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What Is a Good Debt-to-Income Ratio?

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Your debt-to-income ratio, or DTI, compares your debt payments to your income on a monthly basis. It’s an important measurement of how manageable your monthly budget is, as it reveals how much of your income is being devoted to payments on debt you still owe.

But it’s even more important to be aware of your DTI if you’re planning to apply for new credit soon. Here’s what you need to know.

How debt-to-income ratios work

A debt-to-income ratio is expressed as a percentage that represents how much of your monthly income goes toward debt repayment. So a DTI of 20%, for example, shows that your monthly debt costs are equal to 20% of your gross monthly income.

The lower your monthly debt costs and the higher your income, the lower your DTI. But if you borrow more or your income is lower, your DTI will be higher.

There are two types of debt-to-income ratios that a lender might consider.

Your front-end DTI compares your total housing or mortgage costs to gross monthly income. It’s sometimes also called your housing-expense-to-income ratio. This is based on your full mortgage payments if you have a mortgage, and would include principal, interest, property taxes, homeowners association fees and insurance costs. If you rent, it would be your monthly rent amount. It doesn’t include non-fixed costs such as utilities.

Your back-end DTI compares your income to the minimum payments on your outstanding credit accounts, including mortgage and non-mortgage debt. That means your back-end DTI includes:

  • Monthly payments on installment loans such as student loans, car loans or personal loans
  • Housing expenses, such as monthly rent or full monthly mortgage costs (as outlined above)
  • Minimum monthly payments on revolving accounts such as credit cards or lines of credit
  • Other financial obligations such as child support or alimony

Your back-end DTI is more commonly considered by lenders when you submit a loan application. A mortgage application will usually consider both your front- and back-end DTIs when deciding if you qualify.

Because a back-end DTI is more commonly used, assume that we’re referring to this number unless otherwise noted.

Why lenders favor applicants with lower DTIs

Most lenders will also consider your DTI to decide if you can reasonably afford to take out and repay an additional debt. A low DTI tells them that you have room in your budget to take on and repay new debt, increasing your chances of getting approved for credit. But a high DTI could be a red flag to lenders that you’re already stretching yourself thin and pose a larger lending risk.

If you’re planning to apply for a home loan, car loan or other types of credit, it’s important to figure out your debt-to-income ratio. Knowing your DTI will clarify whether you’re likely to qualify for new credit, or if you need to take steps to compensate for a poor ratio.

Even if you aren’t planning to take out a loan soon, maintaining a healthy DTI can be a good idea. It’s a sign that you’re managing your finances well and avoiding taking on more debt than you can afford, and it will also make it easier to get a loan in an emergency or unexpected event.

What is a good debt-to-income ratio?

As you take stock of your debt payments and income, you might be wondering how good a debt-to-income ratio needs to be. When lenders assess your loan application, what is a good DTI?

While DTI standards can vary by lender and product, some general rules can help you figure out where your ratio falls. Here are some guidelines about what is a good debt-to-income ratio:

  • The “ideal” DTI ratio is 36% or less. At least, that’s the common financial advice of the “28/36 rule.” This guideline suggests keeping total monthly debt costs at or below 36% of your income, and housing costs at or below 28%. (You can calculate this number for yourself by multiplying your monthly income by 0.36 or 0.28). A DTI in this range will result in affordable debt and give you the ability to qualify for additional credit when needed.
  • The maximum DTI for most lenders is 43%. This is typically the threshold for getting a new loan, according to the Consumer Financial Protection Bureau. Borrowers with a debt-to-income ratio exceeding 43% are shown to be more likely to struggle with monthly costs. You’re much less likely to get approved for a loan with a DTI above 43%, and might need to seek alternative products.
  • The maximum front-end DTI ratio for a home loan is 31%. At least, that’s the rule set by the Federal Housing Administration for loans it guarantees. Most lenders will want to see that the total costs of your new FHA mortgage payment are equal to or less than 31% DTI. For non-FHA loans, the guideline is a front-end DTI of below 28%, according to the National Foundation for Credit Counseling.
  • The lower your DTI, the better. As mentioned, a high ratio of debt to your income could be a sign that you can’t afford to take on more debt. So the lower your DTI, the better — while a 36% ratio is good, a 20% DTI would be viewed even more favorably.

How to calculate your debt-to-income ratio

Now that you know what is considered a good debt-to-income ratio, it’s time to calculate your own. Here’s a step-by-step process to calculate your DTI.

  1. Look up all your monthly debt costs. To figure out your debt-to-income ratio, you’ll need an accurate dollar amount of every debt you pay each month. Find the monthly minimum payments for your mortgage (or rent, if you don’t own a home), student loans, car loans, credit cards and other financial obligations.
  2. Add your monthly payments together. Add up the dollar amounts of all these monthly payments to get the total you pay toward these each month. (If you want to figure out your front-end DTI, include only your housing-related costs.)
  3. Figure out your monthly income. You’ll need to use your gross income, and include all income sources, including overtime pay, bonuses and pay from a second job or side hustle. A salaried employee can divide annual income by 12 to find monthly income. If you’re hourly or your pay fluctuates, review recent pay stubs to figure out your typical monthly income.
  4. Divide monthly debt costs by your monthly income. This will give you a decimal figure, which, if you multiply by 100, is your debt-to-income percentage.

If you follow these steps, you can calculate your DTI. Here it is as a mathematical formula:

(Sum of all monthly debt payments / Gross monthly income) * 100 = Your debt-to-income ratio

You can also use a calculator to automatically generate your DTI. We like the straightforward DTI calculator from our sister site Student Loan Hero, which generates both your front-end and back-end ratios.

How to improve your debt-to-income ratio

After running the numbers on your debt-to-income ratio, you might be worried that yours is too high. Fortunately, you do have some control over your DTI and, with some time and effort, could decrease it.

The way to do that is to work on the two things that factor into this ratio: your income and your debt costs. Here are some ways you can work on each of these to improve your debt-to-income ratio.

1. Avoid taking on more debt

Any new debt you accrue will only push your DTI higher. If you’re already uncomfortable with how high your debt-to-income ratio is, that’s a sign that you need to stop borrowing until you get it under control.

Take a look at your budget to ensure you’re living within your means and not spending more than you’re making. If you’re used to spending with credit cards, consider putting these away and paying only with debit cards or cash. Save up for major purchases or emergencies, too, so you can rely on your funds instead of borrowing to cover upcoming or surprise expenses.

2. Pay off low balances first

Every time you pay off a debt completely, you eliminate the monthly payment from your budget. So making extra payments on some of your credit accounts could be a smart way to lower your monthly costs.

This can be especially effective if you follow the debt snowball method, which targets your lowest balance first to quickly eliminate your smallest debt. Each time you pay off a loan or credit card, you’ll get rid of a monthly payment and lower your DTI in the process.

On top of decreasing your DTI, following the snowball repayment method will also get you out of debt faster and save you money that you’d have otherwise spent on interest.

But if you’re looking to get out of debt faster by reducing your total interest costs so that more of your monthly payments go toward the principal balance, you could opt for debt consolidation. With debt consolidation, you can take out a personal loan to pay off existing debts. The new loan should have a lower interest rate.

Debt consolidation could also help your DTI ratio by lowering your monthly payment. If you choose a longer repayment term, your monthly payments may decrease, which positively affects your DTI ratio. But a lower monthly payment may mean you’ll be in debt longer.

If you want to explore debt consolidation loan options, you can try out LendingTree’s personal loan tool. You’ll fill out basic information about yourself, your finances and what you need out of a loan. Then you may receive loan offers from lenders you can review.

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3. Refinance your debt

Another smart strategy to lower your monthly debt payments is refinancing. When you refinance debt, you use a new loan to pay off and replace a previous loan. Doing so gives you a chance to get a loan with terms, costs and payments that are a better fit for your needs.

Here are the main ways that refinancing student loans, a mortgage, credit cards or other debt can help lower your monthly debt costs and, in turn, your DTI.

You can refinance to a lower rate. Your monthly debt payments will include a payment to both your principal, as well as an interest charge. The former goes toward lowering your balance, while the latter is an additional cost you pay in exchange for borrowing these funds.

The interest costs are based on your interest rate. Refinancing can be an opportunity to replace a high-interest debt with a new, lower-interest loan. This, in turn, can help lower your monthly debt costs.

You can refinance to a longer loan term. Since refinancing means getting a new loan, it could also give you the chance to choose a longer loan term. This stretches out your debt repayment over more monthly payments, so you pay less each month.

Say, for instance, you bought a home with a 15-year mortgage but have found yourself uncomfortable with how high your monthly payments are. You could consider refinancing to a 30-year mortgage to decrease your mortgage payments and lower your DTI.

As you consider refinancing, watch out for potential downsides as well. Switching to a longer loan term will increase the total interest you pay over the life of the loan, and refinancing can also trigger new loan fees or closing costs. Weigh the benefits and drawbacks for your situation to see if refinancing makes sense.

4. Earn more at your day job

While it’s important to pay attention to your debt, don’t overlook the other side of the DTI equation: your income. One of the most effective ways to lower your debt-to-income ratio is to increase how much you earn at your day job. Here are a few strategies that can make that happen:

  • Pick up more hours. If you’re not full time, ask your manager for an extra shift or offer to cover for your co-workers. Even full-time workers can sometimes pick up overtime to boost pay, so check with your manager for such opportunities.
  • Work toward a raise. Has it been a while since your pay was bumped or have you taken on new responsibilities? Do you have other reason to think you’re underpaid for your work? Start a conversation with your manager about your pay to see if you can negotiate a pay raise now or set a performance track to qualify for one.
  • Seek higher-paying jobs. Switching to a new company can be one of the best ways to get a big pay increase. Do some research into your local job market to figure out what you’re worth and uncover employment opportunities to pursue.

5. Start a side hustle

Use your off-hours to earn more with a second job or side hustle. This can help you generate more income that can be included when calculating your DTI. As a bonus, this additional pay can be the perfect source of funds to pay your debt off faster.

Here are some side hustle ideas to consider:

  • Pick up an hourly second job. You can get a range of part-time jobs in your time off, from teaching a fitness class to tutoring on the side or waiting tables.
  • Consider freelancing, consulting or coaching. If you have specialized skills, you can apply them after hours and get paid a premium to do so.
  • Try a money-making app. You’ve heard of Uber and Lyft — and might have considered driving for them yourself. But these aren’t the only ways to make money from apps. You can use apps to earn extra money baby-sitting, pet-sitting, cleaning houses, renting out your spare car or room or delivering groceries or takeout to make extra income.

6. Look for ways to offset your DTI

If you can’t or don’t want to wait for your DTI to decrease to apply for a loan, you might still have options. Some mortgage lenders will grant you a loan with a debt-to-income ratio over 43% if you can compensate in other areas of your financial history. One way is by having large cash reserves on which you can fall back.

Applicants who can qualify on their own can also add a cosigner to their application. You and your cosigner will be equally responsible for repaying this debt, and both your incomes and DTIs will be considered as well. Adding a qualified cosigner could help you surpass DTI requirements that you couldn’t meet on your own.

Lastly, you can work to optimize other factors considered on credit applications to improve your approval chances. Building your credit to achieve a good score, for example, can go a long way toward offsetting a higher debt-to-income ratio.

Your DTI is an important measure of your health that should matter to you as much as your credit score or reports. Check in on your debt-to-income ratio whenever it might have changed, such as after paying off a loan or working a side hustle for a few months. Tracking your progress can highlight how far you’ve come and keep you motivated to continue working on your DTI.

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Elyssa Kirkham
Elyssa Kirkham |

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

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Accredited Debt Relief Review

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Disclosure : By clicking “See Offers” you’ll be directed to our parent company, LendingTree. You may or may not be matched with the specific lender you clicked on, but up to five different lenders based on your creditworthiness.

Debt isn’t just common in America — it’s the norm.

According to Northwestern Mutual’s 2018 Planning and Progress Study, more than 75% of people are in debt. Those in debt owe over $38,000 on average, and that’s before you include a mortgage. Additionally, 20% of respondents said they spend at least half of their income on loan payments.

Accredited Debt Relief is one of many debt relief companies that consumers can turn to when they’re struggling with overwhelming debt.

Here’s everything you need to know about Accredited Debt Relief and its services.

What is Accredited Debt Relief?

Unlike other debt relief companies, which may focus on one product or debt relief program, Accredited Debt Relief is a referral service. The company’s representatives will review your situation and recommend other companies that can best help you manage or settle your debt.

Accredited Debt Relief works with partners that offer four types of debt relief services. Depending on the program, you may be able to lower your monthly payment, decrease your interest rate, simplify the repayment process, settle for less than your balance or eliminate debts.

Breakdown of Accredited Debt Relief

Want to learn more about Accredited Debt Relief? Here’s a comprehensive look at its services and requirements.

Services offered

  • Debt consolidation

  • Debt management

  • Debt settlement

  • Bankruptcy

Minimum debt required

$7,500 in unsecured debt

Credit check

Yes, in some cases

Debt settlement timeline

12 - 48 months

Consultation fees

No fee for an initial consultation

Cancellation fees

N/A

Service fees

Generally 5%-7% of the debt that you enroll in a program

Types of debt accepted

  • Debt settlement programs and debt management plans are generally only options for unsecured debts, such as credit card debt

  • Debt consolidation and bankruptcy may be options for secured and unsecured debts

Accreditations

  • American Fair Credit Council

  • International Association of Professional Debt Arbitrators


Ratings

  • An excellent rating (five stars) on Trustpilot as of Nov. 26, 2018

  • A+ rating with the Better Business Bureau

Service limitations

Availability of services may depend on your state of residency

Free tools and resources

No

Customer service

Several reviews complain of poor, pushy or unresponsive customer service representatives. But most reviewers on Trustpilot say the service is polite, professional and helpful.

Who’s eligible?

  • To qualify for a service through Accredited Debt Relief, you must be:
    • At least 18
    • A legal resident of the United States
  • Eligibility for a specific program can vary depending on the program, service provider, type of debt you have and where you live.
  • Accredited Debt Relief is licensed and bonded in Idaho, Indiana, Iowa, Maryland, Minnesota, Missouri, Montana and Texas. It may be able to refer you to partners that offer debt consolidation loans in other states as well.

What are the benefits and risks of Accredited Debt Relief

Because Accredited Debt Relief can help you determine which program is best for your circumstances, it may be less risky than working with a debt relief company that only offers one service. Even so, consider the pros and cons of a particular program before enrolling.

Here are a few general benefits and risks to working with Accredited Debt Relief or trying one of the programs its partners offer:

Benefits

Risks

Accredited Debt Relief can connect you with a variety of service providers depending on your situation

Some options, such as debt settlement and bankruptcy, could hurt your credit

You may be able to settle your debt for less than you owe

If you stop making payments, you could wind up being sued by the creditor or debt collector

You can hire a company to negotiate with your creditors on your behalf

The fees you pay could extend your repayment time

With a debt settlement program, you won’t have to pay any fees until after your debts are settled

Accredited Debt Relief representatives are paid on commission and have a financial incentive to get you to enroll in a program

How much does Accredited Debt Relief cost?

The fees you’ll pay can vary depending on the program, service provider and where you live.

With debt settlement, you should only pay a fee once a debt is settled. The fee may be a percentage of the debt you enroll in the program or a percentage of your savings. If a company asks you to pay an upfront fee for a debt settlement program, that’s a red flag that the company isn’t trustworthy.

Accredited Debt Relief says, on average, clients pay about 50% of the balance they enroll in the program to their creditors. But the total cost is 68% to 75% of the total enrolled debt once you include the fees. It’s still a savings compared to paying the balance in full, but you may want to compare debt settlement companies’ fees to see if you can find a trustworthy company that offers a low fee.

Credit counseling organizations may charge you an enrollment fee and monthly fee for a debt management plan.

Debt consolidation might not have any ongoing fees, but some lenders could charge you an origination fee on your consolidation loan. The origination fee, which could be around 1% to 6% of the loan amount, may be taken out of your loan before the lender distributes the loan. Some lenders don’t charge an origination fee, although you may need good credit to qualify for a loan.

Even bankruptcy isn’t free. Costs can vary depending on where you live and the type of bankruptcy, but you may have to pay for court filing and credit counseling. Add on attorney’s fees, and you could wind up spending several thousand dollars.

How long does the program take?

Your timeline can also depend on which program is best for your circumstances.

For example, a debt settlement program could take 12 to 48 months to complete. During this time, you’ll generally stop making payments on your accounts. As a result, you may incur late payment fees. And those late payments could hurt your credit.

But you’ll start making monthly payments into an account that you set up with the help of the debt settlement company. Once you have enough money in the account to offer your creditor a settlement and cover the debt settlement company’s fee, the company will try to get a settlement agreement from your creditor. Accredited Debt Relief says, on average, clients will settle at least one account within the first three to five months. There’s no guarantee a creditor will settle your account, though, and you could be stuck owing the larger balance.

Other programs could take more or less time to complete. Loan consolidation can be a relatively quick process, as you’re simply applying for a loan and waiting for the lender to pay off your creditors. But a debt management plan might take three to five years to complete.

Is Accredited Debt Relief safe to use?

Accredited Debt Relief has many positive reviews from past customers and could be a safe place to start your search for a solution to your debt-related problems. But Accredited Debt Relief refers you to other companies (here’s a list of some partners), and you may want to vet each of those service providers before signing up.

How do I sign up for Accredited Debt Relief?

  • You can start the process by requesting a free consultation on Accredited Debt Relief’s website or calling 866-345-5007.
  • If you apply online, you’ll be asked how much debt you have and the state in which you live. You’ll also be asked for your name and contact information. By submitting your information, you agree that Accredited Debt Relief and its partners can call, text, email or mail you, even if you’re on a do-not-call list.
  • You’ll next be prompted to sign up to check your credit score. This isn’t part of the debt relief process. If you enroll in a credit score program, you’ll receive a free seven-day trial and then be charged a monthly fee. It may be best to skip this step as you can check and monitor your credit for free elsewhere. You can find an overview of the many companies that offer free credit scores on LendingTree, MagnifyMoney’s parent company.

What to expect after signing up with Accredited Debt Relief

  • The first step after signing up is to speak with a representative from Accredited Debt Relief. If you called Accredited Debt Relief, you may be connected with a representative right away. If you signed up online, a representative may call you to discuss your financial situation.

Alternative methods to pay down debt

Working with a debt relief company isn’t your only option for dealing with overwhelming debt. You may be able to put in place some of the same tactics that debt relief companies use but save money by taking a DIY approach. Or you may be better off trying a completely different tactic.

Debt consolidation

Debt consolidation is one of the services that Accredited Debt Relief offers, but it’s also something you can do on your own. Consolidation involves taking out a new loan to pay off your existing debts. Debt consolidation loans are often personal loans. But, in some cases, you may be better off opening a balance transfer credit card with a promotional 0% APR period and moving the debt to the card.

If you’re pursuing a personal loan for your debt consolidation, you may be able to compare offers using LendingTree’s debt consolidation loan tool. You’ll input some personal information before possibly getting matched with up to five different lenders.

Pros

  • Consolidating your loans can make it easier to manage your monthly payments.
  • You may be able to save money and pay off your loans sooner by lowering your interest rate.

Cons

  • It can be difficult to qualify for a large enough loan to consolidate your debts if you have a low income or poor credit.
  • You might not be able to qualify for a low-rate loan.
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35.99%

Credit Req.

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Minimum Credit Score

Terms

24 to 60

months

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on LendingTree’s secure website

LendingTree is our parent company

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Debt management plan

Accredited Debt Relief may refer you to a credit counseling company that offers debt management plans. Credit counseling organizations are often nonprofits, and you can check to see if the organization is accredited by the National Foundation for Credit Counseling (NFCC). You can also look for NFCC-accredited credit counseling organizations on your own and compare their debt management plans, pricing and reviews.

Pros

  • The credit counselor may be able to negotiate a lower interest rate and monthly payment for you.
  • You’ll be able to focus on making one monthly payment.
  • Creditors may waive some fees, such as late payment fees, if you start a debt management plan.
  • A debt management plan won’t hurt your credit. Unlike with a debt settlement program, you’ll continue to make your monthly payments.

Cons

  • There’s generally a startup fee and monthly fee for a debt management plan.
  • You may have to close your credit accounts.
  • A debt management plan likely won’t help with secured debts.
  • You won’t be able to settle your accounts for less than you owe.

DIY debt settlement

You can hire a company to negotiate a settlement on your behalf, or you could negotiate and settle debt accounts on your own. While a do-it-yourself approach could take more work and discipline, it may be a worthwhile use of your time.

Pros

  • Some creditors won’t work with debt settlement companies but may negotiate directly with borrowers.
  • You won’t have to pay the debt settlement company’s fee.
  • You might settle your debt sooner if you don’t have to save up money for fees.

Cons

  • Debt settlement companies may know from experience how low creditors will go, and could know when to accept a settlement or hold out for a lower offer.
  • Even a DIY approach could hurt your credit as you may have to stop making payments on your accounts before a creditor agrees to settle.

If you don’t stick to your plan, you might wind up hurting your credit and go deeper into debt due to fees and interest.

Bankruptcy

Chapter 7 and Chapter 13 bankruptcy are the two common types of personal bankruptcy that may be able to help you manage your debts. Chapter 7 bankruptcy could wipe away your unsecured debts, but you’ll also have to sell nonexempt possessions. You’ll be able to keep exempt property, which varies by state but may include a vehicle and some personal property. A Chapter 13 bankruptcy could restructure your debt and set you up with a more manageable monthly payment plan while allowing you to keep the personal property.

Pros

  • Once you file for bankruptcy, an automatic stay could keep creditors and collectors from garnishing your wages, repossessing property or shutting off your utilities.
  • You may be able to get some debts discharged even if you can’t afford to make a partial payment.
  • Collection agencies and creditors can’t continue to pursue you for discharged debts.

Cons

  • You may have to sell your assets and could even lose equity in a home or vehicle.
  • Declaring bankruptcy can hurt your credit scores, and the bankruptcy may remain on your credit reports for seven to 10 years.
  • You may not be able to get some of your debt or obligations, such as student loans or taxes, discharged during bankruptcy.

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Louis DeNicola
Louis DeNicola |

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

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Pacific Debt Review

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You’re in significant debt and have decided it’s finally time to pay off your balances. But you don’t know where to begin. You feel overwhelmed and are starting to think you might need the help of a professional.

There are companies out there that can help you negotiate your debt, and these are called debt relief or debt settlement companies. For a fee, debt relief companies will attempt to negotiate your debts with your creditors on your behalf.

One of these debt relief companies is Pacific Debt.

What is Pacific Debt?

Headquartered in San Diego, Pacific Debt offers debt settlement for people with over $10,000 in unsecured debt. Below, we’ve explored the ins and outs of Pacific Debt so you can decide whether or not it’s the right debt relief firm for you. Pacific Debt is accredited by the Better Business Bureau (BBB) and is an accredited member of the American Fair Credit Counsel (AFCC).

Breakdown of Pacific Debt

Below, you’ll find more details regarding Pacific Debt’s services, fees and requirements.

Services offered

Debt settlement/negotiation

Minimum debt required

  • $10,000

  • At least $500 per account

Credit check

Yes (Soft Pull)

Debt settlement timeline

12 - 48 months

Consultation fees

None

Cancellation fees

Contact Pacific Debt with any questions.

Service fees

15.00% - 25.00% of total debt enrolled

Types of debt accepted

Unsecured debt, which includes:

  • Credit card debt

  • Medical bills

  • Unsecured loans

  • Personal loans

  • Retail debt

  • Debt from repossession

  • Accounts in collections

Note that private student loan debt is excluded.

Accreditations

  • Better Business Bureau

  • American Fair Credit Council

  • International Association of Professional Debt Arbitrators

  • Accredited with ConsumerAffairs.com

Ratings

  • A+ from BBB

  • 4.5/5 on ConsumerAffairs.org

  • 9.4/10 rating on ConsumersAdvocate.org

Service limitations

  • Private student loan debt excluded

  • Some unsecured debt, such as consumer finance loans, payday loans, medical debts not in collections and legal judgments might not be included

Free tools and resources

Customer service

  • Assigned a personal account manager who works with you during the entire negotiation process

  • Throughout the process, client care specialists can also help you with things like coping with debt collector calls and staying organized

Who’s eligible?

To work with Pacific Debt, you must meet the following requirements:

  • You have at least $10,000 in total debt.
  • You have at least $500 in debt per account.
  • You struggle to maintain minimum payments on your accounts.
  • You live in one of the 28 states (including the District of Columbia) that Pacific Debt does business in, which includes: AL, AK, AZ, AR, CA, DC, FL, IA, ID, IN, KY, MA, MD, MI, MN, MO, MS, MT, NC, NE, NM, NY, OK, PA, TX, UT, VA, WI.

What are the benefits and risks of Pacific Debt?

If you’re considering working with a debt relief company, it’s important to weigh the potential risks and benefits. By having your debts negotiated, your credit score will likely take a hit. But if you can stay with the debt relief program, you will not need to file for bankruptcy and will be well on your way to becoming debt free in just a few years.

Before deciding whether or not you’d like to work with Pacific Debt, take a look at these potential benefits and risks.

Benefits

Risks

Your debt could be reduced by as much as 50%.

Your credit score will likely take a significant hit.

You’ll work with the same account manager over the course of the program.

Life after debt settlement could be difficult because your credit score will be much lower.

There are no upfront fees. You don’t pay anything until your debt has been negotiated.

Participating in a debt relief program means you must stop making minimum payments on your accounts, which could lead to phone calls from debt collectors and ensuing stress.

You could be debt free in less than five years.

This program isn’t worthwhile if you are primarily looking to negotiate private student loan debt.

How much does Pacific Debt cost?

The fees for Pacific Debt are based on the total debt enrolled in the program. Fees range between 15.00% - 25.00% depending on the state you live in. No fees are collected upfront. All fees are paid when you make your monthly debt settlement payment.

Fees are collected once a debt has been successfully negotiated, the consumer has agreed to the negotiation and the first payment has been made.

Compared to other debt relief firms, Pacific Debt’s fees skew low. In fact, Pacific Debt is ranked the top company based on lowest fees from U.S. News & World Report.

How long does the program take?

On average, the program takes between two and four years, though it could be as quick as one year. Pacific Debt states that clients who stay on track with the program and make all of their monthly deposits pay approximately 50% of their enrolled balance before fees, or 65-85%, including fees. However, this range (before fees) can be anywhere from 20-55%.

Although no savings are guaranteed as not all creditors will settle, Pacific Debt has negotiated with myriad major banking institutions. Below are a few examples from Pacific Debt regarding how much they were able to negotiate certain clients’ debts down.

Creditor

Settlement

Original Balance

Percentage

PNC Bank

$1,425

$7,000

20%

Citibank

$7,175.50

$25,757.78

40%

Capital One

$8,377.85

$16,755.69

50%

Is Pacific Debt safe to use?

Generally speaking, customers have positive reviews about Pacific Debt and its services. The company has an A+ rating with the BBB. In addition, the company’s reviews on other websites are high, with the majority of reviewers happy with the services they received. On ConsumerAffairs.com, the company has a 4.5/5 rating based on over 500 reviews. In addition, they have a 9.4/10 rating on ConsumersAdvocate.org.

There are 37 positive reviews on the BBB, many of which praise the company’s trustworthiness, responsiveness, excellent communication and professionalism.

There are three complaints for Pacific Debt with the BBB, one about a consumer who stated no progress had been made after nine months in the program and another who believed there was confusion surrounding the fee structure for the program.

Overall, Pacific Debt appears to be very safe to use for those looking to settle their debt.

How do I sign up for Pacific Debt?

  • Request a free consultation either online or on the phone by calling 800-909-9893.
  • A representative from the company will explain how the debt relief program works and can help you figure out whether it’d be a good fit for you.
  • If you think Pacific Debt is the right fit for you, you can enroll in the program with no upfront cost.

What to expect after signing up for Pacific Debt

  • Upon enrolling in the program, you will be connected with a personal account manager who will be your primary contact throughout the negotiation process. This initial contact typically happens in about 90 days.
  • You will stop making all of your minimum monthly payments on your delinquent accounts.
  • Your personal account manager — also referred to by Pacific Debt as a debt counselor — will analyze your debt, monthly expenses and income.
  • This counselor will then help you figure out a payment plan that will work for you.
  • Now, the negotiation begins. Your counselor will negotiate on your behalf.
  • Each time your counselor negotiates a bill, he or she will get in touch with you. You can then choose whether to accept the settlement. If you accept the settlement, Pacific Debt’s fees will be deducted starting with your first monthly payment.
  • Once all of your debt is resolved, you will receive copies of all of your settlements.

Alternative methods to pay down debt

Debt settlement isn’t for everyone. Perhaps you are interested in maintaining your credit score and don’t want to see it suffer. Or maybe your total debt is just a few thousands dollars, and something you could realistically pay off in a couple of years. Or maybe your debt is so significant that you don’t anticipate being able to pay it off even if it’s negotiated to a lower amount.

Whatever the case may be, there are other ways to pay down debt than working with a debt relief company. Below, we’ve explored some of the most common methods for paying down debt.

Debt consolidation

Debt consolidation involves combining all of your debts and paying them off in one monthly payment using a personal loan. Debt consolidation is particularly common for people with significant credit card debt, though it can be used for all forms of unsecured debt.

It works like this: You take out a personal loan, also referred to as a debt consolidation loan. You then make monthly payments on the loan that are dispersed to your various creditors. If you need help figuring out whether a personal loan for debt consolidation is the right path for you, consider using LendingTree’s personal loan tool. You may be matched up to five differnet lenders after you fill out a short online form.

Pros

  • Interest rates are fixed, not variable, so you know exactly how much you’ll be paying each month.
  • You don’t need an exceptionally high credit score to obtain a personal loan. However, if your score is too low, you might not secure a good interest rate.

Cons

  • You’re not reducing the actual amount of your debt.
LendingTree
APR

5.99%
To
35.99%

Credit Req.

Minimum 500 FICO

Minimum Credit Score

Terms

24 to 60

months

Origination Fee

Varies

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on LendingTree’s secure website

LendingTree is our parent company

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

Debt management plan

A debt management plan involves working with a nonprofit credit counselor to organize and pay off your debt while also learning about good money habits. It works like this: You simply make a payment to the credit counseling agency each month who will then disperse your payment to your various creditors.

This method can often be a good decision for those whose credit score is too low to qualify for a personal loan with a good interest rate.

Pros

  • You will learn about how to avoid making the same financial mistakes again while paying off your debt.
  • The fees for these services are often low.
  • Your credit score likely won’t take a dip, as these agencies often have agreements with financial institutions stating that if a consumer sticks to the plan, the institution will not report negative information to the credit bureaus.

Cons

  • Although some negotiation is possible, you’re likely not lowering the total amount of your debt.
  • If your debt is significant, you might not be able to realistically pay it off using this strategy.

Find a nonprofit credit counselor near you using this online database from the National Foundation for Credit Counseling.

DIY debt settlement

Many consumers are unaware that they can negotiate debts on their own. By negotiating their debts, consumers can often obtain a discount or a flexible payment plan.

Debts can be negotiated once they are delinquent, though you will likely have the most luck if those debts are already with a collections agency. You can attempt to negotiate with a debt collector by starting with a low amount you could realistically pay off. From there, negotiation will likely go back and forth in a process that could take months, if not years.

Pros

  • You won’t have to pay any fees for using a third party like a debt relief company.

Cons

  • You might not be able to negotiate the debt down as much as you could with the help of a professional.
  • This process will require a decent amount of your time.

Bankruptcy

Bankruptcy should not to be taken lightly. It is only a wise decision for those in significant debt they don’t anticipate being able to escape from using any of the above strategies. There are two forms of bankruptcy: Chapter 7, in which all of your debts are forgiven and you begin from scratch, and Chapter 13, where you stick to a repayment plan.

If you have significant delinquent debt you cannot pay off and don’t envision ever being able to pay off, you might want to consider bankruptcy. You might also want to consider filing for bankruptcy if you are at risk of losing your home (this only works if you file Chapter 13), want to guard your retirement savings or have experienced a significant life event like a major illness or job loss.

Pros

  • Upon emerging from bankruptcy, you will be completely debt free and have a clean slate.

Cons

  • Your credit score will take a major hit.
  • You will struggle to secure credit in the future.
  • If you file for Chapter 7, you will literally be left with nothing. All of your assets will be seized.

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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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Consolidated Credit – Debt Relief Review

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Managing your money can be difficult. But when life throws you curveballs, that’s when financial trouble can arise. Of course, bad financial habits can also erode your financial security over time.

No matter how you came upon your debt issues, you have options for managing them. A nonprofit such as Consolidated Credit can help you explore and pursue those options. Here’s a comprehensive review of Consolidated Credit to help you understand how it may be able to help you with your debt.

What is Consolidated Credit?

Consolidated Credit is a not-for-profit company dedicated to helping people improve their financial lives. Since launching in 1993, the company has helped 6.5 million people. Thanks to the company’s dedication to its customers, the company has earned an A-plus rating with the Better Business Bureau (BBB). Although Consolidated Credit is based in Plantation, Fla., it helps people nationwide, including in Puerto Rico, and serves both English and Spanish speaking populations in the United States.

Consolidated Credit offers a wide range of services to help people struggling with debt. Some of its services include credit counseling, corporate financial wellness programs, counseling for first-time homebuyers and debt management plans. All Consolidated Credit counselors are Certified Personal Finance Counselors. Its counselors are trained to help people better understand how to eliminate their debt as fast as possible.

Breakdown of Consolidated Credit services

If you’re considering working with Consolidated Credit, it’s important to understand whether you’ll qualify to work with them. Most of Consolidated Credit’s services are free, but its debt management plan carries some fees.

This table explains the fees and limitations associated with Consolidated Credit’s debt management plans. It also shows other critical information about the company as a whole.

Services offered

Credit counseling, debt management plans, homebuyer counseling, reverse mortgage counseling, corporate financial wellness.

Minimum debt required

More than $1,000

Credit check

Yes, but no impact on credit (soft credit inquiry)

Expected time to debt payoff

Generally 36 to 60 monthly payments

Initial consultation fees

Free initial consultation.

Initial setup fees

Initial setup fees vary by state, but will be similar to your monthly fees.

Cancellation fees

No cancellation fees.

Service fees

Up to $79 per month. On average, $40 per month).
Consolidated Credit may waive fees for high-need individuals.

Types of debt accepted- debt management plans

Unsecured debts (credit cards, most personal loans, medical debts less than 1 year old). Debts in collections (charge-offs) may be allowed in the debt management plan. Some payday loans or cash advances can be consolidated.

Service limitations- debt management plans

Once you enroll in a debt management plan, you must make the payments as agreed. Failing to make the payments could lead to more fees, penalty interest, or being sued.

Consolidated credit does not allow Federal Student Loans, auto loans or mortgages into its debt management programs. However, it has foreclosure prevention services for people struggling with their house debt.

Accreditations

Member of the Financial Counseling Association of America (FCAA).

All counselors are Certified Personal Finance Counselors.

Housing counselors certified by the US Department of Housing and Urban Development (HUD).

Ratings

A-plus rating with the BBB.

Free tools and resources

A consultation with a credit counselor at Consolidated Credit is free. Other free resources include ebooks, videos, webinars and in-person seminars.

Customer service

If you enroll in a debt management plan, you’ll work with a specific counselor who will help you through the process.

Who’s eligible?

  • Consolidated Credit offers credit counseling services to people in the U.S. and in U.S. territories, including Puerto Rico). If you live in the U.S. and owe debts to creditors in the country, you may qualify for Consolidated Credit services.
  • To qualify for Consolidated Credit’s debt management program, you need to go through a free credit counseling session. A certified personal finance counselor will help you decide whether Consolidated Credit’s debt management program is right for you. They will also help you review options for DIY debt consolidation.

Consolidated Credit advertises that people with poor credit and people with huge balances are most likely to benefit from a debt management plan. If most of your debts are in collections, you may have to pursue debt settlement options. On the other hand, if you still have good credit, debt consolidation might be the right approach for you.

What are the benefits and risks of Consolidated Credit?

Benefits

Risks

Not for profit company

Credit cards are frozen during debt management plan.

Free initial consultation

Cannot take out new credit cards during repayment.

Consider a variety of debt payoff options.

Some complaints about customer service

Debt management plan reduces interest rates and fees.

Must make timely monthly payments.

Highly rated customer service

How much does Consolidated Credit cost?

Consolidated Credit offers free credit and personal finance counseling. During an initial 30 to 60 minute consultation, a Certified Personal Finance Counselor will analyze your debts, your budget and your credit score. If the counselor recommends a debt management plan and you choose to enroll, these are the fees you can expect.

Service

Cost

Initial setup fee (debt management plan)

Varies by state

Monthly fee (debt management plan)

On average, $40 per month, but can be as high as $79 per month

In certain situations, Consolidated Credit may waive the debt management plan fees for a limited or extended period of time.

In addition to its debt counseling services, Consolidated Credit offers several services for current and aspiring homeowners. Its services include free home buying and mortgage readiness classes and information on home retention and foreclosure prevention for people struggling with their mortgage. Seniors looking for education and counseling about reverse mortgages may speak with a HUD certified counselor.

Consolidated Credit also offers several free online resources for people looking for financial education. Its free eBooks and videos cover a range of topics including marriage and money, the financial costs of children and more.

How long does the program take?

When you sign up for a debt management plan at Consolidated Credit, you can expect to make payments for about three to five years before you’ve paid off your debts.

Consolidated Credit is not a debt settlement company. It will not help you negotiate for lower balances on your debts. However, the company will negotiate a lower interest rate (usually 0% to 11%) and for lower fees. By lowering your interest rate, Consolidated Credit may be able to cut your payments down by 30 to 50%. Over the course of three to five years, you will pay off the entire balance that you owe.

Is Consolidated Credit safe to use?

Consolidated Credit is a not for profit company, with a solid reputation. It’s been in business for 25 years with an A-plus rating with the BBB, and it hasn’t had any legal actions taken against it.

Although most online reviews of Consolidated Credit are positive, some customers have issued complaints. Many of the complaints stated that Consolidated Credit improperly managed a debt payoff plan, and the result of the mismanagement was negative marks on a credit report or late fees.

On top of that, all of Consolidated Credit’s counselors meet the Uniform Debt Management Services Act accreditation standards. That means all counselors are qualified to help you with your debt management strategy, and they have expertise in helping you with debt management services.

How do I sign up for Consolidated Credit?

  • People looking for a free a counseling session from Consolidated Credit can reach out to the company online or via the phone. People who want to talk with a credit counselor right away can call Consolidated Credit at 1-844-861-9479.

Those who want more time to gather information, can gather information at their own pace by filling out Consolidated Credit’s debt analysis tool. Once you’ve filled in all the necessary information, a credit counselor will reach out with recommendations on the best way for you to attack your debt.

What to expect after signing up for Consolidated Credit

Here’s how Consolidated Credit’s process works:

  • Step 1: During your first credit counseling session, a certified personal finance counselor will review your debts, your budget, your credit score and your options for debt relief. The counselor will help you understand whether your debt relief options.
  • Step 2: If the counselor does not think a do-it-yourself option for debt relief will work for you, they may recommend a debt management plan. The counselor will disclose the fees associated with the plan, and you can choose whether to enroll in it.
  • Step 3: During the payoff period, you will not be able to use your credit cards. You also cannot open any new credit card accounts. In most cases, you should be able to apply for an auto loan or mortgage during the payoff period.
  • Step 4: Anyone who chooses to enroll in a debt management plan will stop making payments to their creditors, and start making a monthly payment to Consolidated Credit. Consolidated Credit will distribute the payment among your creditors.
  • Step 5: After 36 to 60 monthly payments (less if you can add extra money to your payments), your debt will be paid off.

Alternative methods to pay down debt

Debt management plans are one method that you can pursue debt relief, but they aren’t the only option. In some cases, you may be able to pay off your debts faster using a DIY payoff plan. In other cases, your debt may be so overwhelming that bankruptcy or debt settlement makes more sense. Review these five options to see if one fits your needs better than a debt management plan.

Debt consolidation

Debt consolidation loans allow you to refinance all your existing credit card balances into a single loan (usually an unsecured personal loan). By refinancing all of your debt, you’ll deal with just one monthly payment instead of several. In most cases, a debt consolidation loan will also lower your interest rate, so you’ll pay less interest over time.

You may be able to explore personal loan offers from lenders using this tool from LendingTree. You’ll input information about yourself and what you need out of a loan. Afterward, you’ll see what lenders have to offer you.

Pros

  • Usually have fixed interest rates.
  • Fixed time to payoff debt.
  • Lower interest rates than most credit cards.
  • Likely to increase credit score, when paid as agreed.

Cons

  • Loan may have an origination fee.
  • Interest rate savings not guaranteed.
  • Retain access to credit cards (which could lead to more debt).
LendingTree
APR

5.99%
To
35.99%

Credit Req.

Minimum 500 FICO

Minimum Credit Score

Terms

24 to 60

months

Origination Fee

Varies

SEE OFFERS Secured

on LendingTree’s secure website

LendingTree is our parent company

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

Balance transfer credit card

People with high credit scores may qualify to transfer their existing credit card debt to promotional 0% APR balance transfer credit card. These credit cards offer a 0% APR on balance transfers for a limited period of time. After the promotional period ends, your interest rate will increase. Most of the time, borrowers need to pay a balance transfer fee (up to 5% of the balance) when using a balance transfer credit card.

Pros

  • Lowest possible interest rate.
  • Usually increases credit score (by decreasing credit utilization).
  • Opportunity to transfer balances again if you cannot pay off balance during the promotional period.

Cons

  • Interest rates increase following the promotional period.
  • Increases available credit, which could lead to more debt.
  • Balance transfer fees may slow down repayment.

Bankruptcy

Bankruptcy is the legal process that helps consumers and businesses resolve debt issues when they cannot handle their debt obligations. Most consumers will pursue Chapter 7 or Chapter 13 bankruptcy. If you cannot handle your debt load, you may want to speak to a bankruptcy attorney.

Pros

  • Complete relief from debts (following liquidation or repayment).
  • May be able to keep some or all assets.
  • Addresses most forms of debts.
  • Decisions are final.

Cons

  • Hurts credit score
  • You may not be able to take out a mortgage for up to two years following bankruptcy.
  • Chapter 13 bankruptcy repayment plan may last three to five years.
  • Can be expensive (high attorney’s fees and legal fees).

Debt settlement with an attorney or debt settlement company

Debt settlement is the practice of renegotiating the terms and balances of debts that are in or near default. Sometimes debt settlement companies will advertise that they can negotiate for repayment terms that are “pennies on the dollar” compared to what you owe.

The Consumer Financial Protection Bureau (CFPB) warns that working with a debt settlement company may be risky — it can lead to higher fees, penalty interest rates and other problems. Settling debt is also likely to have tax implications. Hiring an attorney that specializes in debt settlement may lead to less risk. You can find consumer advocacy attorney by searching the database at the National Association of Consumer Advocates.

Pros

  • May eliminate a portion of your debt.
  • Working with an attorney reduces your risks of legal repercussions.
  • Allows you to avoid working directly with creditors or collections agents.

Cons

  • May hurt credit score.
  • May lead to more fees and penalty interest rates.
  • Can be expensive.
  • Debt settlement often has tax consequences.

DIY debt settlement

People with debts in collections may be able to settle their debts on their own. Settling debts means negotiating the terms or balances of a loan. In general, collections companies will reduce the balance that you owe in exchange for a payment guarantee.

If you wish to pursue debt settlement on your own, the CFPB advises you to learn about the debt in collections, create a realistic budget for paying off the debt and negotiate with collectors.

Pros

  • No fees or expenses.
  • May eliminate a portion of the debt you owe.
  • Can help you avoid bankruptcy.

Cons

  • May not successfully negotiate for an affordable plan.
  • May accidentally revive a time-barred debt.

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

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

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InCharge Debt Solutions Review

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

Disclosure : By clicking “See Offers” you’ll be directed to our parent company, LendingTree. You may or may not be matched with the specific lender you clicked on, but up to five different lenders based on your creditworthiness.

Credit card debt among U.S. consumers hit a record high last year, with the average credit card balance reaching $6,354, according to Experian. Average non-mortgage debt in the U.S. clocked in at $24,706.

With consumer debt rising, the credit counseling and debt relief industry is more necessary than ever. Organizations such as InCharge Debt Solutions may provide a lifeline for those who have borrowed more than they can repay.

What is InCharge Debt Solutions?

Launched in 1997, InCharge Debt Solutions is a 501(c)(3) nonprofit organization that provides credit counseling, debt management services, bankruptcy education, housing counseling and financial literacy education. As a nonprofit, the organization pays for 37% of its expenses through contributions and grants, with the rest of the operating budget coming from fees for its services.

Breakdown of InCharge Debt Solutions

While the organization offers a range of services, the rubber meets the road in its debt management plans that help customers get out of debt within five years. The chart below offers an overview of the organization’s offerings, with specifics related to its debt management services.

Services offered

  • Credit counseling

  • Debt management services

  • Bankruptcy education

  • Housing counseling

  • Financial literacy education

Minimum debt required for debt management

N/A

Credit check

Yes

Debt settlement timeline

3 - 5 years

Debt settlement average interest rate

8.00%-12.00%

Fees for debt management program

  • Average $40 setup fee (maximum $75)

  • Average $25 monthly fee (maximum $55)

Types of debt accepted

  • Unsecured debt, such as credit cards and personal loans

  • Student loans can be serviced but are handled by a separate department

Accreditations

  • Council on Accreditation (COA)

  • Member of the National Foundation for Credit Counseling (NFCC)

Ratings

  • A+ from the Better Business Bureau (BBB)

Free tools and resources

  • Online library of free financial literacy resources

  • Free financial literacy workshops and webinars

Who’s eligible?

Eligibility is based on the type of debt, the amount of debt and the debtor’s goals. InCharge works with people throughout the U.S. Most of its services are provided over the phone and processed remotely, so location is not a concern.

The types of debt that are eligible for debt management include:

What are the benefits and risks of InCharge Debt Solutions?

Benefits

Challenges

Member of NFCC

Not transparent with information such as eligibility requirements

A+ rating with BBB

Not everyone qualifies; your financial situation must indicate that debt management is appropriate for you

One monthly payment to pay down multiple accounts within five years

Secured debts such as mortgages and car loans are not eligible

Provides lots of free resources

Debt management will not fix an underlying overspending problem

How much does InCharge Debt Solutions cost?

The debt management program comes with a few fees, which fall well within the recommended limits for the industry. The Department of Justice recommends $50 a month as a reasonable fee for credit counseling, and InCharge Debt Solution’s average is half of that amount. The Association of Independent Consumer Credit Counseling Agencies agrees with that recommendation and also endorses a $75 limit on the setup fee, which is the maximum that InCharge Debt Solutions charges.

The fee is not the same for each borrower. Fees are decided on a case-by-case basis based on various factors such as the level of debt and the state in which the participant lives. The fee will be calculated at the point in the initial intake session at which the credit counselor decides that the caller is a good match for debt management.

This table lays out the average and the maximum that participants in the program pay:

Fee

Average

Maximum

Setup fee

$40

$75

Monthly fee

$25

$55

Once borrowers sign on to a debt management plan, they pay a single interest rate to pay down all their combined debts, which is usually between 8% and 12%.

How long does the program take?

The debt management program’s payment plan is set up to pay down total debt in five years of equal installments, but participants can pay it down faster if they wish. The program typically gets participants out of debt in three to five years.

Because your debts are all being consolidated into one monthly payment, the average interest rate you’re paying could drop substantially, saving you a large amount over the five years. The average drop in the interest rate on debtors’ credit card accounts is around 9%.

Is InCharge Debt Solutions safe to use?

InCharge Debt Solutions has a good reputation and confidence-inspiring business credentials. The organization has an A-plus rating with the BBB despite some complaints against it on the site. There have been no complaints registered against the company with the Consumer Financial Protection Bureau. And the company has overwhelmingly positive reviews on outside review sites.

InCharge Debt Solutions is a member of the NFCC and is accredited by the COA. This is a positive since nonprofit credit counselors are most likely to provide impartial financial advice that prioritizes the needs of the customer, and nonprofit debt management programs usually offer low fees and work to reduce participants’ credit card interest rates.

The organization presents a Client Bill of Rights to let its customers know what they can expect. These rights are (as directly stated on its website):

  • Confidential, knowledgeable, professional and courteous service.
  • Non-judgmental counseling by trained and experienced certified counselors.
  • Prompt response to questions, requests and concerns.
  • Statements of funds received from you and payments made to your creditors.
  • Access to a library of online tools and educational materials.
  • A Complaint Resolution Process should you have any dissatisfaction with InCharge services.
  • Discontinue your relationship with InCharge at any time, for any reason.

How do I sign up for InCharge Debt Solutions?

The first step to signing up for debt management is to check if you’re eligible for the program. Doing so requires completing a credit counseling session (usually between 25 and 60 minutes) with the InCharge Debt Solutions team, which can be done online or over the phone.

Fill out this online form to start the process or contact the company by phone at 800-565-8953 to speak with a certified credit counselor.

What to expect after signing up for InCharge Debt Solutions

InCharge Debt Solutions’ credit management plan involves setting up a single monthly payment to cover all the borrowers’ debts, with an interest rate that usually falls between 8.00% and 12.00%.

This payment program is designed to repay the debts in five years, though some participants choose to contribute more and pay it down faster. The average participant in the program becomes debt-free in three to five years.

Alternative methods to pay down debt

A debt management plan like that offered by InCharge may not be the right option for you. If you’d prefer to try another method — or if your financial situation is so dire that you need a last resort — read on for some alternative methods of paying down debt.

Debt consolidation

Debt consolidation involves combining all your debt payments into one payment with a single interest rate, usually a lower one than the average of all your rates. You can do this by transferring all your credit card balances to another credit card that charges an intro 0% APR for balance transfers, or by taking out a debt consolidation loan.

The former option is best for people with high credit scores since you’re only likely to qualify for the necessary type of card if your credit score is excellent. One drawback is that cards that provide this option often charge a 3% to 4% fee to do the balance transfer. It also requires that you find a card with a limit high enough to accommodate all your debt, if possible.

The latter option, more likely to be available to those struggling with debt, involves getting a loan to pay off all your consumer debt so that you can service all of it as one lump sum. Most of the interest rates on these types of loans will fall between 6% and 36% — a large range that varies depending on factors including your credit score.

If you’d like to explore your personal loan options, try using this tool from LendingTree. After inputting some information, the tool could reveal loan offers for which you may qualify from up to five different lenders.

Pros

  • Reduces your average interest rate
  • Gives you a single monthly payment

Cons

  • Won’t solve the underlying problem that got you into debt in the first place
  • Credit counseling and other hand-holding not included in the process
LendingTree
APR

5.99%
To
35.99%

Credit Req.

Minimum 500 FICO

Minimum Credit Score

Terms

24 to 60

months

Origination Fee

Varies

SEE OFFERS Secured

on LendingTree’s secure website

LendingTree is our parent company

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

DIY debt settlement

Dealing with your debt on your own, DIY (do-it-yourself) style, is an option for those with the organization to oversee each step and the determination to see the process through. There are a series of steps you should take to set yourself up for DIY debt relief success: ask debt collectors to validate the debts, figure out exactly what you owe and to whom, triage your debt to keep from further damaging your credit, pay your debts in collections after your debt is in good standing and enlist the help of a lawyer when necessary.

The first step in this process is making sure that the debts you’re being asked to pay are your own. You are legally allowed to demand information about the debt from the debt collector — a process known as validation — and the debt collector is then barred from contacting you about the debt until that information has been supplied.

Once you’ve got a handle on which debts are yours and who you need to pay, look at your entire debt situation to figure out which debt to pay when.

It’s a good idea to focus on paying at least the minimum on debts that are in good standing so that you can keep them that way and avoid worsening your situation. There are various philosophies on what to pay next.

One popular approach is the debt snowball method, which involves paying off debts in order of size, starting with the smallest, to get early wins and build momentum. Another is the debt avalanche method, which prioritizes paying debt with the highest interest rates first. Try this handy calculator to see the difference between these two repayment methods.

Pros

  • No third parties involved in your financial affairs
  • You can try to protect what’s left of your credit score

Cons

  • Requires a lot of organization and determination
  • No relief on interest rates, as you often get in a debt consolidation or debt management plan

Bankruptcy

Bankruptcy is a last resort for debtors. The process allows those who owe debts they can’t pay to liquidate all nonexempt assets and pay their creditors using the proceeds (Chapter 7 bankruptcy), or to put in place a short-term repayment plan to pay off their debts (Chapter 13 bankruptcy). In the case of Chapter 7, after all proceeds from asset sales — if any — go to creditors, your debt is discharged and you are relieved of having to pay more. Chapter 13 is more focused on restructuring your debt on to a payment plan so that you can pay it off over a given period.

Those wishing to declare Chapter 7 bankruptcy must meet certain criteria on their income and expenses. Either their income must be below the median level, or their income plus expenses must put them in the correct range to qualify. Chapter 13 is a good option for high-income earners who can’t proceed with Chapter 7 because they have too much discretionary income or want to protect their assets, such as a home, in the bankruptcy proceedings.

Not all assets will be liquidated in bankruptcy. Some assets — or portions of assets — are considered exempt from the process. It’s also important to be aware that certain types of debt, such as child support and student loans, cannot be discharged. There are strict eligibility requirements to prevent abuse, and going through this process pummels your credit score (if it isn’t low enough already).

Pros

  • All your qualifying debts are relieved
  • Collections activities stop once you enter bankruptcy proceedings

Cons

  • You may give up most of your assets
  • Your credit score is very badly affected

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Katherine Gustafson |

Katherine Gustafson is a writer at MagnifyMoney. You can email Katherine here

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Balance Transfer, Best of, Pay Down My Debt

Best balance transfer credit cards: 0% APR, 21 months

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

 

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.

Citi Simplicity® Card - No Late Fees Ever

Longest 0% intro balance transfer card

Citi Simplicity® Card - No Late Fees Ever: 0%* for 21 months on Balance Transfers*, 5% balance transfer fee

The Citi Simplicity® Card - No Late Fees Ever has the longest intro period on our list at intro 0%* for 21 months on Balance Transfers* made within 4 months from account opening. There is also an intro 0%* for 12 months on Purchases*. After the intro periods end, a 15.99% - 25.99%* (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: $0 annual fee, Citi® Private Pass®, and Citi® Concierge.

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

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

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on Citibank’s secure website

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.

Transparency Score
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 13.99% - 24.99% 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

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 includes an extended intro period now at an intro 0% for 15 Months on balance transfers and purchases (14.99%-25.99% 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 the while earning rewards on new purchases. To qualify for this card, you need Excellent/Good credit.
The information related to The Amex EveryDay® Credit Card from American Express has been collected by MagnifyMoney and has not been reviewed or provided by the issuer of this card prior to publication.
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Transparency Score
  • Simple Welcome Offer
  • The 2-point bonus on grocery store spending is capped
  • You need 20 transactions each month to get the 20% bonus

 

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

 

Chase Slate®

Chase Slate®

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

With Chase Slate® you can save with a 0% Intro APR on Balance Transfers for 15 months and a balance transfer fee that’s Intro $0 on transfers made within 60 days of account opening. After that: Either $5 or 5%, whichever is greater.  There’s also a 0% Intro APR on Purchases for 15 months. After the intro periods end, a 16.99% - 25.74% 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.

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 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 18 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 18 billing cycles. After that, a 14.99% - 24.99% 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

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 – 6.99%-18.00% Variable APR, no expiration, $0 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 an APR of 6.99%-18.00% Variable 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 APR chosen for your account is anywhere between 6.99%-18.00% Variable.

APPLY NOW Secured

on UNIFY Financial Credit Union’s secure website

Prime Rewards Credit Card from SunTrust Bank

Long low rate balance transfer card

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

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

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

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

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

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on SunTrust Bank’s secure website

For fair credit scores

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

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

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

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

Platinum Mastercard® from Aspire FCU

For less than perfect credit

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

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

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

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

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

APPLY NOW Secured

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 products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Nick Clements
Nick Clements |

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

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Pay Down My Debt

Freedom Debt Relief Review: How This Debt Settlement Company Works

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

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Struggling to repay debt isn’t something you have to do alone. Consumers can turn to solutions such as credit counseling or even bankruptcy (if the debt is too much to handle).

Another option that can offer you some savings is working with a debt settlement company. Debt settlement companies negotiate with creditors to settle your debt for less than what you owe.

Freedom Debt Relief is one company that’s in the business of helping consumers get rid of debt. In this post, we’ll review what Freedom Debt Relief has to offer, including how much it costs, whether it’s safe and what to expect when you sign up.

What is Freedom Debt Relief?

Freedom Debt Relief was started in 2002 by Andrew Housser and Brad Stroh to offer debt resolution services and financial education to consumers. The mission of Freedom Debt Relief is to operate with integrity and support clients in their journey to paying off debt. With offices in San Mateo, Calif., and Phoenix, Freedom Debt Relief employs over 2,000 people.

Freedom Debt Relief is a leader within the debt settlement industry. The company is a member of the American Fair Credit Council (AFCC). According to Freedom Debt Relief, the company resolves an average of 43,891 accounts per month and has settled over $9 billion in debt.

Breakdown of Freedom Debt Relief

Here’s a look at what you need to know about Freedom Debt Relief and its services.

Services offered

Debt settlements: The Freedom Debt Relief service is a settlement program for people who are struggling to repay debt. You make monthly deposits into a Federal Deposit Insurance Corp.-insured account set up by Freedom Debt Relief. As the account grows, debt consultants negotiate settlements with your creditors. The money to pay off the settlement is taken from your account. Most settlements are structured settlements where you pay off the debt in installments.

Minimum debt required

You must have $7,500 or more in unsecured debt.

Soft or hard credit pull required

A soft pull is required.

Time frame

It can take 4 to 6 months to get your first settlement agreement. Clients typically pay off 70% to 75% of their debt over 24 to 60 months.

Consultation fees

Fees are only charged when a settlement agreement is reached. Fees typically range from 15.00% - 25.00% of the original debt amount, but they can vary by state. The average fee is 21.5%. Each settlement agreement will show the fees to be charged. You have to approve the offer before it goes into effect.

Cancellation fees

N/A

Service fees

N/A

Types of debt accepted

Debts accepted include credit cards, medical bills, department store cards, personal loans and other unsecured debt. This program cannot help you with federal student loans, auto loans, mortgages and other debt that has collateral backing it. Freedom Debt Relief may be able to help with certain private student loans.

Accreditations

Freedom Debt Relief is a member of the AFCC. Consultants are certified by the International Association of Professional Debt Arbitrators.

Ratings

4-plus stars on Better Business Bureau (BBB); no complaints about the company in CFPB consumer complaint database

Service limitations

N/A

Free resources and tools

Freedom Debt Relief has an education area on its site that breaks down different debt repayment strategies (such as debt consolidation or debt management) and how they compare to debt settlements.

Customer service

Customer service is available seven days a week, including evening hours. Freedom Debt Relief is available by phone and email.

Who’s eligible?

  • You need to have at least $7,500 in eligible debt. Eligible debts include unsecured debt such as credit card debt, medical bills and personal loans. According to Freedom Debt Relief, higher debt balances are required for settlements because creditors are less willing to make deals on small amounts that you can pay relatively quickly.
  • You also need to have enough disposable income each month to put away cash into an account set up by Freedom Debt Relief. This savings account is what’s used to pay off your debt and fees when a debt settlement is reached.

What are the benefits and risks of Freedom Debt Relief?

Benefits

Risks

You get to work with expert negotiators. The edge that these negotiators have is experience. If you’re unable to reach an agreement with creditors on your own, they may be able to reach one for you.

The forgiven amount may be taxed. The amount you save through a debt settlement can be considered income and taxed as such. Speak with a tax professional about how forgiven debt will impact you.

Settlements reduce how much you owe. The purpose of a debt settlement company is to settle your debt for less than the balance. Freedom Debt Relief may be able to settle your debt for as low as 50% of what you owe.

The fees. All this isn’t free. Freedom Debt Relief charges you a percentage of your original debt amount when a settlement is reached. The average fee is 21.5%. You could negotiate settlements on your own or with the help of a credit counselor, possibly at a lower price.

No fee is charged until a settlement is reached. You don’t owe any money until you agree to the settlement. You’ll see how much the fees are in the settlement agreement that you have to approve.

You risk racking up fees and getting sued. You may not get a settlement for several months. During this time, the settlement company won’t be making minimum payments on your debt. Interest and other fees still apply to your balances. If you don’t make payments, you can continue getting calls from collectors or sued for nonpayment. Your debt can grow exponentially during this period, putting you in a jam if they aren’t able to reach a settlement. Not paying your bills can do some major damage to your credit report.

A loan isn’t required. The program through Freedom Debt Relief does not require a loan, so you’re not taking out more debt. Instead, most clients save incrementally to pay off each settlement.

There’s no guarantee. There’s a chance the company won’t be able to reach a settlement with creditors. Freedom Debt Relief does not guarantee settlements.

How much does Freedom Debt Relief cost?

Fees from Freedom Debt Relief only apply when you approve a settlement. The fee is broken down into a monthly fee that’s paid from an account created when you start the program.

Freedom Debt Relief can save you money through a settlement, but it comes at a high cost. You should also consider other options (we’ll talk about some below) before you work with a debt settlement company.

Service

Cost

Debt settlement

15% – 25% of your original debt amount, but the amount may vary depending on your state

How long does the program take?

The negotiation and settlement process doesn’t start right away. You have to save up money in a dedicated account before debt negotiators start working their magic. It can take four to six months for you to get your first settlement, but the timeline will vary and there are no guarantees.

If you do get a settlement, you may be able to settle your debt for as little as 50% of your balance, according to Freedom Debt Relief. But the typical amount saved is 15% to 35%. Clients who keep up with the program by making monthly deposits into their dedicated account typically pay off around 70% to 75% of their debt over 24 to 60 months.

Is Freedom Debt Relief safe to use?

Freedom Debt Relief isn’t BBB-accredited, but the company has decent reviews on the BBB website. Customers report that customer service and consultants are helpful and respectful. The consensus is that customers are pleased with the service and how their debt is being resolved.

But there was a lawsuit filed against Freedom Debt Relief by the CFPB in November 2017. The complaint states that Freedom Debt Relief misled consumers on how the service works and that the company charges fees even if there isn’t a settlement reached. Freedom Debt Relief has refuted such claims. If you use Freedom Debt Relief and it charges you a settlement fee without a settlement, report it to the FTC. This practice is prohibited.

How do I sign up for Freedom Debt Relief?

  • If you’re interested in Freedom Debt Relief, the process starts with you completing a form on the website or contacting a certified debt consultant for a free evaluation. Get started here.

What to expect after signing up with Freedom Debt Relief

Here’s how the Freedom Debt Relief process works:

  • Step 1: Receive your customized plan and start saving in your dedicated account. You’ll work with Freedom Debt Relief to come up with a debt plan that works for you. This plan includes deciding the monthly deposits you can make into your dedicated account. You may also be asked to complete some forms, including a form that gives Freedom Debt Relief permission to speak with your creditors. Each month, you deposit money into the FDIC-insured account to grow the funds you have available for debt repayment. The reason for the account is that creditors are more willing to make deals when there’s proof of funds available.
  • Step 2: Negotiation. Freedom Debt Relief will negotiate with creditors to try to settle your debt as you continue making deposits into your account.
  • Step 3: You approve settlements. You will be contacted to approve and authorize each debt settlement.
  • Step 4: Fulfill the settlement agreement. After paying off the settlement, creditors should report to the credit bureaus that you’ve settled your debt. You keep depositing money into your dedicated account and Freedom Debt Relief will keep negotiating until your debts are paid off.

Alternative methods to pay down debt

Debt consolidation

Debt consolidation is when you take out a new installment loan to pay off your other debt. A debt consolidation loan with a competitive interest rate could save you money. The average credit card interest rate is 15%. You may be able to find a personal loan for debt consolidation that has an interest rate as low as 5.99% APR (depending on your credit).

Pros

  • It simplifies your debt. A debt consolidation loan makes it so that you have fewer payments to worry about each month. All the debts are rolled into one payment.
  • It gets you out of the minimum payment trap. Making just the minimum payment on credit card debt (or none at all) will hurt you. Minimum payments don’t put a real dent in your balance and interest will make your balance steadily increase. An installment loan is designed for you to pay it off within a set time frame. It will force you to make more than small $20 or $30 minimum payments here and there so you can speed up repayment.

Cons

  • Poor credit may cause a problem. If you’ve gotten to a place where you have many unpaid debts and poor credit, you may not be able to qualify for a debt consolidation loan. But there are a few lenders who may be willing to work with people who have less-than-stellar credit. Learn more here.
  • Credit inquiry. Applying for a new loan typically requires a credit check. But the benefits of consolidating debt with an affordable loan may outweigh any minor hit that your credit will take because of an inquiry.
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Debt management plan

A debt management plan is a program typically offered by nonprofit credit counseling services. To create a debt repayment plan, a counselor goes over your income and debt to come up with a repayment strategy. They also speak with your creditors to negotiate lower fees and lower interest rates. You send one payment for the plan to the credit counselor and they disburse payments to creditors for you.

Pros

  • The guidance and debt management from experts. Working with a counselor can be worthwhile if you’re struggling to come up with a plan. They pay bills for you so that you have less interaction with your creditors. Nonprofits that offer debt repayment plans may also offer other credit counseling services that can teach you how to manage your credit in the future.
  • Faster payoff. You can get a lower interest rate and a break on fees negotiated, making it possible to repay debt faster.

Cons

  • The cost. Debt management plans are not free. There may be an enrollment fee and a monthly fee that can range from $25 to $35 on average.
  • It’s only for certain debt. The debts you can add to a debt management plan include unsecured debts such as personal loans, credit cards, medical bills and other debt in collections. Typically, you can’t include your mortgage, second mortgages, car loans or federal student loans.

Bankruptcy

Bankruptcy is usually looked at as a final resort because of what it can do to your credit. There are many types of bankruptcy, but individuals typically file either Chapter 7 or Chapter 13. Chapter 7 is a complete liquidation of your assets to repay your debts, and this form of bankruptcy generally does the most damage to your credit. Chapter 13 sets a repayment plan where you pay part of what you owe instead of liquidating all your assets.

Pros

  • You can get a clean slate. Bankruptcy can be a saving grace if you’re dealing with unmanageable debt and you’re close to losing your home. Some debts may be discharged completely, and bankruptcy may be able to save your home from foreclosure.
  • You can stop collections calls and litigation. Filing for bankruptcy should put a stop to collection attempts and lawsuits when your financial situation has gotten out control.

Cons

  • The fees and credit hit. There are filing, administrative and attorney fees. Bankruptcy stays on your credit and can negatively impact you for seven to 10 years.
  • Bankruptcy isn’t a quick fix. Bankruptcy is more than signing off on a few documents. Your assets will be reviewed closely to determine if you qualify. You need to take pre-filing and post-filing counseling classes. Some debts typically can’t be discharged, such as federal student loans. You also need to change your habits after filing to avoid going into deep debt again once your case is over.

DIY debt settlement

A do-it-yourself debt settlement will work much like a debt settlement service like Freedom Debt Relief, except you negotiate with your creditors to settle the debt for a lesser amount on your own.

Pros

  • You keep all the savings. If you land a deal with creditors on your own, you’re able to keep the money saved instead of paying some of it to debt negotiators. As part of the settlement, you may also be able to get a creditor to remove an account from your credit report. This is called “pay for delete.”
  • You’re incentivized to be aggressive. Debt settlement companies generally charge a fee that’s a percentage of your original debt amount. With this approach, there’s less incentive to get you the most savings possible. When you take the lead, you can push for the lowest settlement possible because it’s in your best interest.

Cons

  • The process may not be easy. Professionals are professionals for a reason. They may be able to get a settlement — and at a lower amount than you. Dealing with creditors and negotiating can be stressful. The CFPB has some tips for getting debt settlements on your own here.
  • There are still taxes to think about. Your creditor can report the forgiven amount to the IRS, and your savings is taxable. Speak with a tax adviser about your debt to avoid getting a surprise tax bill.

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

Taylor Gordon
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Taylor Gordon is a writer at MagnifyMoney. You can email Taylor here

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Ways to Control Your Spending and Expenses to Reduce Debt

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

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Updated December 7, 2018

Getting out of debt is a special kind of challenge. Paying down any substantial amount can seem insurmountable, especially in contrast to how easy it probably was to rack up.

Small amounts of overspending can add up fast. Spending a mere $5 more than you can afford every day will result in almost $2,000 in credit card bills after just one year — and that’s before accounting for the sky-high interest rates that will compound your obligation. And of course, big bills can appear out of the blue — an emergency medical expense or a job loss can drive you into debt fast.

Regardless of whether small purchases are adding up or you have a financial emergency crop up, your finances are in hot water if you are spending more than your income. Even if you are able to tighten your spending and pay what you owe, you’ll be back in debt in no time if you don’t fix the underlying problem, which could include:

  • Carelessness with money
  • Unmanageable fixed expenses
  • Unstable income

Here are some tips to help you cut spending and get out of debt by steadily paying down your bills.

5 ways to trim spending and pay down your debt

1. Set up an ‘I love me’ plan

One of the best ways to reduce spending is to get a handle on where all your money goes and set limits on how much you can spend on each of your needs and wants. This may sound like a familiar concept, but it can help to reframe how you think about budgeting.

“I know everybody hates the ‘b’ word,” said Sonya Smith-Valentine, president and financial confidence expert at Financially Fierce, a financial training company. “But I don’t call mine a budget. I call mine an ‘I love me’ plan. In that plan, I’m trying to find every way possible to love me and keep my money in my pocket.”

Not sure where to get started? Check out these strategies for managing your money.

Still, the skinny of it all is this: You need to understand how much money is going in and out of your pocket every month. That means putting down in writing:

  • Your monthly income
  • Your recurring monthly costs (e.g. rent and insurance payments)
  • Your typical spending on extraneous things (e.g. going out for drinks)

Once you have those numbers in writing, you can start thinking about how you’ll approach paying down your debt. You’ll also be able to see which expenses you can start trimming, whether that’s negotiating your bill payments or cutting back on eating out.

2. Identify and trim discretionary expenses

The first and most important way to bring your expenses down below your income is to cut discretionary spending. It’s easy to spend too much without realizing how much is flying out of your wallet. A coffee here, a new pair of shoes there; a movie ticket, a week’s worth of groceries, a car payment.

Some of your expenses are necessary (the groceries). Others are fixed and non-negotiable (the car payment), and even more are discretionary (the movie ticket). Some of your spendings may be downright frivolous (expensive chocolate) or even wasteful (bank fees you can’t account for).

Look for obvious things to painlessly cut. For example, you may consider:

  • Buying generic-brand products instead of luxury products
  • Forgoing a trip to the movies in favor of a home rental
  • Cooking at home more often

With a little-determined effort, you can probably cut your spending noticeably without feeling too much pain.

Keep your eyes off ads and hands off your credit cards
Preventing yourself from making bigger purchases can take some real willpower. Online shopping can be a danger to those who have trouble keeping spending under control. One easy way to reduce temptation on this front is to unsubscribe from marketing emails that stores send you.

“Those emails are effective,” said Smith-Valentine. “Sometimes it’s just, ‘Oh, that shirt is pretty.’ It’s not that you need another shirt; your closet is full. It was 30% off. Unsubscribing from those emails can do wonders.”

It can also be helpful to delete your credit card information that’s stored in the website of stores you buy from often. If it’s more difficult to place an order, you’re less likely to give in to temptation.

Another way to keep yourself from buying when you shouldn’t is to put all your credit cards but one low-limit one in an inconvenient location. Simply deprive yourself easy access to all that juicy, enabling credit.

“The commercial is, ‘What’s in your wallet?’ That’s a good question. Take it out — you don’t need it,” said Smith-Valentine. “If I’m only walking with the $1,000-limit one, not the $8,000-limit one, I can’t get into so much trouble.”

3. Eliminate these ‘invisible’ costs

Nothing’s worse than paying for things you no longer want or need to be paying for, or are paying for by mistake. Keep an eagle eye out for these recurring costs that may be eating into your budget.

Subscription services
Many consumers are signed up for at least one subscription service, whether that’s cable service, a magazine, or the gym. It is particularly easy to sign up for digital services, too, which could put you at a higher risk of forgetting about an unwanted subscription.

And don’t forget about subscription services that offer a free trial period. Signing up for one and then forgetting to cancel your subscription could spell trouble for your budget.

Bank fees
There’s no good reason to be paying fees on a checking account, whether they’re monthly fees, overdraft fees or ATM fees. But these can be hard to spot and remember.

Smith-Valentine described to MagnifyMoney her own bank fee experience. “I noticed a fee going back a couple months and I was like, ‘Why am I being charged this $25 per month fee?’” she said. “I called the bank and they said, ‘Oh, we’ll eliminate the problem.’ It would have been about $300 for the year.”

That said, a quick call to your bank could have the fee reversed — but do you really want to be forced to keep your bank on a short leash? You may instead want to consider switching to a free checking account instead.

High credit card rates
It can never hurt to call your credit card company to see if they’ll lower your rate, especially if you’ve made on-time payments for the last year. They’ll be more likely to oblige if you pay a bit more than the minimum each month. For example, if the minimum is $25, pay $35 or more.

You may be able to secure a rate as much as a percentage point lower than your current rate, or potentially even more. One percentage point may not sound like a lot but, according to Smith-Valentine, “that’s still quite a bit of interest, depending on what kind of balance you’re carrying.”

Smith-Valentine also said that she’s seen people get their credit card company agreeing to rate reduction as high as 5%, just by asking.

4. Tackle these fixed expenses

Of course, not all expenses can be so easily managed. Most people have quite a few fixed expenses that they need to handle every month — mortgage payments, car payments, and student loan payments, for example. Some of these you won’t be able to budget, but others might have some wiggle room. You can even overhaul some of these if you’re willing to do what’s necessary.

Mortgage
One way of reducing your mortgage cost is refinancing your mortgage. Are current loan rates favorable? If your interest rate is at least a half-percentage point higher than current rates, it may make sense to refinance. Keep in mind that refinancing comes with fees usually totaling $3,000 to $5,000, so you’ll want to do the math to make sure it makes sense for your situation.

It goes without saying that if you can’t afford your monthly mortgage payment, refinancing isn’t an option, and there’s no way for you to increase your income, you may need to reconsider your living situation. That could mean getting a roommate or downsizing.

Rent
It’s a good idea to limit your rent payments to 25% of your gross monthly salary. One of the advantages of renting is that it gives you more flexibility than a homeowner, so if you’re spending too much, find out what’s required to break your lease and start looking for a place you can afford. If you lose a security deposit or have to double up on rent for a month in order to move out early, it may still be worth it if you’re able to secure far lower rent that you can keep for the long-term.

Car payments
It may be difficult to get rid of an automobile you can’t afford. A car depreciates substantially the minute you drive it off the lot, so if you financed the entire car you likely owe more than your car is worth for a while right after you buy it. Once your loan amount is just a bit below the possible sales price, you can sell it and find a cheaper option.

Until then, if you have good credit and your loan balance is less than your car’s value, you can look into auto loan refinancing. Credit unions often have great deals in this space — they are often easier to deal with, and they tend to have incredibly low interest rates and none of the junk fees.

“Most people don’t realize you can refinance car loans as well,” said Smith-Valentine. “People should look into it especially if they have a higher interest rate.”

Insurance policies
Are you overpaying on your insurance? That’s a question you need to consider. There are so many insurance purveyors out there that shopping around can bring you quite a lot of savings, especially for auto insurance. Progressive, for example, could be a good option for comparing auto insurance rates.

Regarding life insurance, if you have 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 on you can pay for their needs if you die. Life insurance is not designed to be a way to save for retirement or to give your children an inheritance. That means term life insurance is almost always the best option.

Student loans
There are a few things you can do to change the amount you pay on your student loans. Look into getting on an income-driven repayment plan, which will match the amount you pay to how much you make. You can also refinance your student loans with a private lender if you have a relatively high interest rate.

If you have multiple student loans with different interest rates, it may be possible to combine them into one federal or private student loan. But while you may be able to qualify for a lower rate by refinancing or consolidating with a private loan, you’ll miss out on federal benefits. On the other hand, you may only consolidate federal student loans with a federal Direct Consolidation Loan, and the rate you get will be the weighted average of the loans you consolidate. Further, the Department of Education does not offer refinancing.

Other debt payments
If you took out a personal loan or charged up your credit cards to cover medical expenses or other costs, you may be frustrated by the interest you’re paying. High rates could make it harder to get out of debt.

In these cases, you may consider refinancing your debt or taking out a debt consolidation loan. Both refinancing and consolidating debt could help you get a lower interest rate and other more favorable terms. Consolidating debt has the added benefit of combining multiple debts into one. That means you’ll have just one monthly payment to handle instead of multiple monthly payments.

LendingTree, which owns MagnifyMoney, offers a debt consolidation loan tool you could use to explore your options for debt consolidation. You’ll need to enter personal information before seeing whether you qualify for any loan offers. Still, the tool could help you see what rates and terms you qualify for from reputable lenders.

5. Address the core issue

This last tip may be the hardest of the bunch: It’s all about ensuring you have long-term success with your finances.

Many people change their spending habits in minor ways or only temporarily and then expect their debt problems to resolve. But if your spending goes right back up after your short-term belt-tightening, or your income can’t cover recurring expenses you can’t negotiate, your problems will continue unabated.

That means you have two good options for ensuring long-term:

  • Increase your income (asking for a raise, for example)
  • Tightening your budget — and really sticking to it

This latter option may be the hardest to digest.

“It’s truly a mindset issue; you’ve got to truly shift your mindset,” said Smith-Valentine. “You’re not going to be successful at getting out of debt and reducing your spending if your mindset is still of the belief that you’re going to live your life exactly the way it is now.”

Despite the reams of information available out there to help people deal with their finances — including this post — millions of people are still in financial trouble. Obviously getting out of debt takes more than information; the mindset shift about how to approach spending is the missing ingredient for many.

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Katherine Gustafson is a writer at MagnifyMoney. You can email Katherine here

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What You Need to Know About Wage Garnishment

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Updated – December 6, 2018

Wage garnishment is a legal process that allows creditors to deduct money from a borrower’s paycheck to collect their unpaid debt. It is usually a lender’s last resort after other debt collection methods such as letters and phone calls are unsuccessful. With wage garnishment, you are forced to repay outstanding bills, back taxes or unpaid student loans out of your paycheck whether you want to or not.

While this collection method may seem unfair, it can take quite a while for your debts to fall so far into default that a creditor seeks a judgment against you and begins garnishing your wages. For the most part, wage garnishment only happens when you refuse to deal with your debts and do not take steps to prevent wage garnishment before it starts.

If you’re worried about having your wages forcibly garnished, it’s crucial to know how you can prevent this debt recovery tactic. But it’s also important to understand wage garnishment limitations, as well as the legal processes involved.

How wage garnishment works

While nearly any debt can result in wage garnishment, creditors of some types more commonly use the method. These include:

  • Federal student loans
  • Unsecured consumer debts
  • Federal taxes
  • Unpaid child support

But it’s important to note that wage garnishment doesn’t happen overnight — and there are limits to how much of your wages can be garnished. Here are the main steps involved in most wage garnishment cases.

Step 1: You default on a debt, whether that’s unsecured credit card debt, taxes owed to the federal government or child support you owe on a regular basis.

Step 2: Depending on the debt you have, you will likely receive letters and phone calls about your delinquent debt.

Step 3: A debt collector decides to sue you. If they win, the court could award a judgment against you or allow you time to appeal.

Step 4: If you don’t appeal or you lose your appeal, the debt collector can be granted a court order that allows them to garnish your wages.

Step 6: The creditor works directly with your employer to garnish your wages to the full extent of the law. The funds you owe will be deducted from your paycheck before you receive it until your debt is paid off.

What are the limits of wage garnishment?

The federal Consumer Credit Protection Act sets limits on the amount of money that debt collectors can collect from your wages and implements several more rules that protect consumers from some of the consequences of wage garnishment.

Employment. For starters, your employer cannot fire you for having your wages garnished the first time. But this rule doesn’t protect you against losing your job if your wages are garnished for a second time or beyond that.

Percentage limits. The law also sets the standard for how much of your wages can be garnished. In most cases, this is based on your disposable earnings, defined as the amount of money you have left after legally required deductions are covered. These deductions include federal and state taxes, payments for Social Security, Medicare and unemployment insurance taxes, and contributions to state employee retirement systems required by law. Deductions often paid through payroll such as health insurance premiums, union dues and charitable contributions are not deducted from earnings when calculating disposable earnings.

Once disposable earnings are calculated, the Consumer Credit Protection Act limits the amount of earnings that may be garnished in any workweek or pay period to 25% of your disposable earnings or the total of your disposable earnings above 30 times the federal minimum hourly wage — whichever is less.

The federal minimum hourly wage is $7.25 an hour, and 30 times that amount is $217.50. This means that individuals who earn less than $217.50 a week are not subject to wage garnishment in most cases.

It’s important to understand that this section of the law does not apply to unpaid child or spousal support or back taxes. We’ll go over limits and rules for those two categories in the sections below.

How wage garnishment occurs

If you’re behind on your debts and could face wage garnishment in the future, the next steps depend a lot on the type of debt you have.

Credit card debt and other unsecured debts

When consumers get behind on their credit card bills and other unsecured debts, a long and drawn-out process usually takes place before wage garnishment is even considered.

The process usually unfolds in the following manner:

1. You stop making payments on your bills. Once your bills are late, you will begin receiving late notices in the mail as companies try to collect from you.

2. Once your debt is 180 days in default, the creditor will either hire a debt collection agency to collect on its behalf or sell the debt altogether to minimize its losses. The debt collector will also try to collect from you by calling you on the phone and sending you letters.

3. The creditor may decide to file a lawsuit against you in your state’s civil court.

4. If you don’t appear in court or you do appear and lose the case, the debt collector will receive a judgment against you that says you owe a set amount to the creditor. This judgment is a formal decision by the court that confirms you owe the creditor a set amount of money.

5. The creditor has the right to enforce that judgment by contacting your employer and beginning a garnishment of your wages.

Most people who owe credit card debt have gone through a long and stressful collections process before the creditor files a lawsuit and pursues wage garnishment, according to consumer protection lawyer Jay S. Fleischman. Because of that, far too many people don’t appear in court.

Fleischman said this is part of the reason that wage garnishment for credit card debt and other unsecured debts is so common. It’s easy for creditors to win when debtors don’t show up to defend themselves.

When it comes to limits on wage garnishment for unsecured debts, the Consumer Credit Protection Act applies. This means that, for any given week of work, your wages can be garnished by the lesser of:

  • 25% of your disposable earnings
  • Any income that exceeds 30 times the federal minimum wage

But it’s important to note that some states do not allow wage garnishment for unsecured debts. Texas, Pennsylvania, North Carolina and South Carolina only allow wage garnishment for taxes, child support, federal student loans, and court-ordered fines and restitution.

Federal student loans

Wage garnishment to repay federal student loans is also common. This is mostly because the U.S. Department of Education has a mechanism in place that starts wage garnishment without a court order, Fleischman said. You must be given a 30-day advance notice of an opportunity for a hearing, but other than that, the process is automatic.

While your federal student loans become delinquent as soon as you miss a payment, your loan falls into default once it has been delinquent for at least 270 days. At this point, you will become ineligible for federal student aid and your default will be reported to the three credit reporting agencies. You could also be prohibited from buying and selling real estate, and you could be taken to court and charged collection costs and other fees.

Once in default, you will receive a letter from the Department of Education that gives you 30 days to resolve the default or begin repaying your loan. You can also request a hearing to explain why you shouldn’t be subject to an administrative wage garnishment.

If you do want to get your federal student loans out of default, you may be able to do so via a process known as loan rehabilitation. Under this agreement, you must contact your loan servicer and agree to make at least nine affordable, consecutive payments within 20 days of their due date over a 10-month period. Once you have met the terms of the agreement, your loans are no longer in default.

If you don’t respond or begin repaying your loan within 30 days, your wages will be garnished, with the same limits as unsecured debts.

Federal taxes

If you’re behind on taxes, the IRS also has rules in place that garnish your wages. But you will receive the following notices in the mail before wage garnishment and other legal processes begin:

  • A notice and demand for payment
  • A notice of intent to garnish your wages
  • A notice of your right to a hearing

If you opt to ask for a hearing, you can dispute your back taxes or ask the IRS for a payment plan. Fortunately, the IRS does offer short-term and long-term repayment plans that can help you catch up on your taxes while avoiding wage garnishment.

If you don’t pay the taxes you owe or make payment arrangements with the IRS, your wages will be garnished. The amount of wages it can collect from your paycheck depends on your filing status and how many dependents you have. Either way, wage garnishment limits are very high.

As an example, if you are single, have no dependents and get paid $600 a week, the IRS can take $369.23 of your paycheck each week until your tax debt is paid off.

Child and spousal support

You don’t want to fall behind on child and spousal support. Federal law allows much higher limits for wage garnishment in these categories.

For back child or spousal support, the Consumer Credit Protection Act allows garnishment of up to 50% of someone’s disposable earnings if they have remarried or have another child who is not part of the court order. If they do not fall into that category, garnishment can reach up to 60% of the person’s disposable earnings. Another 5% of disposable earnings can be garnished if support payments are more than 12 weeks behind.

But keep in mind that some states set lower limits on wage garnishment for child and spousal support.

Like many types of debt, wage garnishment for spousal and child support is determined by court order. The claimant will need to file a case with family court in their state to receive a judgment. Once the judgment is handed down, wage garnishment is set up through the employer.

How to get out of wage garnishment

When it comes to getting out of wage garnishment, an ounce of prevention is worth a pound of cure. In other words, you’re a lot better off figuring out a way to repay your debts from the start.

Plus, most of the avenues to get around wage garnishment are not quite ethical. For example, New York-based debt resolution attorney Leslie Tayne said you have the option to switch jobs or cut your work hours so that you earn so little that wage garnishment doesn’t apply. You could also quit working altogether to halt wage garnishment. Wage garnishment only works if you’re an employee receiving a W-2, she said.

Of course, Tayne said these are poor solutions when it comes to overcoming wage garnishment. Not only will you continue owing the debts in question, but you will suffer financially as well.

Another way to get out of wage garnishment is to try to resolve the debt with the creditor directly, Tayne said. Pick up the phone and call your creditors to see if a payment plan can be worked out. If it can, then you’re wise to stick with the plan and pay off your debts over time. Of course, this strategy works best if you negotiate your debts shortly after you default instead of later in the process.

You can also file bankruptcy to stop wage garnishment — at least for a while. When you file for bankruptcy, an automatic stay comes into effect that prevents most creditors from being able to continue involuntary collections activities against you. Depending on the type of bankruptcy you file, you may be able to discharge your debts completely or reorganize your debts and pay them off over time.

Living with wage garnishment

If you’re facing wage garnishment and are worried about the impact to your take-home pay, keep in mind that wage garnishment won’t last forever.

You might need to find ways to supplement your income, Tayne said. It’s possible you could pick up more hours at work to make up for your loss in pay, for example. You could also pick up a part-time job or a side hustle to make ends meet.

Having your wage garnished might also be a sign to approach your finances in a different way. Instead of trying to avoid bills and liabilities, you could try to focus on finding ways to pay them, Fleischman said. And don’t forget that you could make a huge difference in your finances by cutting your expenses. The less you owe in regular bills each month, the more money you’ll have to live on. You could try cutting your cable television package, finding a cheaper apartment or cooking at home instead of dining out.

Wage garnishment is far from convenient and you might even see it as unfair, but it’s something you may have to endure — at least until your debt is paid off.

“Sometimes you just have to live with it,” Tayne said.

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

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

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Updated – December 6, 2018

For homeowners in need of some financial flexibility, a personal loan or a home equity loan can provide extra cash for financing an education, dealing with an unexpected emergency, or making home improvements. Both loan types offer different benefits as well as different risks, so it’s important to weigh your options before borrowing.

Personal loan vs. home equity loan

Personal loans and home equity loans offer different options for customers who need access to a larger amount of cash than they have on hand. While the end result of a successful application is the same (ready access to funds in a lump-sum payment), the process and the finer details are considerably different.

The primary difference between a personal loan and a home equity loan is that personal loans do not typically require collateral, whereas a home equity loan does. You may have heard lenders call this type of financing a signature loan or unsecured loan because in these types of transactions, your word is your bond (via a legally-binding contract, of course.)

Home equity loans are based on the amount of equity (the difference between what you owe and the value of your property) you have in your house. There are a few other differences regarding how the loan is structured and the loan cost, which is detailed in the chart below.

 Personal loanHome equity loan

Requires collateral?

No

Yes

Interest rates

6% to 36%

4.25% to 6%

Loan cost

There may be some fees, such as an origination fee or prepayment penalties.

In addition to a loan origination fee, borrowers may have to pay an appraisal fee, title report fee and notary fee.

How much money can you borrow?

The amount is based on your income and credit history.

The amount is based on the equity in your home. Typically maxes out at 70% to 80% or total loan to value.

Restrictions on use

No

Only if you care about a tax write-off.

Tax Benefits

No

Yes. If the money is used to make improvements to the home.

Rates sourced from LendingTree.com, which owns MagnifyMoney.

How personal loans work

When you take out a personal loan, the lender offers a lump-sum cash payment. Most personal loans can be used for anything you want. Common uses include:

Talk with your lender to find out if they have specific procedures for handling this type of personal loan.

Personal loans are widely available. It is imperative that you take your time doing research. Some of the personal loans you’ll find online may be nothing more than payday loans in disguise (with interest rates that can creep into triple digits).

Interest rates

If you want the best rates, you should work with a trusted lender. Many banks, credit unions and credit card companies even offer an online application process, so you can take advantage of the convenience of an online application while saving money.

LendingTree
APR

5.99%
To
35.99%

Credit Req.

Minimum 500 FICO

Minimum Credit Score

Terms

24 to 60

months

Origination Fee

Varies

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

Interest rates vary from lender to lender, but they also vary from state to state. State usury laws dictate the maximum interest rates on various loan types, but each state offers different exemptions. For example, Arkansas caps interest rates on consumer loans at 17% per year, but in Utah, the legal rate is 10%, unless parties agree to different terms. For this reason, make sure you take the time to read the details of any financial agreement you are prepared to sign.

According to the Federal Reserve, personal loan interest rates averaged 10.1% at the end of August. Your credit score, loan amount, home state and credit history could affect those numbers.

As mentioned earlier, most personal loans don’t require collateral, but lenders make up for the added risk with higher interest rates than you’ll typically find on home equity loans.

Unsecured personal loans are a little harder to get than other types of loans (such as a title loan or a home equity loan) because the lender is allowing you to borrow money based solely on the information they get about you. If you have a lot of debt or a very low credit score, you may find it difficult to get a personal loan, or you’ll have to consider a higher interest rate.

Terms and fees

For true personal loans, expect loan terms up to five years. Personal loans are also fixed rate, which means your interest rate (and your payment) will stay the same throughout the life of the loan.

Some lenders charge an origination fee, loan insurance and/or prepayment penalties. Make sure to talk to your lender about their specific requirements before moving forward.

The application process is fairly straightforward. You’ll fill out some personal information and provide financial documents to show you can afford the monthly payments. Depending on your lender and the type of loan you are seeking, you could have access to the money in as little as 24 hours, though some loans could take up to a week.

Personal loans are a good option for borrowers who need access to cash fairly quickly but don’t have home equity and/or don’t want to pay the higher interest rates on most credit cards.

ProsCons

No collateral required

Slightly higher interest rates

Easy application process

Tougher credit history requirements

Lots of lenders available

Potential to run into very unfavorable terms

Cash available within a day or two

Average loan amounts are fairly low

How home equity loans work

A home equity loan operates differently than a personal loan because the lender looks at how much equity you have in your property. Then, they do a little number magic and offer a loan amount based on the loan-to-value rate.

One of the biggest benefits of a home equity loan is that it can provide access to a large sum of money. The equity of your home is determined by calculating the home’s current market value and subtracting any liens against the property (like your mortgage). If you purchased a home for $350,000 and still owe $100,000 on the property and you have no other liens (such as a second mortgage), your equity would be $250,000. If you run up against a major emergency, access to this type of money could very valuable.

To qualify for a home equity loan there are two major requirements:

  1. You must own a home.
  2. You must have equity in that home.

Your lender will check your payment history and some other financial information as well.
Documents you may be required to provide include:

  • Proof you own the home
  • Pay stubs and/or two years of tax returns
  • Tax assessments
  • Mortgage statements
  • List of debts (if using the money to consolidate your bills)
  • A form showing the value of your home

Borrowers should know that the maximum lenders will allow you to borrow is typically 85-90% of your equity. (So if you have $100,000 in equity, the most lenders would allow you to take out is $85,000-90,000, though many lenders prefer closer to 80% or less.)

A major drawback for this type of loan is that you are using your home as collateral. That means if you are unable to make your payments, you could lose your house. Another risk is that your home could drop in value, putting you underwater on your property.

Interest rates

Home equity loans may offer lower interest rates (because you are putting your home up as collateral, there is less risk for the lender), but they often come with closing costs and loan origination fees, which can eat into your borrowing power.

Like personal loans, home equity loans have a fixed-interest rate, which means you’ll know how much you have to pay every month for the term of your loan. A home equity loan provides a lump-sum payment (like a personal loan). Home equity loans tend to have slightly longer terms than personal loans (between five and 15 years).

Be aware that a home equity loan and a home equity line of credit are similar, but not the same, so make sure you know which one you are applying for if you decide to move forward.

Terms and fees

Some fees you may see when applying for a home equity loan include an appraisal fee (lenders use an appraiser for a more accurate home value estimate.) The fee will vary based on your lender but can cost between $300 and $400.

Your lender may also charge a title search fee (around $100), a credit report fee, lawyer and documentation fees and notary fees. Many lenders charge an origination fee, but some will waive this charge. These little fees can easily add up to $1,000 or more.

Money from a home equity loan can be used for any purpose from medical expenses to home repairs. However, recent tax changes made the tax incentives on these types of loans a little less attractive for borrowers.

The new rules stipulate that in order to qualify for tax deductions, the money must be used to substantially improve a property. Further, since tax deductions increased, you may not even need to itemize your deductions.

Homeowners can apply for a home equity loan through their original lender, but it’s not a requirement. The Federal Trade Commission recommends talking to several lenders and trying to get the best deal by letting them know you’re shopping around.

If you decide after signing for a home equity loan that you’ve changed your mind, federal law provides a three-day grace period where a borrower can cancel the agreement without a penalty. You’ll have to submit the notice in writing.

A home equity loan will take longer than a personal loan (typically two to four weeks). The timeline is longer because the loan process is more complex.

Borrowers who need access to a large amount of money and/or want to take advantage of some of the tax benefits may find the home equity loan attractive. Since this type of loan puts your house at risk, make sure to do the proper research and really study your finances to determine if this type of loan works for you.

ProsCons

Potential for access to a lot of credit

Takes 2 to 4 weeks to get funds

Lower interest rates than credit card or personal loan

More expensive upfront costs

Fixed interest rates

Your home is collateral

There are potential tax benefits for a home equity loan

The tax restrictions only apply to funds used to make significant improvements on the home.

Personal loan vs. home equity loan: Which is better?

There are benefits and risks to both a personal loan and a home equity loan. For borrowers who have a lot of equity in their home and know they can make the loan payments in addition to their mortgage payments, a home equity loan offers lower interest rates, which could mean lower payments and a lower loan cost over time. However, if you are uncomfortable putting your home up as collateral, can’t afford the upfront costs of a home equity loan or don’t need access to a lot of cash, a personal loan may be a better option.

No matter what you choose, make sure to ask your lender a lot of questions and don’t be afraid to shop around to get the best deal.

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

Angela Brown
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Angela Brown is a writer at MagnifyMoney. You can email Angela here

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