Tag: Debt

 

Understanding forbearance

By Erica Gellerman
May 14, 2020

If you’ve turned on the news recently, you may have heard someone mention forbearance. You may know what forbearance is. You may not. 

In a nutshell, forbearance is the temporary suspension of loan payments. Due to the current economic situation in the wake of COVID-19, many people are struggling to pay their bills without a lot of savings to fall back on. For these reasons, some lenders are offering relief to their customers in the way of loan forbearance. 

While forbearance is a good option if you won’t be able to make upcoming loan payments, you’ll first want to understand what this means for you. 

In this guide, we’ll review the things you need to know about loan forbearance, including what’s available for different types of loans, as well as what you should ask your lender about loan payments with forbearance. Read on to learn more. 

What is forbearance?

Forbearance is a way for lenders to provide relief to borrowers who are struggling to make monthly payments. Lenders may offer forbearance for a certain period of time (ex: 30 or more days) and you won’t be required to make your debt payments during that period. 

While forbearance can be a good option to keep your loans from going into default, there are drawbacks to it as well. And, it’s also important to note that forbearance provides temporary relief. You will still have to pay back the money that you borrowed and depending on the forbearance program, interest on your loan may still accrue. 

In addition, forbearance can lengthen the life of your loan, which means you may end up paying more in interest over the duration. For example, putting a pause on your loan payments for three months while interest still accrues means that you end up paying more in interest. 

Types of loan forbearance

There are two forbearance options available through the CARES Act: student loan forbearance and mortgage forbearance. If you have other types of debt, like credit card debt, personal loans, or auto debt, your lender may offer forbearance options as well. So, it’s a good idea to check with your bill companies to see what they offer

Student loan forbearance

Federal student loans are being temporarily placed on administrative forbearance from March 13, 2020 through September 30, 2020. During this period, borrowers are not required to make loan payments (though you still can if you want to). This forbearance is automatic, meaning you don’t need to ask your lender to put your loans into forbearance. 

Some loans during this period will set the interest rate to 0% (as of May 2020). These loans are:

  • Direct Loans
  • FFEL program loans
  • Federal Perkins Loans

More information about the student loan forbearance program can be found on the Federal Student Aid website. 

If you refinanced your loans or took out student loans through a private lender, they may offer their own forbearance options, so contact them if you need help. 

Mortgage forbearance

If your mortgage is backed by the federal government, the CARES Act allows you to pause your payments for up to 180 days. If that’s not long enough, you can ask for another extension for up to 180 days. Your regular interest will accrue, but you won’t be charged any additional fees for putting your loan into forbearance. 

Federally backed loans include FHA, VA, USDA, Fannie Mae and Freddie Mac loans. If you’re experiencing a financial hardship as a result of COVID-19, you’ll need to inform your lender to learn about forbearance options. 

If you’re not sure if you have a Fannie Mae or Freddie Mac loan, you can check using these lookup tools:

Other mortgages may also be eligible for forbearance, even if they aren’t backed by the federal government. For example, many banks, credit unions, and mortgage lenders in California are offering mortgage forbearance for up to 90 days, regardless of whether the mortgage is backed by the federal government. 

How do you get a loan forbearance?

Aside from federal student loan forbearance outlined above, if you’re looking for forbearance options, it’s best to ask your lender. They’ll be able to tell you what programs they offer and whether you will qualify. 

Even if you do qualify for forbearance, you’ll want to ask more questions to be sure you fully understand what you’re signing up for. Remember, forbearance doesn’t erase your debt — you will need to repay these missed payments eventually. 

Things to ask your lender:

  • Will interest continue to accrue? Some lenders are offering forbearance, but interest will continue to accrue even while you’re not making payments. In some cases, the interest may be added onto the outstanding balance of the loan and you’ll have to pay interest on the larger balance.
  • How will my skipped payment be repaid? Lenders may lengthen your loan term or they may require you to make larger payments for a period of time after the forbearance ends. Make sure to ask exactly how your payments will continue after forbearance so you can plan for that. 
  • How will my loan status be reported to credit reporting agencies? Will your lender continue to report that your loan is current or will your credit report show that you’re past-due on your loan obligations? Under the CARES Act, lenders are required to continue to report your account as “current” or whatever status it was before they agreed to loan forbearance. But it’s a good idea to double-check because you don’t want to tarnish your credit

Should you use a forbearance payment plan?

Forbearance payment plans can be a good option for temporary financial relief if you’re struggling to make your debt payments. But there are downsides as well. So, if you can continue making your loan payments, you may want to stick with your current payment plan. 

Whatever you decide to do, make sure you weigh your options so that you know what’s available for different types of loans.

 

5 Tips on How to Deal with Debt During the Coronavirus Era

By Melanie Lockert
March 29, 2020

Whether you’ve had your hours cut, your job is on hold or you’re working from home, you may be dealing with financial uncertainty. 

And, if you’re paying off debt, you might be wondering what you can do to make everything more manageable. The good news is: There are steps you can take now to help you deal with debt in the age of coronavirus. 

1. Review your minimum payments

During this time of transition, you want to be in control of your money and stay in good standing with your debt. No need to hurt your credit now! The first thing you should do is review all of your loans and write down each minimum monthly payment. 

You’ll want to know what the minimum payment is for each loan so that you know what you need to pay. While paying more than the minimum is ideal to get out of debt faster, it’s ok if you can only afford the minimum at this time. This means you’re taking action and keeping everything moving along. 

2. Call your lender/loan servicer 

After writing down all of the minimum payments and reviewing them, take a moment to consider how you feel about this exercise. Did you feel like, “Yes, I can do this” or “Uh oh, I’m not sure I can swing all of this”? If it’s the latter, don’t fret. If you’re unable to pay the minimum on your loans, contact your lender or loan servicer. 

Due to the Coronavirus Aid, Relief, and Economic Security (CARES) Act, your federal student loan payments are on pause until September 30, 2020. 

You also have the option to switch to an income-driven repayment plan after September 30. These plans make student loan payments a fraction of your income. If you’ve lost your job or have very little income, you can even score a monthly payment of nada. Yep, nothing. Zero. For no income or low-income borrowers, you can have zero dollar payments. This plan can help keep you in payback mode without defaulting. 

If you are currently in default, the Department of Education just announced that they are halting all wage garnishments, tax refund offsets and Social Security withholdings for federal student loans. This means that if you’ve defaulted and Uncle Sam is trying to get his money back through the means listed above, it won’t affect you until after summer. 

Some other tips: If you have a credit card, you can call your lenders to see if they’re able to provide any assistance during this time. And, some mortgage payments are being put on pause for a couple of months in some states, so check your local authorities or call your mortgage lender. 

The point here is that you can take actionable steps if paying back your loans becomes an issue. 

3. Use the $1,200 check to your advantage  

As part of the economic stimulus package, each person making less than $75,000 may be eligible for up to $1,200 in assistance. If you’re dealing with debt, consider using some of the money you qualify for to pay your bills or boost your emergency fund (if you can afford it). 

This relief check, while not a ton of money, can help you get through a tough time and stay on track with your bills and debt repayment. 

4. Consider refinancing 

On top of the $1,200 check, the Federal Reserve also cut rates to practically zero. This is a way to try and boost the economy. If you own a home, these rates may make refinancing your mortgage attractive. 

5. Adjust your budget 

Now is a great time to adjust your budget, especially if you’re dealing with debt. For example, if you were putting a lot more toward debt than the minimum, now might be the right time to funnel more of that cash into your savings account. 

So, take the time to do a financial review of your emergency savings. Many people recommend three to six months’ worth of expenses. 

If you’ve lost your job, you may need to cut out your extra purchases and only focus on the essentials. You may also need to put your debt payments on pause during this time. 

Final thoughts 

Using these five steps can help you take control of your money. And this will help you get through this difficult situation. Just remember: You’re doing the best you can.

 

Is There A Totally Free Checking Account?

By Kim Ogletree
January 3, 2020

Nowadays a lot of people, especially millennials, prefer to use online banking over traditional banking to manage their finances. Online banking makes it easy for anyone to handle the most common banking transactions using a laptop or internet-ready mobile device.



What is an online checking account?

Having an online checking account enables a person to access their money anytime, anywhere using a computer or a smartphone as long as these are connected to the internet. It is also called a transactional account since it can be used to pay your bills and make most of your financial transactions. Moreover, when compared to online savings accounts that only allow limited transactions per month, checking accounts don’t have limits regarding the number of transactions you can complete every month.  And this means that you can use your online checking account for your everyday spending, bills, and other online debit transactions.

Benefits of an Online Checking Account

  • It can easily manage your finances: Imagine having the ability to deposit checks using only your phone, view your current balance instantly, and pay your bills quickly. There isn’t a good reason not to try opening an online checking account nowadays. Moreover, online accounts never close, meaning you can access your account anytime where you can check your balance, transfer funds, and pay bills.
  • It brings peace of mind: An online checking account also provides some automated tools and features. If you are having a problem remembering to make regular payments, you can use the online bill pay feature where it makes sure all of your bills get paid on time. You can also use the automatic transfer tool, so you don’t have to stress yourself about a payment slipping your mind or showing up late. Moreover, the automatic transfer also lets you transfer from your online checking account to an online savings account if you are planning to save for your future.
  • It can save you time: In traditional banking, you have to wait in line when making a simple withdrawal or deposit transaction. But with an online checking account, you can do whatever you want with your money instantly without having to wait in line for hours.
  • It comes with better rewards: Online transactions usually come with rewards. For example, you may be able to get a cashback or a special discount when you use your online checking account to make purchases online. Furthermore, having an online checking account with a rewards feature is an excellent alternative to credit cards that offers reward points. After all, using a credit card is risky since the possibility of overspending is high.

Is opening an online checking account free?

It can be. There are several companies that offer free online checking accounts; meaning, they do not require an opening deposit and don’t charge monthly maintenance fees.  For example, if you open a Chime online checking account, they won’t charge you anything. Having an online checking account comes with no monthly fee and no minimum balance requirement. There are also no hidden fees which may pop up with other accounts on the market.

How to open a free online checking account

When opening an online checking account, there’s no need to look for a physical bank to apply. All you need is to sign up and create an account on their website. Make sure to provide all the essential pieces of information they require of you such as your first and last legal name, your social security number, and email address. Those are needed to verify your identity to help them to minimize the risk of money laundering and fraud. Once you are confirmed eligible, you have to download their mobile banking app so you can access all of their offered services. To transfer your hard-earned money to this online checking account, you can either make direct deposits or make a money transfer using your other bank accounts.

Final Word

Opening an online checking account is a great option for managing your daily expenses, making bill payments, and engaging in other online debit transactions when compared to traditional banks. Having an online checking account nowadays can truly make your everyday life easier.

 

 

3 Ways to Get Out of Student Loan Default

By Kat Tetrina
August 26, 2019

If you’ve missed student loan payments and are in default, you know how horrible it is. Your credit score may be wrecked. Your loan servicer can garnish your wages. You may even be dealing with collection agencies. 

There’s no escaping the negative ramifications for not paying back your student loans – even if you switch banks. 

It’s easy to feel overwhelmed and defeated if you’re in default. Yet, you’re not alone. Student loan debt has become a national epidemic. According to the U.S. Department of Education, over 530,000 borrowers entered into default between October 2014 and September 2017. 

If you’re in student loan default, here’s what you need to know to get back on track and improve your finances.  

What is student loan default?

Student loan default is an official loan status that occurs when you miss a certain amount of payments. According to Federal Student Aid, your federal loans are in default once you miss your scheduled loan payments for 270 days or more. With private student loans, you’re in default as soon as you miss three months’ worth of payments. 

Entering into default is a serious problem. Take a look at what can happen

  • Lenders can garnish your wages, making it difficult to make ends meet.
  • The default will stay on your credit report for up to seven years. And, with a damaged credit report, you may have trouble getting approved for a car loan or a mortgage.
  • Late fees and interest will accrue, causing your loan balance to balloon.
  • Your professional license could be suspended, hurting your chances of finding work.

Three ways to end student loan default

If you have federal or private student loans in default, you have three options: 

1. Student loan rehabilitation

If you have federal student loans, one option to consider is student loan rehabilitation. With this approach, you work with your loan servicer to come up with a written agreement where you pledge to make nine voluntary and affordable monthly payments during a period of 10 consecutive months. 

Loan rehabilitation has several benefits. After completing the nine payments:

  • Your loans will no longer be in default.
  • The loan servicer will remove the record of default from your credit report.
  • Your loan holder will no longer garnish your wages or seize your tax refund. 
  • You’ll regain eligibility for benefits like loan deferment or forbearance and access to income-driven repayment plans.
  • You’ll be able to qualify for additional federal student aid.

Your payment is determined by your loan servicer, but it will be equal to 15 percent of your discretionary annual income, divided by 12. Your discretionary income is the amount of your adjusted gross income that exceeds 150 percent of the poverty guideline for your state and family size. Under a loan rehabilitation agreement, your payment could be substantially lower than it was under a standard repayment plan. 

For example, let’s say you’re single, live in one of the 48 contiguous states, and make $30,000 per year. According to the U.S. Department of Health and Human Services, the federal poverty guideline for you is $12,490. 

Your discretionary income is calculated by subtracting 150 percent of the poverty guideline — $18,735 — from your income. You’d subtract $18,735 from your income of $30,000 to get $11,265. 

Your payment under a loan rehabilitation agreement would be 15 percent of your annual discretionary income, divided by 12. To calculate your payment, you’d take 15 percent of $11,265, which is $1,689.75. Divide that number by 12 to get your monthly payment: $140.81. 

If you can’t afford the payment because of extenuating circumstances — such as higher than usual medical bills or housing expenses — you may be able to negotiate a lower payment. You’ll have to provide the loan servicer with documentation about your income and expenses. They’ll use that information to calculate a new payment after subtracting your necessary expenses from your income. 

If you decide that loan rehabilitation is right for you, contact your loan servicer directly to start the process. 

2. Federal loan consolidation

Another option to get out of loan default is federal loan consolidation. With this strategy, you consolidate your defaulted federal loans with a Direct Consolidation Loan. 

To qualify for loan consolidation for defaulted loans, you must agree to repay the new loan under an income-driven repayment plan and make three consecutive, voluntary, on-time monthly payments before you can consolidate. 

Once you consolidate your loan, your loan is no longer considered to be in default. You’ll regain eligibility for federal benefits like forbearance, deferment, and additional student aid. However, consolidating your debt doesn’t remove the record of the default from your credit report. 

While consolidation can be an effective strategy, it won’t work for everyone. If your defaulted loan is being collected through wage garnishment or in accordance with a court order, you can’t consolidate your loans until the wage garnishment order or the judgment is lifted. 

3. Student loan refinancing

If you have private student loans, you can’t qualify for loan rehabilitation or loan consolidation. Instead, your options are limited. 

In most cases, the only way to get out of default is to pay off your loan in full. But if you’re in default, you likely don’t have enough money in the bank to do that. This doesn’t mean you’re out of luck. It just means you may have to consider student loan refinancing. 

With student loan refinancing, you work with a private lender to take out a loan for the amount of your current debt, including the loans in default. You use the new loan to pay off the old ones, instantly ending the default. If your loans were in collections, all collections activity will end, and the lender will no longer be able to garnish your wages. 

However, there are some downsides to consider. Since your loans were in default, your credit score likely went down. This means you may not qualify for a refinancing loan on your own. 

Yet, you may get approved for a loan if you have a co-signer — a friend or relative with excellent credit and a steady income who signs the loan application with you. Because having a co-signer lessens the risk to the lender, you’re more likely to be approved. Keep in mind that if you fall behind on your payments, the co-signer is responsible for making them. 

Repaying your student loans

If your student loans are in default, your situation is serious. 

However, there are strategies you can use to get out of default and get your finances back on track. By following these tips, you can end the default and start saving money

 

The Real Life Impact of Overdraft Fees

By Jackie Lam
July 31, 2019

When you’re low on funds and waiting on your direct deposit to hit your bank account, you’re in no place to pay a hefty overdraft fee. Yet, because many big banks charge an average of $35 per overdraft, a measly five dollar charge can easily balloon into $40. Yikes.

If you’ve had to pay overdraft fees, you’re not alone. According to the FDIC, big banks with over one billion dollars in assets collected more than $11.45 billion in overdraft and non-sufficient funds in 2017. 

To get a handle on how these fees can negatively impact your financial situation, we talked to several people who gave us the low-down. Read on to learn more. 

Unfortunate events happen in threes 

When a glitch caused Ruby Escalona’s credit card bill — which was set on autopay — to be paid twice, he was dinged with three $35 overdraft fees from his bank, totaling a whopping $105.

Because Escalona had put four airline tickets on that month’s cycle, to the tune of a few thousand dollars, those overdraft charges put his bank balance in the negative. Escalona called the bank and explained the situation. 

“While the bank still deemed it was ‘my fault’ for the IT issue, the bank did waive two other overdraft fees because of the debacle,” explains Escalona, who is the founder of A Journey We Love. 

When you don’t track your expenses 

When Jerry Brown was in college, he was terrible at managing his money. He was essentially living paycheck to paycheck.

“Since I didn’t keep track of my expenses, I ended up charging my card when I didn’t have the money in my account to cover the expense,” says Brown of Peerless Money Mentor. 

One semester it got so bad that he was dinged with $200 in overdraft fees. That was quite a bit for a struggling college student.

Now, however, he avoids overdraft fees by tracking his expenses (you can do so with a money app), and setting up an emergency fund. 

When three $5 items end up costing $120 

When Riley Adams and his brother were in college, they stopped by a fast food joint on their way to the movies. Adams’ brother initially didn’t want anything to eat, so Adams ordered a single combo meal for himself. Naturally, his brother got hungry and wanted to order something as well. So, they bought another combo meal. Next, the pair had a hankering for dessert. 

Talk about an avalanche of bank fees. Those three five dollar transactions each incurred a $40 overdraft fee, adding up to $120. As it turned out – due to a holiday – Adams’ paycheck hadn’t hit his bank account yet. The direct deposit went through the next day and the bank forgave the overdraft fees.

“We ended up having all the fees waived after contacting the bank and informing them of the situation,” says Adams, who is a 30-year-old financial analyst at Google and founder of Young and the Invested. 

To avoid this from happening again, Adams reached out to his bank to establish an overdraft protection line of credit. Anytime his checking account balance falls below a certain threshold, there’s an automatic transfer from his savings account. 

Note: If you’re a Chime Bank member, you can sign up for direct deposit and get paid up to two days early. 

When rent is due 

When Michael Lacy was living paycheck to paycheck, he wrote a check to cover his rent. But, he forgot about a few purchases he made the day before: filling up his tank with gas, renting a Redbox movie, buying a hoagie, and picking up a few things at the grocery store. The charges were still pending. 

His bank cleared his rent check first, but the other charges were all hit with overdraft fees. The total damage? A hefty $128. He had enough in his account to cover the smaller purchases, so if his bank cleared the transactions in the order they were made, he would’ve only incurred a single $32 overdraft fee for the rent check. 

These days, Lacy takes 30 minutes to plan all his spending at the beginning of each month.

“Every dollar has a destination, whether that’s spending, saving, or investing,” says Lacy, a personal wealth coach and founder of Winning to Wealth

Working for a big bank

When GP (that’s her pen name) worked at a national bank right after college, she witnessed some customers who were regularly racking up overdraft fees, while others would get dinged for an occasional one. 

The worst case? When a regular customer came in to the branch to see what could be done about her overdraft fees. When GP pulled up her account, the balance was negative, and there were tons of overdraft charges.  

“At the time it happened, the bank would process large transactions first — with the thought that it would ensure mortgage and car payments had priority,” says GP, who blogs at Entirely Money

“The only problem with this is that all the subsequent small transactions would then each be hit with an overdraft fee.”

In total, the overdraft fees that hit this customer’s account added up to over $200. As the bank manager would only give a one-time courtesy credit for a few of the fees, the customer was still stuck with more than $100 in overdraft fees. 

A cluster of ill-timed events

When an overpayment and a direct deposit issue happened at the same time, Jason Vitug’s funds dropped lower than the automatic bill payment that hit the account. 

What’s more, because his bank overdrew his account with the largest amount first, it caused the three smaller payments to be overdrawn. He ended up paying $120 for four overdraft fees. 

“Basically, the bank stated I overdrew my account four times in one day, even though three of those withdrawals would’ve been covered,” says Vitug, founder of Phroogal

To avoid this from happening, Vitug suggests attaching a savings account or line of credit for overdraft protection. Or just stop banking with that bank. 

“Simply choose a bank that won’t overdraft your account, and just refuse payment,” says Vitug. 

To avoid these headache-inducing, frustrating scenarios, avoid bank fees altogether. FYI: Chime never charges fees of any kind. Never ever. 

 

How to Pay Off Debt in Collection: A Guide to Saying Goodbye to Credit Collectors

By Melanie Lockert
July 16, 2019

You’re in debt and you have no idea how you’re going to pay it off. 

The due date passes by. You want to pretend your debt doesn’t exist. As the days and months go on, you’re delinquent on your loans and they end up in collections. Your credit is shot. The menacing calls begin and all you want is for them to stop. 

Yet, while this is indeed a difficult situation, it’s one you can take control of and fix with the right actions. In this guide, we offer up ways you can pay off debt in collections. Take a look.

What is a Collection Agency and Why are Debt Collectors Calling?

First, let’s discuss the cast of characters involved with debt collections. 

There is the collection agency or credit collection service, which is a third-party company hired by a lender to collect an outstanding balance from a borrower. The collection agency then hires debt collectors, who are the actual people doing the dirty work and calling borrowers to get the money back

Credit card debt, student loans, medical bills, utility bills and more can all go to collections. Business debt isn’t eligible for debt collections. 

While debt collectors can take certain actions like call you at work, there are restrictions so that the hounding doesn’t become an abusive practice. For example, debt collectors can only call you during certain hours, in many cases between 8am-9pm.

How to Find out Which Debt Collection Agency You Owe Money to 

If you want to get out of debt collections, you need to pay money to the credit collection services agency. 

But how do you know exactly who to pay and who the debt collection agency is? In some cases it might be clear but if not, here are ways to find out which debt collection agency you owe money to: 

  • Contact the Original Creditor 

If you know what bill is in collections, contact the original creditor for more information about your collections account. You can then ask which debt collection agency they are using and get the contact information. Then, contact the debt collection agency and ask how to proceed to get your payment in good standing. 

  • Check Your Credit Report 

If you know you’re in debt collections but are unsure of which loans are not in good standing, you’ll want to get your credit report. Your credit report is a document that contains your full credit history, including outstanding loans that may be in debt collections. 

Many debt collection agencies report to the three major credit bureaus — Experian, TransUnion and Equifax. You can access all three of your credit reports once a year at AnnualCreditReport.com

Make sure you check all three as some debt collection agencies only report to one credit bureau, not all of them. 

  • Answer the Phone When Bill Collectors Call You

In some cases, your debt collection fees won’t appear on your credit report. And sometimes, the debt can be passed onto other debt collection agencies, leaving you wondering who to contact.

In this case, you will likely have to wait until the debt collector calls you to get more information. It’s not fun and no one wants to deal with debt collectors on the phone. But if you’re unsure of who the debt collection agency is, answer the phone, get the information and ask how to get your loan in good standing. You’ll also want to get a debt verification letter and check your records to make sure you’re not overpaying as debt collectors can make mistakes too.

Three Ways to Pay Off Debt Collectors 

If you want to get out of collections and repay your debt, there are a number of routes you can take. Some of them may require negotiation and whatever you do, get everything in writing. Here are three ways to pay off debt collectors:

1. Negotiate a Settlement With Your Debt Collector

In some cases, you may be able to negotiate a settlement with your debt collector. A settlement is typically less than the amount owed and is used in exchange for deleting the account from your credit report. 

You’ll need to get a letter in writing about the settlement terms before making your first payment. Make sure you understand your rights and responsibilities, and that you know the terms of the settlement. 

2. Pay Off the Debt In Full 

If you have a small bill that is outstanding and in collections, you can choose to pay off the debt in full. Under this option, the good news is that your debt will be paid off. The bad news is that the collection account will remain on your credit report. 

3. Create a Debt Repayment Plan

If you can’t negotiate a settlement or pay the debt in full, you can talk to the debt collection agency about a debt repayment plan. 

In this case, it’s important to make all of your payments on time and in full to get your loan in good standing. 

What Happens if You Don’t Pay a Collections Agency?

If you have debt collectors hounding you, you might want to bury your head in the sand. Unfortunately, if you aren’t paying off collections, your problems will only get worse. Here’s why:

  • Your Credit Score Will Take a Hit 

The debt collection agencies report to the major credit bureaus. So, if you ignore them, your credit score may go down. This can make it more difficult to get approved for loans and may result in higher interest rates if you do get approved. 

In some cases, you may be able to negotiate the mark off your credit report. If not, the negative entry will remain on your credit report for seven years. And remember: This can have a sweeping impact on every area of your financial life. 

  • You May Have Late Fees, Making the Debt Harder to Pay Off

If your debt is in collections, it’s not just the outstanding balance you have to worry about. There could be additional late fees tacked onto your balance. All of the extra fees can add to the total cost of your loan, making it even harder to pay back. 

Deal with Your Debt

Debt collectors have one job — to collect your debt. In order to do that, they will call you many times until they reach you. This can be stressful and annoying.

So, answer the phone and face the issue head on. Talk to your debt collector about your options, whether that’s a settlement, payment plan or paying it off in full. Make sure you get everything in writing.

It’s not fun and can be tough to deal with, but getting out of collections will help you breathe easier and free up stress. Once you do this, you’ll be able to focus on other financial goals like saving money and investing. 

 

4 Things You Could Afford If You Didn’t Have to Pay Bank Fees

By Jackie Lam
July 8, 2019

As consumers, we accept pesky — and exorbitant — bank fees as a regular part of our everyday lives. To many of you, these fees are as commonplace as paying “service” fees when purchasing concert tickets.

So, why exactly do big banks charge fees? Besides trying to turn a major profit, banks charge fees to cover operating expenses — paying employees, developing technology, and covering other overhead costs. Yet, here’s a truth bomb: While bank fees are oftentimes considered the cost of doing business, big banks are profiting big-time off these fees. In fact, according to a 2017 analysis by CNNMoney, the three biggest banks — Wells Fargo, Bank of America and JP Morgan Chase — earned more than $6.4 billion in ATM and overdraft fees. Another sad truth: It turns out that eight percent of customers pay 75% of overdraft fees, per the Consumer Financial Protection Bureau

Just imagine what you could do with your hard-earned money if you didn’t have to pay bank fees. But first, let’s take a closer look at exactly how much the big banks are raking in. From there, we’ll look at all the awesome, amazing things you could do with that staggering sum instead.  

The Top 10 Biggest Banks in the U.S.

While there are about 5,800 banks in America, just 0.2% hold more than two-thirds of the industry’s assets

Ready for another jaw-dropping statistic? The 15 largest banks collectively hold a total of 13.7 trillion in assets. Here’s the breakdown

  1. JPMorgan Chase & Co.: $2.53 – $2.62 trillion in assets 
  2. Bank of America Corp.: $2.28 – $2.34 trillion in assets 
  3. Wells Fargo & Co.: $1.87 – $1.95 trillion in assets 
  4. Citigroup Inc.: $1.84 – $1.93 trillion in assets 
  5. Goldman Sachs Group Inc.: $917 – $957.19 billion
  6. Morgan Stanley: $852.86 – $865.52 billion
  7. U.S. Bancorp: $462.04 – $464.61 billion
  8. TD Group US Holdings LLC: $380.65 – $380.91 billion
  9. PNC Financial Services Group Inc.: $380.08 – $380.77 billion
  10. Capital One Financial Corp.: $362.91 – $365.69 billion

What Kinds of Fees Do Big Banks Charge Consumers?

While you most likely are familiar with ATM and overdraft fees, you might find it surprising to know that you could get dinged with other kinds of bank fees. Lest you get blindsided, here are 10 ways banks make money off you: 

1. Overdraft fees

You’re charged an overdraft fee when the amount of your transaction is greater than your bank balance. When you have overdraft protection, the bank will cover the shortfall, and charge you a fee for doing so. The most common amount for an overdraft fee is $35. 

FYI: The US Bank overdraft fee is $36 if the amount of the overdraft is greater than five dollars. The Wells Fargo overdraft fee is $35 per transaction, and you can be charged up to three times a day. Yikes.

2. ATM fees

This is a fee that banks charge for using an ATM. For example, your bank might charge you a fee if you use an out-of-network ATM. This fee can be anywhere from two dollars on up to six dollars if you’re making a withdrawal from a non-network international ATM.

Here’s a closer look at what the big banks are charging: Bank of America’s ATM fees are $2.50 and five dollars for international transactions, while Chase ATM fees are also $2.50 and five dollars respectively. Wells Fargo ATM fees are $2.50 for non-network withdrawals in the U.S., and five dollars for international ATMs. 

3. Maintenance fees

A bank might charge you a monthly fee if you don’t meet certain criteria. For instance, some banks charge fees if your bank balance drops below an amount or you fail to make the minimum number of transactions on your debit card. Bank of America and Chase both have a monthly maintenance fee of $12. In 2017, Americans spent 3.5 billion in monthly maintenance fees alone. 

4. Returned deposit charge

If there’s not enough money in your account to cover a transaction, the bank might “return” the item — usually a check — and you’ll in turn be dinged with what’s known as a returned deposit charge. The average charge is $35 per item. 

5. Lost card fee

Misplace your debit card? You might need to pay a fee to get it replaced. For instance, Bank of America charges its customers five dollars to get a replacement card, and $15 if you’d like it rushed.  

6. Minimum balance charge

If your type of bank account requires a minimum balance and you don’t meet the threshold, you could end up paying a fee. Wells Fargo charges a $10 monthly fee if you don’t keep a minimum of $1,500 in your account. 

7. Foreign transaction charge

If you’re traveling out of the country and swipe your debit card, there might be a foreign transaction charge. 

8. Inactivity fee

If your account is idle for a set amount of time (i.e., you haven’t made any deposits, withdrawals or transactions), you might need to pony up a monthly inactivity fee.  

9. Paper statement fee

If you prefer to get paper statements, you may need to pay a monthly fee. US Bank charges two dollars a month to receive statements via snail mail. IMHO, this feels like a trap. Many people are cool with receiving digital statements. They just don’t know about the paper statement fee, or forget to opt out.

10. Account closing fee

If you’re over your bank and want to close out your account, you might be dinged a fee. 

4 Things You Could Buy With Fees Instead of Paying Big Banks  

Here’s the fun part: Imagine what you could buy with the crazy high amount big banks rake in from bank fees. 

To keep things simple, let’s play around with the $64 billion that big banks made in ATM fees alone. These fees could fund a number of extravagant purchases, solve national debt problems, and achieve the unachievable. 

Here are a few examples: 

1. Student Loan Debt

According to the Federal Reserve Bank of New York, as many as 44.7 million Americans are burdened with student debt. That’s one in five Americans. As of the end of 2018, the student loan debt had climbed to a staggering $1.47 trillion. 

That cool $64 billion that banks make in ATM fees could handle 43% of the student debt crisis. 

2. Household Incomes

Per the U.S. Census Bureau, the median yearly household income in 2017 was $61,372. With those $64 billion in ATM fees, you can cover the annual income of 104,282 households in America. 

3. Avocado Toast 

We wanted to point out that millennials can have their toast and, well, save on bank fees too. Avocado toast is the latest “whipping boy” as to why millennials don’t have as much in savings and retirement as they should.

Let’s throw it back to whoever came up with this ludicrous statement, shall we? If the average cost of avocado toast is $12, ATM bank fees can pay for $5.3 million plates of avocado toast. 

4. Lattes 

Who doesn’t like a sweet beverage from Starbucks? With the average cost of a Starbucks latte at $3.45, you can buy more than 18.5 billion lattes. With 7.7 billion humans on planet earth, you can pay for each person — man, woman, and child — to enjoy 2.4 lattes. 

How Much Can You Save When You Switch to a Bank With No Fees?  

Let’s say your bank charges a monthly maintenance fee of $15, and you get dinged with an overdraft fee three times a year at $35 each. This tallies up to $285 a year. 

Here’s the good news: There are banks that don’t charge fees. That’s right. No monthly bank fees. Zip. Zilch. Nada. 

With your saved $285, you could pay off credit card debt, stash it toward an emergency fund, or put it toward something you really want.

No-Fee Banking When You Switch to Chime 

Here’s a side-by-side glance at how much fees can cost at some of the big banks:

Chime  JP Morgan Chase Wells Fargo  Bank of America 
Minimum balance requirement (to waive the monthly maintenance fee)  $0.00 $1,500  $1,500  $1,500 
Monthly maintenance fee $0.00 $12  $10 $12
Overdraft fee  $0.00 $34 $35 $35 
ATM fee (non-network, within the U.S.)  $0.00 $2.50  $2.50  $2.50 

When you bank with Chime, you’ll be a member of a bank with no fees. What’s more, we offer a handful of nifty features to help you save money. No, we’re not a unicorn bank. We’re just doing what we think should be the status quo, not the exception. 

 

Paying Off Student Loans? Take These 6 Steps Now

By Susan Shain
June 7, 2019

You did it: You graduated from college — a feat that only one-third of Americans have accomplished.

While that should make you proud, another statistic is probably hanging over your head: that 69% of college students who graduated in 2018 took out student loans along the way, graduating with an average debt of $29,800.

If you, too, are saddled with debit in the form of student loans, don’t panic. Tens of millions of young Americans have been in your shoes. The important thing is to learn as much as you can about the process — and then create a plan of attack.

So before you even clean out your dorm, accept a job, switch banks, or move to a new city, take these six steps to get your student loans under control.

1. Take Stock & Consolidate Your Student Loans

How much money do you owe? Who do you owe? Where do you pay your bills? What are your student loan interest rates?

Every new grad faces these questions because, frankly, the system is more confusing than it should be. Even if all your loans are from the federal government, they’re managed by one or more of 10 “student loan servicers.”

To figure out where your loans are housed, pay a visit to the National Student Loan Data System, and then to each loan’s servicer’s site. To keep track of them all, create a spreadsheet that lists each loan’s servicer, the type of student loan, amount, interest rate, and payment due date. You can also try a third-party tool like My LendingTree to compile the information in one place.

If you hold an array of loans from a handful of different servicers, you might want to look into consolidating your loans so you only have one monthly payment. Alternatively, you can consider refinancing your loans with a private lender. Just be warned: It can be difficult to qualify, and this may make you ineligible for certain federal loan protections. Read more about consolidating and refinancing here.

2. Pay Interest During Your Grace Period

Most student loan servicers offer a six-month “grace period” between when you finish school and when your first payment is due. You should be aware, however, that most loans – other than subsidized or Perkins loans – accrue interest during this grace period. In fact, unsubsidized and private loans begin accruing interest since the moment they’re disbursed.

At this point, there’s nothing you can do about the interest you’ve already accrued. But you can attempt to reduce the amount of interest that will be “capitalized.” This occurs when accumulated interest is added to your principal balance, essentially causing you to owe interest on your interest.

On unsubsidized and private loans, student loan interest is generally capitalized at the end of the grace period. To reduce the amount that gets added to your principal, you should strive to make interest payments on those loans over the next six months.

If you have subsidized loans, it’s safe to wait until the grace period ends because you typically don’t accrue interest during this timeframe.

“I wish I’d known how quickly the interest adds up,” says Jen Smith of Modern Frugality.

“By the time I started making payments, my income was too low to make payments that could keep up with what interest was adding on every month,” says Smith.

3. Choose a Student Loan Repayment Plan

When you graduate with federal student loans, you’re automatically enrolled in the “Standard Repayment Plan,” which spreads your monthly payments out over the next 10 years.

To see what you’ll owe each month, use this estimated repayment calculator from Federal Student Aid (FSA).

If the amount seems overwhelming, the FSA calculator will also display other repayment options, which include:

  • Extended repayment: If you have more than $30,000 in debt, you can extend your repayment period to 25 years. You can elect to have your payments remain the same, or to gradually increase, over time.
  • Graduated repayment: Under this 10-year repayment plan, your payments will start low and increase with time. But, since you’re not tackling much principal in the first few years, you’ll pay a lot more in interest.
  • Income-based repayment plans: Several plans cap your loan payments at a certain percentage of your income, and extend repayment over 20–25 years. If you want to pursue one of these plans, you’ll probably have to do your own research.

The important thing to note is that the longer your repayment period is, the more interest you’ll pay. So, when choosing your repayment plan, use a student loan calculator to see how much interest you’ll rack up over time. Although it might be tempting to have lower payments now, you might change your mind when confronted with the interest charges.

As an example, let’s say you have $30,000 in federal student loans at a 5.05% interest rate.

  • With the 10-year standard repayment plan, you’ll pay $319 per month, and a total of $8,272 in interest.
  • With the 25-year extended repayment plan and non-graduating payments, you’ll pay $176 per month — and a total of $22,876 in interest.

Only you can determine whether paying more interest is worth it, and it’s up to you to decide how much you can afford each month. While we’d always recommend paying your debt off as quickly as you can, avoiding default is the most important factor. (If you have private loans, you’ll need to talk to your lender about repayment plans.)

4. See if You Qualify for Student Loan Forgiveness

Student loans are extremely hard to discharge — even in bankruptcy. This is why some students have begun to rely on the idea of student loan forgiveness.

The most famous program is Public Service Loan Forgiveness (PSLF), which promises loan forgiveness to grads working in public service (think: nonprofits, government, education) after they make 120 on-time payments.

The only problem? PSLF has made headlines for, well, not forgiving many loans. So before embarking on this route, make sure you’ve read all the fine print, and have the right type of loan and payment plan.

5. Beyond the Repayment Plan: Find Other Strategies to Pay Down Your Loans

Once you’ve gotten your repayment plan lined up, sign up for automatic debits from your checking account to your loan servicers. Not only will that prevent you from missing payments, but it will usually snag you a .25% discount on your interest rate, too.

Now also might be a wise time to think about the possibility of paying off your loans early. Going back to that $30,000 loan at 5.05% interest, here’s how much you could save (based on this calculator):

  • By paying $100 extra each month, you’d pay off your loan almost three years early, and would save $2,496 in interest.
  • By paying $300 extra each month, you’d pay it off in less than five years and save $4,648 in interest.

To make it easier, you can sign up for an automatic savings program, and put the total toward your debt every few months. Or, you can try strategies like the debt snowball, which involves paying off your debts from smallest to largest, or the debt avalanche, which involves paying off your loans with the highest to lowest interest. You can also ask your employer if your company offers any student loan repayment assistance.

If the interest on your loans is fairly low, it might be wiser to invest your extra money than pay off your student loans early. That’s because you could earn more in the stock market than you’d save in interest. Here’s a calculator that will help you crunch the numbers.

6. Make Your Student Loan Payments Every Month

Whatever path you choose, make sure you pay against your student loans every single month. The worst thing for your finances and credit scores is to ignore your loans. As much as you might wish, they’re not going away.

Worse yet, the collections process can start as soon as you graduate, and eventually lead to garnishment of wages or tax returns. Defaulting on your loans will also harm your credit, which will affect your ability to get an apartment, job, car loan, or mortgage.

The point here: Always make your student loan payments on time. If you’re having difficulty making payments on time, talk to your loan servicer. If you’re experiencing more general hardship, you could even consider applying for deferment or forbearance. Just note you may be on the hook for any interest that accrues during this period.

Relax: You CAN Pay Off Your Student Loans

While student loans can be frustrating, infuriating, confusing, and overwhelming, don’t stick your head in the sand. Do your research, create a plan, and slowly tackle your student loans. But first, take a deep breath.

“When I graduated I looked at my student loans and thought I’d have them forever,” says Smith.

“They gave me so much anxiety. I wish I could go back and reassure myself that student loans are not the end of the world and you will pay them off.”

 

Are Alternative Education Programs Worth the Investment?

By Lindsay VanSomeren
April 19, 2019

The numbers aren’t pretty. In 2017, the average college graduate had an average monthly student loan payment of $393. In 2018, outstanding student loan debt among all Americans stood at $1.44 trillion, and 12% of that debt was at least 90 days past-due.

With numbers like that, it’s no wonder you might be rethinking getting a four-year degree. After all, it’s not uncommon to hear about people taking out crippling student loans only to go right back to working at Starbucks.

Yet, there is another option — alternative education programs. These can be trickier to cobble together since you may not have access to an easy pipeline of federal student loans (for better or for worse), but it can be done. We’ll give you the scoop on some common programs, and how you can make them work for you and your bank account.

Coding Bootcamps

Have you heard of coding “bootcamps”? These programs are designed to fast-track you to an entirely new career in the tech industry in as little as three months. And, did you know that these bootcamps offer the potential of making a six-figure salary right out of the gate. (It’s true: my husband just got a high salary offer after finishing a General Assembly coding bootcamp.)

Coding bootcamps aren’t without their risks, however. They’re generally expensive. For example, Full Stack Academy costs up to $17,910 for a 13-week program, and General Assembly charges up to $13,950 for its program. These courses may offer pay-in-full discounts, scholarships, income sharing agreements, or personal loans as a way to pay the tuition bill if you can’t pony up the cash on your own.

It’s important to thoroughly vet these programs before you attend, and don’t just trust the statistics that the companies publicize. Instead, ask to speak with real graduates who’ve gotten jobs, and ask about the outcomes of their classmates as well to get a more realistic view of what you can — or cannot — expect.

Start a Business

Sure, your grandpa may have told you to start your own business like he did instead of going to college. These days, however, you don’t necessarily have to go it alone.

There are many programs out there dedicated to helping budding entrepreneurs launch startups. These outfits — including accelerators, incubators or startup accelerators – can provide the technical expertise, coaching, office space, and even funding to launch your business successfully.

Typically, you apply for these programs, and need to be accepted to get in. Some are run by universities (meaning one or more people on the team need to be an enrolled student), and others are private groups. Accelerators typically make money by taking a stake in your business (i.e., equity), so they have a vested interest in helping your company succeed.

Associate Degrees or Certificates

Who said you need a four-year degree to succeed? Maybe you only need two years of college, or less. The reality is that many professions only require a couple years or less of coursework, including:

  • Radiation therapist
  • Physical therapist assistant
  • Dental hygienist
  • Emergency medical technician (EMT)
  • HVAC technician

The advantage of these career prep programs is that they’re often in high demand, meaning your odds are good for getting a job. You can also use student loans to pay for your education, but you won’t have nearly as much debt coming out of school as you would if you graduate from a four-year-degree program.

Join the Military

It’s true — Uncle Sam wants you. Yet, careers in the military can come at a high personal cost. Depending on your MOS (Military Occupation Specialty — i.e. your job within the military), you may see active combat in war zones and be deployed away from your family for long periods of time. You may also not get to choose where you live — the military will decide for you. You could end up living in a exotic location abroad, or in a cornfield in Iowa.

The rewards, however, are equally as great. You’ll be paid for the entire duration you’re in the military, including while you’re in training (and you can even take these skills with you to new jobs if you leave the military.)

You can earn extra pay in the way of signing bonuses if you choose certain specialties that may require you to be in a combat zone, a high cost-of-living area, or outside the continental U.S. The military may also provide housing and health care for you and your family, GI Bill benefits, subsidized housing, and retirement benefits.

Trade Apprenticeships

Since so many people are being pushed to go to college these days, there’s actually a serious shortage of jobs in the trades. This includes construction workers, plumbers, electricians, pipefitters, factory workers, and other physical jobs. From 2016-2026, the Bureau of Labor Statistics expects openings for another 180,500 construction workers.

This leaves a wide-open opportunity for you: Jobs are in high demand and salaries are equally high to match. Even better, many trade unions offer apprenticeship trainings for an affordable price or even for free. You may not be paid while you’re actually in class (which generally lasts for a short time), but you’ll be paid while you’re learning on the job.

You Don’t Necessarily Need a Four-Year Degree

Don’t let anyone push you into a four-year degree if that’s not what you want. The truth is that there are plenty of other options out there these days, and more are springing up each year.

College used to be a guaranteed way to get a leg up. But unless you have a concrete plan or know exactly what you want to do, it can also be a liability, especially if you have to balance savings with debt payments. Instead, set your sights on what matters most to you in your career — whether that includes college or not.

 

How to Get Ahead If You’re Behind on Your Car Payments

By Kim Galeta
March 6, 2019

Buying your first car is almost like a rite of passage. You’re officially an adult!

But then reality sets in. Having a car payment is a big responsibility and, with your other financial burdens (AKA student loans), things can get stressful  – fast. In fact, you may find that you are falling behind on your car payments.

This can be especially frightening because if you can’t make your payments, you run the risk of your car being repossessed by the lender. And, this can seriously hurt your credit.

So, what should you do if you find yourself struggling to make your car payments? We spoke to two experts who shared their tips for getting back on track financially. Read on to learn more.

What to Do If You’re Temporarily Behind on Car Payments

If you’ve recently faced tough times financially but expect to be back on your feet within a month or two, then your best bet is to negotiate with your lender. Kristy Runzer, CFP® and Founder of OnRoute Financial says it’s important to explain your situation in a clear and succinct way.

“Let them know you want to pay this loan back and that you would like to work together to find a solution. This will show lenders you’re serious and not trying to just skip out on the loan,” says Runzer.

After all, the last thing any lender wants is to spend time and resources to repossess your car. This is a lose-lose situation for both you and the lender. Runzer explains that by being proactive, you may be able to negotiate with your lender to extend your payment due date or extend the life of the loan to lower your monthly payment amount.

“Don’t be afraid to ask for what you want. The worst case scenario is that they say no to your request, but they will usually be able to offer some alternative solutions,” says Runzer.

What to Do If You Can’t Afford Your Payment for the Foreseeable Future?

If you’ve found yourself in a situation where it’s going to be tough to make your monthly payment, Bola Sokunbi, CEO and founder of Clever Girl Finance, says to consider one of these options:

  • Trade in your car for a cheaper model.

If you have too much car for your budget, you may be able to downsize for a more affordable model. However, be sure to check if the trade-in value of your car will be enough to cover the full amount of the original loan. If the value isn’t enough, you may be on the hook for extra payments on the original amount. This is why it’s so important to read the fine print and crunch the numbers before you agree to any new terms.

  • Consider going without a car…at least temporarily. “Take a full assessment of where you live. You may be able to get rid of your car altogether [if you are not upside down on your loan] and leverage public transportation,” says Sokunbi, also a certified financial education instructor. Other options include biking to work or carpooling with your co-workers. In fact, some companies may offer incentives for employees who walk, bike or take public transportation to work.
  • Buy a cheaper car for cash. Sokunbi says that you can “absolutely find a reliable enough vehicle for between $3,000 and $5,000 that will get you from point A to point B.”

It may take you a few months to save up to make this purchase, but then you will only have to worry about your auto insurance payment instead of a hefty car payment as well. Plus you’ll benefit from having peace of mind — and you can’t put a price-tag on that.

Genius tip: Find a side hustle to accelerate your savings goal. There are so many options out there from selling plasma to teaching English online to turning your spare bedroom into an Airbnb. Just a few hours a week could totally transform your finances within a few short months!

Improve Your Credit

Sokunbi explains that a lack of credit history is a contributing factor of high car payments for some millennials. However, by taking steps to build up your credit score, you’ll have a lot more options to choose from that will be easier on your pockets.

“With an improved credit score, you can expect to benefit from a better interest rate which will save hundreds or even thousands of dollars over the life of your car loan,” says Sokunbi.

This option worked well for me a few years ago. When I bought my first car in 2013, my car payment was $405 per month. Although I earned a relatively good salary at the time, when coupled with my student loan payment and rent, I didn’t have much of a disposable income at the end of each month. It took me about six months to build up my credit score by strategically opening a few credit cards and keeping my credit card utilization ratio below 10 percent. After that, I was able to work with my lender to reduce my payments to $300 based on my improved credit score. This, in turn, gave me much more wiggle room in my budget.

Next Steps: Steer Your Finances in the Right Direction

Once you get a handle on your car situation, then it’s time to take control over the rest of your finances. An excellent starting point is to pay yourself first. This means you pay yourself each time you get a paycheck  – even before you pay your bills. It might sound like a strange concept but it’s a huge game changer for anyone who wants to get ahead with their money. Paying yourself first helps you prioritize your financial goals so that you can get on a path to financial security!

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