Tag Archives: car loan

All About Car Loan Amortization

All About Auto Loan Amortization

These days, it can take a long time to pay off a car loan. On average, car loans come with terms lasting for more than five years. Paying down a car loan isn’t that different from paying down a mortgage. In both cases, a large percentage of your initial payments go toward paying interest. If you don’t understand why, you might need a crash course on a concept called amortization.

Find out now: How much house can I afford?

Car Loan Amortization: The Basics

Amortization is just a fancy way of saying that you’re in the process of paying back the money you borrowed from your lender. In order to do that, you’re required to make a payment every month by a certain due date. With each payment, your money is split between paying off interest and paying off your principal balance (or the amount that your lender agreed to lend you).

What you’ll soon discover is that your car payments – at least in the beginning – cover quite a bit of interest. That’s how amortization works. Over time, your lender will use a greater share of your car payments to reduce your principal loan balance (and a smaller percentage to pay for interest) until you’ve completely paid off the vehicle you purchased.

Not all loans amortize. For example, applying for a credit card is akin to applying for a loan. While your credit card statement will include a minimum payment amount, there’s no date set in advance for when that credit card debt has to be paid off.

With amortizing loans – like car loans and home loans – you’re expected to make payments on a regular basis according to something called an amortization schedule. Your lender determines in advance when your loan must be paid off, whether that’s in five years or 30 years.

The Interest on Your Car Loan

All About Auto Loan Amortization

Now let’s talk about interest. You’re not going to be able to borrow money to finance a car purchase without paying a fee (interest). But there’s a key difference between simple interest and compound interest.

When it comes to taking out a loan, simple interest is the amount of money that’s charged on top of your principal. Compound interest, however, accounts for the fee that accrues on top of your principal balance and on any unpaid interest.

Related Article: How to Make Your First Car Purchase Happen

As of April 2016, 60-month new car loans have rates that are just above 3%, on average. Rates for used cars with 36-month terms are closer to 4%.

The majority of car loans have simple interest rates. As a borrower, that’s good news. If your interest doesn’t compound, you won’t have to turn as much money over to your lender. And the sooner you pay off your car loan, the less interest you’ll pay overall. You can also speed up the process of eliminating your debt by making extra car payments (if that’s affordable) and refinancing to a shorter loan term.

Car Loan Amortization Schedules 

An amortization schedule is a table that specifies just how much of each loan payment will cover the interest owed and how much will cover the principal balance. If you agreed to pay back the money you borrowed to buy a car in five years, your auto loan amortization schedule will include all 60 payments that you’ll need to make. Beside each payment, you’ll likely see the total amount of paid interest and what’s left of your car loan’s principal balance.

While the ratio of what’s applied towards interest versus the principal will change as your final payment deadline draws nearer, your car payments will probably stay the same from month to month. To view your amortization schedule, you can use an online calculator that’ll do the math for you. But if you’re feeling ambitious, you can easily make an auto loan amortization schedule by creating an Excel spreadsheet.

To determine the percentage of your initial car payment that’ll pay for your interest, just multiply the principal balance by the periodic interest rate (your annual interest rate divided by 12). Then you’ll calculate what’s going toward the principal by subtracting the interest amount from the total payment amount.

For example, if you have a $25,000 five-year car loan with an annual interest rate of 3%, your first payment might be $449. Out of that payment, you’ll pay $62.50 in interest and reduce your principal balance by $386.50 ($449 – $62.50). Now you only have a remaining balance of $24,613.50 to pay off, and you can continue your calculations until you get to the point where you don’t owe your lender anything.

Related Article: The Best Cities for Electric Cars

Final Word

All About Auto Loan Amortization

Auto loan amortization isn’t nearly as complicated as it might sound. It requires car owners to make regular payments until their loans are paid off. Since lenders aren’t required to hand out auto amortization schedules, it might be a good idea to ask for one or use a calculator before taking out a loan. That way, you’ll know how your lender will break down your payments.

Update: Have more financial questions? SmartAsset can help. So many people reached out to us looking for tax and long-term financial planning help, we started our own matching service to help you find a financial advisor. The SmartAdvisor matching tool can help you find a person to work with to meet your needs. First you’ll answer a series of questions about your situation and goals. Then the program will narrow down your options from thousands of advisors to three fiduciaries who suit your needs. You can then read their profiles to learn more about them, interview them on the phone or in person and choose who to work with in the future. This allows you to find a good fit while the program does much of the hard work for you.

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Source: smartasset.com

How Long Does It Take to Refinance a House (+ 5 Ways to Speed Up the Process)

We’re all looking for ways to cut down on expenses — especially fixed expenses that lock us into a contracted bill month after month. One common way to spare your budget is to decrease your living expenses, including your house payment. Refinancing your loan could help cut down on your mortgage payments and could update your loan terms, saving you money. If you’re considering refinancing, you may ask, “how long does it take to refinance a house?”

Refinancing your home can be tedious but it could help your budget in the long run. Luckily, we’re here to help by sharing the typical refinancing process and detailing how to make it as efficient as possible.

How Long Does It Take to Refinance?

How Long Does It Take to Refinance?

Typically, refinancing a house takes 45 days, but it may vary depending on your financial situation and your lender vetting process. Preparing your financials early and picking the appropriate lender for your case are a few factors that could help the timeline of your updated mortgage loan. To speed up the refinancing application process, skip to our section below or keep reading to refinance your home in seven steps.

Steps to Refinance Your Home

Refinancing your mortgage has its positives and potential negatives. You could decrease your monthly mortgage payments, get a shorter loan period, or lock in a better interest rate. But you could also end up spending more on application fees or face prepayment penalties. Before speaking with a lender, research the refinancing process, requirements, and added costs that could deter your ideal result.

The 7-Step Home Refinancing Timeline

Step 1: Define Your Financial Goals

Start by asking yourself what you’d like to get out of a refinancing loan agreement. Do you want to shorten your loan term? Do you want to secure an interest rate lower than your current rate? Or, do you want both? Determine your ideal end result, verify your investment choice, and seek a lender that supports your goals.

Step 2: Compare Lenders (and Reviews)

Ask around or search online to find the right lender for you and your goals. Pick out a few professionals you’d be interested in working with and ask them their rates, terms, and requirements. To help narrow down your lender options, seek out reviews online or ask for referrals in your network to ensure you pick the right choice.

Step 3: Double-Check for Additional Fees or Costs

Refinancing a loan can rack up a bill you may not be aware of until after you start the loan process. Attorney, application, inspection, appraisal, and title searches are a few refinancing tasks that you could be charged for. To budget for these expenses, save a bit extra from each paycheck or assess your current savings account using our app. If you have enough saved, start inquiring about this loan. If you don’t, put extra cash into savings each month until you have enough to cover the extra charges.

Mortgage Refinancing Documents

Step 4: Apply for Your Best Loan Estimate

Once you’ve found the right loan for your financial goals, the next step is to fill out your application.. To submit your application, you may have to provide proof of income, assets, debts, and other forms that complete your financial portfolio. These documents may be helpful in the application process:

  • Proof of income: W2 earnings statements, 1099 DIV income statements, Federal tax returns for the last two years, bank statements for the last few months, recent paycheck stubs.
  • Credit information: your credit score and your credit reports from the last three years will be pulled for you, upon your approval.
  • Proof of assets: reports from your checking, savings, retirement, and other investment accounts.
  • Proof or insurance: providing evidence of your homeowners and title insurance.
  • Debts statements: statements of any debt accounts open — student loans, credit cards, current home loan, auto loans, etc.

Step 5: Start the Loan Process and Appraise Your Home

It’s now time to begin the loan process and appraise the value of your home. Once you’re approved for your loan, it’s time to get your home inspected, appraised, and conduct a title search. To ensure you’re on track with your timeline, prepare all your documents ahead of time. Skip to our section below for more ways to speed up this process.

Step 6: Wait for Underwriters to Cross-Reference

Now, the underwriters take it from here. Underwriters double-check your financial information to ensure everything is accurate before approving your loan. Your creditworthiness and debt-to-income ratio are generally the key factors underwriters will look at. Your property details, including when you bought your house and your home’s value, are a few other determining factors. This process may be the longest time constraint, taking a few days up to a few weeks.

Step 7: Close Your Loan to Lock in Your Interest Rate

Once your loan is approved and you’ve agreed upon your terms, it’s time to lock in your rate. This stage is commonly known to stretch your timeline as well. It can take your lawyer anywhere from one day to two months to settle your current loan and redeem your property. Keep in mind, this is typically where you pay the brunt of your fees whether you’re approved or denied. These fees may include closing costs and application fees.

Ways to Speed up the Application Process

credit score of 620 or higher, it may be the right time to check in on your score. Use our app to see your credit score, your credit history, and helpful tips to boost your ranking.

  • Avoid taking on more debt: Your credit score is impacted by your debt. Maxing out your credit card could negatively impact your credit score and cost more in the long run. Focus on paying off debts and only spending your readily available money to free up more credit utilization.
  • Stay away from applying for new credit: Additionally, inquiring about new debt opportunities could drop your credit score up to eight points. Next time you’re offered a new credit card or a deal on a car loan, take a few days to analyze the potential credit changes that could impact your refinanced mortgage.
  • Do what you can to accommodate your appraiser and lender: During this process, you may run into a couple issues — such as needing different paperwork or extra signatures. While life can get busy, do your best to make your appraisers and lenders live’s easy. Doing so could speed up your process and earn you a better home loan in no time!
  • Refinancing your home takes time, but it can be well worth it in the long run. Getting a lower interest rate and a shorter term length could lessen your payments going towards interest. Use our app and our loan calculator to see what refinancing could do for your budget.

     

    The post How Long Does It Take to Refinance a House (+ 5 Ways to Speed Up the Process) appeared first on MintLife Blog.

    Source: mint.intuit.com

    Why It’s Harder to Get Credit When You’re Self-Employed

    Around 6.1% of employed Americans worked for themselves in 2019, yet the ranks of the self-employed might increase among certain professions more than others. By 2026, the U.S. Bureau of Labor Statistics projects that self-employment will rise by nearly 8%. 

    Some self-employed professionals experience high pay in addition to increased flexibility. Dentists, for example, are commonly self-employed, yet they earned a median annual wage of $159,200 in 2019. Conversely, appraisers and assessors of real estate, another career where self-employment is common, earned a median annual wage of $57,010 in 2019.

    Despite high pay and job security in some industries, there’s one area where self-employed workers can struggle — qualifying for credit. When you work for yourself, you might have to jump through additional hoops and provide a longer work history to get approved for a mortgage, take out a car loan, or qualify for another line of credit you need.

    Why Being Self-Employed Matters to Creditors

    Here’s the good news: Being self-employed doesn’t directly affect your credit score. Some lenders, however, might be leery about extending credit to self-employed applicants, particularly if you’ve been self-employed for a short time. 

    When applying for a mortgage or another type of loan, lenders consider the following criteria:

    • Your income
    • Debt-to-income ratio
    • Credit score
    • Assets
    • Employment status

    Generally speaking, lenders will confirm your income by looking at pay stubs and tax returns you submit. They can check your credit score with the credit bureaus by placing a hard inquiry on your credit report, and can confirm your debt-to-income ratio by comparing your income to the debt you currently owe. Lenders can also check to see what assets you have, either by receiving copies of your bank statements or other proof of assets. 

    The final factor — your employment status — can be more difficult for lenders to gauge if you’re self-employed, and managing multiple clients or jobs. After all, bringing in unpredictable streams of income from multiple sources is considerably different than earning a single paycheck from one employer who pays you a salary or a set hourly rate. If your income fluctuates or your self-employment income is seasonal, this might be considered less stable and slightly risky for lenders.

    That said, being honest about your employment and other information when you apply for a loan will work out better for you overall. Most lenders will ask the status of your employment in your loan application; however, your self-employed status could already be listed with the credit bureaus. Either way, being dishonest on a credit application is a surefire way to make sure you’re denied.

    Extra Steps to Get Approved for Self-Employed Workers

    When you apply for a mortgage and you’re self-employed, you typically have to provide more proof of a reliable income source than the average person. Lenders are looking for proof of income stability, the location and nature of your work, the strength of your business, and the long-term viability of your business. 

    To prove your self-employed status won’t hurt your ability to repay your loan, you’ll have to supply the following additional information: 

    • Two years of personal tax returns
    • Two years of business tax returns
    • Documentation of your self-employed status, including a client list if asked
    • Documentation of your business status, including business insurance or a business license

    Applying for another line of credit, like a credit card or a car loan, is considerably less intensive than applying for a mortgage — this is true whether you’re self-employed or not. 

    Most other types of credit require you to fill out a loan application that includes your personal information, your Social Security number, information on other debt you have like a housing payment, and details on your employment status. If your credit score and income is high enough, you might get approved for other types of credit without jumping through any additional hoops.

    10 Ways the Self-Employed Can Get Credit

    If you work for yourself and want to make sure you qualify for the credit you need, there are plenty of steps you can take to set yourself up for success. Consider making the following moves right away.

    1. Know Where Your Credit Stands

    You can’t work on your credit if you don’t even know where you stand. To start the process, you should absolutely check your credit score to see whether it needs work. Fortunately, there are a few ways to check your FICO credit score online and for free

    2. Apply With a Cosigner

    If your credit score or income are insufficient to qualify for credit on your own, you can also apply for a loan with a cosigner. With a cosigner, you get the benefit of relying on their strong credit score and positive credit history to boost your chances of approval. If you choose this option, however, keep in mind that your cosigner is jointly responsible for repaying the loan, if you default. 

    3. Go Straight to Your Local Bank or Credit Union

    If you have a long-standing relationship with a credit union or a local bank, it already has a general understanding of how you manage money. With this trust established, it might be willing to extend you a line of credit when other lenders won’t. 

    This is especially true if you’ve had a deposit account relationship with the institution for several years at minimum. Either way, it’s always a good idea to check with your existing bank or credit union when applying for a mortgage, a car loan, or another line of credit. 

    4. Lower Your Debt-to-Income Ratio

    Debt-to-income (DTI) ratio is an important factor lenders consider when you apply for a mortgage or another type of loan. This factor represents the amount of debt you have compared to your income, and it’s represented as a percentage.

    If you have a gross income of $6,000 per month and you have fixed expenses of $3,000 per month, for example, then your DTI ratio is 50%.

    A DTI ratio that’s too high might make it difficult to qualify for a mortgage or another line of credit when you’re self-employed. For mortgage qualifications, most lenders prefer to loan money to consumers with a DTI ratio of 43% or lower. 

    5. Check Your Credit Report for Errors

    To keep your credit in the best shape possible, check your credit reports, regularly. You can request your credit reports from all three credit bureaus once every 12 months, for free, at AnnualCreditReport.com

    If you find errors on your credit report, take steps to dispute them right away. Correcting errors on your report can give your score the noticeable boost it needs. 

    6. Wait Until You’ve Built Self-Employed Income

    You typically need two years of tax returns as a self-employed person to qualify for a mortgage, and you might not be able to qualify at all until you reach this threshold. For other types of credit, it can definitely help to wait until you’ve earned self-employment income for at least six months before you apply. 

    7. Separate Business and Personal Funds

    Keeping personal and business funds separate is helpful when filing your taxes, but it can also help you lessen your liability for certain debt. 

    For example, let’s say that you have a large amount of personal debt. If your business is structured as a corporation or LLC and you need a business loan, separating your business funds from your personal funds might make your loan application look more favorable to lenders.

    As a separate issue, start building your business credit score, which is separate from your personal credit score, early on. Setting up business bank accounts and signing up for a business credit card can help you manage both buckets of your money, separately. 

    8. Grow Your Savings Fund

    Having more liquid assets is a good sign from a lender’s perspective, so strive to build up your savings account and your investments. For example, open a high-yield savings account and save three to six months of expenses as an emergency fund. 

    You can also open a brokerage account and start investing on a regular basis. Either strategy will help you build up your assets, which shows lenders you have a better chance of repaying your loan despite an irregular income. 

    9. Provide a Larger Down Payment

    Some lenders have tightened up mortgage qualification requirements, and some are even requiring a 20% down payment for home loans. You’ll also have a better chance to secure an auto loan with the best rates and terms with more money down, especially for new cars that depreciate rapidly.

    Aim for 20% down on a home or a car that you’re buying. As a bonus, having a 20% down payment for your home purchase helps you avoid paying private mortgage insurance.

    10. Get a Secured Loan or Credit Card

    Don’t forget the steps you can take to build credit now, if your credit profile is thin or you’ve made mistakes in the past. One way to do this is applying for a secured credit card or a secured loan, both of which require collateral for you to get started.

    The point of a secured credit card or loan is getting the chance to build your credit score and prove your creditworthiness as a self-employed worker, when you can’t get approved for unsecured credit. After making sufficient on-time payments toward the secured card or loan, your credit score will increase, you can upgrade to an unsecured alternative and get your deposit or collateral back.

    The Bottom Line

    If you’re self-employed and worried that your work status will hurt your chances at qualifying for credit, you shouldn’t be. Instead, focus your time and energy on creating a reliable self-employment income stream and building your credit score.

    Once your business is established and you’ve been self-employed for several years, your work status won’t matter as heavily. Keep your income high, your DTI low, and a positive credit record, you’ll have a better chance of getting approved for credit. 

    The post Why It’s Harder to Get Credit When You’re Self-Employed appeared first on Good Financial Cents®.

    Source: goodfinancialcents.com

    Can I Get a Car Loan If I Have No Credit?

    buy a car with no credit

    Yes, lenders have auto loans for people with no credit, but getting one is not guaranteed. It will depend on the lender’s flexibility, the down payment you can afford, and the kind of car you want to buy. It may even depend on how you ask.

    Phil Reed, senior consumer advice editor for the consumer auto site Edmunds has some good advice on how to get a car loan with no credit. He says a surprising number of people simply walk into a dealership and say, “Hi, I have no credit, and I want to buy a car.” He doesn’t recommend this approach. Instead, he offers these five tips for people who need a no-credit car loan.

    1. Get Pre-Approved

    If you have no credit or a thin credit profile, you should try to get preapproved for a loan before heading to the dealership. This will let you compare rates with any loan the dealer may offer. It may also give you a bargaining chip when negotiating the final deal.

    If you have a relationship with a bank or credit union, you should start looking for financing there. Reed recommends making an appointment to meet with your bank’s loan officer in person.

    “Make a case for yourself,” he says. That means bringing your pay stubs and bank account records with you. You should also check your credit reports, if they exist, and credit scores. You want to know as much about your credit profile as a lender would. If you don’t know your credit score, don’t worry—you can check your credit score for free every month on Credit.com.

    If you can’t get a loan from your financial institution, you may be able to find a no-credit auto loan online. Just make sure it’s from a reputable lender. Credit.com can also help you find auto loan offers from trustworthy lending institutions.

     

    2. Negotiate a Good Price

    A dealership could beat the offer you get from your bank or credit union. However, if you know you’re already approved for a loan, you can focus on comparing rates and prices instead of worrying about financing.

    Reed says that it’s important to be wary. You don’t want to feel so indebted to the dealer for “giving” you a loan that you fail to negotiate the price of the car. And if the dealer’s financing isn’t better than the bank’s, at least you still have an approval in your pocket.

    Having a good down payment or trade-in can also help your case. A trade-in would reduce the amount you’ll need to borrow, and a larger down payment would show the lender some commitment on your part. Edmunds recommends putting at least 10% down on a used car, so start saving now.

    3. Choose the Right Car

    Be sure the car you’re buying is affordable for you, even if it’s not the car you’d choose if you had more money and better credit. “If you have no credit, it’s not the time to get your dream car,” Reed says. “You have to choose the right car and the right amount [to borrow].”

    You want reliable transportation you can afford. Making regular, on-time payments won’t just pay down your load, it will also build your credit, so don’t get a loan that requires higher payments than you can comfortably make.

    Sites like Kelley Blue Book, Cars.com, and Edmunds can help you find information on the cars that match your budget. When you’re at the car dealership, remember your budget and don’t spring for optional add-ons you don’t really need.

    4. Don’t Let Interest Rates Scare You Off

    Reed cautions that when you get a loan with no credit, the interest rates you’re offered may seem appallingly high, but that’s part of the cost of having no credit history.

    When you don’t have a credit score, lenders can’t assess how big of a risk they’re taking by giving you a loan. To protect the money they’re lending, they will likely treat you as a high-risk borrower, which means the loan will have a higher interest rate.

    As you make payments, you’ll establish a pattern of reliably paying back money. Over time, you can improve your interest rate by refinancing. Reed says that, according to a dealership employee, a customer once lowered his interest rate from 13% to 2% in two years’ time by improving his credit and refinancing.

    5. Give Yourself Some Credit, Not a Cosigner

    Reed advises against cosigning—a process that involves checking someone else’s credit and using that score to qualify for a loan. It might get you a lower rate and help you get approved, but Reed says that if you bite the bullet and pay a higher interest rate rather than get a cosigner, you’ll have the opportunity to build credit.

    In addition, having a cosigner will tie that person’s credit to yours, and the way you repay your car loan will influence their credit. Reed says if you’re going to do it, do it only as a last resort, and make sure the cosigner is a relative.

    Bottom line, though, as Reed explains, “It’s asking a lot.” It’s better to finance the car yourself, pay on time, and build your credit. That way, the next time you need a loan, you won’t have to worry about whether you’ll qualify.

    Good credit doesn’t just help you get reliable transportation: good credit can make a huge difference in improving your financial security and the peace of mind that comes with it. Start tracking your credit for free today at Credit.com. Your new car will get you moving around town, but your new credit score will get you moving up in the world.

    Image: iStock

    The post Can I Get a Car Loan If I Have No Credit? appeared first on Credit.com.


    Source: credit.com

    How to Set Financial Goals: A Simple, Step-By-Step Guide

    Saving money is all well and good in theory.

    It’s pretty hard to argue against having more money in the bank.

    But what are you saving for? If you don’t have solid financial goals, all those hoarded pennies might end up in limbo when they could be put to good use.

    Figuring out where your money should go might seem daunting, but it’s actually a lot of fun.

    You get to analyze your own priorities and decide exactly what to do with your hard-earned cash.

    But to make the most of your money, follow a few best practices while setting your goals.

    After all, even if something seems like exactly what you want right now, it might not be in future-you’s best interest. And you’re playing the long game… that’s why they’re called goals!

    What to Do Before You Start Writing Your Financial Goals

    To help keep you from financial goals like “buy the coolest toys and cars,” which could easily get you deeply into debt while you watch your credit score plummet, we’ve compiled this guide.

    It’ll help you set goals and create smart priorities for your money. That way, however you decide to spend your truly discretionary income, you won’t leave the 10-years-from-now version of you in the lurch.

    First Thing’s First: How Much Money Do You Have?

    You can’t decide on your short- or long-term financial goals if you don’t know how much money you have or where it’s going.

    And if you’re operating without a budget, it can be easy to run out of money well before you run out of expenses — even if you know exactly how much is in your paycheck.

    So sit down and take a good, hard look at all of your financial info.

    A ton of great digital apps can help you do this — here are our favorite budgeting apps — but it can be as simple as a spreadsheet or even a good, old-fashioned piece of paper. It just takes two steps:

    1. Figure out how much money you have. It might be in checking or savings accounts, including long-term accounts like IRAs. Or, it might be wrapped up in investments or physical assets, like your paid-off car.
    2. Assess any debts you have. Do you keep a revolving credit card balance? Do you pay a mortgage each month? Are your student loans still hanging around?

    Take the full amount of money you owe and subtract it from the total amount you have, which you discovered in step one. The difference between the two is your net worth. That’s the total amount of money you have to your name.

    If it seems like a lot, cool. Hang tight and don’t let it burn a hole in your pocket. We’re not done yet.

    If it seems like… not a lot, well, you can fix that. Keep reading.

    A woman creates a monthly budget while sitting on her bed. The sheets are white with a floral pattern on them. This story is about how to set up financial goals.

    Create a Budget

    Once you’ve learned your net worth, you need to start thinking about a working budget.

    This will essentially be a document with your total monthly income at the top and a list of all the expenses you need to pay for every month.

    And I do mean all of the expenses — even that $4.99 recurring monthly payment for your student-discounted Spotify account definitely counts.

    Your expenses probably include rent, electricity, cable or internet, a cell phone plan, various insurance policies, groceries, gas and transportation. It also includes categories like charitable giving, entertainment and travel.

    Pro Tip

    Print out the last two or three months of statements from your credit and debit cards and categorize every expense. You can often find ways to save by discovering patterns in your spending habits.

    It’ll depend on your individual case — for instance, I totally have “wine” as a budget line item.

    See? It’s all about priorities.

    Need to go back to basics? Here’s our guide on how to budget.

    Start by listing how much you actually spent in each category last month. Subtract your total expenses from your total income. The difference should be equal to the amount of money left sitting in your bank account at month’s end.

    It’s also the money you can use toward your long-term financial goals.

    Want the number to be bigger? Go back through your budget and figure out where you can afford to make cuts. Maybe you can ditch the cable bill and decide between Netflix or Hulu, or replace a takeout lunch with a packed one.

    You don’t need to abandon the idea of having a life (and enjoying it), but there are ways to make budgetary adjustments that work for you.

    Set the numbers you’re willing to spend in each category, and stick to them.

    Congratulations. You’re in control of your money.

    Now you can figure out exactly what you want to do with it.

    Setting Financial Goals

    Before you run off to the cool-expensive-stuff store, hold on a second.

    Your financial goals should be (mostly) in this order:

    1. Build an emergency fund.
    2. Pay down debt.
    3. Plan for retirement.
    4. Set short-term and long-term financial goals.

    We say “mostly” because it’s ultimately up to you to decide in which order you want to accomplish them.

    Many experts suggest making sure you have an emergency fund in place before aggressively going after your debt.

    But if you’re hemorrhaging money on sky-high interest charges, you might not have much expendable cash to put toward savings.

    That means you’ll pay the interest for a lot longer — and pay a lot more of it — if you wait to pay it down until you have a solid emergency fund saved up.

    1. Build an Emergency Fund

    Finding money to sock away each month can be tough, but just starting with $10 or $25 of each paycheck can help.

    You can make the process a lot easier by automating your savings. Or you can have money from each paycheck automatically sent to a separate account you won’t touch.

    You also get to decide the size of your emergency fund, but a good rule of thumb is to accumulate three to six times the total of your monthly living expenses. Good thing your budget is already set up so you know exactly what that number is, right?

    You might try to get away with a smaller emergency fund — even $1,000 is a better cushion than nothing. But if you lose your job, you still need to be able to eat and make rent.

    2. Pay Down Debt

    Now, let’s move on to repaying debt. Why’s it so important, anyway?

    Because you’re wasting money on interest charges you could be applying toward your goals instead.

    So even though becoming debt-free seems like a big sacrifice right now, you’re doing yourself a huge financial favor in the long run.

    There’s lots of great information out there about how to pay off debt, but it’s really a pretty simple operation: You need to put every single penny you can spare toward your debts until they disappear.

    One method is known as the debt avalanche method, which involves paying off debt with the highest interest rates first, thereby reducing the overall amount you’ll shell out for interest.

    For example, if you have a $1,500 revolving balance on a credit card with a 20% APR, it gets priority over your $14,000, 5%-interest car loan — even though the second number is so much bigger.

    Pro Tip

    If you’re motivated by quick wins, the debt snowball method may be a good fit for you. It involves paying off one loan balance at a time, starting with the smallest balance first.

    Make a list of your debts and (ideally) don’t spend any of your spare money on anything but paying them off until the number after every account reads “$0.” Trust me, the day when you become debt-free will be well worth the effort.

    As a bonus, if your credit score could be better, repaying revolving debt will also help you repair it — just in case some of your goals (like buying a home) depend upon your credit report not sucking.

    A retired woman floats in a circular floating device in a swimming pool.

    3. Plan for Retirement

    All right, you’re all set in case of an emergency and you’re living debt-free.

    Congratulations! We’re almost done with the hard part, I promise.

    But there’s one more very important long-term financial goal you most definitely want to keep in mind: retirement.

    Did you know almost half of Americans have absolutely nothing saved so they can one day clock out for the very last time?

    And the trouble isn’t brand-new: We’ve been bad enough at saving for retirement over the past few decades that millions of today’s seniors can’t afford to retire.

    If you ever want to stop working, you need to save up the money you’ll use for your living expenses.

    And you need to start now, while compound interest is still on your side. The younger you are, the more time you have to watch those pennies grow, but don’t fret if you got a late start — here’s how to save for retirement in your 20s, 30s, 40s and 50s.

    If your job offers a 401(k) plan, take advantage of it — especially if your employer will match your contributions! Trust me, the sting of losing a percentage of your paycheck will hurt way less than having to work into your golden years.

    Ideally, you’ll want to find other ways to save for retirement, too. Look into individual retirement arrangements (IRAs) and figure out how much you need to contribute to meet your retirement goals.

    Future you will thank you. Heartily. From a hammock.

    FROM THE BUDGETING FORUM
    Starting a budget
    S
    A reminder NOT to spend.
    Jobelle Collie
    Grocery Shopping – How far away is your usual store?
    F
    Budgeting 101
    Ashley Allen
    See more in Budgeting or ask a money question

    4. Set Short-Term and Long-Term Financial Goals (the Fun Part!)

    Is everything in order? Amazing!

    You’re in awesome financial shape — and you’ve made it to the fun part of this post.

    Consider the funds you have left — and those you’ll continue to earn — after taking care of all the financial goals above. Now think: What do you want to do with your money?

    What experiences or things can your money buy to significantly increase your quality of life and happiness?

    You might plan to travel more, take time off work to spend with family or drive the hottest new Porsche.

    Maybe you want to have a six-course meal at the finest restaurant in the world or work your way through an extensive list of exotic and expensive wines. (OK, I’ll stop projecting.)

    No matter your goals, it’s helpful to categorize them by how long they’ll take to save for.

    Make a list of the goals you want to achieve with your money and which category they fall into. Then you can figure out how to prioritize your savings for each objective.

    For example, some of my goals have included:

    • Short-term financial goal: Save spending money for a trip overseas.
    • Medium-term financial goal: Pay off my car within a year, or sell it — and its onerous loan — and buy an older car I can own free and clear.
    • Long-term financial goal: Buy a house I can use as a home base and increase my income by renting it out while I travel. This will probably take me through the rest of my 20s.

    By writing down my short- and long-term financial goals and approximately how long I expect it will take to achieve each, I can figure out what to research and how aggressively I need to plan for each goal.

    It also offers me the opportunity to see what I prioritize — and to revise those priorities if I see fit.

    Jamie Cattanach (@jamiecattanach) is a contributor to The Penny Hoarder.

    This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

    Source: thepennyhoarder.com

    Budgeting for Beginners: These 5 Steps Will Help You Get Started

    Setting up a budget is challenging. Doing it forces you to face your spending habits and then work to change them.

    But when you decide to make a budget, it means you’re serious about your money. Maybe you even have some financial goals in mind.

    The end result will bring you peace of mind. But if you’re creating a budget for the first time, remember that budgets will vary by individual and family. It’s important to set up a budget that’s a fit for YOU.

    Budgeting for Beginners in 5 Painless Steps

    Follow these basic steps and tailor them to your needs to create a monthly budget that will set you up for financial success.

    Step 1: Set a Financial Goal

    First thing’s first: Why do you want a budget?

    Your reason will be your anchor and incentive as you create a budget, and it will help you stick to it.

    Set a short-term or long-term goal. It can be to pay off debts like student loans, credit cards or a mortgage, or to save for retirement, an emergency fund, a new car, a home down payment or a vacation.

    For example, creating a budget is a must for many people trying to buy their first home. But it shouldn’t stop there. Once you’ve bought a home, keep sticking to a budget in order to pay off debt and give yourself some wiggle room for unexpected expenses.

    Once one goal is complete, you can move on to another and personalize your budget to fit whatever your needs are.

    Step 2: Log Your Income, Expenses and Savings

    You’ll want to use a Microsoft Excel spreadsheet or another budget template to track all of your monthly expenses and spending. List out each expense line by line. This list is the foundation for your monthly budget.

    Tally Your Monthly Income

    Review your pay stubs and determine how much money you and anyone else in your household take home every month. Include any passive income, rental income, child support payments or side gigs.

    If your income varies, estimate as best as you can, or use the average of your income for the past three months.

    Make a List of Your Mandatory Monthly Expenses

    Start with:

    1. Rent or mortgage payment.
    2. Living expenses like utilities (electric, gas and water bills), internet and phone.
    3. Car payment and transportation costs.
    4. Insurance (car, life, health).
    5. Child care.
    6. Groceries.
    7. Debt repayments for things like credit cards, student loans, medical debt, etc.

    Anything that will result in a late fee for not paying goes in this category.

    List Non-Essential Monthly and Irregular Expenses

    Non-essential expenses include entertainment, coffee, subscription and streaming services, memberships, cable TV, gifts, dining out and miscellaneous items.

    Don’t forget to account for expenses you don’t incur every month, such as annual fees, taxes, car registration, oil changes and one-time charges. Add them to the month in which they usually occur OR tally up all of your irregular expenses for the year and divide by 12 so you can work them into your monthly budget.

    Pro Tip

    Review all of your bank account statements for the past 12 months to make sure you don’t miss periodic expenses like quarterly insurance premiums.

    A woman with a dog reviews financial docements spread out on the floor.

    Don’t Forget Your Savings

    Be sure to include a line item for savings in your monthly budget. Use it for those short- or long-term savings goals, building up an emergency fund or investments.

    Figure out how much you can afford — no matter how big or small. If you get direct deposit, saving can be simplified with an automated paycheck deduction. Something as little as $10 a week adds up to over $500 in a year.

    Step 3: Adjust Your Expenses to Match Your Income

    Now, what does your monthly budget look like so far?

    Are you living within your income, or spending more money than you make? Either way, it’s time to make some adjustments to meet your goals.

    How to Cut Your Expenses

    If you are overspending each month, don’t panic. This is a great opportunity to evaluate areas to save money now that you have itemized your spending. Truthfully, this is the exact reason you created a budget!

    Here are some ways you can save money each month:

    Cut optional outings like happy hours and eating out. Even cutting a $4 daily purchase on weekdays will add up to over $1,000 a year.

    Consider pulling the plug on cable TV or a subscription service. The average cost of cable is $1,284 a year, so if you cut the cord and switch to a streaming service, you could save at least $50 a month.

    Fine-tune your grocery bill and practice meal prepping. You’ll save money by planning and prepping recipes for the week that use many of the same ingredients. Use the circulars to see what’s on sale, and plan your meals around those sales.

    Make homemade gifts for family and friends. Special occasions and holidays happen constantly and can get expensive. Honing in on thoughtful and homemade gifts like framed pictures, magnets and ornaments costs more time and less money.

    Consolidate credit cards or transfer high-interest balances. You can consolidate multiple credit card payments into one and lower the amount of interest you’re paying every month by applying for a debt consolidation loan or by taking advantage of a 0% balance-transfer credit card offer. The sooner you pay off that principal balance, the sooner you’ll be out of debt.

    Refinance loans. Refinancing your mortgage, student loan or car loan can lower your interest rates and cut your monthly payments. You could save significantly if you’ve improved your credit since you got the original loan.

    Get a new quote for car insurance to lower monthly payments. Use a free online service to shop around for new quotes based on your needs. A $20 savings every month is $20 that can go toward savings or debt repayments.

    Start small and see how big of a wave it makes.

    Oh, and don’t forget to remind yourself of your financial goal when you’re craving Starbucks at 3 p.m. But remember that it’s OK to treat yourself — occasionally.

    A couple organize tax-related paperwork.

    What to Do With Your Extra Cash

    If you have money left over after paying for your monthly expenses, prioritize building an emergency fund if you don’t have one.

    Having an emergency fund is often what makes it possible to stick to a budget. Because when an unexpected expense crops up, like a broken appliance or a big car repair, you won’t have to borrow money to cover it.

    When you do dip into that emergency fund, immediately start building it up again.

    Otherwise, you can use any extra money outside your expenses to reach your financial goals.

    Here are four questions to ask yourself before dipping into your emergency fund..

    Step 4: Choose a Budgeting Method

    You have your income, expenses and spending spelled out in a monthly budget, but how do you act on it? Trying out a budgeting method helps manage your money and accommodates your lifestyle.

    Living on a budget doesn’t mean you can’t have fun or splurges, and fortunately many budgeting methods account for those things. Here are a few to consider:

    • The Envelope System is a cash-based budgeting system that works well for overspenders. It curbs excess spending on debit and credit cards because you’re forced to withdraw cash and place it into pre-labeled envelopes for your variable expenses (like groceries and clothing) instead of pulling out that plastic. 
    • The 50/20/30 Method is for those with more financial flexibility and who can pay all their bills with 50% of their income. You apply 50% of your income to living expenses, 20% toward savings and/or debt reduction, and 30% to personal spending (vacations, coffee, entertainment). This way, you can have fun and save at the same time. Because your basic needs can only account for 50% of your income, it’s typically not a good fit for those living paycheck to paycheck.
    • The 60/20/20 Budget uses the same concept as the 50/20/30, except you apply 60% of your income to living expenses, 20% toward savings and/or debt reduction, and 20% to personal spending. It’s a good fit for fans of the 50/20/30 Method who need to devote more of their incomes to living costs.
    • The Zero-Based Budget makes you account for all of your income. You budget for your expenses and bills, and then assign any extra money toward your goals. The strict system is good for people trying to pay off debt as fast as possible. It’s also beneficial for those living to paycheck to paycheck.
    A hand writes financial-related labels on envelopes.

    Budgeting Apps

    Another money management option is to use a budgeting app. Apps can help you organize and access your personal finances on the go and can alert you of finance charges, late fees and bill payment due dates. Many also offer free credit score monitoring.

    FROM THE BUDGETING FORUM
    Starting a budget
    S
    A reminder NOT to spend.
    Jobelle Collie
    Grocery Shopping – How far away is your usual store?
    F
    Budgeting 101
    Ashley Allen
    See more in Budgeting or ask a money question

    Step 5: Follow Through

    Budgeting becomes super easy once you get in the groove, but you can’t set it and forget it. You should review your budget monthly to monitor your expenses and spending and adjust accordingly. Review checking and savings account statements for any irregularities even if you set bills to autopay.

    Even if your income increases, try to prioritize saving the extra money. That will help you avoid lifestyle inflation, which happens when your spending increases as your income rises.

    The thrill of being debt-free or finally having enough money to travel might even inspire you to seek out other financial opportunities or advice. For example, if you’re looking for professional help, set up a consultation with a certified financial planner who can assist you with long-term goals like retirement and savings plans.

    Related: How to Budget: The Ultimate Guide

    Stephanie Bolling is a former staff writer at The Penny Hoarder.

    This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.

    Source: thepennyhoarder.com

    Credit Card Balance Transfers

    Credit card balances are crippling households across the United States, giving them insurmountable debts that just keep on growing and never seem to go away. But there is some good news, as this problem has spawned a multitude of debt relief options, one of which is a credit card balance transfer.

    Balance transfers are a similar and widely available option for all debtors to clear their credit card balances, reduce their interest rate, and potentially save thousands of dollars.

    How Credit Card Balance Transfers Work

    A balance transfer credit card allows you to transfer a balance from one or more cards to another, reducing credit card debt and all its obligations. These cards are offered by most credit card companies and come with a 0% APR on balance transfers for the first 6, 12 or 18 months.

    Consumers can use this balance transfer offer to reduce interest payments, and if they continue to pay the same sum every month, all of it will go towards the principal. Without interest to eat into their monthly payment, the balance will clear quickly and cheaply.

    There are a few downsides to transferring a balance, including late fees, a transfer fee and, in some cases, an annual fee.

    What Happens When You Transfer a Balance on Credit Cards?

    When you transfer a balance, your new lender repays your credit card debt and moves the funds onto a new card. You may incur a transfer fee and pay an annual fee, which can increase the total debt, but transferring a balance in this way allows you to take advantage of a 0% introductory APR. While this introductory period lasts, you won’t pay any interest on your debt and can focus on clearing your credit card debt step by step.

    Why are Balance Transfers Beneficial?

    A little later, we’ll discuss some alternatives to a balance transfer offer, all of which can help you clear your debt. However, the majority of these methods will increase your debt in the short term, prolong the time it takes to repay it or reduce your credit score. 

    A balance transfer credit card does none of these things. As soon as you accept the transfer offer, you’ll have a 0% introductory APR that you can use to eliminate your debt. The balance transfer may increase your debt liabilities slightly by adding a transfer fee and an annual fee, but generally speaking, this is one of the best ways to clear your debt.

    To understand why this is the case, you need to know how credit card interest works. If you have a debt of $20,000 with a variable APR rate of 20% and a minimum monthly payment of $500, you’ll repay the debt in 67 months at a cost of over $13,000 in interest.

    If you move that debt to a card with a balance transfer offer of 0% APR for 12 months, and you continue to meet the $500 minimum payment, you’ll repay $5,000 and reduce the debt to $15,000. From that point on, you’ll have a smaller balance to clear, less interest to worry about, and can clear the debt completely in just a few more years.

    Of course, the transfer fee will increase your balance somewhat, but this fee is minimal when compared to the money you can save. The same applies to the annual fee that these cards charge and, in many cases, you can find cards that don’t charge an annual fee at all. 

    You can even find no-fee balance transfer cards, although these are rare. The BankAmericard credit card once provided a no fee transfer offer to all applicants, in addition to a $0 annual fee. However, they changed their rules in 2018 and made the card much less appealing to the average user.

    Pros and Cons of Credit Card Balance Transfers

    From credit score and credit limit issues to a high variable APR, late fees, and cash advance fees, there are numerous issues with these cards. However, there are just as many pros as there are cons, including the fact that they can be one of the cheapest and fastest ways to clear debt.

    Pro: 0% Introductory APR

    The 0% APR on balance transfers is the best thing about these credit cards and the reason they are so beneficial. However, many cards also offer 0% APR on purchases. This means that if you continue to use your card after the transfer has taken place, you won’t be charged any interest on the new credit.

    With most cards, the 0% APR on purchases runs for the same length of time as the balance transfer offer. This ensures that all credit you accumulate upon opening the account will be subject to the same benefits. Of course, accumulating additional credit is not wise as it will prolong the time it takes you to repay the debt.

    Pro: Can Still Get Cash Rewards

    While cash rewards are rare on balance transfer cards, some of the better cards still offer them. Discover It is a great example of this. You can earn cash back every time you spend, even after initiating a balance transfer. The cash rewards scheme is one of the best in the industry and there is also a 0% APR on balance transfers during an introductory period that lasts up to 18 months.

    Pro: High Credit Limit

    A balance transfer card may offer you a high credit limit, one that is large enough to cover your credit card debt. You will need a good credit score to get this rate, of course, but once you do your credit card debt will clear, you can repay it, and then you’ll have a card with a high credit limit and no balance.

    Throw a rewards scheme into the mix (as with the Discover It rewards card) and you’ll have turned a dire situation into a great one.

    Con: Will Reduce Credit Score

    A new account opening won’t impact your credit score as heavily as you may have been led to believe. In fact, the impact of a new credit card or loan is minimal at best and any effects usually disappear after just a few months. However, a balance transfer card is a different story and there are a few ways it can impact your score.

    Firstly, it could reduce your credit utilization ratio. This is the amount of credit you have compared to the amount of debt you have. If you have four credit cards each with a credit limit of $20,000 and a debt of $10,000 then your score will be 50%. If you close all of these and swap them for a single card where your credit limit matches your debt, your score will be 100%.

    Your credit utilization ratio points for 30% of your total FICO score and can, therefore, do some serious damage to your credit score.

    Secondly, although FICO has yet to disclose specifics, a maxed-out credit card can also reduce your score. By its very nature, a balance transfer card will be maxed out or close to being maxed out, as it’s a card opened with the sole purpose of covering this debt.

    Finally, if you close multiple accounts and open a new one, your account age will decrease, thus reduce your credit score further.

    Con: Transfer Free

    The transfer fee is a small issue, but one worth mentioning, nonetheless. This is often charged at between 3% and 5% of the total balance, but there are also minimum amounts of between $5 and $10, and you will pay the greater of the two.

    This can sound like a lot. After all, for a balance transfer of $10,000, 5% will be $500. However, when you consider how much you can save over the course of the introductory period, that fee begins to look nominal.

    There may also be an annual fee to consider, but if your score is high enough and you choose one of the cards listed in this guide, you can avoid this fee.

    Con: Late Fees and Other Penalties

    In truth, all credit cards will charge you a fee if you’re late and you will also be charged a fee every time you make a cash advance. However, the fees may be higher with balance transfer cards, especially if those cards offer generous benefits and rewards elsewhere. It’s a balancing act for the provider—an advantage here means a disadvantage there.

    Con: High APR on Purchases

    While many balance transfer cards offer a 0% APR on purchases for a fixed period, this rate may increase when the introductory period ends. The resulting variable APR will often be a lot larger than what you were paying before the transfer, with many credit cards charging over 25% or more on purchases.

    Which Credit Cards are Best for Clearing Credit Card Debt?

    Many credit card issuers have some kind of balance transfer card, but it’s worth remembering that credit card companies aren’t interested in offering these cards to current customers. You’ll need to find a new provider and if you have multiple cards with multiple providers, that can be tricky. 

    Run some comparisons, check the offers against your financial situation, and pay close attention to late fees, APR on purchases, cash rewards, and the length of the 0% introductory APR rate. 

    You’ll also need to find a card with a credit limit high enough to cover your current debt, and one that accepts customers with your credit score. This can be tricky, but if you shop around, you should find something. If not, focus on increasing your credit score before seeking to apply again.

    Here are a few options to help you begin your search for the most suitable balance transfer card:

    Discover It

    • Balance Transfer Offer: 18 Months
    • Transfer Fee: 3% on transfers
    • Purchases APR: 0% for 6 months
    • Annual Fee: $0
    • Rate: Up To 24.49% Variable APR
    • Rewards: Yes

    Chase Freedom Unlimited

    • Balance Transfer Offer: 15 Months
    • Transfer Fee: 5% on transfers
    • Purchases APR: 0% for 15 months
    • Annual Fee: $0
    • Rate: Up To 25.24% Variable APR
    • Rewards: Yes

    Citi Simplicity

    • Balance Transfer Offer: 21 Months
    • Transfer Fee: 5% on transfers
    • Purchases APR: 0% for 12 months
    • Annual Fee: $0
    • Rate: Up To 26.24% Variable APR
    • Rewards: No

    Bank of America Cash Rewards

    • Balance Transfer Offer: 15 Months
    • Transfer Fee: 3% on transfers
    • Purchases APR: 0% for 15 months
    • Annual Fee: $0
    • Rate: Up To 25.49% Variable APR
    • Rewards: No

    Capital One Quicksilver

    • Balance Transfer Offer: 15 Months
    • Transfer Fee: 3% on transfers
    • Purchases APR: 0% for 15 months
    • Annual Fee: $0
    • Rate: Up To 25.49% Variable APR
    • Rewards: No

    Blue Cash Everyday Card from American Express

    • Balance Transfer Offer: 15 Months
    • Transfer Fee: 3% on transfers
    • Purchases APR: 0% for 15 months
    • Annual Fee: $0
    • Rate: Up To 25.49% Variable APR
    • Rewards: No

    Capital One SavorOne

    • Balance Transfer Offer: 15 Months
    • Transfer Fee: 3% on transfers
    • Purchases APR: 0% for 15 months
    • Annual Fee: $0
    • Rate: Up To 25.49% Variable APR
    • Rewards: Yes

    How to Clear Debt with a Balance Transfer Card

    From the point of the account opening to the point that the introductory period ends, you need to focus on clearing as much of the balance as possible. Don’t concern yourself with a variable APR rate, annual fee or other issues and avoid additional APR on purchases by not using the card. Just put all extra cash you have towards the debt and reduce it one step at a time.

    Here are a few tips to help you clear debt after you transfer a balance:

    Meet the Monthly Payment

    First things first, always meet your minimum payment obligations. The 0% APR on balance transfers protects you against additional interest, but it doesn’t eliminate your repayments altogether. If you fail to meet these payments, you could find yourself in some serious hot water and may negate the balance transfer offer.

    Increase Payment Frequency

    It may be easier for you to repay $250 every two weeks as opposed to $500 every month. This will also allow you to use any extra funds when you have them, thus preventing you from wasting cash on luxury purchases and ensuring it goes towards your debt.

    Earn More

    Ask for a pay rise, take on a part-time job, work as a freelancer—do whatever it takes to earn extra cash during this period. If you commit everything you have for just 12 to 18 months you can get your troublesome debt cleared and start looking forward to a future without debt and complications, one where you have more money and more freedom.

    Sell Up

    It has never been easier to sell your unwanted belongings. Many apps can help you with this and you can also sell on big platforms like Facebook, eBay, and Amazon. 

    Sell clothes, electronics, books, games, music—anything you no longer need that could earn you a few extra dollars. It all goes towards your debt and can help you to clear it while your introductory APR is active.

    Don’t Take out a Personal Loan

    While you might be tempted to use a loan to cover your debt, this is never a good idea. You should avoid using low-interest debt to replace high-interest debt, even if the latter is currently under a 0% introductory APR. 

    It’s easy to get trapped in a cycle of swapping one debt for another, and it’s a cycle that ultimately leads to some high fees and even higher interest rates.

    Focus on the Bigger Picture

    Debt exists because we focus too much on the short-term. Rather than dismissing the idea of buying a brand-new computer we can’t afford, we fool ourselves into believing we can deal with it later and then pay for it with a credit card. This attitude can lead to persistent debt and trap you in an inescapable cycle and it’s one you need to shed if you’re going to transfer a balance.

    Instead of focusing on the short term, take a look at the bigger picture. If you can’t afford it now, you probably can’t afford it later; if you can’t repay $10,000 worth of debt this year, you probably can’t handle $20,000 next year.

    Alternatives to Credit Card Balance Transfers

    If you have the cash and the commitment to pay your credit card debt, a balance transfer card is perfect. However, if you have a low credit score and use the card just to accumulate additional debt and buy yourself more time, it will do more harm than good. In that case, debt relief may be the better option.

    These programs are designed to help you pay your debt through any means possible. There are several options available and all these are offered by specialist companies and providers, including banks and credit unions. As with balance transfer cards, however, you should do your research in advance and consider your options carefully before making a decision.

    Pay More Than the Minimum

    It’s an obvious and perhaps even redundant solution, but it’s one that needs to be mentioned, nonetheless. We live in a credit hungry society, one built on impulsive purchases and a buy-now-care-later attitude. A balance transfer card, in many ways, is part of this, as it’s a quick and easy solution to a long and difficult problem. And like all quick patches, it can burst at the seams if the problem isn’t controlled.

    The best option, therefore, is to try and clear your debts without creating any new accounts. Do everything you can to increase your minimum payment every month. This will ensure that you pay more of the principal, with the minimum payment covering your interest obligations and everything else going towards the actual balance.

    Only when this fails, when you genuinely can’t cover more than the minimum, should you look into opening a new card.

    Debt Consolidation

    Balance transfers are actually a form of debt consolidation, but ones that are specifically tailored to credit card debt. If you have multiple types of debt, including medical bills, student loans, and personal loans, you can use a consolidation loan to clear it.

    This loan will pay off all of your debts and then give you a new one with a new provider. The provider will reduce your monthly payment and may even reduce your interest rate, allowing you to pay less and to feel like you’re getting a good deal. However, this is at the expense of a greatly increased loan term, which means you will pay considerably more over the duration of the loan.

    As with everything else, a debt consolidation loan is dependent on you having a good credit score and the better your financial situation is, the better the loan rates will be.

    Debt Management

    Debt management can help if you don’t have the credit history required for debt consolidation. Debt management plans are provided by companies that work with your creditors to repay your debts in a way that suits you and them. You pay the debt management company, they pass your money on, and in return, they request that you abide by many strict terms and conditions, including not using your credit cards.

    Many debt management programs will actually request that you close all but one of your credit cards and only use that one card in emergencies. This can greatly reduce your credit score by impacting your credit utilization ratio. What’s more, if you miss any payments your creditors may renege on their promises and revert back to the original monthly payments.

    Debt Settlement

    The more extreme and cheaper option of the three, but also the riskiest. Debt settlement works well with sizeable credit card debt and is even more effective if you have a history of missed payments, defaults or collections. A debt specialist may request that you stop making payments on your accounts and instead put your money into a secured account run by a third-party provider.

    They will then contact your creditors and negotiate a settlement amount. This process can take several years as they’re not always successful on the first attempt but the longer they wait, the more desperate your creditors will become and the more likely they will be to accept a settlement.

    Debt settlement is one of the few options that allows you to pay all your debt for much less than the original balance. However, it can harm your credit score while these debts are being repaid and this may impact your chances of getting a mortgage or a car loan for a few years.

    Credit Card Balance Transfers is a post from Pocket Your Dollars.

    Source: pocketyourdollars.com