Car Prices Hit an All-Time High — Here’s How to Save When Buying New

iStock

The first Model-T cost as little as $825 in 1908, which is about $18,000 adjusted for inflation. Today, the average car buyer can expect to leave a dealership with a new car for around $35,428. That was the average transaction price for a new vehicle in October — an all-time high — according to auto comparison website Edmunds.com.

The average new-vehicle transaction rose 2 percent from October 2016 and 12 percent over the past five years. The average down payment on a new car also hit a new record: $3,966, which is up $374 from last year and $454 from five years ago.

Why are prices up?

The increase is due in part to a rise in the number of features that come standard with a new car these days, like automatic emergency braking and backup cameras, says Ronald Montoya, senior consumer advice editor for Edmunds. In addition, consumers are moving away from lower-cost, smaller sedans, climbing into higher-priced, larger SUVs and trucks.

Montoya says the general decline in overall gas prices since 2008 is partly responsible for the shift in consumer preferences. Plus, many shoppers favor a higher driving position and having more storage space.

Before we get to how you can find savings on a new car despite the higher price tags, let’s talk about a savings strategy that can backfire.

Looking beyond your monthly payment

Many are opting for longer auto loans to cope with rising car prices, says Matt DeLorenzo, managing editor for kbb.com, the website for vehicle research publisher Kelley Blue Book. Recently, the Consumer Financial Protection Bureau (CFPB) found that 42 percent of auto loans made in the last year were for six-year terms or longer, up from 26 percent in 2009.

Taking out a longer auto loan to pay a lower monthly price isn’t an ideal hack, DeLorenzo tells MagnifyMoney. While a longer term keeps your monthly payments lower, you end up paying more in interest over the life of the loan than you would with a shorter-term product. That makes your new car even pricier, so avoid taking out a longer loan to squeeze an expensive vehicle into your budget..

The CFPB found that six-year auto loans cost more in interest over time, are used by consumers with lower credit scores to finance larger amounts, and have higher rates of default. Here’s a good rule of thumb to keep in mind when you’re reviewing financing options: If you are unable to afford financing an auto purchase over four years, perhaps it’s out of your price range.

DeLorenzo says going with a longer loan is one of two actions people are taking in response to higher prices. The other: leasing.

It is true that leasing a vehicle saves you money on monthly payments in the short run, but there’s more to this financial story. Indeed, if you drive a lot of miles, leasing may be a bad idea. You may be hit with extra mileage and wear-and-tear charges at the end of your lease.

How to save on a new car

So prices are at record highs. The experts we talked to say there are still ways you can save when buying a new vehicle in this market.

Try a compact vehicle

If you’re shopping for a car in 2017, you’re likely looking at a crossover, midsize vehicle or truck. Those larger vehicles are in demand right now, and, according to Edmunds, the shift to the larger vehicles has driven interest rates and prices up. However, automakers are struggling to move less-popular 2017 models like compact sedans off dealership lots.

DeLorenzo, the KBB editor, recommends purchasing a less-in-demand sedan or crossover vehicle to find savings.

Many new compact cars may be sold for up to $10,000 less than a larger SUV or truck by the same manufacturer, he says. By choosing a sedan or other compact vehicle, you trade size for better fuel economy and a more affordable car.

And because dealers are having a hard time selling these models, you might see better discounts, more incentives and improved lease deals on more traditional sedans and family cars, according to DeLorenzo.

Pair a lower down payment with GAP insurance

Common savings advice for car shoppers includes making a down payment of at least 20 percent of the vehicle’s transaction price. This tactic is intended to save you money right away, as a new car loses about 20 percent of its value in its first year of ownership, according to Montoya.

People are putting down closer to 12 percent of the vehicle’s value at signing because it’s tough to save up 20 percent since vehicle prices have gotten more expensive, Montoya tells MagnifyMoney. He says most people tend to go with making a down payment that results in a monthly payment they are comfortable with.

But, since a new vehicle loses about a fifth of its value in its first year of ownership, “if you put down payment of 12 percent, you are already in the red,” Montoya adds. He says you may want to look at GAP insurance if you put down less than 20 percent.

Services like GAP — Guaranteed Auto Protection — insurance and new car replacement insurance will cover the difference between what the vehicle is worth and what is owed on the loan in the event of total loss or accident.

Ask your insurance company if it offers new car replacement insurance or GAP insurance. If your insurance doesn’t offer new car replacement or the monthly cost of the insurance is outside of your budget, Montoya says to consider getting GAP insurance from the dealership.

Adding GAP insurance may tack on another monthly transportation cost, but it can save you from possibly owing thousands on an upside down auto loan in the event you have an accident and lose your vehicle.

On the downside, GAP insurance coverage may vary from insurer to insurer, so be sure to ask what the insurance can apply to. Some policies, for example, may cover collisions but not flooding or theft.

Look out for incentives

A little research can go a long way when you’re car shopping. Keep an eye out for extra savings in the form of incentives from both the dealer and the manufacturer.

Both Montoya and DeLorenzo recommend checking the manufacturer’s website or comparison websites like KelleyBlueBook.com or Edmunds.com for savings before you set foot on a dealer’s lot.

There may be special incentives you qualify for based on your status as a veteran, student or ride-share driver. You may also find a loyalty incentive, reserved for those who already own a car by the same manufacturer, or a conquest incentive, offered to customers willing to trade in a competing brand.

Be sure to enter your ZIP code to find incentives most relevant to you at local dealerships, and to search based on the exact model you’re looking for.

Even if you think you’ve found all you could dig up, you may discover additional savings if you ask the salesperson about any deals or promotional offers the dealer may be running when you come in. Wait until you’re at the negotiating table to bring the deal up, advises DeLorenzo.

“Keep that in your back pocket,” he says. “If they don’t offer them to you. then bring them up.”

Get preapproved for financing

You don’t have to leave the financing to the dealer, and you shouldn’t if you want to ensure you’re getting a good deal. Get preapproved for financing before you show up at a dealership. That way, if the dealership offers you financing at a higher interest rate, you can counter the offer or, at the very least, have a benchmark for offer comparisons. Naturally, you should aim to finance your new vehicle at the lowest interest rate possible.

Compare prices

The first step to saving money on anything is shopping around. Compare prices of the vehicle you want across multiple dealers.

“A lot of people tend to go to the dealership that’s closest to them and they don’t shop around,” says Montoya. He recommends going to at least three different dealerships. “You’ll see three different offers and you’ll get a better idea as far as price,” he says.

Websites like Kelley Blue Book, TrueCar and Edmunds make it fast and simple to compare prices of new and used vehicles online. Use the sites to compare sticker prices before you head out to the dealership. Beyond the physical vehicle, take the time to compare what you can expect to pay for must-haves like auto insurance and vehicle maintenance, as they can fluctuate depending on the vehicle you choose.

Time your purchase just right

Simply walking onto the a dealer’s lot at the right time of the year can save you a chunk of cash. Montoya says the holiday season is a good time to shop for a new vehicle; dealers are looking to clear out their inventory of the outgoing year’s models to make room for new vehicles.

“Look at vehicles on the outgoing year,” says Montoya. “They will have more discounts and there is more incentive for dealers to sell those models.”

You also want to pay attention to when the vehicle came out. The longer a car is out, the more likely it is to have more discounts than newer models, adds Montoya. He recommends going back a model year to save money if you don’t mind getting a used car instead of a new one.

The post Car Prices Hit an All-Time High — Here’s How to Save When Buying New appeared first on MagnifyMoney.

New CFPB Rules Get Tougher With Payday-Lender Debt Traps

iStock

In early October, the Consumer Financial Protection Bureau announced it would implement long-awaited new rules aimed at limiting the power of payday and title lenders. The bureau director, Richard Cordray,  has been a vocal critic of the nonbank lenders, and the agency has been working on new rules to regulate lenders in this space for several years.

“The CFPB’s new rule puts a stop to the payday debt traps that have plagued communities across the country,” Cordray said in a statement. “Too often, borrowers who need quick cash end up trapped in loans they can’t afford. The rule’s common sense ability-to-repay protections prevent lenders from succeeding by setting up borrowers to fail.”These rules will apply to both brick-and-mortar and online lenders.

What changes are happening

Lenders are going to have to prove that a borrower can afford to repay the loan

One of the major rules is a “full-payment test” that will determine if borrowers can “afford the loan payments and still meet basic living expenses and major financial obligations.” Payday lenders typically don’t run a credit report on borrowers and only usually look at a pay stub to determine if you qualify.

Most consumers end up unable to repay the loan when it comes due, usually a couple weeks later. According to the CFPB, more than 80 percent of all payday loans are rolled over or renewed. The same is true for title loans, with 20 percent of borrowers losing their vehicle to title loan companies. Because there is little regulation on interest rates, these loans usually have APRs of 300 percent or more.

However, borrowers can avoid the full-payment test if the lender meets the following requirements: It must make 2,500 or fewer covered short-term or balloon-payment loans per year and earn no more than 10 percent of its revenue from such loans.

It won’t be as easy for lenders to access funds in borrowers’ bank accounts

Another issue is that many payday and title loans require access to the user’s bank account, where payments will be automatically debited. If the user does not have the amount available in his or her account, the account will be overdrawn. This usually results in the consumer being charged overdraft fees on top of the hefty interest already going to the payday lender.

According to the CFPB, “these borrowers incur an average of $185 in bank penalty fees, in addition to any fees the lender might charge for failed debit attempts, specifically, a late fee, a returned-payment fee, or both.”

One of the rules that the CFPB installed is a limit on attempted debits, so the lender has to get authorization from the consumer to debit the account more than twice. The CFPB also hopes to limit the amount of times a loan can be extended, as a way to decrease the fees the borrower must pay.

Borrowers can repay debt more gradually

To avoid the full-payment test, payday lenders can lend up to $500 if they structure the payments so the borrower can pay them off “more gradually.” However, there will be strict rules in place for this type of loan.

For example, lenders won’t be able to offer gradual repayment plans to customers who have recent or outstanding short-term or balloon-payment loans. They also can’t make more than three loans in quick succession and can’t make loans under this option if the consumer has already had more than six short-term loans or been in debt for more than 90 days on short-term loans over a rolling 12-month period.

Few options for borrowers in need

The CFPB’s long-awaited rules may help protect borrowers from predatory lenders, but don’t solve a key issue: There just aren’t that many viable alternatives for people who need to borrow small sums quickly.

A report from the Milken Institute, “Where Banks Are Few, Payday Lenders Thrive,” found that neighborhoods with more banks tend to have fewer payday lenders, and vice versa. There was also a strong correlation between payday lenders and neighborhoods with higher African-American and Latino populations as well as a greater instance of payday lenders where there are fewer high school and college graduates.

Jennifer Harper, who researched predatory lending in Chattanooga, Tenn., as part of the Financial Independence Committee for the Mayor’s Council for Women, said she hopes there will be a solution for consumers that doesn’t require them to take out a payday loan.

“We want to find an alternative to payday lending that would still allow people to access they need, without those crazy interest rates,’ she said. “Getting that quick access to cash may be fine for that day, but then it really puts a burden on the borrower long-term.”

Jason J. Howell,  a certified financial planner and fiduciary wealth adviser in Virginia, agrees with the new regulations taking place.

“The CFPB is taking the opportunity to protect the most vulnerable consumers: lower-income borrowers that are typically ‘un-banked,’” he said. “The proposed rule would reduce fees that make payday loans especially hard to pay back; and that could also reduce the issuance of these loans in the first place.”

The post New CFPB Rules Get Tougher With Payday-Lender Debt Traps appeared first on MagnifyMoney.

The Guide to Freezing and Thawing Your Credit Report

iStock

The recent Equifax data breach that exposed the names, Social Security numbers, birth dates, addresses and, in some instances, driver’s license numbers of about 44 percent of the current American population has many consumers now rushing to freeze their credit scores. However, many consumers may not grasp what that really entails.

In a recent survey by CompareCards.com, a subsidiary of MagnifyMoney’s parent company, LendingTree.com, 78 percent of respondents said they had never put a freeze on their credit reports.

When you freeze and thaw your report, you are preventing anyone else from opening a credit account under your name without your knowledge. It’s a smart way to defend yourself against some cases of identity theft. Massive data breaches like the one that hit Equifax are stark reminders of the importance of protecting sensitive information from potential fraudsters, but that doesn’t mean you should wait until your information is compromised in a data breach to act.

“We should all be vigilant,” says Eva Velasquez, president of the Identity Theft Resource Center. “Being vigilant about your identity is just a part of the world that we live in. If being involved in a data breach is the catalyst that brings that to the top of your mind, then we can see that as a positive.”

What a credit freeze does — and doesn’t — accomplish

A credit freeze, or security freeze, is a tool consumers can use to restrict access to their credit reports. The freeze makes it harder for criminals to commit financial fraud using your information.

The freeze seals your credit reports so that new requests won’t be processed without your approval. You will need to use a personal identification number — only you will know it — to lift or thaw the freeze before creditors can again have access to your credit report. A freeze adds a layer of security, since most creditors won’t extend new credit without seeing your report.

You will need to request a credit freeze with each of the big three reporting bureaus — Equifax, TransUnion and Experian — for the freeze to have the biggest impact.

Freezing your credit report will NOT:

  • Impact your credit score
    • A credit freeze will have no impact whatsoever on your credit score. Freezing your credit will neither raise nor lower your score.
  • Restrict existing creditors’ access to your report
    • Your current creditors, government agencies or debt collectors acting on behalf of those parties will still have access to your credit report if you freeze it.
  • Keep you from opening new credit
    • You will still be able to use your credit report to do things like open a new credit account, apply for a mortgage, rent an apartment or take any other action that calls for a credit check. But you’ll need to lift the temporary freeze before lenders can gain access to the report. If you know you’ll be doing any of those activities, you can temporarily lift the freeze for a certain party or a length of time, but it may cost you money to do so.
  • Prevent a criminal from committing fraud involving your existing accounts.
    • Freezing your credit report won’t prevent you, or any would-be thieves, from using your existing credit accounts. You will still need to vigilantly monitor all of your personal bank, credit and insurance accounts for fraudulent transactions or other signs of fraudulent activity.
  • Stop you from receiving prescreened credit offers
    • Freezing your credit report won’t stop lenders from sending you prescreened credit offers, as they prequalify new customers using a “soft pull.” A soft pull doesn’t show up on your credit report or harm your credit score. Banks buy the names of people who meet their credit criteria from credit bureaus to create their prequalification lists. So when you are prequalified, it just means you’re on a list somewhere. If you want to stop receiving such credit offers, call 888-5OPTOUT (888-567-8688) or ask to be excluded here.
  • Protect you from all forms of ID theft
    • A credit freeze can help to prevent financial fraud, but it will still leave you vulnerable to many other kinds of fraud. When criminals obtain important and sensitive information like your Social Security number as they did in the Equifax breach, they can use this data to commit criminal, medical, tax and employment theft, too. For example, a thief could use your Social Security number to file a tax return and claim a fraudulent refund, or use your personal information to obtain medical care or employment without your knowledge. Remain vigilant to protect yourself from other forms of fraud. Pay careful attention to any mail or phone calls from a medical office, government agency or other entity. They may be reaching out to verify your identity or report that someone else is attempting to commit fraud in your name.

How to freeze your credit report

You must go through a separate process with each of the three major credit bureaus to freeze your credit report.

Equifax

Equifax Complete Advantage Plan You can freeze your Equifax credit report online, by phone or by mail.

  • Online: In a statement issued in The Wall Street Journal on Sept. 27, Equifax said it would offer a new service that permanently allows consumers to lock and unlock their credit reports for free. The service is set to debut by Jan. 31, 2018.

    In the meantime, you can still freeze your Equifax score the traditional way, by visiting the Equifax security freeze site. You will first need to fill out a form with your personal information, then make any payment required by your state. Equifax’s site may be experiencing high traffic as a result of the recent breach, so it may not be able to process your request right away. If that is the case, try one of the other methods or try again online in a day or two.

  • Phone: Call 1-800-685-1111 (New York residents call 1-800-349-9960), and you should be connected with an Equifax representative who will verify your personal information and assist you with your credit freeze request.
  • Mail: Request your credit freeze by certified mail. If you’re a victim of identity theft, this is the channel you will need to use; your request must be submitted in writing with relevant documents, like a police report or other documented proof of theft, to have your fee waived. Write a letter to the reporting agency requesting the credit request and send it to the following address: Equifax Security Freeze/P.O. Box 105788/Atlanta, GA 30348

TransUnion

TrueIdentity You can freeze your credit TransUnion report online, by phone or mail, or by using TrueIdentity,

  • Online: Go to the TransUnion security freeze site. You will need to log in or create a TransUnion account before you can submit your request online.
  • Phone: Call 1-888-909-8872 and a TransUnion representative should verify your personal information and assist you with your credit freeze request.
  • Mail: Request your credit freeze by certified mail. Write a letter to the reporting agency requesting the credit request and send it to the following address: TransUnion LLC/P.O. Box 2000/Chester, PA 19016
  • TrueIdentity: TransUnion offers a free credit report monitoring service called TrueIdentity. The service allows users to lock and unlock their credit report with a swipe on their mobile device or a click online. It gives access to unlimited TransUnion Credit report refreshes, and alerts you if an entity pulls your TransUnion credit report.

Experian

Experian You can freeze your Equifax credit report online, by phone or by mail.

  • Online: Go to the Experian security freeze site. Select “add a security freeze,” then “apply online” and you’ll be redirected to a form requesting your personal information. Submit the form and make any payment required by your state to freeze your report.
  • Phone: 1-888-EXPERIAN (1-888-397-3742). Press 2 to be guided through prompts to request a security freeze.
  • Mail: Request your credit freeze by certified mail. Write a letter to Experian requesting the credit request and send it to the following address: Experian Security Freeze/P.O. Box 9554/Allen, TX 75013

How to thaw your credit report with each agency

Equifax

You can temporarily thaw your Equifax credit report via mail, online via Equifax’s security freeze site, or by calling 1-800-685-1111. (New York residents dial 1-800-349-9960.) Send mailed requests to the following address:
Equifax Security Freeze/P.O. Box 105788/Atlanta, GA 30348

TransUnion

You can temporarily thaw your TransUnion credit freeze by mail, online or via TransUnion’s credit freeze site, or by calling 1-888-909-8872. Send mailed requests to the following address: TransUnion LLC/P.O. Box 2000/Chester, PA 19016

Experian

You can temporarily thaw your Experian credit report by mail, online via Experian’s security freeze site, or by calling 1-888-397-3742. Send mailed requests to the following address:
Experian/P.O. Box 9554/Allen, TX. 75013

How much a credit freeze will cost you — by state

The protection isn’t free. Each time you freeze your report, temporarily lift a freeze or permanently end one, you may have to pay a fee. In the wake of the Equifax hack, consumer advocacy groups and some lawmakers have renewed their efforts to allow data breach victims to sign up for free credit freezes in their states.

“It is outrageous that the credit bureaus charge us fees to prevent identity theft when we didn’t even give them permission to collect our information in the first place,” Mike Litt, a consumer program advocate with the U.S. Public Interest Research Group, said in a statement a little over a week after the Equifax data breach was made public.

Sens. Elizabeth Warren (D-Mass.) and Brian Schatz (D-Hawaii) introduced the Freedom from Equifax Exploitation (FREE) Act on the same day. The act is intended to make actions related to freezing credit reports free for all consumers nationwide.

Until the proposed act wends its way through both houses of Congress, the amount you may pay to freeze, thaw or permanently end a credit freeze will vary from state to state and may be up to $10.

There is a silver lining for some. If you can present documentation showing you are a victim of identity theft at the time you place a freeze on your credit, most states will waive fees.

You can check what your state will charge you for each action below. Multiply the amount by three because you will need to pay each credit bureau.

In a Sept. 15, 2017, statement addressing the recent breach, Equifax said it would waive security freeze fees for all consumers through Nov. 21 and refund those who have paid to place or remove a credit freeze since 5 p.m. on Sept. 7, just after the breach was announced.

Nearly every state has legally identified definitions of a “protected consumer,” which may be a minor, an elderly citizen, a service member, a spouse of a victim of ID theft, a medically incapacitated person or some other distinction. Depending on the state, a protected consumer may pay a different amount or have his or her fee waived. The National Conference of State Legislators has more information on whom each state counts as a protected consumer, here.

State

Consumer Category

Freeze

Thaw

End Freeze

Alabama

Victim of ID theft

free

free

free

Senior (65+)

free

$10

$10

All other consumers

$10

$10

$10

Alaska

Victim of ID theft

free

free

free

All other consumers

$5

$2

free

Arizona

Victim of ID theft

free

free

free

Protected Consumer

free

n/a

free

All other consumers

$5

$5

$5

Arkansas

Victim of ID theft

free

free

free

Senior (65+)

free

$5

free

All other consumers

$5

$5

$5

California

Protected Consumer

$10

n/a

$10

Minor <16

free

n/a

free

Senior (65+)

$5

$5

$5

All other consumers

$10

$10

$10

Colorado

Victim of ID theft

free

free

free

All other consumers

free

$10

$10

Connecticut

Victim of ID theft

free

free

free

Protected Consumer

free

free

free

All other consumers

$10

$10

$10

Delaware

Victim of ID theft

free

free

free

Protected Consumer

free

free

free

Senior (65+)

$5

free

free

All other consumers

$10

free

free

District of Columbia

Victim of ID theft

free

free

free

All other consumers

$10.00

free

free

Florida

Victim of ID theft

free

free

free

Protected Consumer

free

n/a

free

Senior (65+)

free

$10

free

All other consumers

$10

$10

$10

Georgia

Victim of ID theft

free

free

free

Minor < 16

free

n/a

free

Senior (65+)

free

$3

$3

All other consumers

$3

$3

$3

Guam

Victim of ID theft

free

free

free

All other consumers

$10

$10

$10

Hawaii

Victim of ID theft

free

free

free

All other consumers

$5

$5

$5

Idaho

Victim of ID theft

free

free

free

All other consumers

$6

$6

$6

Illinois

Victim of ID theft

free

free

free

Minor < 18

$10

n/a

$10

Senior (65+)

free

$10

free

Active duty military member

free

free

free

All other consumers

$10

$10

$10

Indiana

Victim of ID theft

free

free

free

Protected Consumer

free

n/a

free

All other consumers

free

free

free

Iowa

Victim of ID theft

free

free

free

All other consumers

$10

$12

$12

Kansas

Victim of ID theft

free

free

free

All other consumers

$5

$5

$5

Kentucky**

Victim of ID theft

free

free

free

All other consumers

$10

$10

$10

Louisiana

Victim of ID theft

free

free

free

Protected Consumer

free

n/a

free

Senior (62+)

free

free

free

All other consumers

$10

$8

free

Maine

Victim of ID theft

free

free

free

Protected Consumer

free

n/a

free

All other consumers

free

free

free

Maryland

Victim of ID theft

free

free

free

Minor < 16

$5

n/a

$5

All other consumers

$5

$5

$5

Massachusetts

Victim of ID theft

free

free

free

Protected Consumer

free

free

free

All other consumers

$5

$5

$5

Michigan

Victim of ID theft

free

free

free

Protected Consumer

free

n/a

free

All other consumers

$10

$10

$10

Minnesota

Victim of ID theft

free

free

free

All other consumers

$5

$5

$5

Mississippi

Victim of ID theft

$10

free

free

All other consumers

$10

$10

$10

Missouri

Victim of ID theft

free

free

free

All other consumers

$5

$5

free

Montana

Victim of ID theft

free

free

free

All other consumers

$3

$3

free

Nebraska

Victim of ID theft

free

free

free

Minor < 16

free

n/a

free

All other consumers

$3

$3

free

Nevada

Victim of ID theft

free

free

free

Senior (65+)

free

free

free

All other consumers

$10

$10

$10

New Hampshire

Victim of ID theft

free

free

free

All other consumers

$10

$10

$10

New Jersey

Victim of ID theft

free

$5

$5

All other consumers

free

$5

$5

New Mexico

Victim of ID theft

free

free

free

Senior (65+)

free

free

free

All other consumers

$10

$5

$5

New York

Victim of ID theft

free

free

free

Protected Consumer

free

free

free

All other consumers

free

$5

$5

North Carolina

Victim of ID theft

free

free

free

Spouse of ID Theft Victim

free

free

free

Minor < 16

$5

n/a

$5

Senior (62+)

free

free

free

All other consumers

free

free

free

North Dakota

Victim of ID theft

free

free

free

All other consumers

$5

$5

free

Ohio

Victim of ID theft

free

free

free

All other consumers

$5

$5

$5

Oklahoma

Victim of ID theft

free

free

free

Senior (65+)

free

$10

free

All other consumers

$10

$10

$10

Oregon

Victim of ID theft

free

free

free

Minor < 16

free

n/a

free

All other consumers

$10

$10

$10

Pennsylvania**

Victim of ID theft

free

free

free

Senior (65+)

free

$10

free

All other consumers

$10

$10

free

Puerto Rico

Victim of ID theft

free

free

free

Senior (65+)

free

$10

free

All other consumers

$10

$10

$10

Rhode Island

Victim of ID theft

free

free

free

Senior (65+)

free

free

free

All other consumers

$10

$10

$10

South Carolina

Victim of ID theft

free

free

free

Protected Consumer

free

n/a

free

All other consumers

free

free

free

South Dakota**

Victim of ID theft

free

free

free

Minor < 16

$5

n/a

$5

All other consumers

$10

$10

$10

Tennessee

Victim of ID theft

free

free

free

Minor < 16

$10

n/a

$10

All other consumers

$7.50

free

$5

Texas

Victim of ID theft

free

free

free

Protected Consumer

free

n/a

free

All other consumers

$10

$10

$10

Utah

Victim of ID theft

free

free

free

Minor < 16

free

n/a

free

All other consumers

$10

$10

free

Vermont

Victim of ID theft

free

free

free

All other consumers

$10

$5

$5

Virgin Islands

Victim of ID theft

free

free

free

All other consumers

$10

$10

$10

Virginia

Victim of ID theft

free

free

free

Protected Consumer

free

n/a

free

All other consumers

$10

free

free

Washington

Victim of ID theft

free

free

free

Senior (65+)

free

free

free

All other consumers

$10

$10

$10

West Virginia

Victim of ID theft

free

free

free

All other consumers

$5

$5

$5

Wisconsin

Victim of ID theft

free

free

free

Minor < 16

free

n/a

free

Medically incapacitated and not an ID theft victim

$10

n/a

$10

All other consumers

$10

free

free

Wyoming

Victim of ID theft

free

free

free

All other consumers

$10

$10

$10

Sources: Consumersunion.org Transunion.com NCSL.org

When a credit freeze makes sense — and when it doesn’t

You should freeze your credit report when you are in danger of financial or identity fraud.

Eva Velasquez, of the Identity Theft Resource Center, says consumers should consider freezing their reports if they are victims of identity theft or at an increased risk of having their information misused for identity theft because of lost or stolen items.

Consumers might also consider a credit freeze “if their personal information, specifically their Social Security number, is compromised in some way, like in that of a data breach,” says Velasquez.

Freezing your report is an important consumer protection you can and sometimes should take advantage of as a general consumer. However, there are several occasions when you may not want to freeze your credit.

  • You are planning to open a new line of credit (credit card, mortgage, etc.) in the near future.
  • You work for a company that requires a regular background check or access to your credit report.
  • You regularly open new accounts with financial institutions.

Ultimately, if you are not in danger of ID theft, the decision to freeze or unfreeze your credit report depends on whether or not you’re willing to go through the inconvenience and cost of unfreezing and refreezing each time an entity you approve of wants access to your credit report. If you want a more convenient way to monitor use of your credit report, you may want to consider placement of a credit fraud alert instead of the freeze, as explained below.

Pros and cons of freezing your credit report

Pros:

  • Locks your credit report
    The most obvious benefit you’d get from freezing all of your credit reports is an additional layer of protection. Only you can permit a lender or other entity to receive your full, detailed credit report. You’ll have the opportunity to verify a request’s legitimacy before anyone can obtain your report.
  • No impact on your credit score
    Neither freezing nor thawing your credit report will affect your credit score. Your credit score is impacted by positive or negative activity on your end. Adding protection is considered a neutral action.
  • Generally free for ID theft victims
    If you’re a victim of ID theft, you won’t be required to pay any fees to freeze, thaw or lift a freeze on your credit report in most states. However, you may need to provide additional documentation proving the theft and submit your request in writing.

Cons:

  • Need to plan before opening a credit line
    The added protection comes with the added inconvenience of freezing, or thawing your credit report when you need to apply for credit. This will take just a bit of forethought and may cost you up to $10 each time you thaw your report. You may take several minutes to complete thaw requests for all three bureaus online, which will make it a little more difficult to apply for a credit card in the checkout line. You can manually refreeze your accounts or set your request to automatically do so on a certain date.
  • Fees, unless you’re a victim of ID theft
    Each action — freezing or lifting a freeze — may cost you $3 to $10 in many states. The cost is often tripled, as it’s necessary to freeze or thaw all three of your credit reports if you are unsure which bureau the entity requesting your report will use. The cost may be high for some consumers. Freeze and thaw your reports wisely, and ask the requesting entity which bureau it uses to avoid paying unnecessary fees whenever you can.

An alternative to freezing your credit report

If you don’t think you are in immediate danger of ID theft, you can opt for less-drastic protection and set up a credit fraud alert with all three bureaus instead. When you have the alert set, all lenders attempting to pull your credit history will see a flag on the reports, alerting them to verify your identity before extending credit.

The entity is not required to go through additional verification, but the warning puts it at that entity’s discretion. You will still be able to apply for credit whenever you’d like, and won’t need to remember a PIN to unlock your credit report.

Additionally, fraud alerts are temporary. In most cases, you will be required to renew the alert in 90 days.

The post The Guide to Freezing and Thawing Your Credit Report appeared first on MagnifyMoney.

The Truth About ‘Obama Student Loan Forgiveness’

Source: iStock

The average 2016 college graduate carries $37,000 worth of student loan debt today according to an analysis of student loan debt by Mark Kantrowitz, publisher of Cappex.com. Kantrowitz tells MagnifyMoney he expects that number to rise for 2017 graduates.

It’s no wonder that those drowning in debt can get desperate. And scammers have come up with a clever way to dupe these borrowers into spending money on services that promise to erase their debt. One of the most popular student loan scams today involves companies that charge borrowers to sign up for the so-called “Obama Student Loan Forgiveness” program.

The only problem is that there is no such loan forgiveness program.

The truth about “Obama Student Loan Forgiveness”

So-called student “debt relief” companies use “Obama Student Loan Forgiveness” as a blanket term for the various flexible federal student loan repayment programs implemented over the last decade by the Bush and Obama administrations.

What they don’t tell unwitting consumers is that these programs, which include income-driven repayment plans and Public Service Loan Forgiveness, among others, are free to borrowers and do not require paying for any special services in order to enroll.

Promising relief to indebted college graduates, these companies lead people to believe that enrolling in these programs requires special assistance — which they may offer for a sizable upfront fee and/or recurring monthly payments. Rather than getting the help they need, borrowers are duped into paying for something they could easily accomplish for free with a simple phone call to their student loan servicer.

While there are multiple ways you can get scammed by debt relief companies claiming to offer you “Obama Student Loan Forgiveness,” there are some red flags that can help you spot a scam.

6 ways to spot a student debt relief scam

It’s important to note that it’s not illegal for a company to charge a borrower to enroll them in a program that’s free to them. These companies are arguably taking some of the work out of getting enrolled, even if that “work” could easily be accomplished with a phone call to your student loan servicer.

Nonetheless, some debt relief firms take things a bit too far, and it’s important to be aware of scams out there. After all, student loan forgiveness scams are really only one part of a broad range of debt relief scams. Debt relief scams share many of the same qualities and employ similar tactics to mislead consumers into paying for their services.

Here are some red flags to watch out for:

  1. They ask for fees upfront. By law, debt relief services are not allowed to ask for payment until they have performed services for their customer. A legitimate debt relief service may ask for a fee upfront, but they will place that payment in an escrow account, and they will not officially receive the payment until they complete the work.
  2. They charge fees for free government services. This one is a bit tricky. So long as a company makes it clear that it is possible to gain access to a government debt relief program for free, it’s not illegal for them to charge consumers for their help in enrolling in those programs. However, the worst actors out there will keep that information to themselves, leading consumers to believe they need to pay a professional for access.
  3. They claim to be affiliated with the U.S. Department of Education. The Department of Education, which manages the federal student loan system, does not partner with any debt relief services. Any company claiming to be associated with the Department of Education is a scam.
  4. They “guarantee” that your debt will be forgiven. Services will try to entice customers by promising total loan forgiveness or a reduction in their student loan payments. But monthly payments for borrowers enrolled in federal student loan repayment programs are established by law and cannot be negotiated. Also, the legitimate loan forgiveness programs out there usually require making payments for several years, and there is no company that can promise loan forgiveness unless you meet those payment requirements first.
  5. They advertise “pre-approval” for debt relief programs. There is no “pre-approval” for federal income-driven repayment or loan forgiveness programs. They are free for borrowers, and so long as your loans are in good standing, it’s a matter of the types of loans you have when you took them out that qualifies you for the different programs. To see if you qualify for a given program, contact your loan servicer directly.
  6. They offer to make your student loan payments for you. You should be the only person submitting payments to your loan servicer. The Department of Education has contracted these loan servicers to manage federal student loans, and loan payments should be made directly through their websites. Never send your payment to a debt relief firm, even if they promise to pay your loans for you. The exception here is if you’re working with a debt relief firm to settle a debt with a lump-sum payment. In that case, they are legally required to hold your cash in an FDIC-insured account until they officially settle the debt. And if their client decides they no longer want their services, they have to return the funds to them in full.

Do your due diligence before working with any debt relief service, by keeping an eye out for these red flags, as well as checking sites like the Consumer Financial Protection Bureau, the Federal Trade Commission, or the Better Business Bureau for complaints against the company.

What to do if you’ve fallen for a student debt relief scam

If you’ve been scammed by a debt relief company, there are certain steps you need to take to prevent further financial damage. However, know that it is possible you may never get your money back.

Submit a complaint to the Consumer Financial Protection Bureau and the Federal Trade Commission. Reporting scams, can not only help others from losing their money, but if an investigation by the CFPB or FTC results in suit and judgment, then the debt relief company may be required to issue refunds, cease business, and ensure borrowers do not miss out on important repayment benefits.

Track your credit reports with all three credit bureaus to ensure your personal information is not used fraudulently. You can get one free credit report each year at annualcreditreport.com or use these free services to monitor your report for suspicious activity. If you fear a debt relief scammer has your Social Security number and other financial information, you might want to consider a credit freeze. That will stop anyone from being able to open a new line of credit without you knowing.

Contact your loan servicing companies and have any power of attorney authorizations removed. Some companies will ask borrowers to give them power of attorney so they can negotiate directly with their loan servicers. You don’t want to leave any company with this privilege because they will be able to make decisions about your loans without you knowing.

Contact your bank or credit cards to stop payment to the debt relief company and see if they can work with you to try and get your money back. It is common for debt relief services to charge monthly recurring fees for their services.

Change your Federal Student Aid password. Every federal student loan borrower has a unique login for the https://studentloans.gov site, where you can track all of your federal loans. If you gave a company your FSA information, consider that information compromised and change your FSA password immediately.

9 Legitimate Student Loan Forgiveness Programs

While there is no such program called “Obama Student Loan Forgiveness,” there are several legitimate student loan repayment programs that offer student loan forgiveness.

These programs have a wide range of requirements and payment terms, some as short as five years, others as long as 25 years, and can be available based on the types of federal student loans you have as well as your chosen career.

In addition to loan forgiveness programs, there are programs that offer loan repayment assistance or loan discharge. How much can be discharged and the amount of repayment assistance varies greatly depending on the program.

9 examples of legitimate loan forgiveness programs, loan repayment assistance programs, and loan discharge programs

What to do if you can’t afford your student loan payments

If you are struggling to afford your student loan payments, there are some actions you can take to ensure your loans remain in good standing and you avoid a default that could negatively impact your credit score.

Enroll in an income-driven repayment plan

If you are unable to afford your current payment, you can apply to change repayment plans. For example, if you are on a Standard Repayment Plan for your federal student loans, you could request to enroll in an income-driven repayment plan. If you are already on an IDR plan and your income has changed significantly, you can request to have your payment amount recalculated.

Ask for a deferment or forbearance

If you are going through a temporary financial hardship, you can ask your loan servicer to apply a deferment or forbearance, which would not require you to make payments during the deferment or forbearance. While both a deferment and forbearance offer you relief from making payments, with a forbearance you will be required to eventually pay back the interest that accrues during that time. Also, it’s important to note that while you are in deferment or forbearance, you aren’t making payments, which means you might be missing out on forgiveness programs like PSLF if you are working in public service or for a nonprofit.

Consider refinancing or consolidating your loans

Refinancing involves taking out a new loan from a private lender and using that loan to pay off your old loan. The pros of refinancing include a reduced interest rate and the ease of having just one payment. If you refinance a federal student loan, you will lose all of the benefits that federal student loans offer.

Alternatively, you could consolidate your federal loans. A Direct Consolidation Loan combines all your loans using the average weighted interest rate into one loan. So instead of dealing with multiple loan servicers and multiple loan payments each month, you only have one student loan payment to make each month. You can apply for a Direct Consolidation Loan at no cost through the government’s Federal Student Aid website.

Work with your loan servicer

If you have private loans, your lender may not offer as many repayment options as federal loans. Reach out and work with your lender anyway. They may offer a financial hardship program that would lower your payments. Your loan servicer would much rather work with you to ensure they get paid.

Consider bankruptcy if you can pass the “hardship test”

While it is highly unlikely you will be able to discharge your student loans in bankruptcy, it isn’t impossible. You must either show that your loans would impose an undue financial hardship that will not go away or that the loan was not a qualified student loan in that it did not fit the definition or was in an amount that exceeds the school’s cost of attendance. An example of where this argument has been successful would be a private bar loan, a loan taken out to cover the expenses of taking the bar exam.

The post The Truth About ‘Obama Student Loan Forgiveness’ appeared first on MagnifyMoney.

11 Sephora Savings Hacks Everyone Needs to Know

If you can name your top 5 favorite beauty vloggers on YouTube, you’ve probably heard of a little makeup wonderland called Sephora. Bonus points if you’ve ever walked into the makeup emporium to touch up your brows with a free sample and left half an hour later and $100 poorer.

The LVMH-owned beauty store has been fairly successful since it first opened in 1969. It currently boasts 2,000 retail stores worldwide and around 15,000 of your favorite products. All of that revenue doesn’t have to come at the expense of your wallet.

We’ve done some digging to find 12 ways you can save money the next time the smell of perfume whisks you into your local Sephora retailer’s checkout counter with your credit card in hand.

  1. Loyalty Pays

Sephora is good to those who are loyal to the brand. Save on products and services when you sign up for the retailer’s loyalty program, Sephora Beauty Insider.

When you sign up, you’ll get points for each dollar spent in-store and online. The program has three tiers: Beauty Insider, VIB, and VIB Rouge, depending on how much money you spend with the leading makeup retailer.

Beauty Insiders — aka Sephora shoppers who spend less than $350 a year — get a free birthday gift and free classes, plus the option to pay $10 a year for unlimited free shipping privileges. VIBs, or Very Important Beauty Insiders, get all of the above plus additional exclusive savings and one free custom makeover for an annual $350 spent on merchandise.

Spend $1,000 a year in merchandise purchases, and you’re rewarded with the VIB Rouge level. Rouge offers all of the aforementioned perks, but you won’t need to pay the additional $10 a year for unlimited free shipping. You’ll also get other exclusive perks like unlimited custom makeovers.

  1. Get freebies by scanning the Beauty Deals page

Sephora has an entire page of its website dedicated to savvy shoppers like yourself. It’s appropriately titled Beauty Deals. It’s a little tricky to find the deals page as there isn’t a direct link to the page on Sephora’s home page, so make sure to bookmark www.sephora.com/beauty-deals.

It’s where you’re sure to find all of Sephora’s promotional codes for additional discounts and samples. You’re allowed a maximum of three free samples at checkout.

  1. Buy gift sets to save on individual products

If you’re going to purchase one or two items from a product line, you might be better off just buying a gift set. For example, the Yves Saint Laurent Black Opium Beauty Gift Set will run you $100 and comes with the Black Opium Eau de Parfum ($91), Rouge Pur Couture lipstick ($37), and Mascara Volume Effet Faux Cils ($32).

$91 + $37 + $32 = $160 value.

By getting the set, you’d save $60.

  1. Size up and save

If you buy something regularly, purchase the value size rather than smaller sizes. You’ll almost always spend less per ounce that way. For example, the regular 4.2-oz. bottle of Clinique’s Dramatically Different Gel will run you about $6.24 per ounce, whereas the smaller, half-ounce travel size option costs about $10 per ounce.

  1. Stock up on free samples in store

If you want to try out a product that’s way, way, out of your normal price range, get a free sample in-store to try before you buy. That way you won’t waste the full-size perfume you bought because of the brand more than the scent.

You are allowed up to three free samples per department in-store, and can get even more freebies online with beauty deals. Make sure to take home a sample of that expensive foundation to see if you can apply it as smoothly in your bathroom as the artist did in the store’s lighting.

Samples can also come handy when you’re traveling. So stop by Sephora and stock up on samples instead of travel-size bottles for short vacations.

  1. You can and should return products you don’t like

If you didn’t follow amazing aforementioned advice to try before you buy, it’s OK, I don’t listen to my mom either. What’s great is that at Sephora, you CAN make returns, even on makeup. Learn the return policy: you can return opened goods within 60 days in gently used condition.

  1. Shop out to in, bottom to top

Like at grocery stores, products are arranged at Sephora so that you see what costs the most, first. Check out items on the outer edges and on the bottom shelves first. They are typically cheaper than the ones you’ll see displayed at eye level according to Real Simple.

  1. Shop semi-annual sales

Sephora holds major semi-annual sales twice a year. This is another instance where your loyalty pays. Only Beauty Insiders get access to the major sale, when products are up to 20% off. The semi-annual sales typically happen in the spring and fall, usually mid-April or mid-November, and the sales normally last a few days.

  1. Use discounted gift cards

Purchase a gift card someone else is getting rid of at a discount before you shop. You can buy discounted gift cards for Sephora or department stores like Macy’s or JC Penney’s with in-store Sephora counters.

To find discounted gift cards, use sites like Gift Card Granny, which aggregates discounted gift card offers from around the web for you. Other great resources are Raise, WalletWhiz, and Cardpool.

Right now, we found Sephora gift cards available for up to 9% off through Gift Card Granny.

  1. Download a rebates app

You can get even more of the money you spent at Sephora when you shop using rebate smartphone apps like Ibotta or Checkout 51. For example, when you take a picture of your receipt after spending at least $50 at Sephora, you get $5 back on Ibotta.

With Checkout 51, you’ll browse local offers at stores, then take a picture of your receipt, and your savings will be credited to your account. When your account hits $20, you can cash out.

  1. Learn to DIY

You can save a lot of time and money on makeovers at Sephora by learning a few of the artist’s tricks yourself. Learn how to sculpt the perfect brow or apply flawless foundation at one of the retailer’s free 2-hour beauty classes.

Check online or ask the manager at your local Sephora for find out when and how to sign up for classes. If you have about 15 minutes and want a more personal experience, you can have a professional explain their process to you during a mini-makeover any day.

  1. Like, follow, subscribe

Following Sephora on its social media channels is the most obvious and easiest way to save on goods and snag freebies. Look out for posts on Sephora’s Facebook and Pinterest accounts to hear first about current sales and free samples.

 

 

The post 11 Sephora Savings Hacks Everyone Needs to Know appeared first on MagnifyMoney.

Warning: The Best Small Business Credit Cards Do This

truth_teller_lg

If you have a small business, you might be tempted to open a small business credit card. When used properly, small business credit cards can provide you with free working capital, rewards and the ability to manage the expenses of you and your employees more easily. However, there are real risks that you need to consider.

  • You are personally liable: when you apply for a small business credit card, you are signing a credit application that makes you personally liable for any spending that happens on that card. If your company fails to reimburse you or goes bankrupt, you will still be held responsible for making payments and should expect collection activity from your credit card issuer.
  • Your personal credit report and credit score can be impacted: with most cards, the balance will not appear on your credit report so long as you are current. However, if you miss payments, many major credit card issuers will report the balance and delinquency to your credit report. And if the credit card issuer ever sells your debt to a collection agency, you can expect a collection item to hit your personal report as well.
  • Your interest rate can be increased on your existing balance: In 2009, the CARD Act was passed. The legislation made it very difficult for credit card issuers to increase rates on existing balances. However, the law only applied to consumer cards: the interest rate on your small business account can increase at any time. If you want to use your small business credit card to borrow, you will not have certainty regarding the interest rate.
  • If you give cards to your employees, you are likely personally liable. Many small business credit cards give you the option of adding credit cards for your employees. Usually that means you are adding an “authorized user” who will have the same charging privileges as you. It is like adding your husband or wife as an authorized user to your personal credit card. If your employee goes crazy at the local bar or books a flight to Tahiti, you are personally liable for the charges.
  • CARD Act protections do not extend to small business credit cards. In addition to the limitations on price increases mentioned above, none of the other CARD Act protections apply to small business credit cards. I will explain all of those protections in more detail later.

Small business credit cards can still be a great tool (I use one). Just make sure you understand the risks and the alternatives. In general, a small business card can be an excellent deal if you earn points and pay your balance in full and on time, accruing no interest. In addition, the cards can be a useful way to fund very short-term borrowing needs. However, if you need to borrow a larger amount over a longer period of time, an installment loan with a fixed interest rate from a marketplace lender or local bank would likely be a better option.

If you are shopping for a loan, you can read more about the best small business loans

I will now explain each of the potential risks in more detail below:

Personal Liability

If you have a small business and need to borrow money, you will likely need to take provide a personal guarantee, which means you would be held personally liable for repayment of the debt. This risk is not unique to small business credit cards. If you take an SBA loan, borrow from a marketplace lender or go to your local bank, you will likely need to provide a personal guarantee.  You really need to think twice before borrowing. If your business needs working capital to fund orders, make sure you pay close attention to the credit-worthiness of your customers before taking on too much debt to fund their orders. And you also need to be very honest with yourself if your business is in financial difficulty. It might be surprisingly easy to borrow money, even when your business is struggling. But if your business ultimately fails, you don’t want to create unnecessary debt that will follow you even after your business is closed.

Personal Credit Report

Most small business credit cards will not report to consumer credit reporting agencies so long as your account is current. This is important, because you do not want the balance on your small business credit card to appear as personal debt. However, if you stop paying your small business credit card (and default), you can expect the negative information to end up on your personal credit report.

Many major credit card issuers will start reporting to your personal credit report as soon as you are seriously delinquent. In general, once you are 60 days past due you can expect the negative information to hit your report. The reporting will have a big negative impact on your score. Delinquencies of 60 days or more can easily take 100 points or more from a credit score.

Even if your small business credit card does not report to the credit bureau, a default can still appear on your report. Typically, credit card companies will write off the debt at 180 days past due and sell the debt to collection agencies. At that point, the collection agency registers a collection item on your credit report. And, along the way, you could also have a legal judgment.

In a best case scenario, the debt does not appear on your report. But if you miss your payments, you can expect big derogatory marks to hit your score, in addition to the collections activity.

Your Interest Rate Can Increase

If you miss a payment, even by just one day, you should expect a big increase in the interest rate on your existing balance. Even worse, your rate could be increased even while you are current. For example, if you max out your credit card you could appear riskier to the bank. Because you appear risky, the bank could increase your interest rate.

This could have a big impact. Imagine you have a $15,000 balance at a 15% interest rate. If the rate increases to 25%, you could see an increased monthly interest charge of $125. Your debt could cost you an extra $1,500 a year with no warning and no possibility to avoid the interest rate increase.

If you need to borrow money, you should consider a term loan from a marketplace lender or your community bank. With a term loan, you can get a fixed interest rate. For example, Funding Circle offers loans with an APR as low as 5.49% and Lending Club offers an APR as low as 7.77%. When you take a term loan, you are at least locking in the cost of your borrowing.

Before the CARD Act, the credit card industry was guilty of outrageous interest rate increases, especially using the vague language of “universal default.” That is why the CARD Act made such interest rate increases impossible. Unfortunately, small businesses never received that same protection and need to proceed with caution.

Note: you can use a personal credit card for business expenses. Because you are personally liable for the debt regardless, this could be a good option. The benefit is that the interest rate cannot be increased on your debt so long as you are current. (Remember that most interest rates are variable – so the rate could increase as the Prime rate increases, but you would not see an increase for punitive reasons). The risk is that you would be putting that balance on your personal credit report, which could impact your credit score and your ability to qualify for products like mortgages, because the underwriters would treat that debt as personal debt. If you want to find a consumer credit card, you can read our Best Credit Card Guide.

Employee Cards Can Make You Liable

Often you might want to give credit cards to employees so that they can make business purchases. Most credit card issuers will allow you to give supplementary credit cards to employees. There are two big benefits to this service. First, you can earn points or miles on purchases made by your employees. Second, you have complete visibility of the money being spent by your employees.

But there is a big risk. By giving a card to your employee, you are giving them access to your credit limit. It is just like a supplementary card that you give to your husband or wife. If your employee decides to have a big night out at a bar or a flight to Tahiti, you will be personally liable for the charges. Just be very careful before you agree to an arrangement like this.

Other CARD Act Protections

There were a number of consumer protections provided by the CARD Act that do not apply to small business cards. These include:

  • Penalty Fee Restrictions: penalty fees have to be “reasonable and proportional” to the relevant violation of account terms. In general, penalty fees for consumers should be restricted to $25 for a first late payment and $35 for each subsequent late payment.
  • Overlimit Fee Opt-In: issuers can only charge an overlimit fee if the customer opts in to overdraft protection.
  • Payment timing: Payments must be due on the same day of every month, reducing the risk of confusion.
  • Payment Allocation: When the payment amount exceeds the minimum due, issuers generally need to apply the amount above the minimum due to the balances with the highest interest rates first.
  • Monthly Statements: The statement needs to show how long it would take, and how much it would cost, to pay off the debt if only the minimum due is made. In addition, the statement needs to show the payment required in order to pay off the balance in three years.
  • Ability to pay: Card issuers cannot open a credit card or increase a credit line unless the ability of the consumer to repay is taken into account.

All of the protections listed above are required for consumer credit cards, but are not required for small business cards.

In many cases, credit card issuers have decided voluntarily to provide some of these protections to consumers. However, it is important to understand that these protections, when provided, are at the discretion of the bank and can be removed.

Small Business Credit Cards Can Still Provide A Valuable Service

When used properly, a small business credit card can still provide excellent value. Here are some of the benefits:

  • Small business credit cards can be a great way to manage discretionary expenses, particularly when combined with services like Expensify and integrated with QuickBooks. T&E, travel and other expenses can quickly get out of hand, and creating electronic records of every transaction can help the budgeting and management process.
  • A small business credit card is a free line of credit if you pay the balance in full and on time every month. In effect, you are being given a free working capital line of credit. For example, if you use Google AdWords to acquire customers, you can get 20 – 25 days (depending upon the length of the grace period) before you have to pay the bill. This can be very helpful for cash management purposes.
  • For short-term borrowing needs (for example, 30 days), a small business credit card could be the least bad option. Imagine you need to borrow $15,000 for 2 months until you get paid for a job. At an 18% interest rate, it would cost you about $450 of interest to borrow the money for two months. That is a lot cheaper than most merchant advance businesses, which have interest rates well above 40%.
  • You have the potential to earn rewards. It is easy to earn at least 2% on your spending, which can be serious money depending upon the spending needs of your business.
  • The debt associated with your small business will not appear on your personal credit report so long as you remain current, which can help keep your credit score up.
  • One of the greatest accounting risks faced by small businesses is that they co-mingle their personal and business accounts. By using a separate card, you can ensure you don’t mix up your personal and business expenses.

Just remember – if you have a longer term borrowing need, it is better to go through the process of applying for a term loan. Although the process will take a bit longer, you should be able to get a much lower, fixed interest rate.

The post Warning: The Best Small Business Credit Cards Do This appeared first on MagnifyMoney.

Learn How to Spot a Student Loan Scam

Spot a Student Loan Scam

We all know that scammers live amongst us. They’re trying to find out our personal information to gain access to our bank accounts, our health care, our savings … and increasingly scammers are targeting student loans, as well.

Often these scammers tend to rear their ugly heads when someone with a student loan is making changes to his or her current plan, like consolidation, lowering payments or trying to have debt removed. It’s a scary prospect (adding one more thing to be on the lookout for when it comes to identity theft), but with a little extra attention you should be able to spot the warning signs of a scammer. Here are a couple big things to be on the lookout for:

Scam Sign No. 1: They make too-good-to-be-true promises

What it looks like: As with other things in life, often a promise that sounds too good to be true is too good to be true. Remember that federal loans typically can’t be forgiven unless there are certain circumstances for which you qualify. In other words, if a company promises to make your debt go bye-bye without even knowing whether or not you qualify for debt forgiveness, more likely than not it is a scam.

Scam Sign No. 2: Their logo or name seems oddly familiar

What it looks like: If the company you’re dealing with has a name that’s almost but not quite the same as a well-known debt relief/student loan servicing company, that’s a big red flag. Always check with the Better Business Bureau for reviews of any company before working with them, since many scammers may try to use the likeliness of well-known companies to lure confused people in.

Scam Sign No. 3: They ask for fees up front

What it looks like: Advice or counseling as it relates to student loan debt relief shouldn’t come with a charge, and you should never pay anything up front before a company has even done anything to help you out. If the company you’re dealing with asks you to pay before anything has even been done, stop working with that company immediately.

Check out this piece for three more ways to spot a student loan scam so you don’t fall victim.

The post Learn How to Spot a Student Loan Scam appeared first on MagnifyMoney.

6 Ways to Spot a Student Loan Scam

Depressed man slumped on the desk with his hands holding credit card and currency

Student loan debt has taken a staggering shape, with almost $1.3 trillion in outstanding debt at last count, according to the Consumer Financial Protection Bureau. In fact, the average 2015 college grad left school with more than $35,000 in student loans.

With that much debt hanging over their heads, it’s no wonder student loan borrowers are being targeted by an increasing number of scammers. “Problems with student loan servicing can leave distressed borrowers without the tools to help avoid default,” says a CFPB spokesperson. “Student debt relief scams prey on these consumers, charging upfront fees while promising to enroll borrowers in free federal consumer protections.”

In Illinois, for the first time, student loan scams are now in the top 10 consumer scams in the state. “Students who are saddled with crushing debt and who have been misled from achieving their goals submit regular complaints to my office,” Attorney General Madigan said in a press release.

Many borrowers run into scams when they try to consolidate loans, get lower payments or even have debt canceled. To protect yourself, it pays to know which tactics are on the shady side. Here are a few warning signs:

1. They push you to pay big up-front fees

You shouldn’t have to pay to get student loan advice or counseling, and you definitely shouldn’t owe fees before a debt relief company provides any help. The CFPB recently took action to stop one company, Student Aid Institute, Inc. which was doing just that. Fees for loan services should be reasonable and come after services rendered.

2. They claim they can make your debt disappear

A debt relief company can’t make your federal loans go away, either with loan forgiveness or debt cancellation. In most cases, federal loans can’t be discharged unless there are special circumstances—you’re permanently disabled, for instance, or you work in a teaching job or other public service profession that results in loan forgiveness after several years.

3. They say they can shrink your payments significantly

This may be possible, but you can do it, too, by working directly with your loan holder. Various federal loan repayment plans are available, although you must be eligible for them. The Department of Education offers this handy Repayment Estimator that allows you to explore your options.

4. They’re imitating another company—or the government

Take a close look at the name and logo of the firm. If it seems very similar to another well-known student loan company you know, or they seem affiliated with the federal government, do your homework. Try searching the Internet and the Better Business Bureau for complaints and reviews. In 2014, the CFPB took action against Irvine Web Works, which ran the websites StudentLoanProcessing.us and StudentLoanProcessing.org, claiming among other things that the company implied that it was affiliated with the Department of Education.

5. They ask for a third party authorization

This kind of agreement—along with a power of attorney (which you also shouldn’t sign)—gives the debt relief company permission to deal with your student loan servicer on your behalf. That’s a bad idea, especially if they suggest that you pay them instead of your student loan servicer.

6. They ask for your Federal Student Aid PIN

If a company asks for this piece of information, proceed with caution. Giving it away is like giving away your signature, which means a company can do things on your behalf with your student loans. A legitimate company shouldn’t need this info to work with you. 

If you’re in trouble and need some basic information on paying off your student loans, start with the CFPB’s site on repaying student debt.

Have a complaint about a private lender or scammer? You can file that, too.

The post 6 Ways to Spot a Student Loan Scam appeared first on MagnifyMoney.

What the New DOL Fiduciary Rule Means For You

Geeting advice on future investments

Seven years in the making, the Department of Labor’s long-awaited Fiduciary Rule finally went into effect June 9.* The full breadth of the rule’s impact won’t officially be felt until January 2018, when advisors must be fully compliant with the rule’s requirements.

The rule survived an upheaval by the Trump administration, which had hinted earlier this year that it might seek to block the rule’s implementation.

Aimed at saving consumers billions of dollars in fees in their retirement accounts, the Department of Labor’s new fiduciary rule will require financial advisers to act in your best interest. However, the final rule includes a number of modifications, including several concessions to the brokerage industry, from the original version proposed six years ago.

Here’s what you need to know about these new rules and how they may affect your money.

*This story has been updated to reflect the rule’s successful release.

What is a Fiduciary?

So what exactly is a fiduciary? According to the Certified Financial Planner (CFP) Board, the fiduciary standard requires that financial advisers act solely in your best interest when offering personalized financial advice. This means advisers can’t put personal profits over your needs.

Currently, most advisers are only held to the U.S. Securities and Exchange Commission’s suitability standard when handling your investments. This looser standard allows advisers to recommend suitable products, based on your personal situation. These suitable products may include funds with higher fees — with revenue sharing and commissions lining their own pockets —  which may not reflect your best possible options.

What is Changing Exactly?

Affecting an estimated $14 trillion in retirement savings, the Department of Labor’s new fiduciary rule is meant to help you receive investment advice that will aid your nest egg’s ability to grow. Many investors have been pushed toward products with high fees that quickly eat away at profits.

All financial professionals providing retirement advice will now be required to act as fiduciaries that must act in your best interest. This applies to all financial products you may find in a tax-advantaged retirement accounts. Because IRAs offer fewer protections than employment-based plans, the Department is concerned about “conflicts of interest” from brokers, insurance agents, registered investment advisers, or other financial advisers you may turn to for advice.

Despite these new protections, the Department of Labor also made some key concessions. Previously, brokers were required to provide explicit disclosures about the costs of products to their clients. This included one, five, and ten year projections. However, this requirement has been eliminated. After heavy pushback from the industry, the Department of Labor also agreed to allow the use of proprietary products.

Additionally, the Department of Labor has pushed the deadline for full implementation of their new rules. Firms must be compliant with several provisions by June and fully compliant by January 1, 2018.

Despite all of these concessions, the Department of Labor’s highest official insists the integrity of their rule is still in place.

Exceptions You Should Know About

Although advisers working with retirement investments will no longer be able to accept compensation or payments that create a conflict of interest, there’s an exception many brokers will likely pursue.

Firms will be allowed to continue their previous compensation arrangements if they commit to a best interest contract (BIC), adopt anti-conflict policies, disclose any conflicts of interest, direct consumers to a website that explains how they make money, and only charge “reasonable compensation.” The best interest contract will soon be easier for firms and advisers to use because it can be presented at the same time as other required paperwork.

How These New Rules Might Affect Your Investment Options

Although these new rules don’t call out specific investment products as bad options, it’s expected advisers may direct you to lower-cost products, like index funds, more regularly. New York Times also predicts the new regulations may also accelerate the movement toward more fee-based relationships. They also suggest complex investments like variable annuities may soon fall out of favor.

What Will the Larger Impact of These Changes Be?

Backed by extensive academic research, the Department of Labor’s analysis suggests IRA holders receiving conflicted investment advice can expect their investments to underperform by an average of one-half to one percentage point per year over the next 20 years. Once their new rules are in place, they are anticipating retirement funds will shift to lower cost investments, savings consumers billions of dollars.

What You Can Do To Protect Yourself

Although these new rules are a positive step for consumers, it’s important to remember there are still a wide variety of financial professionals out there. And the quality of the advice you receive can vary greatly based on their level of education, experience, and credentials. In order to find someone who is equipped to handle your unique financial situation, you will still need to do your homework.

You may want to start by looking for a fee-only financial planner. Due to the nature of how they are compensated, fee-only financial planners operate without an inherent conflict of interest. They are paid a fee for the services they provide and they don’t earn commissions from product sales.

Once you’ve narrowed down your options you’ll want to ask about their credentials, what types of clients they work with, what types of services they offer, while carefully checking their background and references. Like any professional working relationship, you’ll want to feel comfortable with someone you are receiving financial advice from, so it’s important to make sure your personalities and priorities are aligned. Remember, no one cares more about your money than you do. That’s why it’s essential to carefully vet anyone who is working with you to secure a healthier financial future.

The post What the New DOL Fiduciary Rule Means For You appeared first on MagnifyMoney.

Unpaid Debts: 6 Common Questions About Defaults, Statute of Limitations and Your Credit

Very Upset Woman Holding Her Many Credit Cards.

When you borrow money—whether it is to buy a car, refinance other debt, continue your education, purchase plane tickets, pay medical bills, or go shopping—you sign a contract that outlines the rules of how and when you’ll repay the money. But what happens when you miss a payment or can’t repay the loan?

1. What Happens When You’re Late on a Payment? 

If you miss a payment on your loan, the lender will likely contact you to ask you to make a payment, and it may charge you a late payment fee. Unless the lender gives you a grace period, the credit reporting agencies will also be notified that you were late with a payment, and this information will be added to your credit report. Usually, late payments are not reported to a credit reporting agency until you are at least 30 days past due. If you continue to not make payments, the lender may send your account to either an internal or third-party collections agency.

The collections agency will try to get you to make a payment, and it may take more severe measures. Missing payments on an auto loan can lead to the car being repossessed, along with additional fees and expenses. Defaulting on a mortgage can result in the lender foreclosing on the house, although this process can’t begin until the borrower is 120 days delinquent.

Unsecured debts don’t involve a physical object lenders can take away, but they do have the option of suing you. If they win a court judgment against you, they can collect the debt by garnishing—taking money out of—your paycheck or taking money directly from your bank accounts.

2. When Is the Date of First Default?

The day you miss a payment is the date of first delinquency, but the point at which your unpaid loan goes from delinquent to default depends on the contract and where you live. “Generally, after a missed payment there is a grace period, during which there may be fees,” says Lisa Stifler, a senior policy counsel at the Center for Responsible Lending. “Then it goes into default after some time.” For example, for credit cards the date of first default is usually 180 days after a missed payment.

[7 Things You Need to Know if You Have Debt in Collections]

3. How Does Missing Payments Affect Your Credit?

Missing loan payments can affect your credit multiple times over. Late payments are reported to the credit reporting agencies when you’re 30, 60, 90, 120, 150, and 180 days late. Some lenders may charge-off the loan at that point; writing it off their books because they assume you won’t repay it.

The charge-off is a new negative mark on your credit. When the debt is sent or sold to a collections agency, that’s another mark and a new collections account appears on your report. If you continue not to pay and the collections agency wins a judgment against you, yet another negative mark is created. All these negative marks can remain on your credit report and negatively affect your credit for years to come.

  • Late payments remain on your credit report for seven years from the date of first delinquency. If you bring the account current, the series of missed payments will be deleted seven years from the date of the first missed payment.
  • Collections remain for seven years from the date of first default with the original lender, which in total may be seven-and-a-half years after your first missed payments.
  • Judgments remain on your credit report for seven years from the ruling, which could be years after the late payment.
  • Repossessions and foreclosures, charge-offs, and settlements remain for seven years from the date of first default.
  • Chapter 7, 11 and 12 bankruptcies remain for ten years from the filing date. Chapter 13 bankruptcies remain for seven years from the filing date.

These negative marks remain on your credit regardless of whether or not you settle the account. The date of first default cannot be changed by you, a lender or a collections agency.

4. What Is the Statute of Limitations for Debt?

Those who are worried about getting sued for their unpaid debt may look to the statute of limitations (SOL) for relief. States impose a SOL that dictates how long a lender or collections agency has to sue the borrower for the debt. The SOL usually ranges from three to ten years and varies by state and the type of debt. Which state’s laws apply to your loan can depend on where you lived when you took out the loan, where you live now, or what’s in the contract.

It’s important to note that even after the statute of limitations has passed and the debt becomes time-barred, you still owe the money. The lender, or a collections agency, can try to collect the money from you directly, even if they can’t get a judgment against you. In some cases, you might still be sued for time-barred debt, and you could lose if you don’t show up in court to present the SOL as a defense.

[How to Make a Payment to a Collections Agency Without Getting Ripped Off]

5. Can You Reset the Statute of Limitations?

Those with an old debt are sometimes hesitant to make a payment or speak with a collections agency for fear of resetting the statute of limitations. In many states, the statute of limitations for some debts may reset if the borrower acknowledges the debt or makes a payment of any amount. This could be a reason not to engage with a debt collector.

On the other hand, it is a myth that speaking with a debt collector or making a payment resets the timer for the negative marks falling off your credit report. Those timelines have a particular start point and cannot be reset.

6. What Should You Do If You Can’t Make a Payment?

If you’re going to miss a payment, call the lender before you do so. Explain the situation and tell them when you can make a payment or how much you can afford to pay now. You can try to get late payment fees waived, although it’s a good idea not to make a habit of this.

When you can’t afford or choose not to make payments, the debt goes into default, followed by collections. Your options may change, but an open line of communication can still be critical. The collections agency may be willing to work out an alternative payment plan or settle the debt if you can pay a portion of the amount owed.

 

The post Unpaid Debts: 6 Common Questions About Defaults, Statute of Limitations and Your Credit appeared first on MagnifyMoney.