is already earmarked for debt repayment.

Finally, there’s always that unexpected windfall: an inheritance, a settlement, or any type of money you never saw coming. This might be one of the most difficult chunks of money to part with for the sake of paying off debt. After all, you didn’t know it was coming, and maybe you didn’t have to work too hard for it.

In this case, it’s pretty tempting to want to splurge and blow it all on something you think you deserve. Things can get complicated at this point. But if you keep following “the rule,” this money is technically already allocated, and your debt repayment budget suddenly becomes easier to stick with.

Keep Widening the Gap Between Income and Expenses

This is the fun part. Why? You get to be creative and have more control over your debt repayment timeline. Want to get out of debt fast? Then you’ll have to figure out how to make your income outpace your expenses. It could mean adding a side hustle to the mix or getting more aggressive with cutting out or decreasing expenses.

Adjusting Your Tax Withholdings

If you pocket a large tax refund each year, ask yourself why. It is likely because you are paying too much in income taxes throughout the year. If that’s the case, you can change your tax withholdings through your payroll department to keep more money in your pocket throughout the year. It will mean a smaller tax refund come tax time, but you’ll have more cash on hand to put toward your debt with each paycheck.

Use this IRS withholding calculator to estimate your withholdings.

Decrease Your Income Tax Liability

There are more than a few ways to decrease your income tax liability. From IRA contributions to tax tips for entrepreneurial endeavors and other tax credits and deductions, there should be one or more things you can do to owe less on your tax bill.

Cut Expenses Where You Can

There are so many ways to save money on so many things. You can start small with things like eating out and having cable and work up to saving money on housing costs or refinancing student loans.

Then there are the diehards who go full monty and go through full-on spending freezes on things like takeout and travel. The list of cost-cutting measures can get pretty long, but you get the point: Go through your spending with a fine-tooth comb and find out where you can save and what you could cut.

Increase Your Income

Creating another stream of income sounds gimmicky, but there are ways to do it without getting caught up in scams. You can find a part-time job, provide consulting services on the side, or even start a mini-business like dog walking or car washing. It shouldn’t be anything that will cost you tons up front to start, and it shouldn’t hinder your ability to keep your full-time job.

You may find that you have to try a few things before you come up with the perfect combination of low overhead, quick to start, and profitable. That’s OK. Just keep plugging away until something clicks. It’ll be more than worth it to add that extra income to the budget for paying off more debt even faster.

Remember the Golden Rule: Excess Cash Goes to Debt

It all comes down to committing your cash to a purpose ahead of time. No matter how your financial circumstance changes, you’ll know what to do when you’ve got a surplus of money.

You’ll have to come up with a list of things you are willing to do to increase your cash reserves, but if you keep the goal in mind of continually applying extra funds toward debt, you’ll save on interest and also pay down your debt faster.

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

Aja McClanahan
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Aja McClanahan is a writer at MagnifyMoney. You can email Aja here

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Understanding Debt Relief Programs

Editorial Note: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Nobody seeks out illness, job loss, divorce or any other financial catastrophe, but sometimes things happen. Many people will accumulate overwhelming debt loads as a result of such hardship. If the burden of your debt is too much for you to afford, what can you do? The worst thing to do is jump into a debt relief program without educating yourself.

In this guide, we’ll explain the risks and benefits of the most common types of debt relief programs.

Bankruptcy

Chapter 7 bankruptcy, also known as liquidation bankruptcy, offers comprehensive debt relief. In liquidation bankruptcy, a court-appointed bankruptcy trustee sells certain assets (called unprotected assets), and the proceeds are used by the trustee to repay your creditors. Following the distribution of funds, the court discharges the remaining eligible debts. That means you no longer owe the debt and collectors cannot contact you about the debt. Debts that the court won’t discharge include: income tax debt that’s less than three years old, child support or alimony payments, student loans and fees and penalties owed to the government.

Although Chapter 7 bankruptcy requires selling off your valuables, filing may not leave you penniless. Filers can keep protected assets, such as personal items and money in retirement accounts. Most states allow filers to keep a small amount of cash and some amount of equity in vehicles or homes.

Who is a good candidate for Chapter 7 bankruptcy?

Chapter 7 bankruptcy is available to anyone earning less than the median monthly income for a family of your size in your state. If you earn more than the median income, you may qualify for Chapter 7 bankruptcy through “means testing.” The means test shows whether you have enough income to cover a debt repayment plan that Chapter 13 bankruptcy requires.

Being eligible for Chapter 7 bankruptcy doesn’t mean it’s a good idea for you. Some people have too many unprotected assets to make Chapter 7 bankruptcy a reasonable option. Chapter 7 bankruptcy may force people into selling paid off cars, tools for operating their business or other important assets. In those cases, Chapter 13 bankruptcy or other types of debt relief may be a better option.

— Read our article on when to consider bankruptcy

How much will you pay for Chapter 7 bankruptcy?

The amount you’ll pay for Chapter 7 bankruptcy depends on a variety of factors, including where you live and the complexity of your case.

You can expect to pay $1,100-$1,200* in attorney’s fees when you file Chapter 7 bankruptcy, according to Lois R. Lupica’s Consumer Bankruptcy Fee Study. Filers must also pay filing and court fees, which adds several hundred dollars to the cost of bankruptcy. In general, all fees have to be paid before your attorney will file your case.

*Numbers adjusted for inflation.

How does bankruptcy affect your credit score?

Following bankruptcy, your credit score will drop, but it’s not necessarily a death sentence. Bankruptcy stays on your credit report for 10 years after filing, but your credit score can recover. You can take steps to grow your credit score immediately following Chapter 7 bankruptcy.

In some cases, bankruptcy filers choose to reaffirm debts as part of the bankruptcy agreement. That means they agree to continue paying certain loans (such as a car loan or mortgage) as agreed. Making those payments can increase your credit score over time. Making timely payments on a secured credit card can also help you rebuild your score.

Filing for bankruptcy becomes less significant as time passes and you continue to display positive financial management on your credit report.

Risks of bankruptcy

  • Lower credit score: Following bankruptcy, you can expect to see your credit score drop. The lower score may make borrowing inaccessible for several years.
  • Can’t take out a mortgage: Bankruptcy makes you ineligible to take out most mortgages. Following bankruptcy, you’ll have to wait two years to take out an FHA mortgage and four years for a conventional mortgage. — Read how to get a mortgage after bankruptcy here.
  • Loss of property: Chapter 7 bankruptcy means you may have to sell off assets, which could put you in a precarious financial situation. “In Florida, you only get a $1,000 vehicle allowance. The fact that you need a vehicle to get to and from work isn’t factored into the equation,” Shawn Yesner, a bankruptcy and debt relief attorney practicing in the Tampa Bay area, told MagnifyMoney.
  • Problems with professional licensing:Leslie Tayne, a debt management attorney practicing in the New York City and Long Island area, helps clients avoid bankruptcy through debt settlement. Many of her clients are financial professionals who could face trouble renewing their license if they filed bankruptcy. “In cases like that,” Tayne told MagnifyMoney, “the last thing you want is to file bankruptcy. Something happened that caused this person to get in over their head, but they shouldn’t lose their livelihood because of it.”

Benefits of bankruptcy

  • Automatic stay: The courts grant all bankruptcy filers an automatic stay against collections activities. This means that all collections activity against you has to stop right away.
  • Discharge most debts: People with very few assets (or only protected assets), can expect to have eligible debts discharged without paying anything except attorney’s fees and filing fees.
  • Quick resolution: On average, Chapter 7 bankruptcy resolves within 115 days. Within a few months of filing bankruptcy, you can expect to move on with your life.

Other types of bankruptcy

Aside from Chapter 7 bankruptcy, many consumers file Chapter 13 bankruptcy. Chapter 13 bankruptcy allows you to keep all of your assets, but it comes with a downside. Chapter 13 bankruptcy involves a debt payment plan that lasts three to five years. On top of that, the fees for Chapter 13 bankruptcy can be much higher than the fees for Chapter 7 bankruptcy.

6 things to do before filing for bankruptcy

  1. Talk to a lawyer for free: Before deciding to file bankruptcy, talk with a few bankruptcy attorneys. Many bankruptcy attorneys offer a free consultation to determine your eligibility and give you estimates of the fees.
  2. Explore alternatives: Bankruptcy is one option, but it’s not always the best choice. Before committing to bankruptcy, you may want to talk with a certified credit counselor about other options.
  3. Understand the costs: You’ll need to come up with $1,000 or more to pay for your bankruptcy fees.
  4. Find low-cost help: In some counties, you may be able to find free or low-cost legal help through Legal Aid.
  5. You can’t declare bankruptcy again for eight years: Bankruptcy is a form of last resort for debt relief. If you opt to declare Chapter 7 bankruptcy, you won’t be able to declare bankruptcy again for another eight years.
  6. Discharged debt is taxable: Bankruptcy may relieve you of your debts, but you will have to pay income tax on the amount of debt that is discharged. You may owe the IRS more than usual when you file taxes at the end of the year.

— Read our guide on when to file bankruptcy

Debt management plans

A debt management plan is a new payment schedule for paying off existing debts. These plans are created and administered by nonprofit credit counseling companies. Under the plan, credit counselors will consolidate your credit card debts, unsecured personal loans and bills in collections into a single, monthly payment. You’ll pay the credit counseling agency instead of paying creditors directly.

The credit counseling agency doesn’t just consolidate debt, it works to reduce your monthly payment. The agency may be able to reduce interest charges, get old fees waived and even extend the length of time you have to pay a loan. “Most of the time, people see smaller monthly payments when they go on a debt management plan,” said Robby Dunn, vice president of counseling at the nonprofit company, Consumer Credit Counseling Service of Buffalo.

What happens to credit cards?

In general, when you agree to a debt management plan, your creditors close down your lines of credit. This means that you cannot use your credit cards during the repayment plan. Dunn told MagnifyMoney that some people keep one credit card with a low balance off the debt management plan. This allows people to keep a source of credit available for emergencies.

Will a debt management plan help my credit score?

When you start a debt management plan, you’ll have to close every credit card account you have, even accounts that are in good standing. This reduces your length of credit history and results in an immediate drop in your credit score; however, most people can regain the lost points in six to twelve months.

What happens if I miss a payment?

It’s imperative that you stick to your repayment plan and don’t miss any payments. Your credit counseling agency won’t be able to pay your creditors if you don’t pay them, which doesn’t leave you with many good options. “It’s important to understand that your creditors aren’t likely to be empathetic toward you. They expect to get paid,” said Dunn.

Creditors that don’t get paid may drop out of the debt management plan and report that you’re no longer paying as agreed. The creditors may also attempt to collect your debts through other means.

Risks of debt management plans

  • Debts not reduced: Unlike other forms of debt relief, debt management plans don’t reduce the amount you owe. Instead, these plans reduce your interest charges and fees.
  • Difficulty getting new credit: Closing your current credit accounts may lead to a short-term drop in your credit score. On top of that, lenders may see that you’re repaying your debts through a credit counseling agency, which may affect their willingness to extend various types of credit.
  • Lower credit score: The goal of a debt management plan is to help you clear debt without declaring bankruptcy. Unfortunately, the plan may yield a lower credit score when you close down so many accounts.

Benefits of debt management plans

  • Lower fees: Compared with bankruptcy or debt settlement, debt management plans are a low-fee option. Traditionally, nonprofit companies charge a small setup fee (less than $100 in general) and a monthly service charge ranging from $25-$50. The CFPB recommends asking credit counseling companies about setup or monthly fees before you work with the company.
  • Avoid bankruptcy: By sticking with your debt management plan and making the agreed-upon monthly payments, you can avoid bankruptcy and pay off the full balance of your debt.
  • Reduce monthly payments: The debt management plan generally comes with lower monthly payments.

Things to know before accepting a debt management plan

  • How long the plan takes: Clearing all your debts through a debt management plan could take as long as five years. A credit counselor can walk you through the specific length of your debt payoff plan.
  • No debt forgiveness: Credit counselors don’t negotiate for loan balance reductions. Even on a debt management plan, you’ll still owe the balance of your debt and interest charges.
  • Work with a nonprofit: For-profit debt management companies generally charge higher fees than nonprofit companies. You can find certified nonprofit financial counselors from the Financial Counseling Association of America (FCAA) or the National Foundation for Credit Counseling (NFCC).
  • Credit counselors help you consider other options: Debt management plans are important tools offered by credit counselors, but they shouldn’t be the only option. “Our main goal is to educate clients on what their options are. We try to help them see the advantages and disadvantages of each option,” explained Dunn.

Debt settlement

Many people confuse nonprofit credit counseling companies with for-profit debt settlement companies. Debt settlement companies do not offer credit counseling services, and instead, work to help you pay off debts that are already in collections.

How does debt settlement work?

When you settle debt, you agree to pay a creditor a portion of the debt you owe. In exchange, the creditor won’t sue you for the remaining balance. Most of the time debt settlement companies can only help you settle the debt that’s in collections.

Debt settlement companies will negotiate with creditors on your behalf. Although these companies work for you, the amount you ultimately pay depends on the creditor, your income, how long you’ve owed the debt and the type of debt you owe.

For example, credit card lenders may be more willing to settle your debts than business lenders. Additionally, debt settlement attorneys may be able to reduce the amount you owe on private student loans, but that’s not possible with federal student loans. Yesner estimates that most credit card companies settle for an average of 30%-35% of the debt amount owed, but he’s quick to point out that the range varies widely case to case.

It’s a good idea to have a solid understanding of the debt settlement process before you start working with a debt settlement company or attorney. If you don’t have upfront cash savings — a requirement for some companies — they may want you to set up a dedicated savings account to pay fees and funds. Legally you will own the funds in this account and have complete control over the account at all times.

Other companies may be willing to work with you to negotiate new payment plans. Tayne explained that she negotiates installment plans on behalf of her clients. Through her negotiations, she aims to reduce the interest rates to 0% and reduce the principal balance to a manageable amount; however, that’s not always possible to achieve.

Debt settlement companies may also ask you to change how you’re handling your creditors. If you’re paying debts as agreed, a debt settlement company may advise you to stop paying your debts.

How are debt settlement companies paid?

The fee structure of a debt settlement attorney or company will heavily affect your overall costs. “You only want an attorney that works on contingency. They should be compensated based on how much money they save you,” Tayne said. Contingency fees (fees based on a percentage of savings) incentivize your attorney to negotiate the amount you owe as low as they can. If the fee isn’t based on a negotiated savings rate, it will be based on a percentage of your overall debt load prior to negotiations.

Debt settlement companies cannot legally charge you any money unless they have successfully negotiated at least one debt for you. You must pay your creditor before the debt settlement company can collect its fee.

How does debt settlement affect my credit score?

There’s no doubt that settling your debts will affect your credit score; however, exactly how much it affects your score is difficult to estimate. Once an account is in collections, settling the debt will not cause any further damage to your credit score. However, defaulting on an account that’s on a debt settlement plan could cause substantial harm to your credit score.

“In most cases, [your credit score] will go down, but it won’t go down permanently. In some cases, settling debts could actually raise your credit score. If you have a score in the low 600s with all your accounts in default, you might see it go up right away,” said Tayne.

Risks of debt settlement

  • Legal risks: Your creditors may sue you if you default on your debts.
  • Debt load could grow: When you default on your debts, your creditors may charge you late fees or higher interest rates. Even when working toward settling a debt, your total debt balance could still grow.
  • No guarantees: Most of the time, debt settlement companies don’t have prearranged agreements with your creditors. That means that the company cannot tell you how much you’ll ultimately owe, nor can they tell you how long the settlement process will last.
  • Amount forgiven is taxable: When you settle a debt for less than you owe, the IRS considers the forgiven amount income. That means you’ll pay state and federal income tax on the forgiven amount (in most cases).

Benefits of debt settlement

  • Reduce the amount you owe: When you settle a debt in collections, you’ll only pay a percentage of what you originally owed.
  • Avoid bankruptcy: Settling debts can keep you out of bankruptcy courts. Negative information will remain on your credit report for seven years, but your credit score may recover more quickly from debt settlement than bankruptcy.
  • No fees without successful negotiation: It is illegal for debt settlement companies to charge you a fee if they fail to change the terms of your debt. You’ll only pay if the company negotiates your debt.

What are the risks to not paying creditors?

Strategically defaulting on debt may sound reasonable, but it can expose you up to a variety of risks. When you stop paying your bills, your creditor may charge you higher fees and interest. If you can’t successfully settle the debt, you’ll owe more than you did before.

Defaulting on debt will lead to negative marks on your credit report. Negative information will stay on your credit report for seven years. Settling already-defaulted debt won’t harm your credit any further; however, defaulting on a current debt account could cause your credit score to take a big hit.

Finally, your creditors may sue you if you default on a debt. Due to legal risks, Tayne recommends working with a debt settlement attorney rather than a debt settlement company. “You need someone who understands how to handle the legal risks appropriately,” she said. “It’s not enough for a company to say ‘We have an attorney on staff.’ It’s better to know that an attorney will handle legal matters.”

Things to know before settling debt

  • How are fees determined: Debt settlement companies can collect fees using two methods; they can charge you a percentage of your total debt load, or they can charge based on a percentage of savings.
  • You won’t get any guarantees: Debt settlement companies cannot promise you how long the negotiations will take, nor can they guarantee the settlement amount. Representatives offering promises are engaging in illegal activity and you should not work with them.
  • Creditors could sue you: If you fail to make payments as agreed, a creditor could sue you. After a creditor wins a suit against you, they can collect a judgment against you, which could include garnishing your wages or putting a lien on your property.
  • Creditors may offer standard settlements: Some creditors have adopted standard policies about settling debts in collections. You may be able to settle your debts on your own.

Can I settle debt on my own?

Creditors may be more willing to work with individuals than debt settlement companies, but settling debts on your own presents its own risks.

The CFPB sets out a three-step process for negotiating settlements with your creditors. The process recommends understanding your debts, proposing a solution and negotiating a realistic agreement. During the final step, the CFPB recommends enlisting the help of an attorney or credit counselor to help you with the negotiations. “Settling a debt sounds simple; you simply call up a creditor and work out a settlement. In reality, it can be a lot of work. It can take three or four hours just to start talking with the right person,” explained Tayne.

“You’re probably smart enough to do this on your own. The real value that I bring is that I do this day in and day out. Sometimes it’s just more efficient to pay someone else,” added Yesner.

That said, if money is tight, settling debts on your own could be the right option for you. Below we explain how to work through your own debt relief program.

DIY debt relief

Making your own debt relief plan may seem overwhelming, but it is possible to find debt relief without paying for outside help. Use the following tips to be successful with your own debt relief plan.

Put a stop to creditor harassment

A DIY debt relief plan requires executing a well-thought-out plan. This isn’t easy if you’re constantly hounded by calls from debt collectors. Put a stop to creditor harassment instead of sending your money to the most threatening collector.

The CFPB provides sample letters that can help you deal with debt collectors. These letters can stipulate when and how a debt collector can contact you. While collectors can still sue you, they cannot legally contact you.

Know what you owe

Once you have the creditors at bay, the first step in resolving your debt is knowing what you owe. Specifically, you will need to know how much money you owe, who owns the debt, the interest rate on the debt, the minimum monthly payment on the debt and whether the debt is in good standing. You can find most of this information from your credit report (which you can get for free from AnnualCreditReport.com).

You can find the exact amount you owe and the interest rate on current debts from the most recent billing statements from your lenders.

Make a plan for “good standing” debt

Debts in collections may seem like the most pressing matter, but most of the time you’ll want to deal with current accounts first. Once a debt is in collections, it has already damaged your credit score. Only time (and adding good credit information to your report) will fix the damage.

Unless a creditor sues you, you’ll want to put your money toward debt that’s still in good standing before dealing with debts in collections. This guide offers step-by-step guidance on how to eliminate credit card debt as fast as possible.

It’s important to note that dealing with current debts isn’t always a matter of making minimum payments on all your loans. If you have student loans, you may want to consider opting into an income-driven repayment plan. These plans will reduce your monthly payments, so you can put more money toward high-interest credit card debts.

For credit card debts, unpaid medical bills and other related debts, you may want to consider a debt consolidation loan. Debt consolidation loans are unsecured personal loans with fixed interest rates and fixed repayment schedules. They allow you to roll all your payments into a single payment, reduce your interest rate and (in some cases) increase your credit score. Debt consolidation loans are an effective option for people who have enough income to support the monthly loan payments.

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Settle debts in collections

Once you’ve paid off your debts that are in good standing (or you’re easily able to make your monthly payments), you may want to work toward paying off bills in collections. Paying off bills in collections won’t improve your credit score, but it can help you avoid lawsuits.

Before you reach out to your creditors, you’ll want to create a budget that shows you how much you can put toward debt that’s in collections each month. A certified credit counselor could help you create a budget if you need help. A credit counselor or a consumer advocacy attorney may also be able to advise you if the statute of limitations on your debt has expired. When the statute of limitations on debt expires, debt collectors can no longer sue you to collect.

If you determine that you still want to pay off your debt in collections, you can propose your payoff plan to your creditor. Do not put any money toward debts in collections unless you get a payoff agreement in writing.

Enlist help as needed

Although a DIY debt relief plan is a low-cost way to get rid of debt, you may need help. If a creditor or debt collector sues you, you’ll want to contact a consumer advocacy attorney. Don’t ignore lawsuits, or your creditor may win a judgment against you.

Additionally, credit counselors that work for nonprofit companies may be able to help you understand your best options, such as through the FCAA or NFCC.

Watch out for debt relief scams

If you choose to work through overwhelming debts on your own, you could run into some scams. The following are red flags that someone or some company might be trying to scam you:

  • Charging advance fees for debt settlement: Debt settlement companies cannot charge you any fees unless they successfully help you settle a debt. Do not work with a debt settlement company that charges upfront fees.
  • For-profit credit counseling: The vast majority of credit counseling companies are not for-profit companies. The nonprofit status allows credit counselors to consider a range of payoff options instead of pushing clients toward solutions that help the company maintain the highest profits. Generally, it’s more beneficial to work with nonprofit credit counseling companies than for-profit credit counseling companies.
  • Companies making guarantees: Do not work with any company that makes guarantees or promises about debt relief. Whether you’re trying to settle debts, declare bankruptcy or reduce your monthly payments, a company cannot promise that your creditors will work with them. The best a company can do is determine whether you’re a good candidate for their services.
  • Pushy companies: No single debt relief plan is perfect for everyone. Don’t work with companies that push one option without helping you understand why that option is best for you, while also providing you with alternatives.

What to avoid when facing overwhelming debt

  • Sending money to the loudest collection agency: A good debt payoff plan deals with current debts before dealing with debts in collections. Do not send money to the debt collectors because they harass you. Instead, use a written request that tells the collector when and how they can contact you.
  • Ignoring lawsuits: Contact a lawyer who can help you understand the best options for your situation if you receive notice of a debt collection lawsuit. Ignoring the lawsuit won’t make it go away, and could make your financial situation worse.
  • Making partial payments: If you don’t have the money to pay all your monthly bills, don’t make matters worse by sending partial payments to all your creditors. Partial payments are considered just as bad as not sending a payment at all. Instead, send full payments to as many creditors as possible to keep more debts out of collections and help you rebuild your credit score.

The bottom line: When should you consider debt relief?

If you’re struggling to make your monthly debt payments, or you’re overwhelmed by calls from collection agents, you’re a good candidate for some sort of debt relief. Seeking advice from a bankruptcy attorney or a certified credit counselor is a good place to start. When you know more about your debt relief options, you can make a plan to get back on track financially.

Even if you’re making on-time payments on most of your debts, you may still benefit from a debt relief plan. Those with debts in good standing may find relief from debt management plans, consolidating your debts or by taking advantage of promotional balance transfers.

Whether you’re struggling to make payments, or you’ve already defaulted on your debts, debt relief could be right for you. The sooner you start your research, the sooner you’ll get yourself back on the right financial foot.

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

Hannah Rounds
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Hannah Rounds is a writer at MagnifyMoney. You can email Hannah here

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How to Manage Your Law School Debt in 2018

Editorial Note: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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With average tuition and fees running around $38,000 a year, most law students take out student loans. And then there are books, fees, transportation and living expenses to consider. Even students who find high-paying summer associate positions may wind up with six-figure student loan debts to repay after graduation.

That’s a lot of debt, but it doesn’t need to be unmanageable. Attorneys can also find high-paying positions, and those looking to go into lower paying legal work may be eligible for a range of student loan forgiveness and repayment assistance programs.

Law school debt in the U.S.

The average student loan balance can vary greatly depending on the school you attend. U.S. News and World Report publishes a list of law schools with the average indebtedness (among those who took out law school loans). At the high end in 2017, graduates from the Thomas Jefferson School of Law in San Diego had an average of $198,962 in student loans. The least was for graduates from Brigham Young University (Clark) in Provo, Utah who had $53,237 on average.

How much debt do law students have?

Among all law schools, the average student loan debt is near or above the six-figure mark according to Law School Transparency (LST), a nonprofit that analyzes and shares data about the legal profession. It shared the average amount of federal student loans borrowed by 2017 law school graduates based on their type of school:

  • Nonprofit private law schools: 74.9% of graduates had federal loans. On average, they borrowed $130,224.
  • Public law schools: 76.2% of graduates had federal loans. On average, they borrowed $92,997.
  • For-profit private laws schools: 85.8% of graduates had federal loans. On average, they borrowed $122,296.

You also might wind up graduating with more than you borrowed as interest can accumulate if you defer payments while you’re at school. Students may have also taken out private student loans in addition to federal loans, and graduates could still be paying off undergraduates loans.

Starting salaries for a lawyer

According to a 2018 LST report, the median entry-level salary for the class of 2016 was $66,499. However, as with the cost of school, your earnings can vary greatly depending on where you went to school and whether you work in the private or public sector.

The National Association for Law Placement, Inc. (NALP), an association of legal career professionals, found that the median private-sector starting salary for first-year associates was $135,000 in 2017. On the high end, top candidates may be able to start at $180,000 a year.

Public-sector salaries paint a different picture. NALP reported the median entry-level salary in 2018 was just $48,000 for attorneys who work in civil legal services and $58,300 for public defenders. While pay increases with experience, even public defenders with 11 to 15 years of experience make $96,400 on average.

Is law school worth the cost?

A law degree can certainly pay off and may provide a secure and stable job in the future. The U.S. Bureau of Labor Statistics projects employment of lawyers will grow 8% by 2026, slightly higher than the average 7% projected growth for all professions.

A law degree isn’t a guarantee of a job, though. The American Bar Association (ABA) found that among 2016 and 2017 law school graduates, 7.9% are unemployed and seeking work. Others are employed but only working part time, or have short-term contracts with an employer or temp agency.

Whether a law degree is worth the cost isn’t simply a question of economics. Although you can use a JD to work in a wide variety of industries and professions, the debt you take out could push you toward higher-paying work even if you’re not particularly excited about it. In the end, statistics can help you determine possibilities, but determining if a law degree is worth it is a highly subjective question.

Law school forgiveness and repayment programs

While attending law school can be expensive, attorneys may also be eligible for federal student loan forgiveness programs and school, state, employer and federal student loan repayment programs (SLRPs) or loan repayment assistance programs (LRAPs). You may be able to significantly decrease how much money you repay by using one or more of these programs.

John R. Justice Student Loan Repayment Program

The John R. Justice (JRJ) student loan repayment program offers aid to eligible full-time state and federal public defenders and state prosecutors who agree to remain a prosecutor or public defender for at least three years.

If you qualify, you could receive up to $10,000 per calendar year, and up to $60,000 total. The money will be sent directly to your loan servicer and can be used to pay for federal Federal Family Education Loan (FFEL) and direct loans that are in good standing. The money may be considered income for tax purposes.

You must register for the Office of Justice Programs Grants Management System and submit an application to be eligible. Availability for grants can vary depending on state allocations, and the 2018 application period ended on May 21, 2018.

Department of Justice Attorney Student Loan Repayment Program

The Department of Justice Attorney Student Loan Repayment Program (ASLRP) is for Department of Justice (DOJ) employees who agree to at least a three-year service obligation. The program may be competitive as it’s intended to help the DOJ attract and retain high-quality attorneys.

You must have at least $10,000 in student loans to be eligible for the ASLRP. If you get it, the DOJ could match up to $6,000 in student loan payments that you make each year, with a cumulative maximum benefit of $60,000. Only federal student loans are eligible, and the payments you receive are considered income for tax purposes.

Check the key dates page to see when application periods open and close, and a timeline of the important ASLRP-related events throughout the year.

Herbert S. Garten Loan Repayment Assistance Program

The Legal Services Corporation (LSC) offers the Herbert S. Garten LRAP to eligible attorneys who are working at an LSC-funded legal services program. About 80 eligible attorneys are chosen each year through a lottery system, and if you’re chosen, you’ll be issued forgivable loans for up to three years.

The LSC will issue you an LRAP loan to repay your student loans, and if you fulfill a year of service the debt will be forgiven. You can choose to continue in the program for a second and third year if you want.

You must have at least $75,000 in outstanding law school loans and be below the annual income and net worth threshold ($62,500 and $35,000, respectively, for continental U.S. employees). The LRAP awards up to $5,600 a year, which you’ll receive in two disbursements and can use to repay federal and private law school and bar loans.

Learn more about the Herbert S. Garten LRAP on the LSC website.

Judge Advocate General’s Corps Student Loan Repayment Program

The U.S. Air Force’s JA-SLRP program offers up to $65,000 in student loan repayment assistance if you qualify and agree to at least a four-year active-duty service commitment. The payments will be made over a three-year period which begins at the end of your first year of service.

Federal and private student loans that you took out for undergraduate, graduate and law school are eligible. The payments will be sent directly to your lender, and federal income taxes will be withheld from the payments to the lender.

Public Service Loan Forgiveness

The federal Public Service Loan Forgiveness Program (PSLF) will forgive remaining student loan debt if you make 120 qualifying payments (10 years’ worth) while working full time at an eligible employer. The PSLF only applies to direct federal student loans, although FFEL loans may be eligible if you first consolidate them into a direct consolidation Loan.

Qualifying employers generally include local, state and federal governments, as well as nonprofits. If you’re using one of the student loan repayment assistance programs, which may have similar employment requirements, you could also be making qualifying payments toward PSLF.

Federal student loan debt that’s forgiven under PSLF isn’t taxable.

Income-driven repayment plans forgiveness

If you have federal student loans, you may be able to switch your repayment plan to one of the income-driven plans. With these repayment plans, your monthly payment amount can vary based on your discretionary income, which generally depends on the difference between your income and the poverty line based on where you live and your family size.

With four of the plans, the remainder of your student loan balance will be forgiven after you make qualifying payments for 20 or 25 years (depending on the plan and if the loans were for undergraduate or graduate school). While the forgiven amount is taxable income, you may be able to get a lot of debt forgiven if you’ve been making relatively small monthly payments.

Some of the small-print differences between the plans can make a big difference in how much you pay overall. For example, the revised pay as you earn (REPAYE) plan has an interest subsidy if your monthly payment doesn’t at least cover how much interest accrues each month. Other plans also offer a subsidy, but only during your first three years of loan repayment.

You can use the Department of Education Repayment Estimator tool to see how much your monthly payments could be, and how much debt could be forgiven, with different repayment plans. However, if you’re dealing with a lot of student loan debt and are interested in forgiveness via an income-driven plan, you may want to contact a student loan consultant or attorney who is familiar with the differences between the programs and can advise you of your best option.

School-based programs

Many law schools have funds set aside to help graduates who go into low-paying fields, which often means a public interest or government job. In some cases, you may also qualify if you participate in a fellowship or public service initiative. Equal Justice Works has a directory of more than 100 law schools with such programs.

State-based programs

Your state may also have student loan repayment assistance programs, or you may want to consider moving to a state that does if you could qualify for help with your loans. According to the ABA, there are 24 states offering 26 LRAPs for civil legal aid attorneys or other public interest attorneys. You can find more information on the ABA and Equal Justice Works state LRAP pages.

Employer-based programs

For-profit employers may offer student loan repayment programs or assistance as part of their benefits package for employees. Availability, eligibility and aid amounts can depend on the company and whether you’re a part-time or full-time employee.

4 strategies to pay back your law school debt

There’s no secret trick to quickly getting rid of your student loans, but having a strategy and following through on that strategy could save you money, keep you motivated and help you reach your debt-free goal sooner.

1. Pay as little as you can while working toward forgiveness or assistance

If you qualify for one of the student loan forgiveness or assistance programs, or plan to use one in the future, you may want to pay as little as possible in the meantime. This could mean switching repayment plans or only making the minimum loan payments.

Compared with making extra payments, this method could increase how much interest accrues on your loans. However, if your goal is to repay as little as possible overall, leaving more debt to be forgiven or paid off by someone else could be a sound approach.

2. Use the snowball or avalanche method

You may have multiple student loans from different terms at law school, or even from undergraduate school and law school. If you can afford to pay more than your minimum payments, you could take either the snowball or avalanche method.

The snowball method involves paying off the loan with the lowest principal balance first. Once you pay off one loan, you can put more money toward the next lowest balance loan. Continue the process and you can build momentum as you repay one loan after another.

With the avalanche method, you apply any extra loan payments toward the loan that has the highest interest rate. The avalanche method can help you save money overall, although if your high-interest loans also have high balances, it could take some time before you get to completely wipe out one of your loans.

3. Apply your extra payments to the loan’s principal balance

Whether you’re taking a dedicated snowball or avalanche approach, or just occasionally making extra payments on your loans when you can afford to, you’ll want to review how your loan servicers apply your extra payments. Without instruction, your servicer may apply your extra payment to a future month’s payment and spread it out among all your loans.

You might be able to target your payment to a specific loan’s principal balance if you make a payment online. Or, you could send your servicer instructions on how you want to apply all your extra payments in the future — the Consumer Financial Protection Bureau has a sample letter you can use as a template.

4. Refinancing to a lower rate

If you’ve established a good credit history and found employment (or have income from another source), you may be able to save money by refinancing your student loans. When you refinance your student loans, you’ll take out a new loan and the lender will pay off your current student loans.

Your new loan’s interest rate depends on your creditworthiness, and if it’s lower than your current loans’ interest rates you could save money if you continue making the same monthly payments.

You can pick and choose which loans to refinance, so even if the new loans rate isn’t lower than all your current loans’ rates, you may still be able to benefit from refinancing. However, your new loan will be a private student loan and won’t be eligible for federal student loan programs, including the forgiveness programs. Some of the LRAPs can also only be used to repay federal student loans.

Read more about refinancing and consider all the pros and cons because once you refinance you won’t be able to turn your student loans back into federal student loans. If you decide to refinance some or all of your loans, you can compare lenders to find the best rate and terms.

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Louis DeNicola is a writer at MagnifyMoney. You can email Louis at louis@magnifymoney.com

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It may seem normal to have debt. After all, total household indebtedness in the U.S. hit a record high of $13.21 trillion as of March 2018.

While it seems like so many Americans carry debt, it may be hard to judge just how much debt is too much debt. There is no “right” amount of debt to have, nor is it easy to figure out how much debt is too much for the average person to handle.

“The appropriate amount of debt is a very personal question,” said Arielle Minicozzi, an executive financial planner at Sphynx Financial Planning. “What feels comfortable for one person may be overwhelming for another.”

There is a point when having too much debt, or too much of the wrong kind of debt can seriously harm your current and future financial situation. When you’re juggling different types of debts, it can be sometimes difficult to realize you have too much owed until it’s too late. We spoke with Minicozzi and other financial experts for their best tips to help tell when you have too much debt on your plate.

Good debt vs. Bad Debt

Debt — in most cases — should be avoided, according to the experts we spoke with. But, some debts make more financial sense to take on than others.

Good debts are debts that help you grow

Debts generally thought of as an investment in your future, like a student loan or a mortgage, are considered good debts. Good debt generally carries a low interest rate and has fixed payment terms, Dan Andrews, a CFP with Well-Rounded Success in Fort Collins, Colo., told MagnifyMoney.

“Our economy allows people to take on debt to pursue opportunities without having to save all the money upfront,” Andrews said. “Lots of people go to school, open businesses and get houses by leveraging debt.”

Andrews adds taking on those kinds of debts — the ones that help you improve your financial life — can be a great way to improve your overall wealth and accumulate assets through your career.

Bad debts slow financial progress

Sometimes we take on what are considered “bad” debts. Bad debts are generally unsecured by an asset and carry high-interest rates on variable terms, like credit cards.

If not managed properly, bad debt can stunt or reverse your financial progress.

“In a perfect world, you’d only use debt strategically because you’d be able to pay cash for everything, however, many of us do not have that luxury,” said Angela Moore, CFP and founder of ModernMoneyAdvisor.

Of course, even good debts can quickly turn into bad debts if you let them spiral out of control, or fall on hard times and struggle to pay them off. For example, you took student loans but did not earn a degree that would have increased your income, or if you took out an auto loan for a car you can’t afford. In these cases, a good debt suddenly becomes a true liability, putting your finances and even assets like your home or your car, at risk.

You can prevent this by being sure you have a healthy emergency fund saved for lean times, and hold yourself back from taking on more debt than you can afford in the first place.

– View this article to get more information on good debt vs. bad debt!

5 warning signs you have too much debt

Beyond just the good and bad, you don’t want to realize you’re in over your head with the debt you’re responsible for paying back. Here are a few warning signs that may indicate you’re getting to that point.

1. You can’t get peace of mind

Minicozzi said the first sign you have too much debt is that you’re feeling overwhelmed and stressed by your bills. If you get anxious at the thought of looking at your balances, and managing your finances is affecting your peace of mind, that’s a red flag you may have bitten off more you can chew.

2. You’re diverting money from your goals

If your other financial goals are suffering, it may be time to make a change. For example, a red flag would be if you are diverting funds away from important goals like retirement savings month after month.

“Once you get to that point, it’s a good sign you need to have an honest conversation with yourself about your repayment strategy,” said Minicozzi.

3. You have no strategy to pay off your debt

If you have a number of debts, you may be making payments each month. But you may not have in place a strategy for finally paying off your debts. If you don’t have a plan that pays off your debts in full, you may have more than what’s manageable for you, according to Moore.

4 You’re not making any progress

Kristi Sullivan, a Denver.-based financial planner at Sullivan Financial Planning, said a main red flag is that you are not making any progress paying down the principal. You are only making the minimum payments, which is just paying off interest each month.

5. The numbers just don’t add up

Looking at a few key numbers may help you point to the conclusion that you have too much debt on your hands for your comfort level. The following are suggested benchmarks and ratios the experts we spoke with suggest you consider when trying to figure out if you have too much debt.

Here are five numbers to check.

 

Your debt-to-income ratio

“A good rule of thumb is that your total debt payments, including a housing payment, should be no more than 40% of your monthly income,” said Minicozzi.

 

Your credit score

“Your credit score allows you to put a number on how responsible you are in the bank’s world. The higher the number, the more responsible possible lenders feel you are to repay the loan; so good job to you for being responsible,” said Andrews. Good credit is considered a FICO score of 670 or higher.

 

Your credit utilization

A high credit utilization ratio — which measures the overall credit limit you are using up — can indicate you’re leaning on your credit cards too much to make ends meet. The utilization ratio is the second most important factor in determining your credit score so reducing your utilization could improve your score, too.

“As far as maximizing your credit score, keeping balances on your cards below 20%-30% of their limits is ideal,” said Minicozzi.

For example, if your overall credit limit on all of your accounts is $10,000, your goal would be to use less than $3,000 of your balances on those cards.

 

Your net worth

Your net worth is just a step further than your debt-to-income ratio. If your net worth is negative and you own valuable assets, it may be an indication you should focus on paying down your debt to bring that number into the positive.

 

Your housing expense

Housing is the largest expense for most households, and a necessary one. A mortgage is considered good debt, or even an asset by some. On the other hand, a mortgage you can’t afford could leave you with too little left over to cover other bills and savings. Moore advised you pay no more than 28% of your gross income on housing.

Action steps to take if you have too much debt

After you’ve found you have too much debt, you can start planning to pay it off.

Create a budget

“While some people are in debt due to factors outside of their control such as medical expenses, mostly it is because of choices that now require sacrifices to reverse. Get ready for life to change, at least while you are digging out of debt,” said Sullivan.

Find expenses to trim

“You may be living in too nice of a house or apartment and need to adjust your living situation. Roommates or a less desirable area of town to cut down on housing costs can free up big chunks of cash to pay down debt,” said Sullivan. She added downgrading your car choice (changing to a car that costs you less to own and/or maintain) will lead to lower taxes and insurance costs on transportation.

Make a debt payoff plan

With your unsecured debts, you can employ one of two debt paydown methods: the debt snowball and the debt avalanche.

When you snowball debt, you order all of your debts by balance and prioritize paying off the account with the lowest amount first. If this method suits your personality, paying off lower balance loans may motivate you to pay off the remainder of the debt.

The avalanche approach has you order your debts by order of interest rate. Prioritize paying off the account balance with the highest interest rate while still making minimum payments on the other debts. The avalanche method saves you money in the long run since you can avoid paying the most interest and address the principal of your debt faster.

Whatever you do, don’t “wing it” with debt repayment, Andrews said, “A ‘winging it’ mentality can snowball out of control, especially if there is credit card debt.”

Try consolidating your debts

If you find it’s difficult to manage several debt payments each month, debt consolidation can help to simplify your debt payoff process. Debt consolidation can combine multiple debts — like credit card debt, auto loans, medical debt and student loan debt — into a single debt with one monthly payment. In some cases, consolidating your debts could even save you money on future interest payments as you pay down the balance.

Two common debt consolidation methods are to use a personal loan or balance transfer credit card.

If you use a personal loan for debt consolidation, you’d pay off other debts using the cash you’d receive from the personal loan, then pay down the personal loan in monthly installments.

When you use a balance transfer credit card, you can transfer the balances on your credit cards to another credit card with a 0% intro APR. Intro offers typically last from six to 18 months.

Ask for help

If you’re struggling to repay the debts and stay consistent, you may want to reach out to a credit counseling service or a financial planner to help you create a budget and debt repayment plan that works best for your financial needs.

“As long as you can pay your bills without sacrificing your long-term goals and as long as you aren’t stressed out over the level of debt you have, you’re in a good spot,” said Minicozzi.

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

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

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How Debt Consolidation Affects Your Credit Score

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Debt consolidation can sound intimidating, or something that requires professional help. But consolidating your debts with a personal loan doesn’t have to be scary or complicated. In fact, when used properly, a debt consolidation loan can be a helpful tool for managing debt if you find it difficult to juggle multiple debts and due dates. You can take control and consolidate debts on your own once you understand the basics.

When you consolidate, you’re simply taking out one new loan and using it to pay off multiple existing loans or bills. Ideally, you’d aim to qualify for a personal loan that offers a lower APR than the APRs of your debts, because that will save you money in the long term and help you pay it off faster.

In addition to making your debt easier to manage, debt consolidation can be helpful to your credit score, too.

“If you consolidate multiple other debts into a new personal loan, your credit score would likely be improved. You would free up available balance on all of the debts you transfer to the new loan,” said Melinda Opperman, executive vice president of Credit.org, a nonprofit consumer credit counseling agency.

How debt consolidation can help your credit

One monthly payment makes it easier to manage payments. Fewer missed payments = credit score boost.

When you consolidate multiple debts with a debt consolidation loan, what you’re left with is one new monthly payment instead of several payments to keep track of. As a result, you may be more likely to make on-time payments, which will improve your credit score.

It may be easier to budget.

If you’ve missed payments in the past, which hurt your credit score, it could be because you’re constantly juggling different minimum payment requirements with different due dates. Some months, you may not have enough on hand when your bills are due. When you use a personal loan to pay off your debt, you apply for a personal loan at a fixed rate and a fixed repayment term. Because the rate and term are fixed, you’ll know exactly what your monthly payment will be each month and how long it will take to pay it off, so you can budget accordingly.

You’ll decrease your credit utilization ratio.

If you use that new debt consolidation loan to pay off high-interest debts, it can also help you pay off debt faster because you won’t be accumulating as many finance charges.

And, as the balances on those debts fall, so does your credit utilization ratio. Your utilization ratio refers to the amount of credit you used over the total amount of credit available to you on your cards. Credit utilization counts for 30 percent of your FICO score. The higher your utilization, the more damage it can do to your credit score.

Ideally, you should aim to use no more than 20 to 30 percent of your overall credit limit, but that’s not always easy if you’re struggling to keep up with multiple debts.

You can pay off delinquent debts.

The consolidation loan may help you pay off some outstanding balances or delinquent debts, causing your score to improve. You can use debt consolidation to consolidate almost any type of unsecured consumer debt, including credit cards. medical bills, utility bills, payday loans, student loans, taxes and delinquent debts that have gone to collection.

Delinquencies negatively impact the payment history part of your FICO calculation depending on how late they were, how much you owe, how recent a delinquent account is and how many delinquencies you have. Based on where you started, your score improvement will vary.

Read our guide on what you should do if you’re delinquent on debt.

You can diversify your credit file.

Opening a personal loan can add some diversity to your credit mix, which accounts for 10 percent of your FICO credit score. When you open the personal loan, an installment account will be added to your credit report. It’s beneficial your score to have a mix of both revolving credit like credit cards and installment accounts like a personal loan.

The personal loan is an installment debt, not a revolving line of credit like a credit card, so having the new debt on your credit report would have less of a negative impact on your credit score, Opperman told MagnifyMoney.

How debt consolidation can hurt your credit

Debt consolidation can boost the credit scores of consumers struggling to manage several debts such as high-interest credit card debt, medical debt and student loans — if used properly. That said, there are some scenarios in which consolidation could, in fact, cause more harm than good to your credit score.

You may see a minor hit to your credit score (at first).

When you apply for a personal loan, the creditor has to pull your credit report to qualify you for the loan. They do what’s called a hard pull, which will add an inquiry to your credit report. This will cause your credit score to dip a bit, as new credit inquiries account for about 10 percent of your FICO credit score. But, your utilization accounts for more — 35 percent— of the calculation. So while your score may take a minor hit, significantly reducing your utilization with debt consolidation should benefit your score more.

You can avoid adding several inquiries to your report by getting prequalified for a loan. When you are prequalified, the creditor does a soft pull of your credit report to see if you are likely to meet the criteria for a loan. The soft pull does not result in an inquiry added to your credit report so your score won’t take a hit.

It’s important to note: Being prequalified for a loan does not mean you will be approved once you submit an application, or that you will receive a loan on the terms you were prequalified for. But, it does allow you to shop around and compare your options before applying. Use our table below to compare the best debt consolidation loans for you.

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It can be easy to get into even more debt.

Using a personal loan to consolidate your credit card debt can be risky for anyone who hasn’t yet learned to keep bad spending habits in check, as they could end up in even more debt and cause further damage to their score. The danger comes not with the personal loan itself, but what happens after you use it to pay off your old debts. If you use it to pay off credit cards, for example, you may be tempted to start running up charges on those cards again.

“If you start using the freed-up revolving debt balances to spend, you will be right back where you started, and worse,” said Opperman. “A personal loan for debt consolidation can help, but you have to be fully committed to paying on time and not increasing your revolving debt balances.”

Creating and following a budget can help to combat poor spending habits. If you think it may be too difficult not to use your cards, cutting them up or literally freezing them by placing them in a plastic bag with water and sticking it in the freezer can help make it more difficult to use them. Some credit card issuers allow you to lock and unlock your cards online or by using an app. Having to unlock your card to use it can act as an additional step in preventing overspending.

An alternative to debt consolidation loan: A balance transfer credit card

Balance transfers can work if you have credit card debt specifically.

When you use a balance transfer credit card to consolidate credit debt, you transfer the balances on your other credit cards to a credit card that charges a lower interest rate. Ideally, the card you use to do a balance transfer will be a new credit card with a 0% promotional period for balance transfers, so you won’t be charged any interest while the offer lasts while you pay down the balance on the card. One caveat: To qualify for the best balance transfer credit card’s you’ll need Excellent/Good credit.

When you open the new credit card, your overall credit utilization should fall, because you will have more credit available to you overall. The decrease in utilization should boost your credit score. If you pay off a card or two using the balance transfer, that action may boost your credit score, too. Unless you absolutely have to, do not close the credit card you pay off. If you do, you will not only decrease the total amount of credit available to you, but you will also reduce the average length of your credit history, which accounts for 15 percent of your credit score.

Beware: Even with 0% intro APR balance transfer offers, you may be required to pay a fee — usually 3 to 5 percent of the amount you transfer — to complete the balance transfer.

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Compare balance transfer offers in the MagnifyMoney marketplace

Time is of the essence when you use a balance transfer credit card to consolidate debts. If you open a new card with an introductory 0% interest offer on balance transfers, you need to prioritize paying off the balance before the period ends and the APR goes up. If you’re worried you won’t pay off the balance in time, setting up autopay to pay the balance down and setting a reminder a couple months ahead of the promotion’s expiration date can help you keep your paydown on track.

Using a balance transfer also comes with the risk of racking up even more credit card debt if you haven’t learned to manage your spending. Although you will have more credit to work with, charging expenses to your newly paid-off card could increase your utilization ratio, and further damage your score. You can freeze or cut up the new card once you receive it if you fear you’ll start using it. Check out this article for some great tips on staying out of debt after using a balance transfer.

The bottom line

When used properly, debt consolidation can be extremely helpful to your credit score. The terms you receive on a debt consolidation loan is largely dependent on your credit rating and debt-to-income ratio at the time you apply. The method could backfire if you haven’t yet resolved your reason for racking up debt in the first place. But, if you use a debt consolidation loan with the intention to become debt-free, debt consolidation could significantly help your credit score.

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

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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7 Best Options to Refinance Student Loans – Get Your Lowest Rate

Editorial Note: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

Updated: August 1, 2018

Are you tired of paying a high interest rate on your student loan debt? You may be looking for ways to refinance your student loans at a lower interest rate, but don’t know where to turn. We have created the most complete list of lenders currently willing to refinance student loan debt. We recommend you start here and check rates from the top 7 national lenders offering the best student loan refinance products. All of these lenders (except Discover) also allow you to check your rate without impacting your score (using a soft credit pull), and offer the best rates of 2018:

LenderTransparency ScoreMax TermFixed APRVariable APRMax Loan Amount 
SoFiA+

20


Years

4.00% - 7.80%


Fixed Rate*

2.48% - 7.52%


Variable Rate*

No Max


Undergrad/Grad
Max Loan
Learn more Secured
EarnestA+

20


Years

3.89% - 6.32%


Fixed Rate

2.57% - 5.87%


Variable Rate

No Max


Undergrad/Grad
Max Loan
Learn more Secured
CommonBondA+

20


Years

3.20% - 7.25%


Fixed Rate

2.72% - 7.25%


Variable Rate

No Max


Undergrad/Grad
Max Loan
Learn more Secured
LendKeyA+

20


Years

3.49% - 8.72%


Fixed Rate

2.47% - 7.99%


Variable Rate

$125k / $175k


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

20


Years

3.50% - 7.02%


Fixed Rate

2.80% - 6.38%


Variable Rate

No Max


Undergrad/Grad
Max Loan
Learn more Secured
Citizens BankA+

20


Years

3.50% - 8.69%


Fixed Rate

2.72% - 8.17%


Variable Rate

$90k / $350k


Undergraduate /
Graduate
Learn more Secured
Discover Student LoansA+

20


Years

5.24% - 8.24%


Fixed Rate

4.87% - 8.12%


Variable Rate

$150k


Undergraduate /
Graduate
Learn more Secured

You should always shop around for the best rate. Don’t worry about the impact on your credit score of applying to multiple lenders: so long as you complete all of your applications within 14 days, it will only count as one inquiry on your credit score.

We have also created:

But before you refinance, read on to see if you are ready to refinance your student loans.

Can I get approved?

Loan approval rules vary by lender. However, all of the lenders will want:

  • Proof that you can afford your payments. That means you have a job with income that is sufficient to cover your student loans and all of your other expenses.
  • Proof that you are a responsible borrower, with a demonstrated record of on-time payments. For some lenders, that means that they use the traditional FICO, requiring a good score. For other lenders, they may just have some basic rules, like no missed payments, or a certain number of on-time payments required to prove that you are responsible.
LenderMinimum credit scoreEligible degreesEligible loansAnnual income
requirements
Employment
requirement
 
SoFi

Good or Excellent
score needed

Undergraduate
& Graduate

Private, Federal,
& Parent PLUS

None

Yes


(or signed job offer)
Learn more Secured
Earnest

660

Undergraduate
& Graduate

Private, Federal,
& Parent PLUS

None

Yes


(or signed job offer)
Learn more Secured
CommonBond

660

Undergraduate
& Graduate

Private, Federal,
& Parent PLUS

None

Yes


(or signed job offer)
Learn more Secured
LendKey

680

Undergraduate
& Graduate

Private & Federal

$24K

Yes

Learn more Secured
Laurel Road Bank

Not published

Undergraduate
& Graduate

Private, Federal,
& Parent PLUS

None

Yes


(or signed job offer)
Learn more Secured
Citizens Bank

680

Undergraduate
& Graduate

Private, Federal,
& Parent PLUS

$24K

Yes

Learn more Secured
Discover Student Loans

Not published

Undergraduate
& Graduate

Private & Federal

None

Yes

Learn more Secured

Diving Deeper: The best places to consider a refinance

If you go to other sites they may claim to compare several student loan offers in one step. Just beware that they might only show you deals that pay them a referral fee, so you could miss out on lenders ready to give you better terms. Below is what we believe is the most comprehensive list of current student loan refinancing lenders.

You should take the time to shop around. FICO says there is little to no impact on your credit score for rate shopping as many providers as you’d like in a single shopping period (which can be between 14-30 days, depending upon the version of FICO). So set aside a day and apply to as many as you feel comfortable with to get a sense of who is ready to give you the best terms.

Here are more details on the 7 lenders offering the lowest interest rates:

1. SoFi

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on SoFi’s secure website

Read Full Review

SoFi : Variable rates from 2.48% and Fixed Rates from 4.00% (with AutoPay)*

SoFiwas one of the first lenders to start offering student loan refinancing products. More MagnifyMoney readers have chosen SoFi than any other lender. The only requirement is that you graduated from a Title IV school. In order to qualify, you need to have a degree, a good job and good income.

Pros Pros

  • Borrowers can refinance private, federal and Parent PLUS loans together: Through SoFi, borrowers have the ability to combine all of their student loans (private, federal and Parent PLUS) when refinancing. Along with the ability to refinance Parent PLUS loans, parents can also transfer the PLUS loans into their child’s name.
  • Access to career coaches: SoFi offers their borrowers access to their Career Advisory Group who work one-on-one with borrowers to help plan their career paths and futures.
  • Unemployment protection: SoFi offers some help if you lose your job. During the period of unemployment they will pause your payments (for up to 12 months) and work with you to find a new job. However, just remember that any unemployment protection offered by SoFi would be weaker than the income-driven repayment options of federal loans.

Cons Cons

  • No cosigner release: While they offer you the opportunity to refinance with a cosigner, it is important to know that SoFi does not offer borrowers the opportunity to release a cosigner later on down the road.
  • You lose certain protections if you refinance a federal loan: This con is not unique to SoFi (and you will find it with all other private lenders). Federal loans come with certain protections, including robust income-driven payment protection options. You will forfeit those protections if you refinance a federal loan to a private loan.

Bottom line

Bottom line

SoFi is really the original student loan refinance company, and is now certainly the largest. SoFi has consistently offered low interest rates and has received good reviews for service. In addition, SoFi invests heavily in building a “community” – which means you can start to get other benefits once you are a SoFi member.

SoFi has taken a radical new approach when it comes to the online finance industry, not only with student loans but in the personal loan, wealth management and mortgage markets as well. With their career development programs and networking events, SoFi shows that they have a lot to offer, not only in the lending space but in other aspects of their customers lives as well.

2. Earnest

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on Earnest’s secure website

Read Full Review

Earnest : Variable Rates from 2.57% and Fixed Rates from 3.89% (with AutoPay)

Earnest focuses on lending to borrowers who show promise of being financially responsible borrowers. Because of this, they offer merit-based loans versus credit-based ones. 

Pros Pros

  • Flexible repayment options: Earnest offers some of the most flexible options when it comes to repayment. They allow you to choose any term length between 5-20 years. You can choose your own monthly payment, based upon what you can afford (to the penny). Earnest also offers bi-weekly payments and “skip a payment” if you run into difficulty.
  • Ability to switch between variable and fixed rates: With Earnest, you can switch between fixed and variable rates throughout the life of your loan. You can do that one time every six months until the loan is paid off. That means you can take advantage of the low variable interest rates now, and then lock in a higher fixed rate later.
  • Loans serviced in-house: Earnest is one of just a few lenders that provides in-house loan servicing versus using a third-party servicer.

Cons Cons

  • Cannot apply with a cosigner: Unlike many of the other lenders, Earnest does not allow borrowers to apply for student loan refinancing with a cosigner.
  • No option to transfer Parent PLUS loans to Child: If you are a parent that is looking to refinance your Parent PLUS loan into your child’s name, it is important to note that this cannot be done through refinancing with Earnest.
  • You lose certain protections if you refinance a federal loan: When refinancing with any private lender, you will give up certain protections if you refinance a federal loan to a private loan.

Bottom line

Bottom line

Earnest, who was recently acquired by Navient, is making a name for themselves within the student refinancing space. With their flexible repayment options and low rates, they are definitely an option worth exploring.

3. CommonBond

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on CommonBond’s secure website

Read Full Review

CommonBond : Variable Rates from 2.72% and Fixed Rates from 3.20% (with AutoPay)

CommonBond started out lending exclusively to graduate students. They initially targeted doctors with more than $100,000 of debt. Over time, CommonBond has expanded and now offers student loan refinancing options to graduates of almost any university (graduate and undergraduate).

Pros Pros

  • Hybrid loan option: CommonBond offers a unique “Hybrid” rate option in which rates are fixed for five years and then become variable for five years. This option can be a good choice for borrowers who intend to make extra payments and plan on paying off their student loans within the first five years. If you can a better interest rate on the Hybrid loan than the Fixed-rate option, you may end up paying less over the life of the loan.
  • Social promise: CommonBond will fund the education of someone in need in an emerging market for every loan that closes. So not only will you save money, but someone in need will get access to an education.
  • “CommonBridge” unemployment protection program: CommonBond is here to help if you lose your job. Similar to SoFi, they will pause your payments and assist you in finding a new job.

Cons Cons

  • Does not offer refinancing in the following states: Idaho, Louisiana, Mississippi, Nevada, South Dakota and Vermont.
  • You lose certain protections if you refinance a federal loan: When refinancing with any private lender, you will give up certain protections if you refinance a federal loan to a private loan.

Bottom line

Bottom line

CommonBond not only offers low rates but is also making a social impact along the way. Consider checking out everything that CommonBond has to offer in term of student loan refinancing.

4. LendKey

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on LendKey’s secure website

Read Full Review

LendKey : Variable Rates from 2.47% and Fixed Rates from 3.49% (with AutoPay)

LendKey works with community banks and credit unions across the country. Although you apply with LendKey, your loan will be with a community bank. Over the past year, LendKey has become increasingly competitive on pricing, and frequently has a better rate than some of the more famous marketplace lenders.

Pros Pros

  • Opportunity to work with local banks and credit unions: LendKey is a platform of community banks and credit unions, which are known for providing a more personalized customer experience and competitive interest rates.
  • Offers interest-only payment repayment: Many of the lenders on LendKey offer the option to make interest-only payments for the first four years of repayment.

Cons Cons

  • Rates can vary depending on where you live: The rate that is advertised on LendKey is the lowest possible rate among all of its lenders, and some of these lenders are only available to residents of specific areas. So even if you have an excellent credit report, there is still a possibility that you will not receive the lowest rate, depending on geographic location.
  • No Parent PLUS refinancing available: Unlike several of the other student loan refinancing companies, borrowers do not have the ability to refinance Parent PLUS loans with LendKey.
  • You lose certain protections if you refinance a federal loan: As when refinancing federal loans with any private lender, you will give up your federal protections if you refinance your federal loan to a private one.

Bottom line

Bottom line

LendKey is a good option to keep in mind if you are looking for an alternative to big bank lending. If you prefer working with a credit union or community bank, LendKey may be the route to uncovering your best offer.

5. Laurel Road Bank

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on Laurel Road Bank’s secure website

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Laurel Road Bank : Variable Rates from 2.80% and Fixed Rates from 3.50% (with AutoPay)

Laurel Road Bank offers a highly competitive product when it comes to student loan refinancing.

Pros Pros

  • Forgiveness in the case of death or disability: They may forgive the total student loan amount owed if the borrower dies before paying off their debt. In the case that the borrower suffers a permanent disability that results in a significant reduction to their income,Laurel Road Bank may forgive some, if not all of the amount owed.
  • Offers good perks for Residents and Fellows: Laurel Road Bank allows medical and dental students to pay only $100 per month throughout their residency or fellowship and up to six months after training. It is important for borrowers to keep in mind that the interest that accrues during this time will be added on to the total loan balance.

Cons Cons

  • Higher late fees: While many lenders charge late fees,Laurel Road Bank’s late fee can be slightly steeper than most at 5% or $28 (whichever is less) for a payment that is over 15 days late.
  • You lose certain protections if you refinance a federal loan: While not specific to Laurel Road Bank, it is important to keep in mind that you will give up certain protections when refinancing a federal loan with any private lender.

Bottom line

Bottom line

As a lender,Laurel Road Bank prides itself on offering personalized service while leveraging technology to make the student loan refinancing process a quick and simple one. Consider checking out their low-rate student loan refinancing product, which is offered in all 50 states.

6. Citizens Bank

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on Citizens Bank (RI)’s secure website

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Citizens Bank (RI) : Variable Rates from 2.72% and Fixed Rates from 3.50% (with AutoPay)

Citizens Bank offers student loan refinancing for both private and federal loans through its Education Refinance Loan.

Pros Pros

No degree is required to refinance: If you are a borrower who did not graduate, with Citizens Bank, you are still eligible to refinance the loans that you accumulated over the period you did attend. In order to do so, borrowers much no longer be enrolled in school.

Loyalty discount: Citizens Bank offers a 0.25% discount if you already have an account with Citizens.

Cons Cons

Cannot transfer Parent PLUS loans to Child: If you are looking to refinance your Parent PLUS loan into your child’s name, this cannot be done through Citizens Bank.

You lose certain protections if you refinance a federal loan: Any time that you refinance a federal loan to a private loan, you will give up the protections, forgiveness programs and repayment plans that come with the federal loan.

Bottom line

Bottom line

The Education Refinance Loan offered by Citizens Bank is a good one to consider, especially if you are looking to stick with a traditional banking option. Consider looking into the competitive rates that Citizens Bank has to offer.

7. Discover

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on Discover Student Loans’s secure website

Discover Student Loans : Variable Rates from 4.87% and Fixed Rates from 5.24% (with AutoPay)

Discover, with an array of competitive financial products, offers student loan refinancing for both private and federal loans through their private consolidation loan product.

Pros Pros

  • In-house loan servicing: When refinancing with Discover, they service their loans in-house versus using a third-party servicer.
  • Offer a variety of deferment options: Discover offers four different deferment options for borrowers. If you decide to go back to school, you may be eligible for in-school deferment as long as you are enrolled for at least half-time. In addition to in-school deferment, Discover offers deferment to borrowers on active military duty (up to 3 years), in eligible public service careers (up to 3 years) and those in a health professions residency program (up to 5 years).

Cons Cons

  • Performs a hard credit pull: While most lenders do a soft credit check, Discover does perform a hard pull on your credit.
  • No Parent PLUS refinancing available: Discover does not offer borrowers the option of refinancing their Parent PLUS loans.
  • You lose certain protections if you refinance a federal loan: Be careful when deciding to refinance your federal student loans because when doing so, you will lose access federal protections, forgiveness programs and repayment plans.

Bottom line

Bottom line

If you’re looking for a well-established bank to refinance your student loans, Discover may be the way to go. Just keep in mind that if you apply for a student loan refinance with Discover, they will do a hard pull on your credit.

 

Additional Student Loan Refinance Companies

In addition to the Top 7, there are many more lenders offering to refinance student loans. Below is a listing of all providers we have found so far. This list includes credit unions that may have limited membership. We will continue to update this list as we find more lenders:

Traditional Banks

  • First Republic Eagle Gold. The interest rates are great, but this option is not for everyone. Fixed rates range from 1.95% – 4.45% APR. You need to visit a branch and open a checking account (which has a $3,500 minimum balance to avoid fees). Branches are located in San Francisco, Palo Alto, Los Angeles, Santa Barbara, Newport Beach, San Diego, Portland (Oregon), Boston, Palm Beach (Florida), Greenwich or New York City. Loans must be $60,000 – $300,000. First Republic wants to recruit their future high net worth clients with this product.
  • Wells Fargo: As a traditional lender, Wells Fargo will look at credit score and debt burden. They offer both fixed and variable loans, with variable rates starting at 4.74% and fixed rates starting at 5.24%. You would likely get much lower interest rates from some of the new Silicon Valley lenders or the credit unions.

Credit Unions

  • Alliant Credit Union: Anyone can join this credit union. Interest rates start as low as 3.50% APR. You can borrow up to $100,000 for up to 25 years.
  • Eastman Credit Union: Credit union membership is restricted (see eligibility here). Fixed rates start at 6.50% and go up to 8% APR.
  • Navy Federal Credit Union: This credit union offers limited membership. For men and women who serve (or have served), the credit union can offer excellent rates and specialized underwriting. Variable interest rates start at 4.07% and fixed rates start at 4.70%.
  • Thrivent: Partnered with Thrivent Federal Credit Union, Thrivent Student Loan Resources offers variable rates starting at 4.13% APR and fixed rates starting at 3.99% APR. It is important to note that in order to qualify for refinancing through Thrivent, you must be a member of the Thrivent Federal Credit Union. If not already a member, borrowers can apply for membership during the student refinance application process.
  • UW Credit Union: This credit union has limited membership (you can find out who can join here, but you had better be in Wisconsin). You can borrow from $5,000 to $150,000 and rates start as low as 3.87% (variable) and 3.99% APR (fixed).

Online Lending Institutions

  • Education Loan Finance:This is a student loan refinancing option that is offered through SouthEast Bank. They have competitive rates with variable rates ranging from 2.55% – 6.01% APR and fixed rates ranging from 3.09% – 6.69% APR. Education Loan Finance also offers a “Fast Track Bonus”, so if you accept your offer within 30 days of your application date, you can earn $100 bonus cash.
  • EdVest: This company is the non-profit student loan program of the state of New Hampshire which has become available more broadly. Rates are very competitive, ranging from 4.29% – 7.89% (fixed) and 4.02% – 7.62% APR (variable).
  • IHelp : This service will find a community bank. Unfortunately, these community banks don’t have the best interest rates. Fixed rates range from 4.00% to 8.00% APR (for loans up to 15 years). If you want to get a loan from a community bank or credit union, we recommend trying LendKey instead.
  • Purefy: Purefy lenders offer variable rates ranging from 2.70%-8.17% APR and fixed interest rates ranging from 3.25% – 9.66% APR. You can borrow up to $150,000 for up to 15 years. Just answer a few questions on their site, and you can get an indication of the rate.
  • RISLA: Just like New Hampshire, the state of Rhode Island wants to help you save. You can get fixed rates starting as low as 3.49%. And you do not need to have lived or studied in Rhode Island to benefit.

Is it worth it to refinance student loans?

If you are in financial difficulty and can’t afford your monthly payments, a refinance is not the solution. Instead, you should look at options to avoid a default on student loan debt.

This is particularly important if you have Federal loans.

Don’t refinance Federal loans unless you are very comfortable with your ability to repay. Think hard about the chances you won’t be able to make payments for a few months. Once you refinance student loans, you may lose flexible Federal payment options that can help you if you genuinely can’t afford the payments you have today. Check the Federal loan repayment estimator to make sure you see all the Federal options you have right now.

If you can afford your monthly payment, but you have been a sloppy payer, then you will likely need to demonstrate responsibility before applying for a refinance.

But, if you can afford your current monthly payment and have been responsible with those payments, then a refinance could be possible and help you pay the debt off sooner.

Like any form of debt, your goal with a student loan should be to pay as low an interest rate as possible. Other than a mortgage, you will likely never have a debt as large as your student loan.

If you are able to reduce the interest rate by refinancing, then you should consider the transaction. However, make sure you include the following in any decision:

Is there an origination fee?

Many lenders have no fee, which is great news. If there is an origination fee, you need to make sure that it is worth paying. If you plan on paying off your loan very quickly, then you may not want to pay a fee. But, if you are going to be paying your loan for a long time, a fee may be worth paying.

Is the interest rate fixed or variable?

Variable interest rates will almost always be lower than fixed interest rates. But there is a reason: you end up taking all of the interest rate risk. We are currently at all-time low interest rates. So, we know that interest rates will go up, we just don’t know when.

This is a judgment call. Just remember, when rates go up, so do your payments. And, in a higher rate environment, you will not be able to refinance your student loans to a better option (because all rates will be going up).

We typically recommend fixing the rate as much as possible, unless you know that you can pay off your debt during a short time period. If you think it will take you 20 years to pay off your loan, you don’t want to bet on the next 20 years of interest rates. But, if you think you will pay it off in five years, you may want to take the bet. Some providers with variable rates will cap them, which can help temper some of the risk.

You can also compare all of these loan options in one chart with our comparison tool. It lists the rates, loan amounts, and kinds of loans each lender is willing to refinance. You can also email us with any questions at info@magnifymoney.com.

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

Nick Clements
Nick Clements |

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

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Balance Transfer, Best of, Pay Down My Debt

9 Best 0% APR Credit Card Offers – August 2018

Editorial Note: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities prior to publication. This site may be compensated through a credit card partnership.

There are a lot of 0% APR credit card deals in your mailbox and online, but most of them slap you with a 3 to 4% fee just to make a transfer, and that can seriously eat into your savings.

At MagnifyMoney we like to find deals no one else is showing, and we’ve searched hundreds of balance transfer credit card offers to find the banks and credit unions that ANYONE CAN JOIN which offer great 0% interest credit card deals AND no balance transfer fees. We’ve hand-picked them here.

If one 0% APR credit card doesn’t give you a big enough credit line you can try another bank or credit union for the rest of your debt. With several no fee options it’s not hard to avoid transfer fees even if you have a large balance to deal with.

1. The Amex EveryDay® Credit Card from American Express – Introductory 0% for 15 Months,  $0 balance transfer fee.

The Amex EveryDay® Credit Card from American Express

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on American Express’s secure website

Terms Apply

Rates & Fees


This offer edges out competitors with the longest 0% intro period and standout perks. The Amex EveryDay® Credit Card from American Express has increased value with an intro 0% for 15 Months on purchases and balance transfers, then 14.74%-25.74% Variable APR and a $0 balance transfer fee. (For transfers requested within 60 days of account opening.) In addition to the great balance transfer offer, you can earn rewards — 2x points at US supermarkets, on up to $6,000 per year in purchases (then 1x), 1x points on other purchases.

Note: There are other 15-month offers from big banks offering intro $0 balance transfer fees at the end of this post, but below we’ve listed our favorite offers from credit unions and lesser known banks that provide balance transfer offers up to 12 months. However, if you need a longer intro period, you might be better off paying a standard 3% balance transfer fee for a card like the Discover it® Balance Transfer which offers an intro 0% for 18 months on balance transfers (after, 13.74% - 24.74% Variable).

2. Edward Jones World MasterCard – 0% Intro APR for 12 months on Balance Transfers through 10/31/2018, NO FEE

Edward Jones World MasterCard®

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on Edward Jones’s secure website

You’ll need to go to an Edward Jones branch to open up an account first if you want this deal. Edward Jones is an investment advisory company, so they’ll want to have a conversation about your retirement needs. But you don’t need to have money in stocks to be a customer of Edward Jones and try to get this card. Just beware that you only have 60 days to complete your transfer to lock in the intro 0% for 12 months, and after the intro period a 14.74% variable APR applies. This deal expires 10/31/2018.

3. Choice Rewards World MasterCard® from First Tech FCU – Introductory 0% APR balance transfer for 12 months, NO FEE

Choice Rewards World MasterCard® from First Tech FCU

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on First Technology Federal Credit Union’s secure website

Anyone can join First Tech Federal Credit Union by becoming a member of the Financial Fitness Association for $8, or the Computer History Museum for $15. You can apply for the card without joining first. This Introductory 0% APR balance transfer for 12 months and no transfer fee on balances transferred within first 90 days of account opening is for the Choice Rewards World MasterCard® from First Tech FCU. After the intro period, an APR of 11.74%-18.00% variable applies. You also Earn 20,000 Rewards Points when you spend $3,000 in your first two months.

4. La Capitol Federal Credit Union – 0% Intro APR on Balance Transfers for 12 months, NO FEE

Visa Rewards Card from La Capitol FCU

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on La Capitol Federal Credit Union’s secure website

Anyone can join La Capitol Federal Credit Union by becoming a member of the Louisiana Association for Personal Financial Achievement, which costs $20. Just indicate that’s how you want to be eligible when you apply for the card – no need to join before you apply. And La Capitol accepts members from all across the country, so you don’t have to live in Louisiana to take advantage of this deal on the Prime Plus card or the Rewards card. The introductory 0% for 12 months on balance transfers applies to balances transferred within first 90 days of account opening. After the intro period, as low as 8.00% variable APR for the Prime Plus card and as low as 12.00% variable APR for the Rewards Visa card applies.

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

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on Purdue FCU’s secure website

The 0% intro APR for 12 months offer is only for their Visa Signature card – other cards have a higher intro rate. After the intro period ends, 11.50%-17.50% fixed APR applies. The Purdue Federal Credit Union doesn’t have open membership, but one way to be eligible for credit union membership is to join the Purdue University Alumni Association as a Friend of the University.

Anyone can join the association, but it costs $50. The good news is you can apply and get a decision before you become a member of the Alumni Association.

6. Logix Credit Union Platinum MasterCard
– 0% APR for 12 months , NO FEE

The Logix Platinum MasterCard

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on Logix Federal Credit Union’s secure website

Although this card isn’t available for everyone, it can be a good choice if you live in AZ, CA, DC, MA, MD, ME, NH, NV, or VA. Residence in those states allows you to join Logix Credit Union and apply for this deal. Some applicants have reported credit lines of $15,000 or more for balance transfers, so if you have excellent credit, good income, but a large amount to pay off (like a home equity line), this could be a good option. You must transfer your balance within the first 90 days your credit card account is open qualify for the intro 0% APR for up to 12 months (after, as low as 9.99% variable APR).

7. Premier America Credit Union – 0% Intro APR for 6 months, NO FEE

Premier Privileges Rewards MasterCard® from Premier America CU

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on Premier America’s secure website

Premier America is unique because it has a Student Mastercard® that’s eligible for the intro 0% for 6 months on balance transfers, though credit limits on that card are $500 – $2,000. There is an 11.50% variable APR after the intro period. There’s also a card for those with no credit history – the Premier First Rewards Privileges®, with limits of $1,000 – $2,000 and a 19.00% variable APR. If you’re looking for a bigger line, the Premier Privileges Rewards Mastercard® is available with limits up to $50,000 and a 8.45%-17.95% fixed APR.

Anyone can join Premier America by becoming a member of the Alliance for the Arts. You can select that option when you apply.

8. Money One Credit Union – as low as 0% Intro APR for 6 months, NO FEE

Visa Platinum Card from Money One FCU

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on Money One Federal’s secure website

Anyone can join Money One Federal by making a $20 donation to Gifts of Easter Seals. And you can apply without being a member. You’ll see a drop down option during the application process that lets you select Gifts of Easter Seals as the way you plan to become a member of the credit union. Credit lines for the Visa Platinum card are as high as $25,000. After the as low as 0% intro APR for 6 months, the APR varies as low as Prime + 3.50%, and currently is as low as 8.50% variable APR.

Other 0% intro APR cards to consider

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

Visa Platinum Card from andigo

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on Andigo’s secure website

You’ll have a choice to apply for the Andigo Visa Platinum Cash Back, Visa Platinum Rewards, or Visa Platinum. The Visa Platinum without rewards has a lower ongoing APR at 11.40% – 20.40% (V), compared to 11.99% – 20.99% (V) for the Visa Platinum Cash Back and 13.40% – 22.40% (V) for the Visa Platinum Rewards card. So, if you’re not sure you’ll pay it all off in 6 months the Platinum without rewards is a better bet.

Anyone can join Andigo by making a donation to Connect Vets for $15, and you can submit an application for the card without being a member yet.

10. Evansville Teachers Credit Union – 0% Intro APR for first 6 months on Balance Transfers, NO FEE

ETFCU's Platinum Rewards Credit Card

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on Evansville Teachers Federal Credit Union’s secure website

You don’t need to be a teacher to join this credit union. Just make a $5 donation to Mater Dei Friends & Alumni Association. The Platinum Prime Plus card has an ongoing APR as low as 7.75% variable, so you can enjoy a low rate even after the intro deal ends. And, with a slightly higher APR is the Platinum Rewards card with as low as 9.75% variable APR.

11. Elements Financial Credit Card – 0% Intro APR for 6 months on Purchases and Balance Transfers, NO FEE

Elements Financial Platinum Visa® Credit Card

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on ELFCU’s secure website

To become a member and apply, you’ll just need to join TruDirection, a financial literacy organization. It costs just $5 and you can join as part of the application process. The ongoing APR is 10.49% variable which is lower than typical cards.

12. Justice Federal Credit Union – 0% Intro APR for 6 months on Purchases, Balance Transfers, and Cash Advances, NO FEE

Student VISA® Rewards Credit Card from Justice FCU

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on Justice Federal Credit Union’s secure website

If you’re not a Department of Justice, Homeland Security, or U.S. court employee (or a few others), you need to join a law enforcement organization to be a member of Justice Federal. One of the eligible associations for membership is the National Native American Law Enforcement Association. It costs $15 to join.

You can apply as a non-member online to get a decision before joining. And Justice is unique in that its Student VISA Rewards card is also eligible for the 6-month 0% introductory rate on purchases, balance transfers, and cash advances. So, if your credit history is limited and you’re trying to deal with a balance on your very first card, this could be an option. The APR after the intro period ends is 16.90% fixed.

13. Michigan State University Federal Platinum Visa – 0% Intro APR for 6 months, NO FEE

Platinum Visa Card from Michigan State FCU

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on Michigan State University Federal Credit Union’s secure website

There is the option to apply for the Platinum Plus Visa or the Platinum Visa. The Platinum Visa has a lower ongoing APR at 8.90%-16.90% variable, compared to the 12.9%-17.90% variable APR for the Platinum Plus which can earn you rewards. Anyone can join the Michigan State University Federal Credit Union by first becoming a member of the Michigan United Conservation Clubs. However, this comes at a high fee of $30 for one year.

Other offers from big banks

14. Chase Slate® – 0% Intro APR on Balance Transfers for 15 months and 0% Intro APR on Purchases for 15 months, $0 Introductory Balance Transfer Fee

This deal is easy to find – Chase is one of the biggest banks and makes this credit card deal well known. Save with a 0% Intro APR on Balance Transfers for 15 months and Intro $0 on transfers made within 60 days of account opening. After that: Either $5 or 5%, whichever is greater. You also get a 0% Intro APR on Purchases for 15 months on purchases and balance transfers, and $0 annual fee. After the intro period, the APR is currently 16.74% - 25.49% Variable. Plus, see monthly updates to your free FICO® Score and the reasons behind your score for free.’

The information related to the Chase Slate® has been collected by MagnifyMoney and has not been reviewed or provided by the issuer of this card prior to publication.

15. BankAmericard® credit card – 0% Introductory APR for 15 billing cycles, $0 Introductory Balance Transfer Fee

BankAmericard® Credit Card

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on Bank Of America’s secure website

Cardholders can benefit from an 0% Introductory APR on purchases for 15 billing cycles and an introductory $0 balance transfer fee for the first 60 days your account is open. After that, the fee for future balance transfers is 3% (min. $10). Once the intro period ends, there is a 14.74% - 24.74% Variable APR. You can benefit from a $0 annual fee and access to your free FICO® Score.

Are these the best deals for you?

If you can pay off your debt within the 0% period, then yes, a no fee 0% balance transfer credit card is your absolute best bet. And if you can’t, you can hope that other 0% deals will be around to switch again.

But if you’re unsure, you might want to consider…

  • A deal that has a longer period before the rate goes up. In that case, a balance transfer fee could be worth it to lock in a 0% rate for longer.
  • Or, a card with a rate a little above 0% that could lock you into a low rate even longer.

The good news is we can figure it out for you.

Our handy, free balance transfer tool lets you input how much debt you have, and how much of a monthly payment you can afford. It will run the numbers to show you which offers will save you the most for the longest period of time.

promo balancetransfer wide

The savings from just one balance transfer can be substantial.

Let’s say you have $5,000 in credit card debt, you’re paying 18% in interest, and can afford to pay $200 a month on it. Here’s what you can save with a 0% deal:

  • 18%: It will take 32 months to pay off, with $1,312 in interest paid.
  • 0% for 12 months: You’ll pay it off in 28 months, with just $502 in interest, saving you $810 in cash. That even assumes your rate goes back up to 18% after 12 months!

But your rate doesn’t have to go up after 12 months. If you pay everything on time and maintain good credit, there’s a great chance you’ll be able to shop around and find another bank willing to offer you 0% interest again, letting you pay it off even faster.

Before you do any balance transfer though, make sure you follow these 6 golden rules of balance transfer success:

  • Never use the card for spending. You are only ready to do a balance transfer once you’ve gotten your budget in order and are no longer spending more than you earn. This card should never be used for new purchases, as it’s possible you’ll get charged a higher rate on those purchases.
  • Have a plan for the end of the promotional period. Make sure you set a reminder on your phone calendar about a month or so before your promotional period ends so you can shop around for a low rate from another bank.
  • Don’t try to transfer debt between two cards of the same bank. It won’t work. Balance transfer deals are meant to ‘steal’ your balance from a competing bank, not lower your rate from the same bank. So if you have a Chase Freedom® with a high rate, don’t apply for another Chase card like a Chase Slate® and expect you can transfer the balance. Apply for one from another bank.
  • Get that transfer done within 60 days. Otherwise your promotional deal may expire unused.
  • Never use a card at an ATM. You should never use the card for spending, and getting cash is incredibly expensive. Just don’t do it with this or any credit card.
  • Always pay on time. If you pay more than 30 days late your credit will be hurt, your rate may go up, and you may find it harder to find good deals in the future. Only do balance transfers if you’re ready to pay at least the minimum due on time, every time.

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

Nick Clements
Nick Clements |

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

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Balance Transfer, Best of, Pay Down My Debt

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

Editorial Note: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities prior to publication. This site may be compensated through a credit card partnership.

btgraphic

Looking for a balance transfer credit card to help pay down your debt more quickly? We’re constantly checking for new offers and have selected the best deals from our database of over 3,000 credit cards. This guide will show you the longest offers with the lowest rates, and help you manage the transfer responsibly. It will also help you understand whether you should be considering a transfer at all.

1. Best balance transfer deals

No intro fee, 0% intro APR balance transfers

Very few things in life are free. But, if you pay off your debt using a no fee, 0% APR balance transfer, you can crush your credit card debt without paying a dime to the bank. You can find a full list of no fee balance transfers here.

The Amex EveryDay® Credit Card from American Express

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on American Express’s secure website

Terms Apply

Rates & Fees

The Amex EveryDay® Credit Card from American Express

Annual fee
$0
Intro Purchase APR
0% for 15 Months
Intro BT APR
0% for 15 Months
Balance Transfer Fee
$0 balance transfer fee.
Regular Purchase APR
14.74%-25.74% Variable
Rewards Rate
2x points at US supermarkets, on up to $6,000 per year in purchases (then 1x), 1x points on other purchases.
Credit required
good-credit
Excellent/Good

The Amex EveryDay® Credit Card from American Express includes an extended intro period now at an intro 0% for 15 Months on balance transfers and purchases (14.74%-25.74% Variable APR after the promo period ends) and a $0 balance transfer fee. (For transfers requested within 60 days of account opening.) This offer is in direct competition with other $0 intro balance transfer fee cards like Chase Slate®.

In addition to the intro periods, you can benefit from a rewards program tailored to U.S. supermarket spenders where you earn 2x points at US supermarkets, on up to $6,000 per year in purchases (then 1x), 1x points on other purchases.
The intro offers, coupled with the rewards program make The Amex EveryDay® Credit Card from American Express the frontrunner among balance transfer cards, outpacing competitors. This card presents cardholders with the unique opportunity to transfer a balance and make a large purchase during the intro period, all while earning rewards on new purchases. To qualify for this card, you need Excellent/Good credit.
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  • Simple Welcome Offer
  • The 2-point bonus on grocery store spending is capped
  • You need 20 transactions each month to get the 20% bonus

 

Read our full review of The Amex EveryDay® Credit Card from American Express here.

 

Chase Slate®

Chase Slate®

The information related to the Chase Slate® has been collected by MagnifyMoney and has not been reviewed or provided by the issuer of this card prior to publication.

With Chase Slate® you can save with a 0% Intro APR on Balance Transfers for 15 months and a balance transfer fee that’s Intro $0 on transfers made within 60 days of account opening. After that: Either $5 or 5%, whichever is greater.  There’s also a 0% Intro APR on Purchases for 15 months. After the intro periods end, a 16.74% - 25.49% Variable APR applies. This card also has a $0 annual fee. Plus, you can see monthly updates to your FICO® Score and the reasons behind your score for free.

You can get longer transfer periods by paying a fee (either $5 or 5% of the amount of each transfer, whichever is greater), so this deal is generally best if you have a balance you know you‘ll pay in full by the end of the promotional period.

Also, keep in mind you can’t transfer a balance from one Chase card to another, so this is good if the balance you want to move is from a bank or credit union that’s not Chase.

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Transparency Score
  • Interest is not deferred during the balance transfer period, which means if you do not pay off your balance by the end of the promo period, you will not be charged the interest that would have accrued during the deferral period.
  • There are late payment and cash advance fees

Tip: You have only 60 days from account opening to complete your balance transfer and get the introductory rate.

BankAmericard® Credit Card

BankAmericard® credit card

There is a 0% Introductory APR on purchases for 15 billing cycles and an introductory $0 balance transfer fee for the first 60 days your account is open. After that, the fee for future balance transfers is 3% (min. $10). There’s also an 0% Introductory APR on purchases for 15 billing cycles. After that, a 14.74% - 24.74% Variable APR will apply.
 You need Excellent/Good credit to get this card and you can only transfer debt that is not already at Bank of America. You can get longer transfer periods by paying a fee, so this deal is generally best if you have a balance you know you’ll pay in full by the end of the 15-month promotional period.
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  • Interest is not deferred during the balance transfer period, which means if you do not pay off your balance by the end of the promo period, you will not be charged the interest that would have accrued during the deferral period.
  • No penalty APR – paying late won’t automatically raise your rate (APR)
  • There are late payment and cash advance fees

Tip: You can provide the account number for the account you want to transfer from while you apply, and if approved, the bank will handle the transfer.

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on Bank Of America’s secure website

 

 

0% balance transfers with a fee

If you think it will take longer than 15 months to pay off your credit card debt, these credit cards could be right for you. Don’t let the balance transfer fee scare you. It is almost always better to pay the fee than to pay a high interest rate on your existing credit card. You can calculate your savings (including the cost of the fee) at our balance transfer marketplace.

These deals listed below are the longest balance transfers we have in our database. We have listed them by number of months at 0%. Although you need good credit to be approved, don’t be discouraged if one lender rejects you. Each credit card company has their own criteria, and you might still be approved by one of the companies listed below.

Discover it® Balance Transfer

Decent 0% intro balance transfer period

Discover it® Balance Transfer: Intro APR of 0% for 18 months, 3% BT fee.

This is a basic balance transfer deal with an above average term. If you don’t have credit card balances with Discover, it’s a good option to free up your accounts with other banks. With this card, you also have the ability to earn cash back, and there is no late fee for your first missed payment and no penalty APR. Hopefully you will not need to take advantage of these features, but they are nice to have.

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  • Interest is waived during the balance transfer period, no foreign transaction fees and no late fee for your first late payment
  • The range of the purchase interest rate based on your credit history.  The 13.74% - 24.74% Variable APR is fairly standard.
  • There is a cash advance fee

Tip: Complete your balance transfer as quickly as possible for maximum savings.

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on Discover Bank’s secure website

Rates & Fees

Citi® Diamond Preferred® Card– 21 Month Balance Transfer Offer

Longest 0% intro balance transfer card

Citi® Diamond Preferred® Card – 21 Month Balance Transfer Offer: 0%* for 21 months on Balance Transfers*, 5% balance transfer fee

The Citi® Diamond Preferred® Card – 21 Month Balance Transfer Offer has the longest intro period on our list at intro 0%* for 21 months on Balance Transfers* made within 4 months from account opening. There is also an intro 0%* for 12 months on Purchases*. After the intro periods end, a 14.74% - 24.74%* (Variable) APR applies. The balance transfer fee is typical at 5% of each balance transfer; $5 minimum. This provides plenty of time for you to pay off your debt. There are several other perks that make this card great: no annual fee, Citi® Private Pass®, and Citi® Concierge.

Transparency Score
TRANSPARENCY SCORE
  • Interest is not deferred during the balance transfer period, which means if you do not pay off your balance by the end of the promo period, you will not be charged the interest that would have accrued during the deferral period.
  • Interest rate is not known until you apply.

Tip: Complete your balance transfer within four months from account opening to take advantage of the 0% intro offer.

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on Citibank’s secure website

Low rate balance transfers

If you think it will take longer than 2 years to pay off your credit card debt, you might want to consider one of these offers. Rather than pay a balance transfer fee and receive a promotional 0% APR, these credit cards offer a low interest rate for much longer.

The longest offer can give you a low rate that only goes up if the prime rate goes up. If you can’t get that offer, there is another good option offering a low rate for three years.

Variable Rate Credit Visa®Card from UNIFY Financial CU

Long low rate balance transfer card

Unify Financial Credit Union – As low as 6.24% APR, no expiration, no BT fee

If you need a long time to pay off at a reasonable rate, and have great credit, it’s hard to beat this deal from Unify Financial Credit Union, with a rate as low as 6.49% with no expiration. The rate is variable, but it only varies with the Prime Rate, so it won’t fluctuate much more than say a variable rate mortgage. There is also no balance transfer fee.

Just about anyone can join Unify Financial Credit Union. They’ll help you figure out what organization you can join to qualify, and you don’t need to be a member to apply.

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Transparency Score
  • Interest is not deferred during the balance transfer period, which means if you do not pay off your balance by the end of the promo period, you will not be charged the interest that would have accrued during the deferral period.
  • There are late payment fees.

Tip: If you’re credit’s not great, this probably isn’t for you, as the rate chosen for your account could be as high as 18%.

APPLY NOW Secured

on UNIFY Financial Credit Union’s secure website

Prime Rewards Credit Card from SunTrust Bank

Long low rate balance transfer card

SunTrust Prime Rewards – 4.75% variable APR for 36 months, $0 intro BT fee

If you live in Alabama, Arkansas, Florida, Georgia, Maryland, Mississippi, North Carolina, South Carolina, Tennessee, Virginia, Washington, D.C., or West Virginia you can apply for this card without a SunTrust bank account.

The deal is you get the prime rate for 3 years with no intro balance transfer fee. That’s currently 4.75% variable, though your rate will change if the prime rate changes, either up or down, and you have 60 days to complete your transfer with no fee. After that, it’s $10 or 3% of the amount of the transfer, whichever is greater. Also beware the prime rate deal isn’t for new purchases, so only use this card for a balance transfer.

Transparency Score
Transparency Score
  • Interest is not deferred during the balance transfer period, which means if you do not pay off your balance by the end of the promo period, you will not be charged the interest that would have accrued during the deferral period.
  • The range of the purchase interest rate is based on your credit history: 12.74%-22.74% (v), and is more than 10%, which is high.
  • There are late payment and cash advance fees.

Tip: You have only 60 days from account opening to get the intro $0 transfer fee.

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on SunTrust Bank’s secure website

For fair credit scores

In order to be approved for the best balance transfer credit cards and offers, you generally need to have good or excellent credit. If your FICO score is above 650, you have a good chance of being approved. If your score is above 700, you have an excellent chance.

However, if your score is less than perfect, you still have options. Your best option might be a personal loan. You can learn more about personal loans for bad credit here.

There are balance transfers available for people with scores below 650. The offer below might be available to people with lower credit scores. There is a transfer fee, and it’s not as long as some of the others available with excellent credit. However, it will still be better than a standard interest rate.

Just remember: one of the biggest factors in your credit score is your amount of debt and credit utilization. If you use this offer to pay down debt aggressively, you should see your score improve over time and you will be able to qualify for even better offers.

Platinum Mastercard® from Aspire FCU

For less than perfect credit

Aspire Credit Union Platinum – 0% intro APR for 6 months, 0% intro BT fee

Balance transfer deals can be hard to come by if your credit isn’t great. But some banks are more open to it than others, and Aspire Credit Union is one of them, saying ‘fair’ or ‘good’ credit is needed for this card. Anyone can join Aspire, but if you’re looking for a longer deal you also might want to check if you’re pre-qualified for deals from other banks, without a hit to your credit score, using the list of options here.

You’ll be able to check with several banks what cards are pre-screened based on your credit profile, and you might be surprised to see some good deals you didn’t think were in your range. That way you can apply with more confidence.

Transparency Score
Transparency Score
  • Interest is not deferred during the balance transfer period, which means if you do not pay off your balance by the end of the promo period, you will not be charged the interest that would have accrued during the deferral period.
  • The ongoing interest rate isn’t known when you apply.

Tip: Only Aspire’s Platinum MasterCard has this deal. Its Platinum Rewards MasterCard doesn’t have a 0% offer. And if you transfer a balance after 6 months a 2% fee will apply.

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on Aspire Federal Credit Union’s secure website

2. Learn more

Checklist before you transfer

Never use a credit card at an ATM

If you use your credit card at an ATM, it will be treated as a cash advance. Most credit cards charge an upfront cash advance fee, which is typically about 5%. There is usually a much higher “cash advance” interest rate, which is typically above 20%. And there is no grace period, so interest starts to accrue right away. A cash advance is expensive, so beware.

Always pay on time.

If you do not make your payment on time, most credit cards will immediately hit you with a steep late fee. Once you are 30 days late, you will likely be reported to the credit bureau. Late payments can have a big, negative impact on your score. Once you are 60 days late, you can end up losing your low balance transfer rate and be charged a high penalty interest rate, which is usually close to 30%. Just automate your payments so you never have to worry about these fees.

Get the transfer done within 60 days

Most balance transfer offers are from the date you open your account, not the date you complete the transfer. It is in your interest to complete the balance transfer right away, so that you can benefit from the low interest rate as soon as possible. With most credit card companies, you will actually lose the promotional balance transfer offer if you do not complete the transfer within 60 or 90 days. Just get it done!

Don’t spend on the card

Your goal with a balance transfer should be to get out of debt. If you start spending on the credit card, there is a real risk that you will end up in more debt. Additionally, you could end up being charged interest on your purchase balances. If your credit card has a 0% balance transfer rate but does not have a 0% promotional rate on purchases, you would end up being charged interest on your purchases right away, until your entire balance (including the balance transfer) is paid in full. In other words, you lose the grace period on your purchases so long as you have a balance transfer in place.

Don’t try to transfer between two cards of the same bank

Credit card companies make balance transfer offers because they want to steal business from their competitors. So, it makes sense that the banks will not let you transfer balances between two credit cards offered by the same bank. If you have an airline credit card or a store credit card, just make sure you know which bank issues the card before you apply for a balance transfer.

Comparison tools

Savings calculator – which card is best?

If you’re still unsure about which cards offer you the best deal for your situation, try our calculator. You get to input the amount of debt you’re trying to get a lower rate on, your current rate, and the monthly payment you can afford. The calculator will show you which cards offer you the most savings on interest payments.

Balance transfer or a loan?

A balance transfer at 0% will get you the absolute lowest rate. But you might feel more comfortable with a single fixed monthly payment, and a single real date your loan will be paid off. A lot of new companies are offering great rates on loans you can pay off over 2, 3, 4, or 5 years. You can find the best personal loans here.

And you might find even though their rates aren’t 0%, you could afford the payment and get a plan that takes care of your debt for good at once.

Use our calculator to see how your payments and savings will compare.

Questions and Answers

It depends, some credit card companies may allow you to transfer debt from any credit card, regardless of who owns it. Though, they may require you to first add that person as an authorized user to transfer the debt. Just remember that once the debt is transferred, it becomes your legal liability. You can call the credit card company prior to applying for a card to check if you’re able to transfer debt from an account where you are not the primary account holder.

Yes, you can. Most banks will enable store card debt to be transferred. Just make sure the store card is not issued by the same bank as the balance transfer credit card.

As a general rule, if you can pay off your debt in six months or less, it usually doesn’t make sense to do a balance transfer.

Here is a simple test. (This is not 100% accurate mathematically, but it is an easy test). Divide your credit card interest rate by 12. (Imagine a credit card with a 12% interest rate. 12%/12 = 1%). In this example, you are paying about 1% interest per month. If the fee on your balance transfer is 3%, you will break even in month 3, and will be saving money thereafter. You can use that simplified math to get a good guide on whether or not you will be saving money.

And if you want the math done for you, use our tool to calculate how much each balance transfer will save you.

With all balance transfers recommended at MagnifyMoney, you would not be hit with a big, retroactive interest charge. You would be charged the purchase interest rate on the remaining balance on a go-forward basis. (Warning: not all balance transfers waive the interest. But all balance transfers recommended by MagnifyMoney do.)

Many companies offer very good deals in the first year to win new customers. These are often called “switching incentives.” For example, your mobile phone company could offer 50% off its normal rate for the first 12 months. Or your cable company could offer a big discount on the first year if you buy the bundle package. Credit card companies are no different. These companies want your debt, and are willing to give you a big discount in the first year to get you to transfer.

If you transfer your debt and use your card responsibly to pay off your balance before the intro period ends, then there is no trap associated with the 0% APR period. But, if you neglect making payments and end up with a balance post-intro period, you can easily fall into a trap of high debt — similar to the one you left when you transferred the balance. As a rule of thumb, use the intro 0% APR period to your advantage and pay off ALL your debt before it ends, otherwise you’ll start to accumulate high interest charges.

Balance transfers can be easily completed online or over the phone. After logging in to your account, you can navigate to your balance transfer and submit the request. If you rather speak to a representative, simply call the number on the back of your card. For both options, you will need to have the account number of the card with the debt and the amount you wish to transfer ready.

You will be charged a late fee by missing a payment and may put your introductory interest rate in jeopardy. Many issuers state in the terms and conditions that defaulting on your account may cause you to lose out on the promotional APR associated with the balance transfer offer. To avoid this, set up autopay for at least the minimum amount due.

No, you can’t. Balances can only be transferred between cards from different banks. That includes co-branded cards, so be sure to check which issuer your card is before applying for a balance transfer card — since you don’t want to find out after you’ve been approved that both cards are backed by the same issuer.

Many credit card issuers will allow you to transfer money to your checking account. Or, they will offer you checks that you can write to yourself or a third party. Check online, because many credit card issuers will let you transfer money directly to your bank account from your credit card. Otherwise, call your issuer and ask what deals they have available for “convenience checks.”

In most cases, you cannot. However, if you transfer a balance when you open a card, you may be able to. Some issuers state in their terms and conditions that balance transfers on new accounts will be processed at a slower rate compared with those of old accounts. You may be able to cancel your transfer during this time.

Yes, it is possible to transfer the same debt multiple times. Just remember, if there is a balance transfer fee, you could be charged that fee every time you transfer the debt. Also, don’t keep on transferring your debt without making payments because you won’t accomplish much.

You can call the bank and ask them to increase your credit limit. However, even if the bank does not increase your limit, you should still take advantage of the savings available with the limit you are given. Transferring a portion of your debt is more beneficial than transferring none.

Yes, you decide how much you want to transfer to each credit card. For example, if you have $3,000 in debt, you can transfer $2,000 to Card A and $1,000 to Card B.

No, balance transfers are excluded from earning any form of rewards whether it’s points, miles or cash back.

No, there is no penalty. You can pay off your debt whenever you want without a penalty. It’s key to pay off your balance as soon as possible and within the intro period to avoid carrying a balance post-intro period.

Mathematically, the best balance transfer credit cards are no fee, 0% intro APR offers. You literally pay nothing to transfer your balance and can save hundreds of dollars in interest had you left your balance on a high APR card. Check out our list of the best no-fee balance transfer cards here. However, those cards tend to have shorter intro periods of 15 months or less, so you may need more time to pay off your balance.

If you are running out of time on your intro APR and you still have a balance, don’t sweat it. At least two months before your existing intro period ends, start looking for a new balance transfer offer from a different issuer. Transfer any remaining balance to the card with the new 0% intro offer. This can provide you with the additional time needed to pay off your balance. Ideally, look for a card that has a 0% intro APR and also no balance transfer fee.

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

Nick Clements
Nick Clements |

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

TAGS:

Advertiser Disclosure

Pay Down My Debt

Good Debt vs. Bad Debt — What’s the Difference?

Editorial Note: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

When you think of debt, you might picture someone faced with thousands of dollars in credit card or student loan bills. Or perhaps you’ll think about a substantial loan someone secured to launch their small business.

Although these are all forms of debt, they are not all created equally in the eyes of lenders or credit bureaus. No form of debt is inherently “good,” but there are forms of debt that are not necessarily as bad and can contribute to someone’s financial future in meaningful ways.

Learning to spot the difference between good debt and bad debt, knowing which type of debt to pay off first, and determining what forms of debt you should never take on can allow you to have financial stability and peace of mind.

What is good debt?

Good debt is debt that in some way contributes to your financial future in a significant way.

“When people are financing either assets or other things that have some sort of true and intrinsic value — and maybe even an ascending value — then you can make a pretty good argument that it’s good debt,” said John Ulzheimer, founder of The Ulzheimer Group and a credit-reporting expert formerly of FICO and Equifax.

Gerri Detweiler, a consumer credit expert and author of Debt Collection Answers: How to Use Debt Collection Laws to Protect Your Rights, said good debt boils down to whether someone comes out of debt with something to show for it.

“I think overall, generally good debt is debt where you come out ahead,” Detweiler said. “Whether that’s investing in a home that’s later paid for and provides you with a place to live, or an education that results in higher earning power over your career, or even small business debt that allows you to start or grow a small business that brings an income — those are all examples of debt that can be good debt.”

But Detweiler adds that all forms of good debt must be looked at on a case-by-case basis.

“[They’re not] automatically ‘good’ debt, because it’s possible, of course, to get into a house that ends up being a money waster,” she said. “You could end up spending a lot of money for an education and not be able to translate that into a career or a steady income. Or you could invest in a small business that fails. There’s no guarantee that those types of debt that are often good will be good for you. You have to be sure you’re making a smart decision.”

Experts agree that generally speaking, the following are all forms of good debt.

Mortgages

A mortgage taken out to finance a home is considered a good debt because as a buyer, you are investing in a piece of property that will hopefully provide you a return on investment one day. And depending on your income level, a mortgage could provide a deduction on your taxes.

“You can make a pretty strong argument that debt incurred to buy a home is good debt, presuming that you’re buying a home that is going to appreciate over time, and when you sell it someday, you’re going actually make money out of it,” Ulzheimer said.

Mortgages also tend to have lower interest rates than other types of loans. The average interest rate in the U.S. for a 30-year fixed rate mortgage is currently 4.55 percent, according to the Federal Reserve Bank of St. Louis. On the other hand, the average interest rate for new credit cards in the U.S. is nearly 14 percent, according to the Federal Reserve Bank of St. Louis.

Student loans

Perhaps the most valuable debt someone will incur in their lifetime, according to Ulzheimer, is student loan debt to pursue a college education.

“I think studies are pretty clear that people who have a college degree over their lifetime are going to earn more than people who do not,” Ulzheimer said. “In my mind, that may be the best of all debts in terms of return on investment.”

Interest rates on federal student loans vary, but currently sit between 4.45 and 7 percent, according to the U.S. Department of Education.

The earning potential for college graduates is starkly higher than that of non-graduates. Men with a bachelor’s degree earn an average of $900,000 more in their lifetime than men with only a high school education, while women with a bachelor’s degree earn an average of $630,000 more in their lifetime than their high-school educated counterparts, according to data from the Social Security Administration. The numbers only increase with graduate degrees: Men earn an average of $1.5 million more and women $1.1 million more in their lifetimes than those with only a high school education.

Small business loans

Taking out a small business loan can be beneficial — investing in a small business, assuming it succeeds, means investing in something that could provide you significant future earnings.

Loans guaranteed by the Small Business Administration (SBA), for example, typically have lower down payments, lower interest rates and flexible overhead requirements, according to the organization.

“You’re making an investment in yourself, in your future, in your business,” said Kathryn Bossler, a credit counselor with GreenPath, a nationwide consumer credit counseling agency.

That being said, there are some very high-cost short-term business loans available that could cause a strain on your bottom line; approach these with caution.

Home equity loans

Home equity loans fall into the “good” category because they allow someone to borrow against him or herself (instead of from an outside lender) to make a large purchase or investment, or to pay off debt with a higher interest rate.

In addition, home equity loans typically come with lower interest rates — they range from about 4.25 to 6 percent, according to LendingTree — and can help someone consolidate and pay back other higher interest rate debts.

However, home equity loans used for the wrong purpose, such as financing a vacation or an unnecessary large purchase, could become a form of “bad” debt — ultimately, it all depends on what the home equity loan proceeds are used for.

What is bad debt?

When Detweiler was in her 20s, she went to Sears and got approved for a credit card. She purchased a couch, an answering machine and a lamp. “Before that debt was paid off, the couch had a rip in it, the answering machine had been zapped by lightning and the lamp was broken,” she said. “I still had a bill, and nothing to show for it. That’s definitely bad debt.”

Detweiler said “bad” debt is debt in which the borrower has nothing to show for it, save for the fact that they’ve spent a significant amount of money.

Forms of bad debt typically come with very high interest rates, making it difficult for borrowers with significant debt to pay it back in a timely manner.

Experts agree that generally speaking, the following are all forms of bad debt.

Credit card debt

Credit card debt is perhaps the most pervasive form of “bad” debt in the U.S., with 121 million Americans currently carrying credit card debt. The average credit card debt per person is $4,453, while the average credit card debt per household is $8,683.

Credit card debt falls into the “bad” category mainly because of the high interest rate that often accompanies credit cards. In fact, the average interest rate for a new credit card in the U.S. is around 14 percent, according to the Federal Reserve Bank of St. Louis.

“Typically, it’s a red flag if you need to carry a balance on your credit card,” Bossler said. “Credit cards are really designed for convenience. There are lots of consumer perks in terms of points and rewards … But carrying a balance is probably going to come with a high interest rate, and is promising money that you don’t have right now.”

Luckily, consolidating credit card debt can help borrowers pay it back more quickly than they might be able to pay back other forms of “bad” debt.

Payday loans

Payday loans should be avoided at all costs.

“I think the worst of the worst, most people would agree, would be payday loan type debt, because the interest rates are so high and the repayment requirements are so immediate,” Bossler said. “And usually someone who is taking out that type of loan is in serious financial distress.”

Because payday loans are typically smaller and paid back in a couple of weeks, borrowers might not feel their impact. But that doesn’t mean it’s not there.

“They’re called ‘lenders of last resort’ for a reason,” Ulzheimer said. “Their interest rates are, when you annualize them, in some cases several hundred percent APR. You don’t feel that because they have short-term amortization schedules.”

“Gray area” debt

Some debts may not be inherently good or bad. It all depends on how you use them.

401(k) loans

Borrowing against your 401(k) might not seem like a terrible decision in the short-term — after all, you’re taking out a loan from yourself — but it can come with a number of consequences. Ulzheimer said he often sees people take money out of their retirement accounts to pay off debt, but then fail to pay back their 401(k) loan.

“You’re almost compounding the problem by doing something silly like that,” he said. By not paying it back, people face countless consequences, including delaying their retirement plan, potentially paying more in taxes (401(k) funds are pre-tax), and potentially paying a penalty for not paying back the loan in time.

In addition, if someone leaves a job before paying back their 401(k) loan, he or she must repay the loan over a set period of time or it could be treated like a distribution and taxed accordingly.

Auto loans

Auto loans fall into the murky territory between good and bad. A car can be a necessary purchase for many people. And someone with the right financial know-how can take on an auto loan that is neither bad nor good, but rather necessary.

However, Detweiler said people often get swept up into higher car payments than they can afford, which can lead to a situation in which someone is paying for a car that is either not running or not worth investing in anymore. “You really have to be on guard when going into debt for something like a car, because it’s very easy to get talked into or psyched into spending more than you can afford.”

Bossler said that when she first began working as a credit counselor 12 years ago, three to five-year loans were common. Now, because cars are more expensive and because consumers want the lowest interest rate possible, she’s seeing terms as long as 72 and 84 months.

“That’s when I would say we’re getting into dangerous territory,” she said. “The car is probably not going to be worth what you owe a couple years down.”

Learn more: Revolving debt vs installment debt

Installment debt is a standardized loan that is paid back in installments that are typically monthly. Mortgages and auto loans are common forms of installment debt. The amount the borrower pays typically remains the same month-to-month.

Revolving debt, on the other hand, doesn’t have a set amount to be paid by the borrower each month, though there is a limit to how much a borrower can use. Credit cards and home equity lines of credit are common forms of revolving debt, because credit is borrowed, then paid back, then borrowed again in a revolving manner, with the amount changing each month.

Both forms of debt affect your credit report and credit score, though revolving debt is typically seen as riskier by the credit bureaus, as credit scores often hinge on the amount of available credit a consumer uses. Installment debt is often associated with an asset (i.e. a home or car), making it a safer form of debt in the eyes of credit bureaus.

It’s generally viewed as positive to carry a mix of both installment and revolving debt, with fewer of the latter in your credit mix. Credit mix makes up 10% of your credit score.

How to eliminate debt

Regardless of what type of debt you have, paying it off in a timely manner is crucial for achieving financial freedom. Keep these best practices in mind when you begin paying off your debt.

1. Know your interest rates.

Detweiler said she has spoken to countless consumers who have no idea what their interest rates are. They will throw money at a debt trying to get out of it before actually looking at what the numbers say.

By taking a look at the interest rates for all of your loans, you can determine whether refinancing or consolidating is a good option. Or, you can identify which loan has the highest interest rate, and then prioritize paying back that loan first.

2. Consider refinancing your debt.

Getting a lower interest rate on your debt can be integral for paying it off. “While you’re paying off debt,” said Detweiler, “look at whether you can refinance some of that debt to make the interest rate less expensive.”

For personal loans, such as mortgages and student loans, this could mean refinancing to get a lower rate. For credit card debt, it could mean taking on a lower-interest consolidation loan or transferring a balance to a card with a better interest rate.

3. Establish your priorities.

Ulzheimer said you should first ask yourself what your priority is. Is your priority to get out of debt as quickly as possible? Is it to pay down your most expensive debt first? Is it to eliminate nuisance balances on retail store credit cards? Is it to improve your credit score?

Once you identify your priorities, you can begin effectively paying off your debt.

One strategy Ulzheimer recommends for paying off credit card debt is paying down the cards you use the most while also paying off your nuisance balances.

“Credit scores hate balances on credit cards, and credit scores hate to see highly leveraged cards, to the extent you can take care of those first,” Ulzheimer said. “A. You’re getting out of debt which is good, and B. Your credit scores are going to start to improve because your utilization ratios are going to go down, and the number of accounts you have balances with is also going to go down.”

4. Be conscious of the credit you use while paying off debt.

Bossler said she would advise someone looking to get out of debt pursue the strategy that is not only going to give them the best interest rate, but is also going to stop them from using the credit again and digging themselves into the same hole.

“What we see sometimes is that people will refinance their home or take out equity to pay off credit cards or get into those 0 percent interest credit cards, and then go back around and use the old cards again,” she said. “Something we talk a lot about with consumers is yes, we have this strategy to address your debt, but what are the other steps you’re going to take to avoid it again?”

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Jamie Friedlander
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Jamie Friedlander is a writer at MagnifyMoney. You can email Jamie here

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Do I Spend More Than I Earn Each Month?

Editorial Note: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities prior to publication.

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It can be difficult to know if you’re spending more than you earn each month if you’re not necessarily falling behind on any bills or financial responsibilities. But if you’re not tracking your spending, you may not be aware if you’re digging yourself into debt. In fact, 42% of Americans use credit cards to fill in the occasional shortfall in their budget, according to a survey from CompareCards. (Disclosure: LendingTree is the parent company of both CompareCards and MagnifyMoney.)

Knowing if you are spending more than you earn each month requires paying attention to your money and doing some simple math. Here’s how to do it — and figure out if you need to make adjustments to your budget and spending habits.

Getting started: Track your spending

First, you need to figure out where your money has been going.

“Actually getting the data to visualize your finances can be one of the most powerful exercises you can do to begin your journey of cash flow management,” said Dan Andrews, CFP at Well Rounded Success based in Fort Collins, Colo.

But, before you can even do that, you need to decide which tracking method you want to use. There are several strategies for figuring out what you spend your money on, and we’ve listed a few of the most popular ways to track your spending below.

The automated option: Budgeting apps

Budgeting apps make tracking your spending easy because — depending on which app you use — the app may do most of the work for you. Most budgeting apps like Mint, YNAB or EveryDollar link directly to your bank accounts, credit cards and retirement accounts. After you’ve linked all of your accounts, the app will automatically pull in and categorize your transactions.

“The apps are fantastic because they generally pull in 3 months of information, and 3 months of data is generally good to see spending habits,” says Krista Cavalieri, senior adviser at Evolve Capital Financial Planning based in Columbus, Ohio.

Once the app does its job, all you need to do is check in regularly to correct any mistakes in categorizing or add in any cash expenses, if the app allows. The apps generally learn to categorize things properly after you correct them. Budgeting apps also generally allow you to visualize your spending in charts and graphs.

Understandably, budgeting apps aren’t for everybody. If you’re in that camp, you could try tracking all of your spending manually using a spreadsheet or spending journal.

Spreadsheets

In a spreadsheet, you can simply record what you spent money on and how much you spent. If you want, you can use formulas to make the process easier and to automatically calculate sums, percentages and other parts of your spending habits you’re curious about. Several budgeting templates exist within spreadsheet programs and online to help you get started.

A written spending journal

You can also try keeping a digital or physical spending journal. Every time you spend money, record it by hand in a pocket journal or in a notes application on your phone. At the end of each day or week you can spend time reviewing, categorizing and adding up what you’ve spent.

Check-ins

Check in on your spending challenge regularly to get an idea of where your money went and make adjustments accordingly. For example, it may take 10 to 30 minutes to do a weekly review, so pick a recurring day and time when you know you’ll be free for about half an hour. If you notice during your period check-ins that you are overspending, make some changes then and there to correct yourself, suggested Cavalieri.

Choose the budgeting and check-in method that’s the easiest for you to manage so you can see exactly where your money is going, said Cavalieri. She recommends tracking your expenses for three months to get a good sense of your spending, but recording all your transactions for 30 days will give you a sense of how your regular expenses stack up against your monthly income. A 30-day spending challenge using one of the tracking tactics above will give you the figures you need to answer the question, “Do I spend more than I earn?”

Understand the jargon

Before calculating whether or not you’re spending more than you earn each month, you’ll need to understand the components of the equation.

  • Income — Any and all sources of after-tax income coming into your budget. Examples of income would be:
    • Salary or hourly wages
    • Tips
    • Commission
    • Income from a side gig
    • Social Security or disability income
    • Cash windfalls like a tax refund or gifted money
    • Child support or alimony
    • Any other source of money coming to you
  • Necessary expenses — Necessary expenses are the basics required in your household budget to keep you functioning and gainfully employed. Fixed expenses are non-negotiables like:
    • Rent or mortgage to keep a roof over your head
    • Groceries to cook food at home
    • Transportation
      • For example, your car payment, if having a vehicle is necessary to get yourself and members of your household to their obligations, plus fuel and required maintenance for that vehicle
      • Public transit fare
    • Insurance
    • Health care expenses
    • Child care expenses
    • Utilities necessary to live or communicate like electricity, gas, water, internet and phone bills
    • Any debts owed to the government like child support or alimony payments, tax payments and federal student loan debt. (Exclude credit card debt or collection items, as you will deal with that debt separately.)

When you are tallying up your expenses, take care to account for any recurring quarterly, semiannual or annual payments, too, so they don’t catch you off guard, Andrews said. Those may be things like your vehicle registration or tax payments. You may need to plan to save for those month to month so you will have the money on hand when it comes time to make the payment.

  • Everything else — Everything else, sometimes called flexible expenses, is just what it means: Every other thing in your budget that is — technically — optional spending. This would include things like:
    • Debts
    • Buying lunch or dining out
    • Shopping
    • Subscription payments
    • Vacations
    • Any other line items that don’t fall into the “needs” category in your budget

Now that you understand the important parts of the equation, it’s time to crunch some numbers and get to the answer you’ve been waiting for:

Do the math

    • Step 1 – Income: The question you want to answer is: How much do I make, after taxes, each month? Be sure to include all consistent income streams and any additional windfalls you are expecting during the time period. Write down that number.
    • Step 2 – Necessary expenses: Write down and add up every expense you have that’s vital to meet your basic needs. (To account for fixed annual, semiannual or quarterly payments, figure out how much you’d need to set aside each month to cover that payment when it’s due.)
    • Step 3 — Subtract necessary expenses: Now, subtract your necessary expenses from your income. The equation (so far) should look like:

Income – Necessary Expenses = Amount you have left for flexible expenses.

For example, if your salary (income) is $4,000 a month after taxes, you receive a $1,000 monthly child support payment and your necessary expenses total $3,500, then $5,000-$3,500 = $1,500 left over for flexible spending.

If the number you get is negative, that means your necessary expenses total more than your income and that’s not-so-good news.

“If we are not even making this much per month then we really need to take a look at our life and say what’s our living status,” said Colin Overweg, CFP at Advize Wealth Management based in Grand Rapids, Mich. Look to see if you can increase your income or decrease your expenses. You may be able to pick up a side hustle to increase income or ask for a promotion at work that comes with a raise.

If you realize you can’t cover your fixed expenses, take a look at your standard of living to see where you can cut back, Overweg advised. Consider the following options among other fixed expenses:

      • Can you downsize your home?
      • Can you switch to a car that won’t cost you as much to own and maintain?
      • Can you trim your phone bill by switching plans or carriers?
      • Are you spending too much money on groceries?
      • Can you lower your insurance premiums somehow?
      • Can you negotiate some of your bills down?
    • Step 4 – Subtract everything else:

This is where the math can sometimes get a little messy.

Cavalieri said the hardest part about budgeting is figuring out where the expendable income in your budget is going, because all of those little expenses here and there add up. Before you know it, the money’s gone and you may feel like you have no idea what you spent it on. But if you’ve been diligently tracking your spending, as described in the first section of this guide, this part gets a lot easier. It’s important to record our “everything else” expenses so you know you can cover your spending and not reach for that credit card.

Speaking of credit cards, this is the time to address your debt obligations and factor in the minimum payments you are responsible for paying each month in to your budget. Here’s the equation:

For “everything “else,” you may be able to insert the number you got from your 30-day spending challenge.

Ideally, the number you get in the end will be equal to or larger than zero. If it’s negative, you are definitely spending more than you earn each month.

What to do if you spend more than you earn

If you are spending more than you earn, you are likely carrying a credit card balance each month, and it’s growing. You need to trim back your spending, or else you will continue to dig yourself into debt.

“Understand the needs versus wants expenses, and cut out as many “wants” as possible to either get out of debt, or start having your expenses be less than your income,” Andrews said. “You might have to get uncomfortable for a short-term period to get on track.”

He recommended you start saying “no” to a lot of things to start the trim. “No to expensive vacations, no to expensive bars no to expensive gadgets is a start,” said Andrews.

You can try a spending freeze or other challenge aimed at cutting back your unnecessary expenses. A spending freeze challenges you to not buy anything that’s not a necessary expense for a period of time. You can do a less-inclusive version of a spending freeze and limit yourself to not spending any money at your favorite retailer, or commit to making coffee at home or in the office instead of visiting a coffee shop.

Challenge yourself to adjust your spending

Now that you know where your money is going, you may realize you need to reroute it. There are several tactics you can use to change the way you spend. In addition to using one of the tracking methods mentioned earlier (an app, spreadsheet or spending journal), try one of these exercises:

Ask, “Why?”

Look at what you spent money on and think about why you made that purchase.

“It does benefit a person to bring awareness to spending habits by understanding the psychology of impulse buying,” said Andrews.

Or, you could take a different approach: Before looking at the numbers, guess how much you’ve spent.

“Track what you think you are spending versus what you are actually spending, and check in with yourself at least once a week to see how it’s going,” Cavalieri suggested. The exercise could serve as a much-needed reality check before your spending gets out of control.

Money mantra

Andrews suggested that those who are prone to making impulsive purchases try using a money mantra — a short phrase that can help you ground yourself at the checkout line. For example, you could make it a habit to ask yourself, “Do I really need this?” before you swipe your card.

An accountability partner

Try asking a friend or professional financial planner to join you in tracking your spending habits. Andrews said this tactic may work best for people who are looking for a different perspective on their habits and don’t have an emotional connection to the way the person is spending money. He suggested that those who need a professional choose a fee-only, fiduciary, certified financial planner.

30-day cash diet with a spending journal

Try using cash instead of a debit or credit card for a while. The cash will be a physical reminder of your budget. Take out exactly what you need for a certain spending category, and you’ll be forced to spend within that limit.

What to do if you spend less than you earn but are in debt

If you have room in your budget after accounting for all of your expenses but have debt, you should plan to aggressively address your debt with the money you have left over.

Two common methods used to get out of debt are the debt snowball and debt avalanche. The method you choose will depend on your personality type and what will best motivate you to kill off your debts. Click here to view our Snowball vs. Avalanche calculator.

The debt snowball orders your debts from lowest balance to highest. You will then throw all of the money you can at the debt with the lowest balance first and keep making minimum payments on all of the other debts. The snowball method may help those who will feel more motivated by quickly paying off smaller debts before tackling the larger ones.

The debt avalanche works by listing and paying off your debts in order of highest to lowest interest rate. This method saves borrowers the most money in future interest payments, but may not be the most motivational if the debt with the highest interest rate is also a large debt that will take the a long time to eliminate.

Debt consolidation is another option. Consolidating debt into a personal loan is a good way to save money from eliminating high-interest rates. You can read more about it here.

What to do if you spend less than you earn and are not in debt

If you realize you have wiggle room in your budget and don’t have any debt, the experts suggest you funnel your extra funds into savings and investments.

This is the time to think of your future goals. Are you planning to buy a home? Do you want to start a college savings fund for your child? Would you like to travel or go on vacation soon?

The money left over in your budget can be put toward these savings goals. In addition, you could simply put even more money away for your nest egg. If you are behind in saving for retirement, Overweg suggested you send any leftover income into tax-advantaged retirement plans.

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

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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