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7 Ways to Control Your Spending and Expenses to Reduce Debt

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Debt can invade your life in many different ways. It can sneak up on you: the result of spending $20 more than you can afford every day (which becomes more than $20,000 of debt in 3 years). It can appear all at once, after an emergency medical expense or a job loss. And it can surprise you in a terribly painful way, when you learn about a family member’s hidden, debt-fueled addiction.

If your expenses are more than your income, then you have an issue. Even if we find ways of getting your debt to cost less, you still need to fix the underlying issue. If you continue to spend more each month than you earn, your debt will continue to grow. So, you need to figure out how to:

  • Increase your recurring, regular monthly earnings and / or
  • Decrease your monthly expenses

Determining Where You Can Cut Expenses

Look through your list of everything else. Are there some obvious, painless things that you can cut? If at first you think now, try this exercise:

Fast forward to retirement. You are now 65 years old, and you have to choose a place to live. There are two options. You can buy the nice home on the beach in Florida, that is just seconds to the beach. Or, you can buy a studio apartment in a bad neighborhood with a view of the parking garage. How you spend everything else will determine where you live when you retire.

The more you save now, the more you have later. So, you just need to decide. You may not be willing to give up that daily $5 latte habit. Which turns into $1,825 a year and $54,750 over the course of 30 years before you want to retire. Just know that by having that daily $5 coffee fix, you are giving up a nicer place to live in retirement. Everything is a trade-off.

For some people, there just isn’t enough money, period. When you look through your “everything else” bucket of expenses, there aren’t many expenses, if any, that you can cut. If you cut expenses it means you don’t eat or you don’t travel to work. If that is the case, you have to find a way to increase your earnings or cut your fixed expenses. You should spend a decent amount of time looking to cut your fixed expenses.

How to Reduce Fixed Expenses

Mortgage

Can you refinance your mortgage? Take a look at PenFed, a credit union with very low interest rates, to see their current interest rates [click here]. As the time of this writing, a 30-year fixed mortgage at 0 points is 3.600%.

Penfed It may be worth refinancing to reduce your monthly paying if your interest rate is a 4.600% or higher. In general, if your interest rate is a full 1% higher, it may make sense to refinance. If it is 2% higher, it almost definitely makes sense to refinance.

Warning: If you cannot afford your monthly mortgage payment, and you cannot increase your income, you may need to think about selling your home and finding a cheaper place to live. No one likes to admit defeat, but the longer you stay in a place you can’t afford, the more likely defeat becomes. Take a real long, hard look at the home and its maintenance costs. There should be no shame in moving to a cheaper location. Or, you move to a place with a lower cost of living where you can earn more. I have moved in order to make more money. Some people would rather stay put and cut their expenses. But you have to make a choice.

Rent 

If you signed up for a lease that is just too expensive, there is good news. You have more flexibility than a homeowner. Find out what is required to break your lease, and start looking for something that you can afford. As a general rule, you should never be spending more than 30% of your take-home pay on rent. Ideally, you can spend even less. I don’t care what real estate agents or banks say you can afford. They are not thinking about your best interests; instead, they are thinking about their best interests. If your rent (or mortgage, for that matter) costs more than 30% of your net, take-home pay, you will likely find life difficult.

Automobile

It is very difficult to get out of an automobile you can’t afford. Why? Because a car depreciates (usually by at least 30%) the minute you leave the car lot. If you financed the entire car, you can end up getting stuck in a car loan, and refinancing options are limited.

If you are upside down on your car (owe more than the car is worth), the only way out is to come up with the money to pay down the loan. Once your loan amount is just a bit below the possible sales price, you can sell and find a cheaper option. But, until then you can be stuck. That is a big warning: a high-pressure on a car lot can be a tremendous burden for years if you make the wrong decision.

If you have good credit and your loan balance is less than you car’s value, you can look to refinance. Credit unions have great deals in this space. If you don’t belong to a credit union, consider https://www.penfed.org/– one of our favorites. They are easy to deal with, and they have incredibly low interest rates and none of the junk fees.

Auto Insurance

shop around and see if you can get cheaper car insurance. There are a lot of sites out there. We like TheZebra it can help you compare across lots of different companies.

Life Insurance

Too many people pay far too much money for insurance. If you are in a whole life insurance policy, you are almost certainly paying too much. The purpose of life insurance is to make sure that people who depend upon you can maintain their lifestyle if you die. Life insurance should not be a way to save for retirement, and it should not be a way to give your children an inheritance. That means term life insurance is almost always the best option.

Just as it sounds, term life insurance will only cover you for a specified period of time, whereas whole life covers you for your whole life (the name does make sense). So, in term life insurance, the insurance company may never pay a claim. In whole life, they definitely will pay a claim. As a result, term life insurance is much cheaper. You can speak with your local insurance agent to find a good term life policy.

Not convinced? Here’s an example:

Meet Bob. He is 35 years old and has a wife and two children. His wife left her job to be with the kids. So, there are three people who depend upon Bob. He wants to make sure that if he dies, his wife can stay in the house and take care of the kids. He makes $100,000. So, he buys a $1,000,000 30-year term life insurance policy (10x his income). If he dies before he is 65, his family will receive $1,000,000. At 65, the policy expires and he can get that policy for less than $100 per month. When Bob is 65, his kids are on their own and his retirement savings is available for retirement. By buying a term life policy instead of whole life, Bob is saving hundreds every month. 

How to Eliminate Needless Expenses

Recurring Expenses

It is so easy to sign up for something and forget about it. The first month (or year) is free, and then the bill starts. It gets charged to your credit card, and you don’t even mention it. Just cancel all of those recurring charges. You will be amazed at how quickly they add up.

If you don’t even know what you are paying, there is a really good tool called Prosper Daily (formerly BillGuard). Just visit https://www.prosper.com/daily/ and it will look at your expenses to find recurring transactions. They can also help you cancel those transactions. It is worth taking a look.

Bank Accounts

People end up spending silly money on checking accounts, when they should be free. If you are spending monthly fees, overdraft fees or ATM fees, you should consider switching banks. At MagnifyMoney, we make it easy to find a checking account that is actually free. You can compare bank accounts by clicking here.

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Address the Core Issue 

We had to spend a lot of time on the topic of spending money and budgeting. You just can’t spend more money than you make, because your debt will continue to increase. Any type of debt consolidation plan will not solve the core, underlying problem. I have seen far too many people move their debt from a high interest rate to a low interest rate, and think the problem has been solved. But, because their core-spending problem was not solved, they ended up in even more debt. Deal with your spending first, and then you can deal with your debt.

Download our Debt Free Forever Guide! It’s FREE and will help get you back on track.

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

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

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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
Brittney Laryea |

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: July 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

3.90% - 7.80%


Fixed Rate*

2.51% - 7.55%


Variable Rate*

No Max


Undergrad/Grad
Max Loan
Learn more Secured
earnestA+

20


Years

3.49% - 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

2.70% - 7.38%


Variable Rate

No Max


Undergrad/Grad
Max Loan
Learn more Secured
lendkeyA+

20


Years

3.15% - 8.54%


Fixed Rate

2.76% - 7.90%


Variable Rate

$125k / $175k


Undergrad/Grad
Max Loan
Learn more Secured
A+

20


Years

3.50% - 7.02%


Fixed Rate

2.80% - 6.38%


Variable Rate

No Max


Undergrad/Grad
Max Loan
Learn more Secured
A+

20


Years

3.50% - 8.69%


Fixed Rate

2.75% - 8.20%


Variable Rate

$90k / $350k


Undergraduate /
Graduate
Learn more Secured
A+

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

680

Undergraduate
& Graduate

Private & Federal

$24K

Yes

Learn more Secured

Not published

Undergraduate
& Graduate

Private, Federal,
& Parent PLUS

None

Yes


(or signed job offer)
Learn more Secured

680

Undergraduate
& Graduate

Private, Federal,
& Parent PLUS

$24K

Yes

Learn more Secured

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 2.51% and Fixed Rates from 3.90% (with AutoPay)*

SoFi was 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

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Earnest : Variable Rates from 2.57% and Fixed Rates from 3.49% (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

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CommonBond : Variable Rates from 2.70% 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

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LendKey : Variable Rates from 2.76% and Fixed Rates from 3.15% (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 2.75% 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 4.03% – 7.63% 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 2.72%-8.20% 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

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.

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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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Terms Apply

Rates & Fees

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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.


There’s a new offer for the The Amex EveryDay® Credit Card from American Express that 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.
Transparency Score
Transparency Score
  • Simple Welcome Offer
  • The 2-point bonus on grocery store spending is capped
  • You need 20 transactions each month to get the the 20% bonus

 

Read our full review of the 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.

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.
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.
  • 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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Transparency Score
  • 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 offers 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.

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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.
  • 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.

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.
  • 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%.

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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

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Balance Transfer, Best of, Pay Down My Debt

9 Best 0% APR Credit Card Offers – July 2018

Editorial Note: The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities prior to publication. 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 is a new addition to the list and 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 11.49% to 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

Visa Signature Credit Card from Purdue FCU

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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’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.

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

BankAmericard® Credit Card

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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.

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

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Tips for Staying On Track When Paying Off Debt

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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According to the Federal Reserve Bank of New York, debt in America reached $13.21 trillion in the first quarter of 2018, exceeding the record of $12.68 trillion set during the Great Recession. No matter what kind of debt you personally have, whether it’s from student loans, credit cards or medical bills, owing money can feel overwhelming. You look at the bills and can’t imagine what it will take to bring that huge number down to zero.

But, with dedication and a methodical approach, you can do it. We explore how to stay motivated and on track with your debt repayment, and how to avoid a repeat performance.

10 tips for staying on track when paying off debt

#1 Design a debt repayment plan

A great way to stay on the straight and narrow is to define attainable goals you can work toward. For example, try out the debt snowball method. This method involves ordering debts from lowest balance to highest balance and tackling the smallest debts first. Because you’re focusing on the small debts, you will start racking up early “wins,” and that positive momentum will give you the fuel you need to keep going as the debts get bigger and bigger.

#2 Set it and forget it

Based on your budget, determine how much you can afford to pay each month — paying more than the minimum is ideal — and set up auto withdrawals. This gives you one less thing to worry about, and it could make you less tempted to skip payments or pay less.

#3 Pay on time

Don’t let your loan balances overwhelm you to the point of inaction. Paying something toward your debts on time is better than paying late. On-time payment history is the single most important factor that contributes to your credit score. “Although paying extra against a principal balance can help reduce the amount of interest you pay on a loan overall, if there is nothing else you do, just pay on time,” said Mike Fanning, head of MassMutual U.S., an insurance and financial services company.

#4 Trim the fat

If paying even the minimum is difficult, you might have to make a temporary lifestyle change to reduce your spending. Take a look at what you’re spending your money on and see where you can cut back. It could be as simple as forgoing a monthly car wash and scrubbing your own car for a while, or planning grocery shopping in advance so you avoid last-minute, takeout charges. The thought of getting back to the car wash could motivate you to pay your debt off more quickly.

#5 Identify your triggers

Do you end up with a hefty bar bill when you go out with friends every week, or purchase more than you intended when you visit the mall? If this kind of overspending is putting the brakes on paying off your debt more quickly, identify the trigger, i.e. the bar or the mall, and find ways to avoid them. Perhaps you invite friends to your home instead, or establish a moratorium on the mall.

#6 Find a partner in crime

There is safety in numbers. Find a friend or relative who also has debt, and make a date to check in every month. Knowing that you have to answer to someone regularly can help prevent you from slipping. If you don’t know someone personally who can provide that support, there are online accountability groups that can help. Facebook, for example, has become a destination for many budget-conscious consumers to share their experiences and provide tips and support for one another.

#7 Create a debt bet

Do you like healthy competition? You may have heard of diet bets, where several people put money in a pot and the person who loses the most weight wins the pot. Create a “debt bet” with a few friends with comparable debt and similar salaries, like your crew of first-year doctors paying off their medical school debt. The person who pays off the most in a set period of time, wins the pot.

#8 Refinance

Improving the terms of your loan can shave money and time off your your repayment. Before you shop for another loan, use a loan calculator to get a sense of how much you’ll be paying over the term of your current loan, and then look for something more favorable. See what your current lender has to offer, but look at other lenders as well.

#9 Consolidate with a personal loan or balance transfer

If you’re paying off multiple loans, you might want to consolidate your debt. You can apply for a personal loan, which is a fixed amount of money borrowed at a fixed rate over a fixed period of time. You can then use the proceeds to pay off existing debts, leaving you with just one loan balance to worry about moving forward and hopefully one with a lower rate.

A balance transfer can be a good option if you have good credit and can qualify for a solid 0% intro APR offer. This method is only useful for credit card debt, however.

#10 Forgo gifts

No one wants to skip birthday and holiday gifts, but during your debt repayment period, ask people to help you pay off your debt in lieu of gifts. To make it easy, set up a GoFundMe (or similar) page where people can contribute and see the positive effect they are making. Your family and friends will be impressed with your resolve, and they may even spend more than they usually would to help you along!

How to keep debt at bay — for good

Create a budget

If you didn’t have a budget before, create one now so you stay on track. Budgeting apps, like Mint, You Need a Budget (YNAB) and TOSHL Finance are three of our favorites. You can connect these apps to many of your accounts so the information automatically updates, which streamlines and simplifies the process, making budgeting much less of a burden than with the manual spreadsheets or Excel forms of old.

Don’t rest on your laurels

Now that you’re out of debt, it’s easy enough to start living high on the hog with all this “extra” money. Nick Holeman, CFP at Betterment.com, recommends that you start saving instead. “Don’t get too comfortable after you’ve paid off your high-cost debt – continue to make saving a priority by building a safety net,” he said. “Saving three to six months’ of living expenses will ensure that if you have a financial emergency, you will be able to navigate those difficult waters.

Avoid comparisons

Holeman also suggests that paying attention to how others live can be counterproductive. “Don’t compare your standard of living to those around you,” he said. “If you try to keep up with the Joneses, you will put yourself into more debt.”

Be careful with the plastic

Pay off your credit cards in full every month but to be prepared to stop using them if you are overspending.

We know tackling your debt can feel like climbing the world’s highest mountain (and not in a good way), but it’s all for a good cause. If you stumble along the way, get up, dust yourself off and keep on trucking. Being debt-free will one of your proudest accomplishments.

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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Trae Bodge is a writer at MagnifyMoney. You can email Trae here

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How to Get Out Of Debt When You Have Bad Credit

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.

If you are neck-deep in debt, missing payments or carrying balances that are too large to handle, chances are you have poor credit. It can feel as if you’re trapped in a vicious cycle: You need good credit to take advantage of the best deals on debt consolidation loans and balance transfers, which could help you dig out of debt. But because you probably don’t qualify for those offers, you continue to struggle to meet your payments and your credit continues to suffer.

There are countless reasons — some that are beyond your control — that could make it difficult to get out of this debt trap. Medical emergencies, unexpected job loss or the death of a spouse can easily send your finances spiraling. It can certainly feel frustrating and circumscribe to be in this situation.

Despite all this, it’s not impossible to crawl out of the debt hole with bad credit. You have to understand your options and work extra toward the goal. In this guide, we’ll offer tips on how you can still pay off debt with bad credit.

What is considered a “bad” credit score?

Before discussing how to get out of debt with bad credit, let’s first understand how credit scores work and factors that affect your score.

Your credit score is what lenders use to evaluate your risk as a borrower and a low credit score can make you appear as if you are someone who’s not financially responsible.

The most common credit score system used by lenders is provided by the Fair Isaac Corporation, commonly known as FICO®. Since its introduction over 25 years ago, FICO® Scores has become the standard evaluation measure used by 90% of top U.S. financial institutions.

FICO® scores range from 300 to 850. A bad FICO® score typically falls below 580. Currently, 17% of all people fall into this range, according to Experian, one of the three major U.S. credit reporting agencies.

What’s a Bad Credit Score?

Credit Category

Score Range

Excellent

800-850

Very Good

740-799

Good

670-739

Fair

580-669

Bad

<580

There are five factors that make up your credit score. The amount of debt you owe makes up 30% of your score and your payment history makes up 35%. The length of your credit history, new credit inquiries and credit mix respectively make up 15%, 10% and 10%, respectively.

According to this score makeup, a poor credit score can mean that a person has derogatory remarks in their file that include falling behind payments, maxing out his/her credit cards or major financial setbacks, such as a bankruptcy or home foreclosure.

5 ways to pay off debt when you have bad credit

The DIY approach

Call your lenders. Thomas Nitzsche is the communications lead and credit educator at Money Management International, a nonprofit credit counseling company. He told MagnifyMoney that the first step for consumers who are behind their credit card payments is to call their credit card companies — it doesn’t cost money and may lower their interest payments.

Prioritize newer debts first. Nitzsche said you should focus on new debt because a newer debt may impact your credit score more (older debts have already done their damage), particularly if it’s still with the original creditor and not yet in collections (usually before three months past due). At this stage, your account can still be rehabilitated, which can help you improve your credit.

Ask about a hardship repayment plan. Especially if you are in that situation due to significant financial hardships that are out of your control, such as unexpected job loss or medical emergencies, Nitzsche said you should tell the creditor about the situation and ask for a hardship repayment plan — some creditors may allow those consumers to repay their debt within 60 months with lower interest rates before the debt goes to collections.

Ask to settle debts for less than you owe. If you are severely delinquent on debts, call your lender and ask if you can settle the debt for less. This often requires a one-time lump sum payment, so keep that in mind.

Make on-time payments. Lauren G. Lindsay, a financial adviser based in Covington, La., offers the following advice: Make sure you make on-time payments and avoid borrowing even more. “Even if you cannot pay in full, after six months of on-time payments, your credit score will improve,” Lindsay said.

Find extra money. Review your budget to see how much wiggle room you have to put more toward your debt. If you have no extra cash, find ways to bring in additional income.

Prioritize your debts by highest interest rate —Debt avalanche. Make a list of all the debt you owe with the interest rates and minimum payments, and try to target paying off the debts with the highest interest rates first. This is known as the debt avalanche method.

Prioritize lowest balances first — Debt snowball. Another popular debt payoff method is the snowball. Order debts by smallest balance owed, to largest balance owed. Pay minimum payments on everything but the smallest balance owed. For that balance, pay as much above the minimum payment as you can afford. Once it’s paid off, take the money you were using for that debt and put it toward the next highest balance, and so on and so forth.

Live within your means. Create a budget and stick to it. “Look at what gets put on credit cards and don’t spend more than you can pay off each month,” Lindsay said. “Your goal is to never carry credit card debt. Also, establish an emergency fund to prevent you from getting back into the debt cycle.”

Debt management plans (DMP)


A debt management plan, or DMP, helps you consolidate payments of unsecured debt, such as credit card payments. DMPs are created for consumers by nonprofit credit counseling agencies. Nitzsche said people seeking DMP for managing debt have an average credit score of about 580. You make one payment through your DMP instead of several payments to different creditors. You may also reduce your payments on interests as your credit counselor may be able to negotiate with your lender for lower rates, monthly payments and fees associated with your debt.

To pick a nonprofit credit counseling agency for quality services, visit the National Foundation for Credit Counseling.

Pros:

  • Before you entering a DMP, you are required to complete a full financial review with a counselor. This helps you assess your finances, and your counselor may even recommend another program that may be better suited for you.
  • You don’t have to deal with multiple monthly payments. A DMP streamlines your debt payment process.
  • It generally takes four to five years to complete a DMP. You may pay your credit card debt more quickly with a DMP than making the minimum payment each month.
  • Your counselor may negotiate better terms for your debts, including lower interest rates. Nitzsche said the average rate his clients get is around 8%.

Cons:

  • While enrolling in a DMP, you may be asked to close your credit cards and you can’t apply for new credit. Your credit score will take a hit if you close credit cards.
  • The credit counseling firm may charge an initial fee for the first session. Enrollment fees are required when you enter a DMP (vary by states; average $33). On top of that, you will pay an ongoing monthly fee (average $24, not to exceed $50).
  • DMPs can help you with certain types of debts, such as credit card debt, personal loans and collection accounts, but not all of them. For instance, they don’t help with payday loans and secured loans, such as a mortgage.

Consolidate your debt with a new loan


When you are climbing a mountain of debt and are having a hard time keeping track of various monthly payments, consolidating your debt may help you make debt more manageable with a lower interest rate. We will walk you through two common debt consolidation options and examine the pros and cons of each — personal loans and home equity loans.

Consolidating with personal loans

A personal loan could be a preferable choice for someone who has less than perfect credit but good enough credit to qualify for a loan at a lower rate than his/her credit card. Personal loans are unsecured loans offering a fixed amount of money at a fixed rate for a fixed amount of time.

A personal loan allows you to transfer your balances into one loan. It will not only reduce the number of payments you have to make every month, but you may also save on interest payments. In general, you will have 24 to 60 months to repay your loan.

Pros:

  • You can pre-qualify for many personal loans without hurting your credit score. This will allow you to shop around for the best rates.
  • A personal loan can help you rebuild credit by adding another line of credit to your file. As long as you make on-time payments, you can expect your credit to improve over time.
  • A personal loan carries an interest rate, which varies by credit score, but is usually lower than credit card interest rates. According to data from the Federal Reserve, the average personal interest loan rate was 10.22% in the first quarter of 2018, compared with the average 15.32% of interest collected on credit card debt.

Cons:

  • You may qualify for personal loans even with poor credit, but you are likely to get higher interest rates.
  • Many lenders charge an origination fee, which is nonrefundable and deducted from your total loan amount before you receive the loan.
  • The loan amount is typically capped at $100,000, which is low compared with some secured loans.

If your credit score may disqualify you for a personal loan, you can choose to bring on a cosigner.

Check out this list of personal loans for bad credit.

Consolidating with a home equity loan

If you own a property and have built up equity in it, a home equity loan could be another option. By taking this loan, you are putting your home up for collateral to borrow money that you can use to pay off your higher interest debt. You may not need excellent credit to qualify because the loan is secured by your home, which makes it less risky for lenders. At the end of the day, they know they can recoup their losses by taking your home. Of course, what’s good for the lender winds up being an added risk for you if you default on your loan.

With a home equity loan, you receive a lump sum of money and pay it back over a fixed period of time at a fixed interest rate. You can borrow a certain percentage of your home equity (the value of your home minus how much you owe on the home). But if you default on your loan, the lender may foreclose on your home.

Pros:

  • Typically, you have five to 15 years to repay the loan; longer terms than personal loans.
  • Home equity loans usually carry lower rates than personal loans. This FICO® chart shows the average APR and monthly payments on home equity loans by credit scores.
  • The loan amount is capped at 85% of the home’s value minus the balance of the current mortgage. It may be larger than what a personal loan.

Cons:

  • Your loan is secured by your home, and you risk losing your home if you can’t make loan payments.
  • Applying for a home equity loan is like securing a mortgage. A home equity comes with closing costs.

Read this guide to on how to choose the right type of debt consolidation.

Settle your debt with a lump-sum payment

If you can’t make your payments that are long overdue, you could try to get your debt resolved for less than what was owed through settlement.

This usually happens only when your debt is in collections and extensively past due. In this situation, you are no longer dealing with your original creditor because your debt is sold to a collection agency. In some cases, however, the original lender may still own the debt and still be open to settling. Just ask.

At this point, you may be able to negotiate with the debt collector to settle the debt for less than what you owe.

There are for-profit debt settlement companies that can sometimes help negotiate with creditors on the money you owe for less than full balance repayment, for a fee. But beware of risks associated with such services. You can easily negotiate with lenders yourself without going through a third-party service. Also, some creditors will refuse to work with these types of companies, so don’t pay for a service before you check with your lender to see if they will entertain discussions with third parties.

Pros:

  • You can possibly settle your debt for less than the balance.
  • You may pay off your debt faster this way than by making the minimum monthly payments.
  • You can avoid bankruptcy.

Cons:

  • Be very wary of debt settlement companies. Many charge expensive fees and are not able to deliver their promises when you can do the same for free. It may end up costing you more money to have their assistance.
  • Often requires a lump-sum cash payment, which you may not be able to afford all at once.
  • Your creditor may refuse to settle.
  • If the debt collection agency forgives $600+, you may have to pay taxes on the amount.

When and How to Settle Credit Card Debt

Last resort: Bankruptcy

This is your last resort. When you are in such a dire financial situation that you absolutely have no way to pay off your debt, bankruptcy could be a viable option for you to start over. Declaring bankruptcy is a legal process through which the borrower can have his/her debt forgiven or restructured.

There are several types of bankruptcy that determine how much and what kind of debt can or will be discharged. Consumers commonly file two types of bankruptcy: Chapter 7 and Chapter 13.

Chapter 7 allows debtors to cover debt by liquidating all their unprotected assets, meaning they have to sell some of their assets to pay off debts. It’s more suitable for those who have little disposable income.

Chapter 13 requires debtors to repay some or all of the money they owe based on how much they expect to earn over three to five years, but they can keep their assets. After the repayment period, the remaining balance will be discharged.

Pros:

  • You can discharge most, if not all of your debt.
  • It will make a serious dent in your credit file, but you can mend your credit score eventually. According to LendingTree’s research within a year of the bankruptcy, 43% of people with a bankruptcy on their credit file had a credit score of 640 or higher. Within two years, 65% have a credit score above 640. (Disclaimer: LendingTree is the parent company of MagnifyMoney.com)

Cons:

  • You may lose some of your assets.
  • Some debt may not qualify for bankruptcy, such as student loans.
  • It may damage your credit score, and the filing can be on your credit report for up to ten years.
  • You could have difficulties taking out any new loans or opening up credit accounts when you are recovering from a bankruptcy. The LendingTree research shows that after five years of a bankruptcy, about 75% of the filers restore their credit scores to levels where they can qualify for loans.
  • You may have to pay substantially more for loans before restoring your credit.

Bottom line

Paying off a great amount of debt with poor credit is not easy and won’t happen overnight. No matter which method you use, having financial discipline is absolutely imperative. Without discipline, none of the solutions we discussed earlier will cure your money woes. If you are not committed to making on-time payments, can’t resist the temptation of spending or keep taking on new debt, you could wind up owing more than ever before. Before you decide to go with a certain plan, compare the costs that come with each option and see if they outweigh the interest cut. If you consider working with a business to tackle your debt, check out the company’s website and make sure it’s legitimate and reputable. You can search the company on Better Business Bureau or the Consumer Financial Protection Bureau, or you can check them out with your state Attorney General to find out if there are consumer complaints about the firm on file.

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

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5 Ways to Consolidate Credit Card Debt

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.

More than half — some 112 million Americans — carry credit card debt from month to month. The average balance debt holders carry is $4,453.

Credit card debt can quickly spiral out of control if you don’t pay it off in full each month, especially if you have debt on more than one card. With interest rates well into the double-digits, failing to aggressively attack credit debt can leave you paying far more than you ever intended.

One of the best ways to face credit card debt on multiple cards is to look for ways to consolidate that debt into one new loan with one monthly payment. This makes your payments easier to manage (you’ll only have one!) and it can save you boatloads on interest charges, especially if you can get a loan that carries a lower APR.

To consolidate, you’ve got several options. You can open a new credit card and complete a balance transfer or take out one of several loans to cover your debt. In this post, we’ll discuss how to get out of debt with a balance transfer, personal loan, home equity loan and 401(k) loan, as well as tips on becoming debt-free for good.

5 options to consolidate credit card debt

1. Balance transfer

What is it? Balance transfers are when you transfer debt from a current credit card to a new card, ideally one with a 0% intro APR period. The intro period is for a set amount of time that can range from 6-21 months. Many cards offer 0% intro APR balance transfer offers in order to convince credit card users to give them their business. It’s a win-win situation for the lender and the borrower.

When should you use it? If you’re looking for an interest-free way to consolidate your debt, a balance transfer can be a great choice — as long as you pay off your debt before the end of the intro period.

Pros:

  • May be able to pay off your debt during the 0% intro period, therefore avoiding any interest charges.
  • The new card you open may provide long-term value if it offers additional perks or rewards.
  • There are cards that have $0 intro balance transfer fees, allowing you to cut costs if requirements are met.
  • No prepayment penalty.

Cons:

  • Balance transfers can’t be done between cards from the same issuer.
  • You will need good or excellent credit to get the best BT offers.
  • If you don’t pay your balance before the end of the intro period, you may be hit with all the interest you accrued — known as deferred interest.
  • A balance transfer fee may be charged, typically 3% of your total transfer.
  • Most balance transfer cards require good or excellent credit.

Balance transfer rules to follow: Transfer balances soon after opening the card since many offers are only available for a limited time, usually around 60 days. And, make sure you aren’t late on payments since that may result in the cancellation of your 0% intro period. Also, make sure you pay your balance before the intro period ends so your debt isn’t hit with the ongoing APR and you avoid possible deferred interest.

How long a balance transfer takes: Balance transfers typically take 14 days to post to your account. While you wait for the transfer to post, continue to make payments on your balance so you don’t incur late fees if a bill is due soon.

Where to find the best options: Start by comparing offers online. Read our guide on the best balance transfer cards that includes options with long intro periods and $0 intro balance transfer fees. And, you can use our personalized tool to find even more options.

The Amex EveryDay® Credit Card from American Express

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Rates & Fees

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The Amex EveryDay® Credit Card from American Express

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

2. Personal loan

What is it? Personal loans are unsecured loans that offer a fixed amount of money for a fixed amount of time and at a fixed interest rate.

When should you use it? If you’re someone with less-than-perfect credit looking for a straightforward way to consolidate debt, a personal loan may provide increased approval odds compared with a balance transfer credit card.

Pros:

  • You can pre-qualify for many personal loans without hurting your credit score, allowing you to shop around for the best rates.
  • Personal loans are unsecured, meaning if you default on your loan, the bank can’t take your personal property.
  • May be able to get approved even with poor credit, but expect higher interest rates in return.
  • Payments are fixed so you’ll know how much money to set aside each month to pay back your loan.
  • Typically no prepayment penalty. That means if you pay your loan early, you won’t incur fees.

Cons:

  • Interest rates vary by credit score with rates as low as 3.09% and upward of 36%. If you have a credit score below 600, you most likely will receive a high-interest rate.
  • There may be an origination fee (also known as an upfront fee) which is nonrefundable and deducted from your total loan amount before you receive the loan.
  • The loan amount is typically capped at $100,000, which is low compared with some secured loans (though it’s unlikely you’ll need more than $100,000 for credit card debt).

How to use it effectively: Use the funds from the loan to pay off any debts you may have across various credit cards. After your credit card debt is paid off, it’s time to pay off your personal loan. Set up autopay or set aside the monthly payment amount so you can make payments on time and avoid late fees and damage to your credit score.

How long does it take to get the funds? Depending on the loan you take out, you may receive funds in one business day or in a few days.

Where to find the best options: View our list of best options for debt consolidation loans or you can use our interactive comparison table below for more options.

LendingTree
APR

5.99%
To
35.99%

Credit Req.

Minimum 500 FICO

Minimum Credit Score

Terms

24 to 60

months

Fees

Varies

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3. Home equity loan

What is it? Home equity loans are for a fixed amount of money for a fixed time and at a fixed interest rate — but they are secured by your home. That means your home is collateral, and if you default on your loan, the lender may foreclose on your home. You can borrow a certain percentage of your home equity. That’s how much your home is worth minus how much you owe on the mortgage.

When should you use it? If you don’t mind putting your home up for collateral to pay off your credit card debt, a home equity loan may provide you with a large sum of money that can be used to pay off more than just credit card debt.

Pros:

  • Typically longer terms and lower rates than personal loans.
  • While lenders typically cap home equity loans at 85% of the equity in your home, the loan amount may be larger than what a personal loan would offer.

Cons:

  • Your loan is secured by your home, so if you don’t make loan payments, your home may be foreclosed upon.
  • Home equity loans come with more fees than personal loans and may have appraisal, application and processing fees in addition to an origination fee.

How to use it effectively: Pay off credit card balances with the money you receive from your home equity loan. Then, stay current on your loan payments so you don’t fall behind, risking fees, damage to your credit score and the foreclosure of your home.

How long is the application process? It may take up to a month.

Where to find the best options: You can compare home equity loans within minutes via LendingTree’s home equity page. Disclosure: LendingTree is the parent company of MagnifyMoney.

4. 401(k) loan

What is it? A 401(k) loan is when you borrow money from your existing 401(k) plan to pay off debts. The amount you can borrow is limited to the lesser of $50,000 or 50% of your vested balance. After you withdraw the money, a repayment plan is created that includes interest charges. You typically have five years to pay off the loan, and if you take out the loan to buy a house, your term may be extended to 10-15 years.

When should you use it? If you are willing to take the risk that you’ll still be at your current job during the length of time it takes to pay off your loan, you may be able to consolidate credit card debt with a 401(k) loan.

Pros:

  • The interest you pay on your loan is to yourself, not a lender.
  • You typically repay the loan via automatic payroll deductions, so you don’t have to worry about when your payment is due.
  • The interest rate is usually lower than what you’re currently paying on your credit card(s).
  • There is no credit check, so this could be a decent option for people with bad or fair credit.

Cons:

  • If you lose your job, your loan is typically due in full within 60 days. And, if you can’t pay it off in that time, the remaining balance will be taxed and may incur a 10% penalty.
  • You have to stay at your current job until the loan is paid off in order to avoid the fees mentioned above.
  • You miss out on potential investment gains while you owe money on your loan.

How to use it effectively: The money you withdraw from your 401(k) loan should go directly to paying off your credit card debt. After your debts are paid off, payments most likely will be taken from your paychecks until your loan is repaid. If not, continue to make regular, on-time payments. While you’re repaying your loan remember to keep your job — don’t quit and avoid any actions that may lead to your dismissal so you aren’t subject to penalties.

How long until I get the loan? The time it takes to get your loan depends on your plan and whether you can fill out the application online or with physical forms.

Where to find the best options: Your loan option depends on your 401(k) plan. Contact your plan provider or benefits representative.

5. Debt management plans

What is it? A debt management plan, or DMP, consolidates your credit card payments — not your credit card debt. Instead of making several payments to various creditors, you make one payment to your DMP and your credit counselor will use that payment to pay the debt you owe to various lenders. Your counselor may also try to negotiate lower rates and fees associated with your debt.

When should you use it? If you struggle to make minimum payments on your credit card and bring in a stable income, a DMP may be the solution to consolidate your payments and potentially lower rates and fees you’re charged on debt.

Pros:

  • Before you open a DMP, a credit counseling session is required. This helps analyze your current financial situation and even recommend a different program that is better suited to your situation.
  • Typical plans take four or five years to complete, which is shorter than it would take if you only made the minimum payment on your credit card debt.
  • Your counselor may negotiate better terms for your debts which may include lower interest rates and less fees.

Cons:

  • In most cases, you can’t use your credit card while a DMP is active and you can’t open new cards. Creditors may even suspend or close your lines of credit.
  • There may be a fee for the initial credit counseling session and for enrollment. That’s in addition to monthly fees.

How to use it effectively: After you complete your credit counseling session, stick with the DMP your counselor set up. That means make consistent, on-time payments, and you can see your credit card debt begin to decrease.

Where to find the best options: We recommend the nonprofit, National Foundation for Credit Counseling (NFCC), which provides a financial counseling session that may recommend a DMP run through an NFCC member agency. The NFCC’s plans typically take 36-60 months to pay off debts. Learn more here.

>> Still unsure as to which option to pick? View our article on choosing the right debt consolidation method to help your decision making process.

Staying debt free after consolidating credit card debt

Pay your bills in full and on time.

Payment history is a very important factor of your credit score, making up 35% of FICO Scores. And, it’s key to pay on time and in full every month to avoid late payments, penalty APRs and debt. You can set up autopay to prevent yourself from missing payments or sign up for payment reminders.

Create a budget.

The cause of your debt may be due to overspending, and that’s where creating a budget can help. You can view a snapshot of your expenses and see where you’re able to cut costs and hopefully save money to pay off debts you may have. There are plenty of budgeting apps that are free and allow you to link various accounts to get a holistic view of your finances.

Set up an emergency fund.

Sometimes you fall into debt due to unexpected expenses that may arise from medical issues or other events. An emergency fund can be a great way to provide yourself with a safety net in the case of unexpected expenses that may otherwise put you in debt. It’s up to you how much you put into an emergency fund, but keep in mind it should be somewhat easily accessible so you can quickly withdraw it to pay bills before they become past due.

Resist the temptation to overspend just to earn rewards.

If you have a rewards card, you may be tempted to spend more money than you have just to earn rewards. As a result, you may need to rethink why you’re using your credit card. You may come to the conclusion that a rewards card isn’t the best option for you. That doesn’t mean you can’t still use credit cards — there are plenty of credit cards you can choose that are basic and don’t have rewards.

>> View the many benefits of living debt-free here! <<

Bottom line

Ultimately, the best way to consolidate credit card debt depends on your financial situation. If you want a quick application process and the potential for no fees, you may choose a balance transfer credit card. Meanwhile, if you don’t have the good or excellent credit needed for a balance transfer credit card, you may look toward loans. If that’s the case, the question becomes whether you’re willing to put your home up for collateral to get a potentially higher loan amount, or withdraw from your 401(k) or simply receive cash from an unsecured option like a personal loan. And, if you struggle with managing payments for various credit card debts, you may lean toward a debt management plan. Whichever option you settle on, make sure you have an actionable plan that allows you to fully repay the loan during the term and maintain a debt-free life.

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.

Alexandria White
Alexandria White |

Alexandria White is a writer at MagnifyMoney. You can email Alexandria at alexandria@magnifymoney.com

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What Is Debt Consolidation & How Does it Work?

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.

Dealing with multiple personal debts might feel a lot like playing whack-a-mole – different bills with different due dates, minimum balances and late fines and penalties. Just when you’ve sent in one payment, another bill pops up. It’s easy to see how people get behind when repaying multiple debts overwhelms them. Debt consolidation can help by essentially rolling all your debt payments, like credit card bills, into one with a single due date and a fixed interest rate that is typically lower, depending on your credit score. Sounds easy right? While debt consolidation does provide a bevy of benefits, it does have its pitfalls if one isn’t careful. But don’t fret, we here at MagnifyMoney got your back! Continue reading our guide on consolidating debt to learn the in’s and out’s of debt consolidation!

Debt Consolidation: Understanding the Basics

As stated above, a key component to debt consolidation is rolling all monthly payments into one. There are two primary ways to concentrate debt payments into one bill: transferring the debt to a 0% balance transfer credit card, or a debt consolidation loan. Your credit score is a big determining factor as to which of the two options you should choose. If you have a credit score of 700 or higher it’s probably better to consider a balance transfer credit card. We will talk move about balance transfers further down. If you have a credit score below 700, which is common with someone dealing with a good amount of credit card debt, a debt consolidation loan is right up your alley. Let’s jump into learning exactly what a debt consolidation loan really is!

Looking to increase your credit score so you can qualify for a balance transfer credit card? 6 simple steps to improve your credit score!

What is a debt consolidation loan?

A debt consolidation loan is any type of loan that is used to pay off all existing debts, which allows you to focus on just paying one monthly payment opposed to several. (More about this in the section below!) In many cases, debt consolidation loans offer lower interest rates and extended terms compared with your current payments. People typically choose to consolidate debt to simplify their finances or to save money on interest payments. Borrower beware: Upfront fees or temporary terms could eat into that savings. Make sure to read the fine print before committing to your debt consolidation loan! Plus, consolidating debt without a plan to address the behavior that got you into financial trouble in the first place may actually exacerbate your debt if new lines of credit tempt you to start spending again.

How debt consolidation works

When you obtain a debt consolidation loan, you receive a lump sum to pay off your existing debts. Then, instead of juggling multiple payments, you can focus on making the one new loan payment. “You essentially take multiple loans that might be causing confusion with different interest rates and different terms, and roll them into a single loan, which leaves you with one single payment needing to be made,” said Todd R. Tresidder, money coach at FinancialMentor.com. Debt consolidation works best when you have a credit score that allows you to qualify for a loan with interest rates lower than what you’re currently paying. The higher your credit score, the better debt consolidation can work for you.

— If you are dealing with average or poor credit, and want to consolidate your debt.

View our list of debt consolidation loans for fair credit or our list of debt consolidation loans for bad credit

What types of debt can I consolidate?

Debt consolidation can be used to simplify almost any type of unsecured consumer debt. This includes:

“Though debt consolidation is most often used for credit cards, there’s not a boundary line. You could consolidate pretty much any type of loan that you have,” Tresidder said.

Which loans can be used to consolidate debt?

Based on LendingTree data (our parent company), personal loans are the most popular option for debt consolidation, but a home equity loan or HELOC work as well. There are companies that specialize in debt consolidation loans, or you may choose to work with your preferred local bank or credit union. To make it easier for you, we’ve compiled a list of the best personal loans for debt consolidation.

One caveat: You will need good credit to ensure you’re able to obtain a loan with better rates and terms than your existing debt.

Note: If you have a credit score less than 640, struggling to make monthly debt payments and would like to explore your options to reduce your debt by up to 50%, then please click our option below to customize a personal debt relief plan.

Custom Debt Relief Plan

Depending on your unique needs and situation, there are different loan products that can help you consolidate and streamline your debt payments. View our guide on choosing the right debt consolidation method to get a better understanding of the options available for you.

Where can I find the best debt consolidation loans?

Since achieving a lower interest rate and better terms are imperative when consolidating debt, comparing offers is essential. Since this will require that the lender do a credit check, be sure to get all your shopping done within 45 days. Multiple hard credit pulls outside of that time window can be damaging to your FICO credit score.

Online lending marketplaces such as LendingTree simplify the process by enabling you to see offers from multiple lenders. Local financial institutions are another place to start shopping for debt consolidation loans. “The familiar is good if you have a credit union or a trusted bank. Start there just as your comparison point before you start looking at … companies online,” Dlugozima said.

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Dlugozima advised contacting the National Foundation for Credit Counseling’s referral service. “They have stringent industry standards, so you will be referred to a legitimate nonprofit organization that can help you choose the best approach.”

When does debt consolidation make sense?

Read the fine print, Sokunbi said, since some debt consolidation products have terms that may be temporary. “People should be mindful of whether there are any penalties or fees or if you’re going to lose any special perks or be charged any fines,” Tresidder added. “You also have to find out from the company offering the bulk loan what types of loans they will allow to be consolidated.”

Don’t dig a deeper hole. Most importantly, consumers should examine their budgets to determine whether they can comfortably afford the new monthly payment. “Do not add insult to injury when you’ve already got a debt problem,” said Tresidder. “The fact that you’re a debtor shows that you lack financial savvy to begin with, so do extra due diligence and recognize that you’re trying to solve a problem and you don’t want to make it worse.” Make sure to get the lowest interest rates possible. Shopping around to find the best offer will save you money in the long run.

Calculate your loan payments and how long it will take to repay your debts using LendingTree’s debt consolidation loan calculator. LendingTree is the parent company of MagnifyMoney.

When is debt consolidation a good idea?

Chris Dlugozima, education specialist with GreenPath Financial Wellness, said that debt consolidation is ideal for individuals with a reasonably good credit score who have an isolated reason for having fallen behind on their debts. “A debt consolidation loan can make sense for someone who has identified the cause of why their debt has crept up and has already addressed that. Like, ‘I lost a job, but now I’m back at work.’ Or, ‘I was overspending, but now I’ve had some success following a budget and I’m confident I won’t get back into that situation,’” he said.

Having a good credit score allows more options to be available when deciding to consolidate debt at a lower interest rate. Whether you decide using a personal loan, home equity, or even potentially qualifying for a balance transfer card, your credit score will likely be the biggest determining factor when deciding which option is best.

It may be a necessity for others, a lifeline for those in danger of falling behind on bill payments. “If you’re in a situation where you can’t make your payments at the lower interest rate, and the extended terms allow you to make your payment so you don’t go into default, then that helps as well,” said Tresidder.

When is debt consolidation a bad idea?

A certified credit counselor might recommend a debt-management plan as an alternative to debt consolidation for those with significant debt, or for people who are struggling to address the root cause of their debt.

“If you’ve ever tried to shovel in a blizzard, it might feel like you’re accomplishing something, but are you?” said Dlugozima. Debt consolidation can often feel the same way. “You get a sense of relief that you’ve solved a problem when you maybe haven’t.” When existing debts are paid off with a debt consolidation loan, some consumers may start feeling comfortable and become tempted to let those debts creep back up again, especially with credit cards.

Debt consolidation isn’t an ideal fit for those with below average to poor credit scores. The main benefit of debt consolidation is to roll all debt into a loan with a lower interest rate than what’s currently being paid. Having a below average to poor credit score pretty much nullifies this since you’ll end up with a loan with a sky-high interest rate.

What’s your goal? Debt consolidation may even increase your financial burden if you don’t carefully review an offer. A lower monthly payment might be deceptive if the terms are significantly longer. “A lot of people think only in terms of monthly payments, but you’ve got to look at the total of what you’re paying. You might have a lower interest rate and a longer term, but effectively you’re paying a higher total cost,” Tresidder said.

If you aren’t focused on the end game of becoming debt-free, a debt consolidation loan might not be the best approach for dealing with existing debts. “If you’re just trying to avoid a creditor or shift your pay dates around, that doesn’t solve a problem, it just delays the inevitable,” Sokunbi said. She advised searching online or picking up a book on debt repayment strategies to start you off on the right foot. “They will talk you through the best approach to paying off this now consolidated debt because that’s just Step 1 to getting yourself out of debt.”

How does debt consolidation affect your credit?

Consolidating debt with a loan can have both positive and negative effects on your credit score. “It’s very nuanced. It depends,” said Dlugozima. “If it’s done in a way that doesn’t allow additional debt to accumulate, it probably won’t immediately affect the credit until the debt gets paid down.”

The negative effects of debt consolidation on your credit score

If you close your accounts as they are paid off, that can be damaging to your score. Older accounts make for a better credit score; closing accounts means that your credit utilization ratio increases as your credit limit decreases, which also negatively impacts your score. On the flip side, if you continue to spend on the accounts you’ve paid off with your loan, your credit score can take a dive. “If you just pay the minimum balance on your debt consolidation loan and go back to those old zero-balance credit cards and start racking up debt, it’s going to negatively impact your credit,” said Sokunbi.

How debt consolidation can improve your credit score

Successfully paying off debt will most certainly have a positive effect on your score in the long term, as large debts and late payments can really bring your score down. “If you’re currently incurring penalties because you can’t make your payments and by consolidating you’re able to make your payments, clearly that’s going to help your credit score over time,” said Tresidder.

Alternative options to pay off debt

A debt consolidation loan is just one approach to consolidating debt. Depending on your unique needs and financial situation, another option might be preferable.

Balance transfer

A balance transfer is a popular approach to managing credit card debt. By transferring the balances on existing cards to a new card with a more attractive interest rate, consumers get the mutual benefits of simplified payments and cost savings. Many individuals take advantage of introductory offers of 0% interest for a certain length of time in order to make headway on their debt without the added expense of interest. To qualify for a balance transfer credit card, it’s best to have a credit score of 700 or higher.

“You have to read the fine print and you have to understand the numbers. If you know you’ll be able to pay off the entire balance before the introductory offer expires, it can save you a significant amount of money,” Sokunbi said. “But once that introductory rate expires, it’s often much higher than where you are coming from.” Some 0%-interest credit cards also have severe penalties and rate increases if you miss a payment, so proceed with caution.

It is convenient to shop for a balance transfer credit card online with our list of the best balance transfer credit card offers.

Pros

  • Potentially 0% interest rate for up to 21 months
  • Easy to create a repayment schedule
  • Easy to shop for online

Cons

  • Must have a high credit score. (700 or higher)
  • Attractive rates are often for a limited time only
  • May have penalties and rate increases

Budgeting

Snowball versus avalanche. If you have the willpower to stick with a DIY debt repayment strategy, a debt snowball or debt avalanche approach might be right for you. With both approaches, you pay the minimum balance each month on all but one debt.

In a debt snowball, you pay all extra money toward the smallest debt until it is paid off and then move on to tackling the next smallest until all of your debts are gone. In a debt avalanche, you pay your debts off in order of their interest rate (highest first), which gives you the lowest mathematical cost of paying off the loan.

“One is focused on cost, but the other gives you the highest emotional satisfaction because you can see those loans getting paid off quicker, which allows you to stick with it better,” said Tresidder. “One is financially the best solution and the other is emotionally the best solution. It’s going to depend on the individual, what they need to stick with the plan.”

>> Enter your debts into our Debt Snowball vs Debt Avalanche calculator to see which method is best for you!

Sticking to a budget is self-satisfying and free of fees. But, you need to be realistic about whether or not you have the determination to stay on task. In many cases, people who are already deeply in debt might not be equipped to make the most responsible financial choices.

Pros

  • No-cost option
  • Emotionally satisfying
  • Building good financial habits for the future

Cons

  • May be difficult to stick with

Debt relief programs

When engaging with a debt settlement company, it is essential to first check their reputation. “You have to be very careful with these companies. They’re one of the top consumer complaints,” Tresidder warned. “But, there are people who have gone down the tube so far they’re completely desperate and this may be their only choice.”

With debt settlement, a company will negotiate your debts with your creditors on your behalf for a fee. Often, you pay the settlement company and they make your payments for you. In the process, they allow some of your accounts to go into default so your creditors will be more motivated to negotiate down the balances. “I would not go with any debt settlement company that tells you to pay them before they have a negotiated deal and before you begin payments directly on the amount,” Tresidder said.

Pros

  • Offers help for individuals in serious debt trouble
  • Provides strict payment schedule
  • People who complete the program usually pay-off their unsecured debt in 24 to 48 months. This assumes that they complete the program.
  • Better option than filing bankruptcy.

Cons

  • Some companies in this space may use predatory practices
  • Can negatively impact your credit score
  • May result in legal ramifications if not done properly
  • For some people, depending on their financial situation, they may have to pay tax on amount of debt that was reduced

If you have time and patience, you can try to negotiate your debt directly with the creditors. If you would like professional help to negotiate your debt on your behalf, then a debt relief company can help. Click here to compare leading debt relief companies.

How to make debt consolidation work for you

When deciding the best way to consolidate your credit card debt, or whether a debt consolidation loan is the right step for you, first consider your financial habits and your commitment to make a change. “A debt consolidation [loan] is putting a Band-Aid on a problem. It’s not a solution. Debt consolidation is merely changing the terms of your loan to create a payment that’s easier for your situation,” Tresidder said.

As part of your debt consolidation efforts, consider speaking with a debt management planner or a credit counselor. “There are a lot of great non-profit ones that are actually there to support you and help you and guide you. When you meet with a legitimate credit counselor, you will have a budget, you will look at your credit report, you will analyze your debt and your options, and you will leave with a detailed written action plan,” said Dlugozima.

Most importantly, do your research. Shop around and find an offer that helps you streamline your payments and saves you money.

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.

Ashley Sweren
Ashley Sweren |

Ashley Sweren is a writer at MagnifyMoney. You can email Ashley here

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