Tag: moneycoach

Meet Sara and Randy. Sara is a newly-arrived immigrant to the United
States and Randy is a middle manager at Corporate Co. The two met six months ago on Tinder and have
been together ever since. Their future looks bright, except for one
thing: bad credit. To put it bluntly, Randy has horrible credit,
mostly due to a previous bankruptcy. Sara’s isn’t much better. As a newly minted permanent resident, she
has no credit history to speak of. Both of them would like to improve their credit,
but have no idea where to start. What should they do? Well, luckily for Sarah and Randy, there’s
actually a product, called a secured credit card, designed specifically for people in
their situation. However, if Sara and Randy don’t have a
firm understanding of what a credit card or credit score is, or how to effectively use
either, we highly recommend watching our three videos “Credit Cards 101”, “Credit Scores
and Reports 101”, and “Credit Cards: Mistakes and Best Practices” before continuing further.

But let’s get back to the matter at hand. What are secured credit cards? Simply put, they are credit cards designed
for people with minimal income and no or low credit scores, generally below 600. Normally, banks consider these people very
risky, aren’t willing to give them a credit card. However, in the case of secured credit cards,
they’re actually willing to make an exception, simply because they require applicants to
deposit cash with them. This cash then serves as the basis of the
card’s credit line. For example, if you deposit $200 with the
bank, your credit card will then be given a $200 credit line. Not only that, if then you max out your card
and fail to repay, the bank can take that money as collateral. This little quirk, plus high interest rates,
can make secured credit cards seem unattractive.

However, they do have one undeniable benefit. Any transaction done with one is reported
to the three credit bureaus. That means if Randy and Sara responsibly use
their secured credit cards, the bureaus will eventually bump up their credit score. Pretty great right? So what’s the best way to “responsibly”
use a secured credit card? Well, turns out it means almost never using
it. Randy and Sara should continue to use debit
cards for almost all of their purchases.

In fact, they should only ever use their secured
credit cards for one small purchase every month, like a gallon of milk, and always completely
pay that balance off on time. This regimen will minimize the amount of credit
used, while maximizing on-time payments, both of which overtime will lead to a very healthy
credit score. In fact, within a year or two of responsibly
using a secured credit card, Sara and Randy should have have credit scores at least above
640. At this point, they should be eligible for
great unsecured credit cards and loans! Hopefully you now understand how to rebuild
your credit.

Be sure to watch our next video, which covers
how to get out of credit card debt, and be sure to check out our website, where you can
find more educational content, your free credit score, and great credit card recommendations..

Meet Tom. Tom is a few years out college with a great
job and a lot credit card debt. Tom wants to get out of debt, but isn’t
quite sure how. Luckily for Tom, there exists a great solution
to his problem: balance transfer cards. However, before we continue, if Tom doesn’t
have a firm understanding of what a credit card or credit score is, or how to effectively
use either, we highly recommend watching our three videos “Credit Cards 101,” “Credit
Scores and Reports 101,” and “Credit Cards: Mistakes and Best Practices” before continuing
further. But let’s get back to the matter at hand.

What is a balance transfer? Well, a balance transfer is simply the act
of transferring an existing credit balance to another credit card. Most credit cards aren’t good this for:
they’ll immediately start charging interest on the transferred balance, plus a fee, generally
about 3-5% of the transferred balance. However, there is a specific subset of credit
cards, called balance transfer cards, that won’t immediately start charging interest,
instead giving Tom a 15-21 month window of 0% APR to pay off his balance interest-free. This is a great deal, but let’s still walk
through the steps you’ll need to take to get one: Step 1: Before doing anything, make a debt
repayment plan, ideally using our free recommended website, and rank your credit cards by interest
rate, as no matter what you end up doing, you’ll always want to tackle the highest
interest rate debt first.

Step 2: Once that’s done, call your credit
card company and try to get them to lower your APR. Emphasize that if they don’t agree, you’ll
move your balance to another company offering lower rates. Step 3: If the call fails and you still want
to transfer, keep in four three things. One: You’ll need good credit to get a balance
card. Two: You can’t transfer a balance to a card
offered by your current bank. Three: Depending of the size of your debt,
you may not be able to pay it off by the end of the promotional period, so have a plan
for that. And Four: The credit line on your balance
transfer card may be below your total debt load, meaning you’ll either have to:
Apply for a second balance transfer card Keep the remaining debt on your current card
and pay the high rate. Or use a personal loan, which is slightly
more expensive than a balance transfer card, but comes with a lower credit score requirement. And don’t worry, we’ll cover this option
in our next video.

However let’s assume for now that Tom has
been approved for a balance transfer card with a high enough credit limit. This is an important first step, but they’re
still a few more things to keep in mind: One: Don’t spend on the card, as the 0%
APR period may not extend to purchases. Two: Complete the transfer as fast as possible
or the 0% APR offer may expire. Three: Be careful about consolidate multiple
balances onto one card, as that will lower your credit score. Four and Finally: Once you’ve completed
the transfer, always pay on time and don’t close out your old accounts, as failing to
follow either will lower your credit score. Hopefully you and Tom now better understand
balance transfer cards. Be sure to check out our next video, where
we’ll teach you how to get out of credit card debt without them, and be sure to website,
where you can find more educational content, your free credit score, and great credit card
recommendations.

Meet Tom. Tom is a few years out college with a great
job and a lot of credit card debt. He wants to get out of debt, but isn’t quite
sure how, especially because he didn’t qualify for a good enough balance transfer card, detailed
in our two-part video series “How to Get Out of Credit Card Debt”. While Tom may think all hope is lost, there
is another way: personal loans. However, before we continue, if Tom doesn’t
have a firm understanding of what a loan is, or how to effectively use one, we highly recommended
watching our two videos “Loans 101” and “Loans: Mistakes and Best Practices” before
continuing further.

But let’s get back to the matter at hand. What is a personal loan? Well, like most loans, personal loans offer
Tom a fixed amount of money at a certain interest rate for a set period of time. However, unlike most loans, personal loans
can be used for a wide variety of expenses, ranging from home improvement projects to
paying off credit card debt. Speaking of credit cards, personal loans,
especially those from online lenders, will have interest rates lower than almost every
credit card. In addition, if Tom borrows from an online
lender that considers not just his credit score, of which he’ll need at least a 640,
but also his education status and earnings potential, those interest rates can be even
lower. Plus, even better, applying for a personal
loan from an online lender couldn’t be easier. All Tom needs to do is fill out a short credit
application.

Then, the lender will likely use a “soft
pull” for his credit history, which won’t hurt his credit score, and within a few minutes,
Tony will be able to see the amount see can borrow and the APR he qualifies for, a process
he can then repeat at multiple online lenders. Should Tom instead choose to get personal
loan from an offline lender, like a big bank or credit union, which just have one warning. These institutions tend to have higher interest
rates due to their much greater overhead, plus they tend to avoid “soft-pulls”,
which makes it harder to check your rates without hurting your credit score. So let’s assume Tom has chosen to get a
personal loan through an online lender. What’s his next step? Well, assuming he’s chosen his lender and
has checked his rates, he can then fill out the actual loan application online.

This should be very simple process, but there
is one thing to watch out for. Online lenders often charge a nonrefundable
origination fee for creating the loan, generally ranging between 1-5% of the loan’s value. This generally means two things:
One: If Tom wants to borrow exactly $10,000, and has to pay a 1% origination fee he’ll
need to borrow $10,100 dollars instead. Two: If Tom wants to use the loan proceeds
to pay off credit card debt, he needs to make sure the origination fee is less than the
interest he’ll save by using a personal loan. And don’t worry, our online calculator makes
this process a breeze. Finally, assuming the math checks out, Tom
just needs submits his application.

At this point, there will be a hard credit
check, but assuming Tom is approved, his bank account will generally be funded within a
few days. Tom is now on his way to being debt free. Congratulations! You’ve finished our personal loan basics
curriculum! If you want to see our free recommendations
for personal loan lenders, or just check out more educational material, be sure to check
out our website!.