What Happens When You Miss a Credit Card Payment

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Your phone rings — and rings, and rings some more. You know who’s calling. You know what the caller wants, too, but you can’t afford to give the money you owe on your credit cards. So, you let the debt collector leave a voicemail you have no intention of returning.

That’s the wrong way to deal with delinquent credit card debt, says Michaela Harper, debt counselor and director of the Community Education for Credit Advisors Foundation in Omaha, Neb.

“Don’t be afraid to talk to your creditor,” says Harper. “Avoiding them makes the problem worse because it sends it onto the next division” and brings your debt closer to being charged-off, which Harper says consumers with past-due debt should do their best to avoid. (More on that later.)

Credit card debts — or most debts for that matter — become delinquent the moment you miss a first payment. The events that follow the missed payment depend on how long the past-due debt goes unpaid. It begins with friendly reminder calls from the bank to pay your credit card bill, and can culminate in losing up to 25 percent of your annual income to wage garnishment.

The portion of consumers missing credit card payments has been on the rise since the lowest levels of delinquent credit card debt ever recorded were reached two years ago. About 2.47 percent of credit card loans made by commercial banks were delinquent in the second quarter of 2017, according to Aug. 23 figures from the Federal Reserve Economic Database.

Below is a timeline chronicling what happens when you miss a credit card payment, as well as tips from debt management experts on what you can do to mitigate the situation at each point. (You can jump to a specific time period by clicking on the milestones below.)

Zero to 30 days past due: Missed a payment

After you miss your first payment, your debt is delinquent and the clock starts ticking. Your bank should begin to contact you to remind you to make a payment. You are also likely to incur a late fee.

The first 30 days will sound more like courtesy calls, says Randy Williams, president and CEO of A Debt Coach. In reality, the bank is trying to verify your address and personal information to update the system in case your debt becomes more delinquent. (Williams used to work as a bill collector before switching over to debt consulting.)

What you can do

At this point, the bank’s agents may be more willing to provide customer service, so you can ask for an extension or create a payment arrangement to address the past-due debt before the missed payment begins to impact your credit report, which can be as early as 30 days past due. You may also try your luck at asking if the bank could waive any late fees already incurred, although the creditor is not obligated to extend this courtesy.

There’s only so much leeway a bank will give you, says Gordon Oliver, a certified debt management professional at Cambridge Credit Counseling. If you’ve asked for a late payment or interest charge to be waived in the past, you won’t have much leverage.

“There will be different reasons why a creditor may not extend those benefits at the time, but usually those terms are for borrowers who are in better standing,” Oliver adds.

30 to 90 days past due: Collection calls begin

Over the 30- to 60-day delinquency period, the bank will attempt to reach you to collect the past-due amount on your credit card bill.

“This is when they are trying to figure out what’s wrong. They are trying to collect the money,” says Williams.

“At this point it’s starting to affect your credit,” says Williams. He says the robo-collection calls may come as often as every 15 minutes. Borrowers with higher credit scores are likely to see a bigger drop than borrowers with lower scores. According to FICO data, for example, a 30-day late payment could bring a 680 credit score down 10 to 30 points and a 780 score down 25 to 45 points.

In addition to seeing your credit score drop, you will be charged late fees on the past-due account. After you have owed debt for two payment cycles, the CARD Act allows creditors to flag you in their system as a “high-risk” borrower, which means the interest you currently pay will rise to whatever the bank charges for customers at a high-risk status. That number varies from bank to bank but in some cases can get as high as 29.99 percent. The rate will stay that high at least until you have made six consecutive on-time payments, at which point the bank is required by law to reset the rate.

However, “the law doesn’t say they have to do it on their own,” says Harper. So, you will likely need to request a reset. You can find the APR charged to high-risk borrowers in your credit card terms.

What you can do

Harper says if you respond at this point, the bank may ask you to negotiate a payment arrangement.

“Never make a promise to pay that you can’t keep just to get someone off the phone,” says Harper. “If you are silent, you agree to the payment.”

Missing promised payments also gives the bank more leverage if the bill eventually goes to court, says Harper. “If they walk into court and they can point to all of the promised payments, it undermines your credibility.”

Harper advises debtors to be very clear if they cannot meet the bank’s proposed payment arrangements. You need to specifically tell them you cannot make the payments. If possible, take a look at your budget. If you find you are able to send them a small amount every month, tell them.

“That’s a valuable thing because it goes back to when the account charges off. You can slow down your progression toward charge-off by making the partial payments,” says Harper.

A charge-off happens when a creditor believes there is no chance of collecting your past-due debt, so the debt’s considered a loss. The debt gets written off the creditor’s financial statements as a bad debt and sold or transferred to a third-party collection agency or a debt buyer.

“If they feel like it’s a tough situation [you] are going through they will refer [you] to a credit counselor” around the 60- to 90-day mark, says Williams. Again, that benefit may not be extended to all consumers facing financial hardship.

90 to 120 days past due: Bank requests balance in full

After your bill is 90 days overdue, the bank will turn collection over to its internal recovery department to engage in more aggressive collection attempts. Williams says the bank will now be calling for the balance in full, not only the past-due amount.

The bank’s collectors will continue to call, but they may also send you multiple letters every day, or may attempt to reach you via social media, emails or emergency contacts.

Harper says the account may stay with the bank’s internal collections for another 90 days (180 days past due), but it’s important to note that at the 120-day past-due mark, your debt is at risk of getting charged off and being sold to a third-party collection agency.

That’s because the CARD Act states the past-due amount needs to be the equivalent of six months’ worth of your credit card’s minimum payment in order for the debt to be charged off. Including late fees and the amount added in higher interest payments, consumers may reach that figure in as little as four calendar months.

What you can do

If you can’t give them the entire past-due amount or balance in full, take a serious look at your budget. See if there is any room to make even a small payment. If you can find a few dollars, you may be able to enter a repayment plan with the bank, which will at least pause the collection calls. Don’t forget to leverage the collector’s insider knowledge. Explain your situation and ask if you can negotiate a solution with the bank.

“You want to pay off the debt, they want to pay off the debt. They may have solutions they can offer you that you don’t know about,” says Harper.

Once you’ve got an active repayment plan in place, the bank will pull you out of the collection list, Harper says.

120 to 150 days past due: Hardcore collection attempts

Watch your credit report carefully after your account becomes 120 days past due, as it may be charged off at any point. At this point, the collectors will continue to try every channel available to them to get in touch with you and collect on the debt. The attempts may get closer together and collectors may try more aggressive tactics to scare you into paying up.

“One hundred and twenty to 150 days, it is hardcore. Now they are going to offer you a settlement. They will do whatever they want to try and get to you to pay the debt off. It’s basically motivation to get you to pay now,” says Williams.

Debt collectors at this point may also take time to remind you of your rights under the CARD Act and Fair Debt Collection Practices Act as well as their right to collect on the past-due debt.

The bank’s collectors may not directly say they will proceed with legal action or wage garnishment if they do not intend to, as that is illegal under the FDCPA, but they may remind you of those possibilities if you do not pay and emphasize the bank’s right to collect on the debt owed to them, Williams says.

Williams adds, “They never say they are going to sue you; they say, ‘We have the right to protect our asset.’”

What you can do

Williams says at this point the debtor essentially has three options. Bring the account current by paying the entire past-due amount, arrange a debt settlement plan with the bank or try going to a credit counselor to create a debt consolidation plan.

“Near 120 days past due, they need to get some form of help to remedy the account before it goes to a charge off,” says Oliver, who adds that the timing the charge off will be difficult to predict.

For those who may be behind on several bills, Oliver also recommends getting some form of financial counseling to create a plan that addresses all your financial issues.

150 to 180 days past due: Last chance

At 150 days, collections efforts will remain aggressive and may even increase in frequency as the bank is now concerned about losing the debt to a charge-off.

Once your credit card payment is 150 days past due, you may start to hear the bank’s agents’ tactics shift as they may make a last-ditch effort to recover the debt, according to Williams.

What you can do

You will still have the options to pay the balance in full or reach a settlement with the bank, but you may have an additional option: Re-age your debt.

When your account is past due and you enter a re-age program, the late payments and collection activity are removed from your account. As a result, “your credit score may improve by 10 to 15 points if not growing every month from there,” according to Williams.

You will generally be asked to make at least three on-time payments on the debt before your account is re-aged. For example, the bank could ask you to pay $100 each month for three months before bringing your account back up to a current standing, but the bank will add the interest and fees you’ve already incurred to the total amount you owe. After the account is re-aged, you’ll go back to making minimum payments on the total amount of debt outstanding. Re-aging the account may also remove the “high-risk” stain from the account so your interest rate drops to to whatever it was before.

Williams says a re-age can be seen as a win-win for both parties: You are able to catch up on your delinquent debt and — in some cases — have its impact removed from your credit report, and the bank is able to recover the interest and fees that have accumulated since your account became delinquent.

Of course, the credit card company doesn’t have to allow you to re-age the debt and may not offer the option to you, but there is a possibility it will do so if you ask. Keep in mind you are only allowed to re-age an account once in 12 months and twice within five years, per federal policy, and re-aging is only an option on accounts that have been open for nine months or longer. Credit card issuers are allowed to set more strict re-aging rules for its accounts, as well.

After 180 days: Charged off to a third party

When you are about six months past due, it is extremely likely the bank will charge off your account and sell the debt to a third-party collection agency. If the bank does not charge off your account, it may take the matter to court.

If it goes to collection, third-party debt collectors may employ some of the same tactics the bank’s collectors did. Most collection agencies will push hard for the first 90 days, then at the end of that point in time they may decide to sue you, Harper says. Or they may sell your debt to another collections agency.

The third-party collectors will attempt to contact you using every channel available to them for the next 90 days or so, before they must decide to either charge off the debt or sue you. The collectors will likely demand you pay the full balance or ask you pay the balance in thirds, says Harper. If they can’t get a hold of you or get you to arrange a payment plan in that time, they may decide to turn it over to an attorney.

What you can do

You should try the same tactics that you would have used with the bank’s internal collections agency with the third-party agency, negotiating the price down and reaching a settlement with the third-party collector. If you don’t respond to the collection requests, you may be sued.

You may not be sued for some time. Companies can only sue you for unpaid debts within a certain period of time, called a statute of limitations — anywhere within three to 10 years, according to your state’s law. Your debt may be sold and resold several times before that happens. Check with the office of consumer protection at your state’s attorney general to find out what the rules are in your state.

If you are served with a lawsuit, you should check the letterhead to make sure the attorney or company filing the suit on behalf of the collections agency is licensed to practice law in your jurisdiction, says Harper, as you cannot legally be sued for credit card debt by an attorney outside your jurisdiction.

You should also be sure to respond to the lawsuit. If you don’t, you’ll likely lose. The court can automatically side with the lender if you don’t show up in court, also known as a default judgment. That may result in getting your wages or federal benefits garnished to pay the debt, not to mention the credit damage a judgment causes. Federal law states a creditor can garnish no more than 25 percent of your disposable income, or the amount that your income exceeds 30 times the federal minimum wage, whichever is less.

If you can’t afford to settle

If, given your current financial situation, the debt is unmanageable for you and you are not able to settle the account, you may want to consider bankruptcy. But you will have to file before a judgment is entered against you in court, which may be tricky to time, Harper says.

Given the difficulty in timing when the creditor will take your account to suit, you shouldn’t wait if you think bankruptcy is an option for you. Read here for more information on how and when to file for bankruptcy.

The post What Happens When You Miss a Credit Card Payment appeared first on MagnifyMoney.

Can Refinancing to a Higher Mortgage Rate Actually Lower Your Debts?

Are you handling your debt the smartest way possible?

Your ability to save money can become compromised by the financial obligations you are paying in your life. If you have a mortgage and other consumer debts, it’s easy to stay the course, pay your monthly bills and rely on credit cards for emergencies. But taking action — namely, refinancing your mortgage —  could actually help you get better control of your cash flow. Allow me to explain.

The nuts and bolts of a good financial plan includes having “preferred debt,” which includes debt that is tax-deductible (a mortgage) and has no consumer obligations that are non-preferred (i.e. credit cards, student loans, car payments, etc.). Non-preferred obligations will compromise your ability to save money.

Consider the following scenario:

John Borrower has a mortgage of $300,000 with an interest rate of 3.875%. His mortgage is a 30-year fixed rate loan and his monthly payments are $1,410.71. John also has a car loan of $10,000 with an interest rate of 6% and a monthly payment of $500. His credit cards total $8,000 with an average interest rate of 16% on which he has to pay $400 per month, for a total of $2,310.71.

John Borrower has a great credit score because he always carried a small balance on his credit cards, has never missed a payment, and his credit history is squeaky clean. However, John’s car just broke down and he needs a new transmission that will cost him $3,500. Unfortunately, John’s mortgage payment and other obligations take up a majority of his income and now he has very little money saved up.

What does John do? He turns to his credit cards and goes further into debt. He is reluctant to make any changes to his financial burden. He has a great interest rate on his mortgage, but is he really getting ahead financially?

A Better Approach to Debt

There is a more proactive approach John can take that will be more consistent with having a strong financial foundation that will not only make him more creditworthy, but will also give him the ability to save and plan for the future.

The first thing to look at is all of John’s interest rates. True, his mortgage rate is low but the weighted average of his interest rates on all obligations is quite high. His interest payments alone take up a lot of extra money. Let’s look at the math:

Debt Balance Interest Rate Monthly Interest Payment
Bank of Bank Mortgage $300,000.00 3.875% $968.75
Car Lots Mega Car Loans $10,000.00 6.000% $50.00
Credit Cards (BULK) $11,500.00 16.000% $153.33

The total amount John owes in debts is $321,500, which includes his new credit card debt of $3,500 from the new transmission. If you multiply John’s amount owed by each individual interest rate and add it together, John is paying a total of $14,065.00 in interest alone each year.

Broken down: ($300,000 x 3.875%) + ($10,000 x 6%) + ($11,500 x 16%) = $14,065.00

Dividing the yearly interest paid by the total amount owed ($14,065 / $321,500) results in John paying an annual average interest rate of 4.375%.

If John were to refinance his current mortgage at that average 4.375% interest rate, something really interesting would happen to his payments. John is currently paying $2,310.71 each month in debt payments while interest is being accrued on his debts. By combining his debts under one mortgage at the higher 4.375% interest rate over a 30-year fixed-rate term, his monthly payments, interest included, would drop his payments from $2,310.71 to $1,605.20 each month.

Say what?

If John refinances his mortgage for the purpose of debt consolidation, his average interest rate does not change AND his monthly payments are lowered. Of course, because John is already cash poor, he’ll want to roll his closing costs into his mortgage refinance to keep his out-of-pocket expenses down. Suddenly, John Borrower is saving $705.51 each month. John can take that money and invest it or start a vacation fund. He can also put it to the side in case something else on his car breaks down. Regardless of his plans for the savings, the fact is that he is saving money and gaining control of his cash flow.

Having low rates and high rates on multiple forms of debts probably means you are going to be paying a higher rate of blended debt on all of your preferred and non-preferred obligations over time. The reality is that you can save through consolidation and fixing on one lower rate. It might be higher than your current lowest rate, but as John discovered, he could save money by increasing his lowest rate and combining his debts.

What’s Your Ideal Scenario?

The ideal financial scenario for any borrower is to have a single mortgage payment with no debt obligations and to have at least 6 to 12 months of savings (“reserves”) to be used as “back up.” This financial platform increases your borrowing power and is optimal for having a choice and control over your funds. (You can find more tips on how to determine how much home you can afford here.)

If you are thinking about taking out a mortgage or making some financial adjustments in your life, it’s a good idea to first check your credit scores to see where you stand (you can get your two free credit scores, updated every 14 days, on Credit.com.) Next, work with a mortgage lender who has the skill set and ability to really investigate your debts and can show you the real breakdown of your debts and what you are paying over time. You might end up realizing how much control you are missing out on by having payment obligations in an ongoing debt cycle. The numbers might astonish you.

Looking to a new abode? Be sure to avoid these mistakes first-time homebuyers make.

Images: andresr

 

The post Can Refinancing to a Higher Mortgage Rate Actually Lower Your Debts? appeared first on Credit.com.

4 True Tales of Maxing Out Credit Cards

maxed-out-credit-card

Some people like to joke about taking things to the limit, but when it comes to your credit, maxing out a credit card is no laughing matter.

Maxing out a credit card means swiping until you reach the card’s credit limit, or the total amount of credit extended to you. And that’s bad news for your credit scores because your debt utilization ratio (e.g., how much debt you have versus your total available credit) is one of the key factors credit agencies use to determine your score. Bump up against that limit, and your score will take a hit.

Debt levels are another factor that go into your score. Carry too much, and you’ll send a red flag to lenders that you’re in over your head; slack off on a few bills, and they’ll begin to think you can’t manage your payments responsibly.

We spoke with a few Credit.com readers who learned the hard way about the dangers of maxing out credit cards. While they aren’t proud of what they did, they came out stronger for their experience and took steps necessary to get their finances back in order. (Note: At their request, some names and locations have been withheld to protect readers’ privacy.)

‘I Maxed Out Seven Cards’  

Between 2006 and 2008, Steven M. Hughes was saddled with a lot of debt. “I maxed out seven cards in my freshman year alone,” he said via email, “two more as a young professional.” The problem was he didn’t understand how to use them. “My parents always told me to stay away from them and didn’t teach me how to manage them properly,” he said.

“I had one credit card for emergencies that I maxed out on car repairs for a car at the time. I had department store cards that I maxed out on clothes for school and work because I worked while I was in college. I had a card I maxed out going to a family member’s wedding in New York City. I started assigning jobs to each card, but I didn’t have the income to pay them off, and paying the minimum balance wasn’t cutting it. All but one card was charged off. I managed to pay the lone card off and start a new account with the creditor.”

Today, the Columbia, South Carolina, resident teaches millennials how to manage their money through his nonprofit, Know Money, Inc. “After making all the financial mistakes, I started to learn as much as possible about personal finance,” he said.

‘I Was Into Wearing Ralph Lauren’ 

Deborah Sawyerr, a fashion and lifestyle blogger based in London, was about 32 when she visited Woodbury Common Premium Outlet, in Central Valley, New York, during a family holiday in 2005. “We bought clothes, shoes, suits, my daughter some bits, belts, jackets and some gifts,” she recalled via email. “At the time, I was into wearing Ralph Lauren clothing, so most of my spend went on this particular brand.”

Her credit card balance at the time was pretty low, but she admits she went a bit overboard that trip, racking up roughly $5,000. “As luck would have it, at the same time, my employer had just paid me in excess of £5,000, or thereabouts, as a redundancy package,” she said. “I basically — and perhaps I wasn’t so naïve — used the entire redundancy package to clear the debt in one go.” Humbled by the experience, Sawyerr said hasn’t maxed out a credit card since.

‘I Knew Very Little About Money’ 

In 1997, John Schmoll, Jr. was an undergrad with four maxed out credit cards totaling a whopping debt of $25,000. “When I went to college, I knew very little about money and was enticed to sign up for credit cards out of the promise of some sort of free swag — T-shirt, Frisbee, you name it,” he wrote in an email. “I ended up signing up for four credit cards this way, and used them to finance a lifestyle that I wanted but could not afford.”

Teetering on the verge of bankruptcy, at a roommate’s urging Schmoll decided to meet with a debt counselor, who helped him lower the rates on his cards. From there, he set up a budget, which enabled him to pay the cards off five years later. “That changed my life forever and put me on the path I am today, working toward financial independence,” he said. Today, the Omaha-based father and finance industry veteran blogs at Frugal Rates about what he’s learned.

‘0% Offers Were Appealing’ 

Years ago, Lisa, a marketing strategist, found that the 0% promotional APR offers from credit card issuers “were appealing.”

“I had six credit cards, all with a little over $3,000 on them,” Lisa said in an email. “I consolidated them into one account, maxing out that card, and I paid it off in about two years.”

So what got her there in the first place? Overspending. “I was floored to find out how liberal I’d been with spending — luxury items, travel to the Maui Writer’s Conference, etc.,” she said. “I behave very differently now.”

For starters, she said she doesn’t keep a revolving balance, and diligently pays her balances off every month. “That way, there’s no surprise debt, no interest charges, no late fees, etc.,” she said.

If you have reason to believe your spending’s out of control and it’s affecting your credit, you can read up on these tips to build credit the smart way and view your free credit report summary on Credit.com to see where you might want to improve.

Image: m-imagephotography

The post 4 True Tales of Maxing Out Credit Cards appeared first on Credit.com.

Is Your Credit Card Ready for the Holidays?

holiday-credit-card-spending

Ah, September. That magical time of year when boots and open-toed shoes intermingle, mornings get crisper, people start lining up for those infernal pumpkin spice lattes and some retailers start hauling out their holiday cheer.

It seems every year, some store somewhere feels the need to make the holiday shopping season just a tad bit longer. In fact, I wouldn’t be surprised if roadside fireworks stands start selling Christmas trees in late June next year.

There’s one positive to be said about the ever-earlier start of the holiday shopping season, though: preparedness. That’s especially true when it comes to your credit and credit cards.

If you’re like most Americans, you’re carrying some credit card debt. In fact, revolving credit debt, made up mostly of credit cards, climbed 3.45% in July, compared to 11.5% the month prior, the Federal Reserve said last week. In fact, credit card debt is expected to top $1 trillion dollars this year, closing in on the all-time high of $1.02 trillion set in July 2008, just before the Great Recession.

If you’re worried what your holiday gift-giving, party going and other festivities might do to your credit card debt, now’s the time to make a plan.

1. Start by Checking Your Credit Scores

Whether your holiday spending plans involve opening up a new credit card or taking measures to protect your credit, the first thing you’ll want to do is see where your credit scores stand. You can get two free credit scores, updated every 14 days, on Credit.com, and, in your credit report summary, you’ll see what areas of your credit are helping (or hurting) them. For example, 30% of your score is based on the amount of debt you’re currently carrying in relation to your credit limits. This credit utilization ratio can bring your scores down quickly if you’re carrying a lot of credit card debt.

2. Ask for a Credit Limit Increase … No, Not So You Can Spend More

Another way to improve your credit utilization is to ask for a limit increase. To be clear, just because people tend to charge more during the holidays doesn’t mean it’s a good reason to spend more than you can afford. Given the high interest rates on credit cards, a little overspending can take months to repay and cost you hundreds — potentially thousands — of dollars in interest.

That being said, if you’ve budgeted for the increase in spending and plan to put it on credit cards, it’s important to be careful about how high you push your credit card balances. To keep your credit scores in good shape, many experts recommend using less than 10% of your available credit.

3. Pay Down Your Debt

Once you know where your credit stands and how your current debt is affecting it, it’s a good idea to put together a plan pay it off. If your credit card interest rates are high, you could benefit from taking a personal loan at a lower interest rate and using that money to pay off your credit card debt. That also can potentially help your credit scores in the long-term, since the mix of credit accounts you have (mortgage, auto loan, personal loan, credit cards, for example) also affects your credit scores. You can see how long it will take you to pay off your debt using this credit card payoff calculator.

4. Make a Holiday Spending Budget

Yes, part of the joy of the holidays is gift-giving; seeing that look of excitement on your loved one’s face is priceless —until you look at your credit card statement the following month. Ouch. It’s a good idea to set a budget for what you’ll spend on presents, parties, outings and even decorations. The important thing with any budget is to be realistic, so if you know you’re going to end up buying that iPhone 7 Plus for your girlfriend, just put it in your budget and figure out how you can save in other areas (like eating peanut butter for dinner for the next three months, or buying your dad a tie).

Just remember, the holidays will be more fun if you plan ahead a little and aren’t stressed about how much you’ve spent and how much extra you might end up paying in interest. ‘Tis the season to be jolly, after all, but seriously, stay away from the pumpkin spice lattes.

Image: Joan Vicent Canto Roig

The post Is Your Credit Card Ready for the Holidays? appeared first on Credit.com.

My Spouse Went on a Spending Spree With Our Credit Cards. What Can I Do?

It can be difficult for married couples to manage their money together, especially if they are not always on the same page. In particular, credit cards can make it easy for one person to overspend using money that the household might not have in its budget. If you’ve had a situation where your spouse has spent too much on your credit cards, what can you do?

Talking About It

Having discovered that your spouse has been spending heavily on your credit cards, the first thing that you will want to consider is talking about it. It’s a good idea to start by giving your spouse the benefit of the doubt, simply asking for more information about the charges.

For example, a credit card statement might offer vague or misleading information about the name of the merchant, so it can be very easy to confuse a large charge that you were expecting with one that you weren’t. In addition, it’s always possible that what appears to be a spending spree might actually be the result of fraudulent charges, which you can dispute with your card issuer.

Thankfully, federal law protects credit card users from paying more than $50 in the event of a fraudulent charge, and all major card issuers will waive this amount by offering zero-liability policies. By sitting down together and going over each charge, couples can ensure that they understand exactly what was purchased and what wasn’t.

If you’ve determined the charges are legitimate, you’ll want to consider going over your total financial picture to see how these charges will affect you. And if you’re unable to pay your entire statement balance by the due date, you should also try to calculate the cost of interest charges.

Taking Steps to Minimize the Impact

Once you have talked it over, it may become apparent to both of you that your spouse overspent. The most effective way to minimize these expenses is to look into returning some unnecessary purchases. In fact, many credit cards come with a return protection policy that can offer you a refund on eligible purchases, even when the retailer won’t accept a return.

After you’ve returned everything you can, your next step will be to minimize any interest charges. You can avoid all interest charges by paying your balance in full, but if that’s not possible, then there are other steps that you can take. For example, you can pay as much as possible, as soon as possible, in order to reduce your average daily balance, which determines how much interest you are charged. You can even save money on interest charges by making multiple payments each month, as money becomes available. You also can cut back on other spending as you apply more of your monthly budget to paying off the debt.

Another strategy to minimize your credit card interest is to open a new account that offers 0% APR promotional financing on balances transfers. These offers allow you to avoid interest charges by transferring balances from your existing cards to a new credit card that offers interest-free financing. These promotional financing offers last from as little as six months to as long as a year or more, however, nearly all of these offers require payment of a balance transfer fee of 3 to 5%, which gets added to your new balance.

Preventing It From Happening Again

Once you’ve tried to manage your existing charges, you can take steps to ensure neither of you overspend with credit cards in the future. For example, some couples agree to notify each other before making any charges above a certain amount, such as $100. In many cases, you can manage your credit card accounts online and create automated alerts that send both of you an email or a text message when any charge above a certain amount is made, or when your balance crosses a predetermined threshold.

Finally, some couples may choose to separate their finances rather than manage their accounts jointly. This allows you to avoid financial problems caused by your spouse’s overspending, but it can also make it more difficult to work together to budget your money and control overspending.

It’s often said that communication is the key to any successful relationship, and this advice is especially true when it comes to married couples managing their finances together. By talking about your credit card use, and taking steps to mitigate and prevent overspending, couples can work to manage their credit card accounts responsibly.

Remember, carrying high credit card balances can have a negative effect on your credit scores. You can see how your credit card spending is impacting your credit by checking your two free credit scores, updated monthly, on Credit.com.

Image: Drazen Lovric

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This Woman Only Dates Men With Good Credit Scores

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“I need a man who has his life together and can pay his bills.”

That’s not a jaded divorcée talking. It’s 22-year-old Martina Paillant of Brooklyn, New York.

In a recent interview with The New York Post, Paillant said she was raised in a family of professionals who took handling their money very seriously. “I have no student loans, and I can already take care of myself financially,” said the graduate school student who splits her time between Miami and Brooklyn. “I need a man who can take care of himself, too.”

With 71% of college graduates leaving school with an average of $35,051 in debt, it’s easy to see why Paillant is drawing the line at dating men with bad credit. Though a partner’s or spouse’s student loan debt (or other debt, or even bad credit) wouldn’t affect her credit report, she probably knows she would be on the hook for any debt taken out while married or loans that she co-signs.

Paillant is also likely aware of other collateral damage she may incur. If she and her partner decided to apply for a mortgage together, for instance, lenders would look at both of their credit scores during the application process. Her partner’s not-so-hot credit would result in less favorable terms and conditions, making it harder to finance a home.

Any joint account, too, would appear on Paillant’s credit reports, meaning both would share responsibility.

Building Better Credit 

Though some may bristle at Paillant’s statements, talking with potential spouses about their credit score is a really good idea. After all, positive credit has nothing to do with income but with fiscal responsibility and managing obligations. Going into a relationship without having the “money talk” can lead to problems down the road.

That’s not to say you have to follow suit and swear off potential mates with bad credit, but it’s a good idea for significant others to discuss:

  • What your credit reports say
  • What your respective credit scores are
  • How much debt each of you carry
  • What your combined debts look like
  • Whether you are both spenders or savers

The sooner both of you discuss your personal financial preferences, credit standings, individual spending habits and joint future goals, the sooner you can identify and hopefully avoid major problems.

And, if a partner is intent on building good credit, their standing could certainly improve over time. Using a joint account responsibly, for example, is a great way to beef up credit history — that is, as long as you pay bills on time.

As we’ve written before, good communication is key to any long-term relationship. And when it comes to money, honesty is the best policy if you want to avoid financial infidelity. When taking on debt, it helps to be clear about pros and cons, and how you’ll tackle the problem together.

You can keep an eye on your credit — and any joint accounts — by pulling your credit reports for free each year on AnnualCreditReport.com and viewing your credit scores, updated monthly, for free on Credit.com.

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Can a Debt Management Plan Hurt My Credit?

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It’s pretty rare that anyone gets excited about receiving their monthly credit card statements. But if opening yours fills you with more dread than going on a questionable Tinder date, it may be a problem. Perhaps it’s time you consider a helpful solution, like a debt management plan (and swiping left).

What Is a Debt Management Plan?

A debt management plan (DMP) is a monthly payment plan that you work out with creditors to help you pay off your debt. This can simplify your situation because it means you’re only making one monthly payment instead of trying to pay multiple credit accounts or anything else.

“While it does consolidate the monthly payments and lowers the interest rates and (usually) lowers the total payments, a DMP is not a consolidation loan or debt settlement,” Thomas Nitzsche, media relations manager for ClearPoint Credit Counseling Solutions, said in an email.

While this may be a viable option to help you pay off your debt, it’s important to consider the effects it can have before you go down the DMP road.

How a DMP Affects Your Credit

You probably know that having missed payments or even maxed-out credit cards can be damaging to your credit, but a DMP also can cause your credit to take a hit.

“Debt management plans will initially ding your score slightly if the included accounts are not already closed,” Nitzsche said. “When you join a DMP, the accounts are automatically closed, which has the same effect as if you closed the accounts yourself.”

When you close accounts, your debt usage ratio may increase. Your debt utilization is the amount of your outstanding balances versus your available credit limits, and 30% of your credit score is based on the amount of debt you’re currently carrying. (You can see how your debt and payment habits are affecting your credit by pulling your reports for free each year at AnnualCreditReport.com and viewing two of your credit scores, updated monthly, for free on Credit.com.)

And unlike debt settlement, a DMP doesn’t require that your accounts be delinquent, so even with the debt ratio ding you might see, you’ll likely experience less of a negative affect than if you were to wait until you’re behind on payments to take action. Nitzsche said the damage DMP might cause is also much less than what you’d see for filing bankruptcy.

If you need a little extra motivation, consider using this lifetime cost of debt calculator, which can give you insight into how your credit score can affect the debt you’ll pay during your lifetime.

Essential Things to Know Before You Enroll in a DMP

“DMP’s work with unsecured debt, primarily credit cards,” Nitzsche said, adding that it’s important to remember that a DMP is most effective when your debt is still with the original creditor and not in collections.

Beyond that, he adds, “good payment habits and good communication with the counselor will be essential, or you could lose the benefits of the DMP.”

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6 Student Loan Mistakes to Avoid at All Costs

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Every time I read the news, I hear how America’s problems with student loan debt have gotten worse.

For example, I learned recently that collective student loan debt surged to over $1.4 trillion nationally. And in an article in the Wall Street Journal, I learned that more than 7 million student borrowers were at least one year behind on their payments.

Also, average student loan debt is up to over $37,000 this year, leaving many young adults questioning their future prospects. With so much debt at a young age, more young people are putting off marriage and parenthood than ever before.

So, what should people do?

No matter where you are with your loans, you can make your situation better (or worse) depending on what you do from here on out.

To learn about some of the mistakes students, borrowers and even co-signers should avoid, I reached out to several financial planners who have experience in this space. When it comes to student loans, they say to avoid these six mistakes at all costs.

1. Choosing a Four-Year School Without Researching Other Options

According to wealth adviser Joseph Carbone of Focus Planning Group in Bayport, New York, too many young people assume they need a four-year degree without thinking it through. And once they get into their four-year degree program, they start racking up more debt than they need. A lot of times, at least some of these students would be better off pursuing a two-year program first.

As Carbone notes, this is especially true in the state of New York, where kids can attend a two-year SUNY program at a considerable discount.

“If you start with a good SUNY two-year program, and then transfer to the school of your choice, you could save tens of thousands of dollars,” he says.

If you already graduated, this tip can’t help you now. But if you’re gearing up for school, it can pay to explore some of the degree options two-year schools offer. A lot of times, you can begin lucrative careers with a two-year degree or even an apprenticeship.

“Parents and students have to accept the idea [that] there is a flood of college graduates with limited job prospects,” says financial planner Tom Diem of Diem Wealth Management. Meanwhile, there are also many unfilled, high paying jobs in technical fields.

Because of this, says Diem, you need to think about long-term value when choosing a program.

And remember, like Carbone says, you can always start with a two-year degree, then transition to a four-year program later.

2. Living Off Your Student Loans

Depending on the student loans you choose, you may be able to borrow more than the cost of your tuition and books. When that’s the case, it’s tempting to spend the “overage” on a lifestyle you couldn’t afford otherwise.

But, just because you can use student loans for a Spring Break trip to Mexico doesn’t mean you should. Remember, you have to pay back every cent you borrow – plus interest.

Kansas City financial planner Clint Haynes says he has seen this situation play out time and again, with disastrous results.

“Student loans should only be used [for] education expenses, not going out to the bar with your friends,” says Haynes.

Yes, you may need to get a part-time job or be more frugal with the money you saved from your summer job. However, you will be so grateful you did after you graduate and start paying your bills.

“The goal is to get your degree with as little debt as possible,” he says.

Once you graduate and start earning a real income, then you can go to Cancun.

3. Dismiss Working During School

Sure, you can borrow enough to cover your tuition and your living expenses, but should you? According to financial planner Josh Brein of Brein Wealth Management in Bellevue, Washington, you can make your life easier by working during school and borrowing less.

“I’m a huge advocate of working while you’re learning, because it teaches us that money doesn’t grow on trees,” says Brein. Plus, you can use some of your earnings to pay for school along the way. You don’t have to prepay all of your tuition, of course, but any amount you can pay will help.

4. Co-Signing Without Understanding the Potential Consequences

This tip is for parents and guardians that might co-sign on a student loan. A CBS News Money Watch article from August 2014 stated that nearly 156,000 older Americans saw their Social Security checks dinged the previous year for delinquent student loan payments.

Because student loan delinquencies are on the rise, you should think long and hard before attaching your name to a brand new loan.

“Parents and grandparents co-sign with the best of intentions but often without thinking about the financial ramifications if the student doesn’t pay,” says Charles C. Scott, a financial adviser in Scottsdale, Arizona. “Be aware and be careful,” he says. If the person you co-signed for quits paying, you’ll be on the hook.

5. Refinancing Without Running the Numbers

Oftentimes, new graduates assume refinancing is a good deal without ever running the numbers or considering what they’ll lose.

“Don’t make this mistake,” says Portland, Oregon-based financial planner Grant Bledsoe. “Private lenders do offer competitive rates when refinancing, but by leaving the federal system, you forfeit many of the associated benefits.”

Any time you refinance a federal student loan with a private lender, you miss out on certain protections like income-driven repayment plans, deferment and forbearance. So even if you get a lower interest rate by refinancing, you’re barring yourself from choosing these options down the line.

Refinancing is the best option in some circumstances, but be wary of what you’re giving up,” says Bledsoe.

6. Paying Off Student Loans Instead of Other High-Interest Debts

While it’s reasonable to see your student loan debt as an emergency, paying off other debts first — while making your minimum monthly student loan payments — might leave you better off.

“If you have other loans with high interest rates, make sure to prioritize those for repayment first,” says financial advisor Billy Xiao of Mobius Wealth, in Vancouver.

If you have high interest credit card debt or personal loans, for example, you can easily save more on interest by making extra payments on those first. And since you might be able to deduct the interest you pay on student loans on your taxes, there are additional financial considerations to ponder as well.

To reiterate, that does not, of course, mean skipping student loan repayments so you can make the other payments with higher interest rates. Skipping repayments and possibly going into default can have very serious consequences for your credit scores. (You can see where your credit currently stands by viewing two of your credit scores, updated each month, for free on Credit.com.) The bottom line: Make sure to take a holistic look at your finances before paying extra toward your student loans. Sometimes, other debts should take precedence.

While a college degree can certainly pay off, borrowing unlimited amounts of money can make your post-college life harder than it has to be. Before you sign on that dotted line, make sure you know exactly what you’re getting into. With a few smart moves and some self-restraint, you can borrow less, pay down debt faster and avoid many of the pitfalls that befall too many college graduates with debt.

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Starbucks Is Raising Its Prices Today

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You could pay more for your morning latte starting today. Or you could not. Thing is, if you get your morning caffeine fix at Starbucks, you won’t actually know if you’re paying more until you buy it.

The coffee purveyor is “planning a small price increase on select beverages” starting July 12, but the company isn’t saying exactly which beverages will cost more. A statement issued by the company on July 1 said some drinks will increase by 30 cents per beverage.

Some customers got an early taste of the price increase, according to a statement on the corporate website: “The price adjustment was prematurely entered into the point of sale systems in our U.S. company-operated stores. As a result, some customers were charged incorrectly. The maximum any customer could have been overcharged is 30 cents per beverage.”

(The company encouraged customers who believe they were overcharged to contact customer service at 1-800-782-7282.)

Of course, you can skip the price increase altogether by making your coffee at home. But, if you’re a member of the Starbucks rewards program, the price increase can mean more rewards. Earlier this year, Starbucks overhauled its popular rewards program so customers receive two reward stars per dollar spent in lieu of one star per transaction. The coffee company also started offering a prepaid rewards card along with Chase Bank. (You can check out our roundup of the best rewards credit cards here.)

While rewards programs can offer great perks for being a loyal customer, they can also entice people to overspend, consciously or not. Just remember, overspending and getting yourself into debt can have a significant impact on your credit scores. You can see how your debt is impacting your credit scores for free on Credit.com. You can also use this tool to calculate your lifetime cost of debt.

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This Bank Is Raffling Off a Year of Loan Payments

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Struggling to make your loan payments? SunTrust Banks has a new offer designed to give a few lucky borrowers some breathing room.

As part of its Year onUp Sweepstakes, the Atlanta-based bank will award 25 people “the amount of their monthly mortgage, auto loan or student loan payments for an entire year, up to a certain value,” according to a press release.

The top five winners will receive the amount of their monthly mortgage payment for one year (capped at $1,500 per month), 10 winners will receive the amount of their monthly auto loan payment for one year (capped at $500 per month) and 10 winners will receive the amount of their monthly student loan payment for one year (capped at $500 per month).

The contest can be entered at on the bank’s Year onUp Sweepstakes website. and is open to customers and non-customers alike. No purchase is necessary to enter or win, per the terms and conditions on the site. Entry must be received by noon, Aug. 31, 2016, and winners will be chosen on or about Sept. 1, 2016.

To enter, you must fill out the online registration form by providing your complete name, date of birth, email address and your Twitter and/or Instagram handle.

The contest comes at a time when many Americans are carrying heavy debt loads. Total outstanding student loan debt now dwarfs total credit card debt. Even outstanding car loans have increased from $905 billion last year to more than $1 trillion in the first quarter of 2016. And 24% of home loans approved by six of the largest U.S. banks in 2015 were jumbo, up from 21% the year prior, according to The Wall Street Journal.

Of course, it’s a not a good idea to simply hope that winning a raffle will help you pay back what you owe.(And you may want to read the terms and conditions of any contest you are considering carefully to be sure it’s a fit for you.)

If you’re carrying a significant debt load, consider making a game plan to pay it off quickly. Making on-time payments on any debt is a great asset to have on a credit report, since payment history is one of the key criteria credit agencies use to determine your credit score(s). Your credit utilization, or the amount of debt you owe versus your combined credit limits, also counts heavily toward your credit scores (30%), so keeping your account balances, particularly on credit cards, low or paying them off entirely can help your credit scores immensely.

You can read our primer on getting out of debt here and see where your credit scores currently stand by viewing two of your free credit scores, updated each month, for free on Credit.com.

Note: It’s important to remember that interest rates, fees and terms for credit cards, loans and other financial products frequently change. As a result, rates, fees and terms for credit cards, loans and other financial products cited in these articles may have changed since the date of publication. Please be sure to verify current rates, fees and terms with credit card issuers, banks or other financial institutions directly.

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