Latest news with #debtmanagement
Yahoo
a day ago
- Business
- Yahoo
Pros and cons of a cash-out refinance
A cash-out refinance offers benefits like access to money at potentially a lower interest rate, plus tax deductions if you itemize. On the downside, a cash-out refinance increases your debt burden and depletes your equity. It could also mean you're paying your mortgage for longer. If you don't want to replace your entire mortgage with a new loan, you might also consider using a home equity loan or line of credit (HELOC). What is a cash-out refinance? A cash-out refinance replaces your existing mortgage with a new loan for a larger amount. The new loan pays off your original mortgage and provides additional cash in a lump sum that can be used for any purpose. These additional funds are based on your home's equity. Pros Cons You can access a sizable amount of money. You owe more money. You may be able to lower your interest rate. You're putting your home up as collateral. Your payments won't change. You have to pay closing costs. You could benefit from tax deductions. You could be tempted to borrow more for the wrong reasons. The biggest upside of a cash-out refinance is that you can get a considerable amount of money by unlocking home equity you already have — often much more than you could get with a credit card or personal loan. In fact, if you have a major expense, a cash-out refi might be one of the few ways you're able to pay for it. If mortgage rates are lower now than they were when you first got your mortgage, your new cash-out mortgage could come with a lower interest rate, depending on your credit score and other factors. Even if rates are higher now, you'll likely still get a lower rate doing a cash-out refi compared to getting a credit card or personal loan. Compare: Current cash-out refinance rates If you had a fixed-rate mortgage and refinance to a new fixed-rate mortgage, even with cash out, your monthly mortgage payments won't change. That's not the case with credit cards and home equity lines of credit (HELOCs), which generally carry variable rates. These predictable payments can make it easier to manage your budget over the long term and eliminate the stress of a fluctuating rate and payment. In addition, each time you make an on-time payment on your cash-out refi loan, you're doing your credit report a favor: On-time payments demonstrate strong personal finance habits that can help boost your credit score over time. If you itemize your tax deductions, you could take advantage of the mortgage interest deduction with the new loan — and potentially even more so if you use the cashed-out funds to buy, build or improve a home. Because you're taking out a larger loan amount — the remaining balance on the original mortgage plus cash out — your overall debt load will increase. A larger loan might also increase your monthly payments, depending on what rate you get and whether you refinance to a shorter or longer loan term. As with your original mortgage, your home is the collateral for a cash-out refinance, so if you don't repay the loan, you could lose your home. Just as you paid closing costs on your original mortgage, you'll pay similar expenses when you refinance. The good news: Refinance fees aren't nearly as expensive as the closing costs on a home purchase. However, they're usually costlier than the fees associated with a HELOC or home equity loan. If you're cashing out to pay off a mountain of high-interest credit card debt, take a long pause. Make sure you've addressed whatever spending issues led you to run up the debt in the first place. Otherwise, you might find yourself in a spiral and ultimately end up worse off than before. If you're considering a cash-out refinance, ask yourself these key questions to help decide if it's right for you: Can you get a lower interest rate? A cash-out refinance could be ideal if you qualify for a better interest rate than you currently have and plan to use the funds to improve your finances or your property. If you can't get a lower interest rate, however, a cash-out refinance might not be the best move, especially if you refinance to a new 30-year loan. What are you planning to do with the money from the cash-out? Investing in upgrades to your property with the money increases its value and makes it more enjoyable for you, making this a good reason to do a cash-out refi. You might also plan to use the funds to help pay off other high-interest debt. How long are you planning to stay in the home? With any refinance, you need to make sure you will be able to hit the break-even point that justifies the upfront investment of closing costs. If you expect to sell your home in the short term, it might not make sense to do a cash-out refinance; you'll have to repay the larger balance at closing. Aside from a cash-out refinance, other options that allow you to borrow against your home's equity include: HELOC: A home equity line of credit (HELOC) is a revolving credit line that functions much like a credit card. With a HELOC, you can borrow what you need, repay the amount borrowed and then borrow again. HELOCs come with a specific draw period during which you can continue to borrow funds as needed. Once the draw period closes, you pay back the remaining balance in installments. Home equity loan: Home equity loans provide a lump sum payment similar to a cash-out refinance. You pay back the funds in installments, usually at a fixed interest rate that's lower than many other types of consumer lending options. Both options are often quicker and less expensive to get than a cash-out refi. However, they also use your home as collateral and could come with higher interest rates compared to refinancing. How long does it take to close a cash-out refinance? Closing on a cash-out refinance typically takes 30 to 60 days. Ask your lender for its average closing time to get a sense of what to expect. Keep in mind you won't get the cashed-out funds for at least three business days after closing. This is required by law. What are the requirements for cash-out refinancing? The requirements for a cash-out refinance vary by lender, but most lenders will want to see a minimum credit score of 620 and a debt-to-income (DTI) ratio of no more than 43 percent. Some lenders set higher standards, however. Discover, for example, requires a minimum credit score of 680. In addition, lenders require you to have had your original mortgage for at least six months. Does cash-out refinancing hurt your credit? A refinance can affect your credit score for up to one year, but the impact is usually minimal. Sign in to access your portfolio
CBS News
2 days ago
- Business
- CBS News
6 debt management program warning signs borrowers should know
We may receive commissions from some links to products on this page. Promotions are subject to availability and retailer terms. Not all debt management programs are legitimate, and choosing the wrong one could lead to serious damage for your finances. JensIf debt collectors are calling you daily but you can't afford to pay off what you owe, the idea of enrolling in a debt management program can be pretty tempting. After all, these programs claim to help reduce your debt and eliminate the annoying (and often stressful) communications from creditors and debt collectors. Their messaging is everywhere, too — from radio ads during your morning commute to pop-ups while you're browsing online and even direct mail pieces that outline exactly how much you owe. And, in reality, many of the credit counseling companies that offer debt management programs can genuinely help you get back on track financially. Enrolling in a legitimate debt management program has helped millions of Americans negotiate with creditors to reduce interest rates and fees and create realistic payment plans. But while there are many honest companies trying to help, there are also some that are looking to exploit people who are already struggling, and in many cases, the predatory companies sound exactly like the legitimate ones. When you're overwhelmed by debt, it's natural to want immediate relief, but rushing into the wrong program can make your situation dramatically worse. So, to help you make the best decision for your finances, it helps to know the warning signs to watch for. Find out what strategies you can use to get rid of your high-rate debt now. 6 warning signs to look for when choosing a debt management program The following red flags could signal that the debt management program you're considering may not be the best choice for you: They guarantee results or instant debt relief If a debt relief program promises to slash your debt in half or erase it altogether with no consequences, it's time to walk away. A reputable debt management program will never guarantee specific outcomes because every creditor is different, and not all will agree to reduce your interest rate or waive your fees. Plus, true debt relief takes time. If someone claims they can make your debt disappear overnight, they're either misleading you or selling a program that's likely to hurt your credit or lead to default. Ask a debt relief expert about the options available to you today. They ask for payment upfront Federal law prohibits both credit counseling and debt settlement companies from charging upfront fees before services are provided. So if you're being asked to pay a large sum before any real help kicks in, that's a serious warning sign to take notice of. Legitimate debt management plans might include modest setup or monthly maintenance fees, but those are typically rolled into your monthly payment, and they should be clearly disclosed and reasonable. While it varies, the fees for debt management programs are usually under $75 to start and around $25 monthly. They dodge questions or won't explain the process Transparency matters. If a representative won't walk you through how their debt management program works, what it will cost, how long it will take and what happens if you miss a payment, that's a big problem. Any trustworthy credit counselor should be more than willing to explain the details, including how your payments are distributed to creditors and what happens if one of your creditors refuses to participate in the plan. They don't review your full financial situation A real debt management plan provides a tailored, not a blanketed, solution. So, before recommending anything, a legitimate credit counselor will take a detailed look at your income, expenses, debts and financial goals. If a program is pitched to you without this step — especially during a high-pressure sales call — it's probably not focused on helping you. It's more likely to be geared toward making money off your stress. There's no mention of the credit score impact Debt management programs can affect your credit, but not in the same way debt settlement or bankruptcy might. If a company says your credit score won't be impacted at all, though, that's probably misleading. You may see a temporary dip early on due to account closures or new payment structures, but responsible participation in a debt management program typically improves your score over time. A trustworthy program will be honest about this from the start. They push you away from other options In some cases, a debt management plan really is the best option. But in other cases, strategies like a balance transfer card, a debt consolidation loan or even bankruptcy could make more financial sense. Any credit counseling company that discourages you from exploring alternatives or suggests theirs is the only "safe" or "legal" way to get out of debt is showing its hand. Real financial guidance considers all the tools in the toolbox, not just the ones that generate fees. The bottom line Debt management programs can be a lifeline for people overwhelmed by high-interest credit card debt, but only if the program is legitimate and tailored to your needs. The wrong program could leave you deeper in debt, with damaged credit and fewer options. So before you commit, take the time to research the agency, read reviews, verify credentials and ask questions. A trustworthy program won't just promise relief. It will help you build a realistic, sustainable path toward financial stability.
Yahoo
2 days ago
- Business
- Yahoo
How much can I borrow with a personal loan?
If you need to finance an unexpected cost, such as a high medical or auto repair bill, a personal loan is worth considering. These loans offer flexibility, fairly low rates, and a simple application process — plus, lenders often disburse the money within a couple of business days after you're approved. This makes them a useful alternative to credit cards, which often have high rates and stricter approval requirements. While personal loans have several benefits, an important question remains: How much can you borrow with a personal loan? Here's what to know. The amount you can borrow varies based on the lender, your credit profile, and what you will use the money for. It's common to see minimum loan amounts of $1,000 to $5,000 up to a maximum of $50,000 or even $100,000. However, some lenders offer wider ranges. For example, Navy Federal Credit Union offers personal loans ranging from $250 to $150,000 for qualified borrowers. But just because you can qualify for a large loan doesn't mean you should borrow the full amount. Instead, consider the cost you're covering and how much you actually need to take out. This will help you keep your debt manageable, allowing you to set aside extra funds for things like savings, investing, or other beneficial purposes. Several factors influence how much you can borrow with a personal loan, including: Lender: There's no standard minimum or maximum loan amount. Instead, some lenders may let you borrow as little as $1,000 or as much as $50,000 or $100,000. You may need to shop around to find a lender that offers the amount you need. Credit score: You'll generally need a credit score of at least 580 to qualify for a personal loan, but again, requirements vary by lender. The better your credit, the more likely you are to qualify for a low rate and a large loan. Debt-to-income ratio: Lenders also look at your debt-to-income ratio, or DTI, when you apply for a personal loan. This measures your total monthly debt payments compared to your total monthly income, and it helps lenders determine if you can afford to borrow more money. You may be eligible for a larger loan if you have a low DTI. Income: You need a consistent income to qualify for a personal loan, and how much you earn affects how much you can borrow. High income and low debt could increase your likelihood of qualifying for a large loan. Collateral: Most personal loans are unsecured, meaning collateral isn't required to borrow. However, some lenders allow you to secure a personal loan with something valuable, such as a car, bank account, or investment portfolio. You can likely borrow more if you put down collateral, but the lender can seize your pledged asset if you default on the loan. Loan purpose: How you plan to use the personal loan can also affect how much you qualify for. Lenders may lend you more money for a home improvement project or debt consolidation than they might for a vacation or other discretionary spending. Read more: How to get approved for a personal loan If you're concerned you won't qualify for a large enough loan, there are a few things you can do to increase your borrowing power: Improve your credit: One of the best ways to increase your likelihood of a larger loan is to improve your credit. Ensure you make your monthly debt payments on time, pay down your debt as much as possible, keep your old accounts open, and avoid applying for new credit. Increase your income: Increasing your income might also make you eligible for a larger loan. Besides finding a higher-paying job, you can also request a raise or pick up a side gig to supplement your full-time earnings. Consider a co-borrower: Some lenders let you apply for a personal loan with a co-borrower or co-signer. This is a trusted person in your life — and ideally, someone with great credit — who has equal access to the loan funds and shared responsibility for repaying the debt. If your co-borrower is well qualified, you're likely to get better loan terms and lower rates. If personal loans don't seem like the best fit for your situation, there are alternatives. Here are some options. Some credit cards offer a 0% introductory APR for as long as 18 or 21 months, allowing you to borrow money interest-free during this time. These cards are often reserved for people with excellent credit, but if you can qualify for a card like this, it could give you the flexibility to pay off a large balance without incurring interest charges. Just ensure you pay your card off before the intro period ends, or you could end up with hefty interest charges on any remaining balance. Here are some top 0% APR cards to consider: Chase Freedom Unlimited Capital One VentureOne Rewards Credit Card Blue Cash Everyday® from American Express If you need to borrow a large amount of money and have significant equity in your home, a home equity loan or home equity line of credit (HELOC) could be a good choice. With a home equity loan, you borrow a lump-sum amount and use your home equity as collateral. You'll then make monthly payments on your home equity loan until it's repaid. HELOCs are slightly more flexible. Instead of a lump-sum loan, you open a credit line against your home equity. You can then draw down on this credit line for a set period, often five or 10 years. During this time, you can make interest-only payments on your HELOC. After that, you'll enter a repayment period — often 20 years — during which you'll make full principal and interest payments. This article was edited by Alicia Hahn.
Mail & Guardian
2 days ago
- Business
- Mail & Guardian
How short-term loans could cost you your dream home
Short-term or unsecured loans are not an evil to be avoided entirely. They can be good for consumers and the economy — when used responsibly. Frequent short-term borrowing could be a black mark against you when applying for a home loan. This is because the number of short-term loans you burn through could warn banks or other lenders that you're having trouble managing your finances. That can make them reluctant to fund your dream of owning your own property. While all debt should be managed responsibly to maintain a good credit score, for many South Africans, short-term loans are becoming an addictive way to make ends meet — or to fund luxuries they can't afford but won't live without. It's easy to get hooked — you don't need to put up collateral to get one and you don't have to explain what you'll use the money for. Also, some like to think that, if they fall behind on their repayments, they can simply submit themselves to a debt review. Introduced by the National Credit Act, a debt review is a legal process for someone who is over-indebted to settle with their creditors by paying what they can afford. A registered debt counsellor will review their finances and help them create a repayment plan. Unfortunately, there's no such thing as a free lunch. Short-term loans can carry much higher interest rates than other types of debt — up to 5% a month, which is about six times the current prime rate. So, the more you borrow, the worse off you become financially and the more likely you are to default. That debt review 'solution' you are being offered isn't necessarily a safe bet either, because it will cut you off from any further credit provision for as long as it takes to remedy your past bad debt behaviour. Even if you're not a repeat offender, some unscrupulous firms offering debt counselling market their services by assuring you that your debts will be pardoned, the slate wiped clean and all will be forgiven. But, in the real world, lenders could deny your home loan application, or increase the interest rate offered, simply because you needed debt review in the first place. Short-term or unsecured loans are not an evil to be avoided entirely. They can be good for consumers and the economy — when used responsibly. But they're also a red flag to home loan providers when they feature strongly in your financial history, even if you're keeping up with repayments. Credit providers use various risk models to identify patterns in our spending behaviour — good and bad. They know what financially responsible and irresponsible spending patterns look like. Frequent short-term loans — with or without defaulting — are a risky pattern that implies an individual does not manage debt well, and cannot delay gratification, and that is a pattern home loan providers want to avoid investing in long-term. The ability to delay gratification is the underlying attribute that responsible users of credit have but there is no easy way to quantify whether a particular applicant possesses that trait. The number, frequency and type of unsecured credit transactions they make is a useful proxy in that regard. So, what is the right course of action, especially if you already have short-term loans? First, understand that short-term loans have their place but are seldom necessary. Stop using them and make a plan to pay off the ones you already have. Then get to work on building a fund of cash that can only be touched for true emergencies, so that you will not need unsecured debt in those cases. Second, work on saving for luxuries such as holidays and large capital purchases. You will be paying monthly anyway, whether you take the credit or save, but in the saving scenario interest will be working in your favour rather than against you. Delaying the gratification of that large purchase is difficult, but no one said adulting would be easy. Finally, if there is no other option, opt for 'good' debt as far as possible. Buy your clothes, furniture, appliances, groceries and other items using store credit if you absolutely cannot do without. You don't have to buy things you don't need to build a good credit score. Everyday items and normal household purchases are fine. Credit providers' risk algorithms generally look favourably on consumers who start their credit journey with store debt because it fits the pattern of responsible spending, provided you pay your accounts on time, of course, and do not spend near or above your credit limit. Aim to stay below 60% of your available credit limits. Eventually, most people end up before a home loan provider in the hope of buying a house. But lenders are profit-makers and risk reducers, so it's important to think like they do. Are you a good investment? Will you repay your home loan on time and in full, even in times of market stress or downturn? The lenders' modern analytical systems — often powered by artificial intelligence — evolved to answer questions like these and exist to protect their owners from risk. Short-term loans that literally fund your lifestyle can easily sway the algorithm against you, especially if you are funding luxuries or nice-to-haves from easy debt, rather than developing the discipline of saving. Renier Kriek is the managing director of home loan provider, Sentinel Homes.
Yahoo
2 days ago
- Business
- Yahoo
What is credit history?
Your credit history is a record of how you have managed past debt and how you are handling ongoing debt. Your credit history is outlined in detail in your credit report, which also includes any liens, credit inquiries or bankruptcies. Credit history also helps to determine your credit score, a numerical value that indicates your creditworthiness to potential lenders. You can improve your credit history by practicing healthy credit habits, like paying your bills on time, which can also impact your employment and rental options, credit card terms and offers as well as other lending opportunities. Your credit history is a look at how you have managed your credit in the past. If you are in the market for a new loan (such as a home mortgage loan, a car loan or a credit card), looking for a rental or even searching for a job, your credit history can have a significant impact. Find out more about what a credit history is, why credit history matters and ways you can improve it. Think of your credit history as a financial record of your credit activity. Among other financial information, it typically includes the following: whether you pay your bills on time, how many credit cards and other loans you have, what types of credit you use and how much debt you carry. Any late payments are typically reported after 30 days delinquent, so you could have late payments that trigger fees with your card issuer, for instance, but are not reported. Your credit history is recorded in a document called a credit report, which provides information about how you use your credit accounts, including your payment history and account balances. The report also provides your identifying information, details on any collections and bankruptcies on your record and information about credit inquiries. Even child support or alimony payments are part of your credit history and can have a negative impact if you miss a deadline. Credit history versus credit score Your credit score and credit history are related but are not the same. Your credit score is based on and calculated using an algorithm that includes your credit history that is documented on your credit report. Three major credit bureaus — Equifax, Experian and TransUnion — generate credit reports, but they do not always record the same information in the same format. Each bureau uses one or more scoring models — typically FICO or VantageScore — to interpret the data it has collected and create your credit score. FICO and VantageScore have multiple versions; FICO 8 is the most commonly used credit scoring model. The information on your credit report (your credit history) goes into a mathematical model that generates your credit score, which is typically a number between 300 and 850 that indicates how likely you are to pay off your debt. Because each credit scoring model has its own methods and criteria, your credit score with each one may vary. But each model is attempting to do the same thing: predict your likelihood of repaying your debts, specifically for the financial product you are applying for. So responsible financial behavior is likely to translate to a good score regardless of the model. Using a report card analogy, your credit report would be the report card that documents your credit history, or how you did on all of your assignments for a semester. Your credit score would be an overall letter grade, such as an A+ or a D. However, note that you won't find your credit score on your credit report. To see your actual credit score, rather than the data that goes into it, you can check to see if the credit bureau offers a free credit score and credit report. You might have to provide some personal information, such as your Social Security number. You can also purchase a more detailed report and score directly from one of the major credit bureaus or a third-party service, or you may be able to get a free credit score from a credit card issuer such as American Express or Capital One (sometimes even if you aren't an account holder with that bank). Checking your own credit score shouldn't impact it since it's considered a soft check. Lenders use your credit history to help determine whether to approve you for a loan or a credit card, as well as the size of your credit limit. Your credit history also influences the interest rate or cost of the loan you would be eligible for. Say you have a limited or no credit history because you've never used credit or you're a young adult who is just starting out on your own. If you apply for a top-tier rewards credit card to help, you will likely be turned down due to insufficient credit history. On the other hand, a long credit history full of on-time payments and responsible credit use can help you qualify for the best credit cards or secure a mortgage at a favorable interest rate. You can get a full picture of your credit history by ordering your credit reports from the three major bureaus. You are entitled to a copy of your credit report for free from each of the three credit bureaus once a week. However, remember that these reports don't provide your score for free, only the data used to calculate your score. For your credit score, you'll need to purchase it from them or get it for free from credit card issuers and other services that provide it as a customer benefit. Reviewing your credit report can help you better understand your financial challenges and areas that need improvement. It's also good to ensure the information is correct. Sometimes credit reports contain outdated or incorrect information which can wrongly prevent you from receiving access to credit, loans and good interest rates. Here are some best practices to build your credit score and establish a strong credit history: Pay all of your bills on time, every time. Your payment history, which reflects whether you pay your bills by their due date, accounts for 35 percent of your FICO credit score. Late payments, usually reported when at least 30 days delinquent, will drag your score down. If you do have a late payment recorded on your credit report as part of your credit history but otherwise have a history of paying on time, you can reach out to your creditor and ask to remove it. This may or may not be successful, but it's worth a try. Keep your credit card balances low. The amount you owe compared to the total credit available to you accounts for 30 percent of your credit score. The less debt you carry, the better your score is likely to be. Generally speaking, it's good to use no more than 30 percent of your available credit. Strive to pay your accounts off in full before the end of every billing cycle, if possible. Since your credit utilization is typically calculated once a month, making an extra payment mid-month can help bring it down. Keep your oldest credit card account open. The length of your credit history — or, how long you've been using credit — makes up 15 percent of your credit score. A longer history is better for your score. That's why, although it may seem wise to close inactive accounts, it's a good idea to keep them open because they contribute to your length of credit history and bring down your credit utilization. Closed accounts that are in good standing can stay on your credit reports for up to 10 years. For instance, it's OK to close an inactive credit card account if it's racking up unnecessary fees, but otherwise consider keeping it open and using it once in a while. Don't apply for many credit cards within a short frame of time. New credit accounts for 10 percent of your credit score. This factor considers the number of new credit accounts you've recently opened, as well as the number of recent credit applications you've made. It's best to keep these to a minimum. However, when you're shopping for a big loan such as a mortgage loan or car loan, you do have a 'rate-shopping window,' which is a period of time within which multiple credit inquiries will be factored into your credit score just once. Maintain a diverse portfolio of credit. Your credit mix makes up 10 percent of your credit score and accounts for the different types of credit accounts you have, including revolving debt (like credit cards) and installment debt (like student loans and mortgages). Consider becoming an authorized user on a parent's/guardian's or spouse's/partner's credit card. When you're an authorized user, the primary cardholder's activity often gets added to your credit report. You don't have to use the card or even get a physical card to be added to the account, but this is a great way to build credit if you're starting from scratch … assuming the primary cardholder handles their card responsibly. Use a third-party tool. You could also turn to alternative credit-building tools such as Experian Boost and eCredable Lift, suggests Ted Rossman, senior Bankrate analyst. These types of services can give you credit for things that haven't historically counted toward your credit score, including rent payments, streaming service subscriptions and utilities. Your credit history is an important factor that tells lenders your creditworthiness, or likelihood that you will repay your debt in a timely manner. It's a record of how well you have managed credit, containing information on your credit accounts (such as payments) and any negative marks against your creditworthiness (such as delinquencies and bankruptcies). Check your credit report occasionally to make sure that your information is accurate since it informs your credit score. If your credit score isn't as high as you'd like, engaging in good credit habits can help you to build your credit score. Who can check your credit history? The credit bureaus can share your credit history as documented in your credit report to creditors, government authorities, landlords, employers, insurance companies, among other services that may need your credit history as outlined by the Consumer Financial Protection Bureau. For some requests, such as for rentals and employment, many states now require consent. What is good credit history? Good credit history is a positive credit report narrative indicating responsible use of your available credit, such as paying your bills on time. Negative input, such as late payments, can stick around on your credit report for up to seven years and cast a cloud on your credit history. One exception is chapter seven bankruptcy, which can linger for as long as 10 years. You can get fraudulent or erroneous information removed from your credit report, but everything else generally stays for a set period of time. Sign in to access your portfolio
