So Your Utilities Were Cut Off … Now What?

Unless it happened totally by accident, having your utilities cut off is probably a symptom of larger issues with how you manage your money.

The winds of winter may get cold, but there are few things nicer than being inside and warm as the frightful weather rages outside. Just close your eyes and imagine it. Or, rather, open them so you can keep reading, but imagine it anyway:

You’re sitting in a big comfy chair. You’re holding a giant mug of hot cocoa with little marshmallows, and it’s warming your hands but it’s not so hot that you can’t drink it comfortably.

The TV is playing a calming Christmas movie. Something about a businessman who never spent time with his family and then he was hit by a car but an angel let him relive his last week on Earth.  Now he can spend more time with his family, but at the end of that week, he’s still going to die.

But… come on… you know he’s going to end up getting to live somehow and they’ll all have a happy ending just in time for Christmas.

Yet, as that happy ending is approaching, the TV shuts off, along with the heating and lights.

Your utilities have been cut! Now what?!


Figure out if it was a mistake.

If you knew you weren’t going to be able to pay your utility bills, you probably should have done something earlier. But we’ll get to that later. For now, let’s assume this came out of nowhere. You had sent in the check or had autopay set up but something went wrong somewhere because one or more of your utilities are not present. Now it’s time to do some detective work.

“The first thing to do is call your power or water company to see if it was a mistake,” advised Sophie Kaemmerle, Communications Manager for NeighborWho (@UseNeighborWho). “If it happened due to failure to pay your bill, ask for an extension until you can get what you may be short on, or simply pay it right away if you just forgot.”

If it was a mistake, you’re going to have to give the utility company a stern talking to. Or a polite, but firm talking to that makes clear you need those utilities back.

“If our utilities get cut off mistakenly, the immediate priority is to get service restored to minimize disruption to ourselves and any other family or friends living with us,” explained finance writer and Middle Class Dad Jeff Campbell (@middleclassdad1). “While it’s rare for utilities to get cut off truly through no fault of the resident, it can happen.”

“While you can call or live chat with some providers, assuming they mistakenly applied your payment to someone else’s account,” said Campbell, “your best strategy is to go to the utility company in person and ideally pull up your bank’s payment system on your phone (since you presumably won’t be able to print anything at home) and show that the payment cleared your bank. If you paid in cash in person, simply show the receipt for the payment.”

And if it wasn’t a mistake …

Even if you know you’re going to come up short on a utility bill, it could still be worth trying to reach out to the company.

“The best thing to do if you utilities get cut off is to contact organizations that help with utilities,” advised life coach Katrina Mckissick. “They may be able to help pay all or a portion of the bill to restore your utilities.”

“It is always wise to call the electric company before it’s due to cut off and make payment arrangements. Most electric companies offer that but it has to be done before the service is disconnected.”

“If they get cut off because you weren’t able to pay them, still call the utility company and explain that you weren’t able to pay them,” suggested financial coach and author Karen Ford. “Ask them what you can do to get them turned back on.”

“Many times, when this question is asked, the company may not require the entire bill be paid, but a partial payment or partial payments to be paid are set up. Kindness will go a long way with them.”

In the meantime …

If the utilities aren’t switched back on immediately and you don’t have another place to stay, you’re going to have to find ways to cope until they come back.

Kaemmerle offered some tips for roughing it without certain utilities: “Keep lots of bottled water on hand for drinking and bathing. Be sure to have enough for each person in the household to have two gallons per day for at least a week. Wipes and bar soap will help with being able to wash as well. Have a stockpile of non-perishable foods that won’t need to be kept cold or cooked before being eaten.

“Purchase a portable charger for necessary electronics, such as phones or computers. Make sure you keep it charged and check that it still works periodically. If your lights go out, grab some battery powered lanterns or candles. Just be very careful where you place them so a fire does not burn down your home.

“To keep the food in your fridge from spoiling; get a good quality cooler or a small, portable generator to run it on. If you need to use up your food quickly because you have no cooler, you can cook it on an outdoor grill, or inside on a portable butane stove. Eat the food that will go bad the quickest first, and then move on to non-perishables to have as little waste as possible.”

And the next time …

If you’ve ever been worried about missing a utility bill, there are steps you can and should take to try to prevent that from happening, either again or for the first time.

“Some tips to keep you from forgetting is to set a reminder a week before the due date, so you are aware of it,” Kaemmerle told us. “It will also help to set aside a fraction of the bill each time you get paid between bills.”

“For example, four checks a month would need one-quarter of the bill set aside per check so you will have the full amount already saved when needed. Another helpful tip if you tend to be forgetful is to set up automatic payments for your utility bills.”

Campbell offered his own take: “Utilities getting cut off due to lack of payment is overall indicative of a larger financial problem. You need to first get on a written monthly budget and really scrutinize and prioritize how your money gets allocated.”

“Utilities would obviously be at the top of the list along with rent or mortgage and food. Cut all unnecessary expenses while you get your budget going. Money problems, aside from being created by not having a plan (ie: budget) are the product of either an income problem, a spending problem, a debt problem, or a combination of all three.”

“It’s often hard to figure out what to focus on until you have a budget,” he said. “Then you can determine which of those three areas needs the most improvement and you can begin to make a plan for that.”

Losing access to your utilities is never fun. But with proper preparation, it hopefully won’t happen to you!

One thing you definitely shouldn’t do when your utilities get cut off is to take out a predatory no credit check loan or short-term bad credit loan (think payday loanscash advances, and title loans) in order to pay your bill. To learn more about how you can take control of your finances and avoid situations like this, check out these related posts and articles from OppLoans:

Do you have a personal finance question you’d like us to answer? Let us know! You can find us on Facebook and Twitter.

Visit OppLoans on YouTube | Facebook | Twitter | LinkedIN


Contributors

Jeff Campbell (@middleclassdad1) blogs on all things Personal Finance, Parenting, Relationships & more at NewMiddleClassDad.com. He is a Dad, Husband, Martial Artist and worked for over 2 decades as a leader for Whole Foods Market.
Karen Ford is a Master Financial Coach, Public Speaker, Entrepreneur, and Best- Selling Author. Her #1 Amazon Best Selling Book “Money Matters” is a discovery for many.  In “Money Matters” she provides keys to demolishing debt, shares how to budget correctly, and gives principles in wealth building.
Sophie Kaemmerle is Communications Manager for NeighborWho (@UseNeighborWho). NeighborWho’s mission is simply to help you better understand your neighborhood. Learn about your neighbors, the houses on your street, current and past owners, access property reports and lookup public records. Public records are aggregated to compile in-depth reports on properties & people—NeighborWho provides a wealth of information at your fingertips.
Katrina Mckissick is a life coach. Her great passion is helping people to work through issues they face in life. She helps clients find healthy perceptions of themselves so they can be complete, healthy, whole and safe. She provides resources and tools to help others live an amazing life.

Second Chance Bank Accounts: Could They Be For You?

If your Chexsystems report makes opening a traditional bank account impossible, then a second chance bank account could, well, give you a second chance!

Access to traditional banking makes a huge difference when it comes to your financial health. But you can also lose access to it relatively easily. If you have made some mistakes with a previous bank account—the same kinds of financial misbehavior that leads to a low credit score—you might have a lot of difficulty opening a new one.

That’s because many banks will run a credit check or look you up in ChexSystems. Among other functions, ChexSystems monitors the bank activity of American consumers. If you’ve previously had overdrafts or negative balances, that will show up when the bank runs your information through ChexSystems.

However, even if you aren’t able to get a traditional bank account, you may still be able to get a second chance bank account. What is a second chance bank account? We’ll answer that, as well as some other questions in this very article! Read on and find out!


Why a bank account is important.

In case you aren’t yet convinced that you need a bank account in the first place, we’re here to convince you that you should probably have one.

One major benefit of a bank account is the obvious one: It’s a great place to keep your money. Not only will you have more room under your mattress, but traditional banks are FDIC insured which means your money will be protected. The Federal Deposit Insurance Corporation (FDIC) is a government insurance company that takes fees from banks so that, even if those banks screw up or get in some sort of trouble, you’ll still be able to access the money you deposited.

Another common benefit is the ability to pay via debit card or withdraw cash from ATMs. If you can choose a bank that has enough ATMs near your personal stomping grounds, you shouldn’t even have to pay a fee to make withdrawals.

It’s also much more expensive to try to get through life without a bank account. Aside from ATM fees, wiring money or cashing checks through your bank account is free, while check cashing establishments will charge you to access your own money. Those fees can be up to 12 percent of the check, which can easily mean losing hundreds of dollars from your paycheck every month.

And if that’s not enough, banks can provide you to access to credit which can be vital to getting a home, a car, or a loan for nearly any other purpose. So if you’re barred from opening up a traditional bank account, it’s a good idea to explore your other options.

Second chance for romance—umm—banking.

If you were caught by ChexSystems, you might still have the chance to open a second chance bank account. It’ll have some significant disadvantages compared to regular bank accounts, but it’s probably better than no bank account at all.

“Simply stated, second chance bank accounts are checking accounts for people who had minor problems with previous checking accounts—for instance, small overdrafts or a history of bounced checks,” explained RJ Mansfield (@DebtAssassin1), consumer’s rights advocate and author of Debt Assassin: A Black Ops Guide to Cleaning Up Your Credit. “Checking accounts with a negative history will be reported to a data repository like Chexsystems.

“These second chance accounts have higher monthly fees, higher bounced check charges, usually require a direct deposit, and can’t be opened online. Because of the consumer’s past history with checking, these accounts are closely monitored and closed quickly if they are mishandled.”

You’ll have to look at the specific second chance bank account being offered and see if it’s a good choice for your situation. If you do decide to get a second chance bank account and maintain it diligently, you may get the chance to graduate to a regular bank account after a year or two of good banking behavior. It’s one of the best features that second chance bank accounts can offer!

There are other possibilities.

If you decide a second chance bank account isn’t for you, there are still some possibilities. You can look at your rights under ChexSystems and see if it’s worth contacting them. If they’ve made a mistake, you should make them aware of it so they can remove it.

You could also try and get around ChexSystems entirely.

“If you have had a previous problem with a checking account, you can avoid being required to open a second chance account by simply Googling, ‘Non-Chexsystems banks’ and opening an account with one of those institutions,” advised Mansfield.

The penalties you face for not having a bank account are yet another example of how the system is often weighted against those who are already struggling. But there are still ways to overcome these hardships. It won’t necessarily be easy or fair, but it is possible.

If you can take advantage of the options available to you, work out a plan, and stick to it, you can build yourself a better financial future.

The worse shape you’re in financially the more likely you are to fall prey to predatory no credit check loans and short-term bad credit loans like payday loans and cash advances. That’s not great! To learn more about how you can improve your long-term financial outlook, check out these related posts and articles from OppLoans:

What other questions do you have bank accounts? Let us know! You can find us on Facebook and Twitter.

Visit OppLoans on YouTube | Facebook | Twitter | LinkedIN


Contributors

RJ Mansfield (@DebtAssassin1) is a consumer’s rights advocate and author of Debt Assassin: A Black Ops Guide to Cleaning Up Your Credit.

Unlike Payday Loans, a Bad Credit Installment Loan Could Actually Help Your Credit Score

Payday loans might seem like a good solution when you’re hard-up for cash, but a bad credit installment loan could set you on the path to a better credit score.

When people take out a payday loan, they’re not usually thinking about their credit score. And why would they? The whole reason they’re turning to a payday loan is that they have poor credit in the first place. When a financial emergency rears its ugly head, and they need to cover those extra expenses, a payday loan is their best bad option.

But is it? We won’t keep you in suspense: No. No, it is not. There are several reasons why a person should take out a bad credit installment loan instead of a short-term payday loan. Lower interest rates are one. More affordable payments is another. When considering the reasons to take out an installment loan over a payday loan, those two are the most important.

In this post, however, we’re going to focus on a third reason: The right bad credit installment loan could actually help improve your credit score. Here’s how.


Payment history is important to your score.

Your credit score is the single most important number in your financial life. It determines what kinds of personal loans you’ll be able to access and the rates that you’ll pay for them. The most common type of credit score, the FICO score, is scored on a scale from 300 to 850. The higher your score the better, with 680 being the rough divider between good and not-so-good credit.

Your FICO score is created using information from your credit report, which is a document that tracks your history as a credit consumer over the past seven years. (Some information, like bankruptcies, stays on your report for longer than that.) You have three different credit reports, actually, one from each of the three major credit bureaus: Experian, TransUnion, and Equifax.

While the formula that FICO uses to create their score is top-secret, there is one thing we do know, and that’s the five different weighted factors that are used to create them: Payment History, Amounts Owed, Length of Credit History, Credit Mix, and New Credit Inquiries.

Of those five factors, Payment History is the most important. It makes up 35 percent of your total score—with your Amounts Owed coming in a close second at 30 percent. Payment history takes into account whether or not you pay your bills in full and on-time.

This is why one late payment can do some serious damage to your score—and why building up a positive payment history is crucial to raising a score that’s down in the dumps.

Find a lender who reports your payments.

Traditional lenders like banks always report payment information to the credit bureaus. But when it comes to bad credit lenders, the practice is far less common. Places that offer no credit check loans like cash advances or payday and title loans don’t care about their customers’ credit scores, so why would they report their payment information?

Well, it turns out that doing so can really help their customers! Positive payment information that’s reported to the credit bureaus gets added to a person’s credit report, meaning that it then gets factored into their credit score. More positive payment information will eventually translate to a higher score!

Then again, short-term bad credit loans like payday and title loans are meant to be paid off in a single lump sum payment (one that many customers have trouble affording). Plus, they wouldn’t have that much payment information to report anyway … unless you include the large portion of their customers who have to roll over or reborrow their loans and get trapped into a predatory cycle of debt …

Lenders like OppLoans, on the other hand, offer bad credit installment loans that are designed to be paid off in a series of regular payments—and they report their customers’ payment information to the bureaus. This means that every on-time payment you make on your installment loan is a positive mark on your credit report.

Taking the financial long view.

When you have bad credit and no money in savings, it can be hard to think about anything other than the financial problem that’s sitting right in front of you. When you have to get your car repaired in order to get to work the next morning, why would you care about the impact a given loan would have on your credit score? You’ve got bigger fish to fry!

But if you’re always taking the short-term view, you’re never going to fix the real problem. Ignoring your credit score means getting stuck with high interest rates and loan payments that will eat up a sizeable chunk of your budget. Instead of putting money into savings in order to build an emergency fund, all those extra funds will go towards fees and interest.

Breaking the debt cycle isn’t easy, and it’s not something that a single loan is going to solve. But choosing a safe, affordable installment loan that will help build your credit over a predatory payday loan is a good first step to take. To learn more about putting your finances on a more solid footing, check out these related posts and articles from OppLoans:

Do you have a financial question you’d like us to answer? Let us know! You can find us on Facebook and Twitter.

Visit OppLoans on YouTube | Facebook | Twitter | LinkedIN

Payday Loans vs a Line of Credit

Inside Subprime: Dec 17, 2018

By Jessica Easto 

If you are looking for ways to manage expenses, you may have run across the term “line of credit.” What is a line of credit? And how is it different from, say, a payday loan? On its face, a line of credit may seem similar to other financial products, but it’s important to understand the differences.

A line of credit is a type of loan that both businesses and individuals can use to access money for a certain amount of time. When individuals do this, it’s called a “personal line of credit.” The lender, such as a bank, that issues the line of credit establishes a “credit limit,” which is the maximum amount of money you can borrow from them.

Personal lines of credit are usually used in specific situations where personal loans don’t quite make sense. They may be used when an individual knows they will need to spend money over a period of time, but they aren’t sure how much it will cost—such as with a restoration project, a wedding, or healthcare expenses. Lines of credit may also be used when month-to-month cash flow could be an issue, such as with an independent contractor whose income fluctuates significantly month to month.

Payday loans, on the other hand, give you the specified amount of money in one lump sum, while lines of credit let you borrow money as you need it over what is called a “draw period.” This can last for a long time, up to 10 years. You only have to pay interest on the money you borrow (as opposed to the full sum of your credit limit), and you can choose to paydown your debt as you go or wait for your repayment period to make minimum payments. (In this way, a line of credit is similar to a credit card.)

Payday loans, on the other hand, are marketed as a way to tide you over to your next paycheck. Because of this, the repayment terms are very short (usually no more than 14 days), and the loan amounts tend to be quite small (just a few hundred dollars). A line of credit can be extended for several thousands of dollars. It all depends on your credit score, which is another key difference.

In order to qualify for a personal line of credit, you need good credit—usually a score of 680 or higher. To get a payday loan, you don’t need any credit. Usually you just need a bank account. Payday loans are usually targeted at vulnerable populations who don’t have many options when it comes to managing their finances.

Payday loans are a form of predatory lending. And even though they are banned or regulated in many states, they are one of the most toxic types of loans available. They tend to use unfair or obscured loan terms, which often push borrowers further into debt. On the other hand, lines of credit are considered a safer way to borrow money.

One way to compare the two is to look at their annual percentage rates (APR), which accounts for the cost of interest and any other fees that borrowers will pay over the course of a year. Payday loans regularly have APRs around 400 percent. The APR of lines of credit fluctuate depending on your credit history and other factors.

When it comes to money management issues, one of the best things you can do it learn how to protect yourself from predatory lending and learn more about your options when it comes to expense management.

For more information on payday loans, scams, and cash advances and title loans, check out our state financial guides including CaliforniaIllinoisTexasFlorida and more.

Visit OppLoans on YouTube | Facebook | Twitter | LinkedIn

Credit Utilization Ratio: What It Is, Why It’s Important, and How to Master It

If you have credit cards, make sure you’re not putting too much money on them at any one time. Utilizing too much of your total credit limit can hurt your credit score.

Your credit score is very important. We’ve mentioned that before, but we’re going to mention it again. And then again after that. And then at least three more times.

And why do we keep saying it? Because it’s true! Your credit score is very important. It can determine whether you’re able to get a loan and at what rate. Given the importance of borrowing money in modern day life, this will affect whether you’re able to get a mortgage or credit card or car or apartment or sometimes even a job. Without a good score, the only loans you’ll be able to qualify for are bad credit loans—and the wrong bad credit loan could set you back big time.

Unfortunately, understanding your credit score isn’t always as easy as it should be. For example, how much money you currently owe makes up almost one-third of your total score. But the credit-scoring formula doesn’t just take into account how much you owe, it also accounts for what’s called your “credit utilization ratio.”

But what is your credit utilization ratio, and how do you keep it healthy? You probably aren’t sure, or else you wouldn’t be reading this article. Or maybe you have a pretty good sense of it but you were looking for some additional tips. Either way, read on!


So what is this “credit utilization ratio” anyway?

We spoke to the experts to find out how they would describe credit utilization ratios. Now we’re bringing those explanations to you, curious readers!

“Your credit utilization ratio is the relationship between your credit card limits and your account balances (as they appear on your credit reports),” explained Michelle Black (@MichelleLBlack), credit expert and founder of CreditWriter.com.

“It describes the percentage of your available credit which you are actually using. Revolving utilization is hugely influential over your credit scores. It’s nearly as important as your payment history. In fact, an impressive 30% of your FICO credit scores are largely based upon your revolving utilization ratios.”

Here’s an illustrative example from Leslie H. Tayne Esq. (@LeslieHTayneEsq), Founder and Head Attorney at Tayne Law Group (@taynelawgroup):

“Your credit utilization ratio is the percentage of your allotted credit that you owe. “It includes all of your lines of credit and all of your balances. For example, if you have two credit cards each with $6,000 lines of credit for a total of $12,000, and you are carrying a balance of $1,000 on one and $2,000 on the other, your credit utilization ratio is 25 percent.”

What kind of number should you aim for?

Now that you know what your credit utilization ratio is, what does a good credit utilization ratio look like?

“I suggest to my clients that they try to use only 30 percent of the available credit, and never max out a card, meaning do not use every dollar of the utilization,” Tayne told us. “I recommend keeping your credit utilization ratio under 30 percent to prevent it from negatively impacting your credit score.

“This should apply to both your individual cards and your cumulative total. Having a high credit utilization ratio tells creditors that you’re most likely spending a lot of your income on debt payments, meaning you may be a higher default risk. Having a high utilization rate can affect whether you qualify for loans or what your interest rate will be if you are approved. The best credit utilization ratio, of course, is zero or under 10 percent.”

Black echoed this sentiment:

“Ideally, you should aim to keep the revolving utilization ratios on your credit reports as low as possible. Best practices include paying off your credit card balances in full each month. Additionally, it is a good idea to pay off your full balance a few days before the statement closing date on your account. Doing so will ensure that your statement will show a $0 balance and that a $0 balance will be reported to the three credit bureaus for the upcoming month.”

Keeping it 30 (or lower).

So what steps can you take to improve your credit utilization? Well, one of the best ways is by paying off your balances in full and early, as Black mentioned.

Kelan Kline of The Savvy Couple (@TheSavvyCouple) offered a couple additional methods for keeping a healthy credit ratio:

Ask for a credit line increase. We do this every 6-12 months and it works out very well. This will allow you to spend more money on a certain credit card without having to worry about using too much of your credit limit.

Get another card. You can always have more than one card open which can help spread out spending during higher spending months like the holidays. It’s always important to remember that credit cards are NOT meant to hold a balance from month to month. Being responsible is even more important when you have more than one card.”

By keeping your credit utilization ratio low, you’ll be keeping your credit score in a better place. Follow all this advice, especially the parts about paying all of your bills off in full and on time, and a better credit future will be in your grasp.

When you’ve got a lousy credit score, an emergency expense might leave you stuck with predatory no credit check loans like payday loans and cash advances. This is one of the many reasons why maintaining your score is important! To learn more about how credit scores work—and how you can improve yours—check out these related posts and articles from OppLoans:

What else do you want to know about credit scores? Let us know! You can find us on Facebook and Twitter.

Visit OppLoans on YouTube | Facebook | Twitter | LinkedIN


Contributors

Michelle Black is a credit expert, freelance writer, and founder of CreditWriter.com. You can find her on Twitter @MichelleLBlack.
Kelan and Brittany Kline aka The Savvy Couple are two thriving millennials that are daring to live differently. They started their personal finance blog in September 2016 to help others get money $avvy so they can live a frugal and free lifestyle. Brittany is a full-time 4th-grade teacher and Kelan runs The Savvy Couple full-time and works as a digital marketer. You can follow them here: FacebookTwitterPinterest, and Instagram.
Leslie H. Tayne, Esq. (@LeslieHTayneEsq) has nearly 20 years’ experience in the practice area of consumer and business financial debt-related services. Leslie is the founder and head attorney at Tayne Law Group (@taynelawgroup), which specializes in debt relief.

Want a Great Holiday Gift for Your Grandkid? How About Helping Them Pay for College!

While it’s traditional for most holiday gifts to be a surprise, this is one instance where you’ll definitely want to sit down with everybody first and coordinate.

Recently, we conducted a nationwide survey asking grandparents how much money they spent on holiday gifts for their grandchildren. On average, we found that grandparents spent around $218 per grandchild, with clothing, toys, and gift cards as the most popular types of gifts purchased.

But for grandparents who are financially secure, there might be a better type of gift they can give for the holiday season. If their grandkids are planning to attend college, they could help them pay for it!


It’s a gift that’ll keep on giving.

A college education these days is pretty dang expensive. According to Jack Schacht, founder of MyCollegePlanningTeam.com (@CollegePlanTeam), the average cost of an in-state public college is $24,610 while the average cost for a private college is $49,320, per CollegeData.com. He also notes that tuition is the “second largest expense most families will ever tackle, as tuition continues to increase at twice the rate of inflation.”

So it’s no surprise that many students have to take out tens of thousands of dollars in loans in order to pay for their college education, a situation that’s caused the nation’s total student load to balloon to almost 1.4 trillion!

“No wonder so many grands want to help their grandchildren out,” observed Schacht, citing a survey from Fidelity Investments which found that “more than half of American grandparents are either helping to fund their grandkids’ tuition or planning to do so down the road.”

But Schacht also warns that it’s not as simple as simply writing your grandkids a big check and calling it a day. “A monetary gift to your grandchild may result in a tax event on your end or interfere with financial aid eligibility on theirs,” he said. “In order to avoid such financial perils and pitfalls, grandparents need to do some research and planning.”

Don’t let this gift be a surprise. 

It’s fairly normal when giving holiday gifts to keep their contents a secret. After all, it’s the only way you’ll get that fantastic look of surprise and delight when they open it!

But when you’re giving this particular gift, Schacht recommends that you do the exact opposite. Before you do anything, you should sit down with your children and your grandchild and tell them about your plan.

Why? Well, if you don’t coordinate your gift, it could end up biting you in the behind, big time. Here are two examples he provided that illustrate why coordination is so key:

“According to IRS guidelines on gift exclusions, you can give up to $15,000 a year to your child or grandchild without paying gift tax. However, that monetary gift to your grandchild will count as untaxed income, which may reduce his or her aid eligibility on their FAFSA (Free Application for Federal Student Aid).

“Ditto if you want to pay your grandchild’s college tuition directly. The IRS may not count it as a gift from you, but depending on the college, your payment may negatively impact your student’s eligibility for aid.”

Schacht pointed out that this won’t be a problem if your grandchild isn’t eligible for need-based aid in the first place. So how do you know if they’re eligible or not?

This is one of the tricky parts. According to Schacht, “You may not know unless you first determine your EFC (Expected Family Contribution) which is determined by family income and who in the family earns the income. It is also determined by assets, who owns those assets, and in which accounts the assets are held.”

Clearly, there’s a lot more to this process than there is to buying your grandkids a couple loot crates in Fortnite. (And if you don’t understand what that reference means … to be honest we don’t really know what it means either, so you’re in good company.)

Start by looking into a 529 savings plan.

When you give your grandkid some pocket money, the transaction is pretty simple. You take the money from your wallet and place it in their hand. That’s it.

But contributing to their college is a little bit more complicated. Enter 529 savings plans. These are tax-advantaged, state-sponsored investment accounts that can be used to pay for the beneficiary’s future education costs, including room and board, tuition, and mandatory fees.

The plans also carry tax benefits, like tax breaks on contributions and no taxes on withdrawals used to pay for education costs. However, it’s worth noting that these benefits vary from state to state. If you want to learn about 529 savings plans or 529 prepaid tuition plans, check out this Investor Bulletin from the SEC.

According to Schacht, 529 savings plans owned by a grandparent come with many advantages, including the fact that they aren’t factored into the student’s FAFSA, which should help them qualify for additional aid.

But that doesn’t mean these plans are perfect. “However—and it’s a big however—once funds are withdrawn to pay for tuition, distribution is considered income on your student’s FAFSA for the next two years,” cautioned Schacht.

“Once again, eligibility for financial aid may suffer. As a result, some experts suggest holding off making contributions from your 529 plan until students are college juniors and have filed their last FAFSA.”

“Even once you decide to pursue a 529 plan,” he added, “there is still plenty to learn and consider.”

But don’t forget you have other options beyond 529s.

Don’t stop your research with 529 plans. While they are very popular, they are hardly the only game in town when it comes to funding a college education. Schacht laid out some of the competition:

“You can also consider a Uniform Gift to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) account. These typically offer more investment options than 529 plans but involve turning control of the account over to the student when they reach a specific age.

“Another big problem with these accounts,” he added, “is that they are assessed as a child asset on the FAFSA and those assets are assessed at a much higher rate than those held by a parent. In addition, there are Coverdell Education Savings Accounts (ESAs), which offer a whole different set of pros and cons.”

Make sure you look into all of these accounts before you make your final decision. A little research up front will pay out big time once your grandchild finally heads off to school.

In summary: You’ll need to do your homework.

“Helping your grandchild fund their college education is truly a gift that will last a lifetime,” said Schacht. “But in order to make the most of it, you need to do your homework.”

This is advice that applies to pretty much any financial decision, large or small. Going in blind or simply choosing the first option you see could lead to major problems down the line. None of us liked doing homework in school—we bet your grandkids don’t—but we also know that much of that homework was incredibly valuable.

“Talk to your grandchild and/or their parents about their goals and plans. Do your research as a family. And by all means, take advantage of the many resources and experts that are available to you,” said Schact. “Together, you can ace this!”

If you enjoyed this article, check out these related posts from OppLoans:

What other questions do you have about paying for college? We want to hear from you! You can find us on Facebook and Twitter.

Visit OppLoans on YouTube | Facebook | Twitter | LinkedIN


Contributors

Jack Schacht is the founder of MyCollegePlanningTeam.com (@CollegePlanTeam), a Naperville, Illinois based organization that brings together experts from both the academic and financial services communities who work in coordination to help families find the right college for the right price.  Contact him at (630) 871-3300 or MyCollegePlanningTeam@gmail.com.

Expert Advice: Crystal Rau

An OppLoans eBook


Expert Advice: Crystal Rau

Crystal Rau, CFP®, MBA, Beyond Balanced Financial Planning LLC

“If someone finds themselves in a desperate financial situation, avoid payday loans at all costs! To preface this, I would define desperate as needing to cover food, utilities, shelter, or medication. Things like dining out, entertainment, or transportation because you have more car than you can afford is not an emergency. In the case of an actual emergency, reach out to your family or friends. This option can get you out of a bind quickly, and ensure you don’t damage the relationship by being diligent about repaying the loan. You never know when you may need their help again.

Go back to the basics with a budget. If you find your expenses are consistently outpacing your income, you have two choices. Either increase your income or decrease your expenses. You are the most important person in your life. That may sound sort of selfish but without you, who will take care of your family and you certainly don’t want to have to depend on your kids to take care of you when you’re older. Don’t be afraid to ask for a raise! If a raise is just not in the stars, ask your employer if there is any available overtime.

Find a side hustle. Got a garage full of junk that you can sell? Are you the best baker on the block? Perhaps you have the gift of photography! Whatever it may be, it goes back to increasing your income. A side hustle may start small but it can grow into something big and increasingly grow your income.

And finally, don’t forget your local credit unions. Credit unions may offer personal loans at a much lower interest rate than a payday loan company ever would. The only problem is you must have some credit history to your name. If you’re in a position where you have no credit history or you have damaged your credit in the past, start building your credit up. You can do this by taking out a secured credit card from your local bank. You do this by depositing a certain amount in a holding account with the bank and they will issue you a credit card on the amount you deposited on hold with them. By using the secured credit card, it will begin to grow your credit score allowing you to borrow on more favorable terms in the future.”

next >

How To Tell If Your Car Loan is Predatory

For people who absolutely need a car, falling into the clutches of a predatory auto lender could spell true disaster.

Depending on where you live, a car may be a necessity, but dang it if the things aren’t really expensive! Most people can’t just plop down a suitcase full of cash and purchase a car on the spot, even a used car. And that means if you want to get a new car, you’ll probably need a loan.

Unfortunately, many predatory lenders know that cars are vital and that people without great credit scores or financial histories won’t necessarily be able to access a proper loan to get the car they need.

So how can you tell if the car loan you’re considering is predatory? Buckle in and find out!


Double-decker interest rates.

If your credit rating is in the high 700s or beyond, you’re in a good position to get a “good” car loan. You can go to an established bank or credit union, apply for a secured installment loan and get your car purchase funded at an interest rate under 4 percent.

You’ll be able to pay that loan back in regular, manageable monthly payments, and those payments will be amortizing, so you’ll be paying off some of the principal and some of the interest with each payment. That means, barring disaster, you shouldn’t get stuck in a debt hole you can’t pay off.

If your credit score is not so hot, however, you’ll have to get the auto loan equivalent of a bad credit loan, and that means going somewhere other than a bank: either a “Buy Here, Pay Here” dealership or from some other kind of sub-prime lender. And that’s where you need to be very careful because here there be many predatory loans!

“The simplest definition of predatory lending is financing that imposes high interest rates or overly restrictive loan conditions,” explained RJ Mansfield (@DebtAssassin1), consumer’s rights advocate and author of Debt Assassin: A Black Ops Guide to Cleaning Up Your Credit. “For instance, uncommonly short repayment terms and interest rates over 10 percent on an auto loan.”

Read that contract very, very carefully.

Predatory lenders thrive on confusing contracts. And let’s face it, “confusing contracts” is a pretty redundant pair of words. Do you actually know what you’re agreeing to when you sign into iTunes? We don’t either.

But if you’re getting a car loan, it’s very important that you read that contract very carefully. Maybe even consider bringing in a friend who has some knowledge on loan contracts, if you have one.

“I advise consumers to take the time to read and understand their obligations under any contract,” Mansfield told us. “If they don’t understand something, ask. If they don’t get an answer they can live with, walk away.”

What sort of traps might be in that contract? Many predatory lenders will tack on as many “junk fees” as possible. You should be suspicious if you see things like “rust proofing” and “vehicle service contracts.” As Mansfield said, don’t be afraid to ask about anything and everything. If they’re trying to rush you into a deal, that’s a bad sign.

Beware of giant down payments.

Most car purchases require some kind of down payment. This is money you’re expected to pay upfront before receiving the car. If you have good credit and can get a proper car loan, you should probably expect to pay around 10 to 20% of the car’s total price as a down payment.

Of course, you could pay more if you’re able to and want to, and then you won’t have to pay as much interest in the long run.

But if you’re only given the option for a much higher down payment, that should be taken as a red flag. Predatory car lenders want to get as much money upfront as they can because their payment terms are so difficult to manage, they know it probably won’t be long before the borrower can’t make their payments and the car is repossessed.

A huge down payment allows them to get as much money as they can before seizing the car and selling it someone else, starting the process over again.

Make the best judgment you can.

If you have good credit, a lot of money saved up, or a potential co-signer, you’re in a good car buying situation.

If you don’t have any of those things and you need a car… well, unless you can win one for cheap at a police auction, you’re going to have to figure out what negative loan aspects you can manage within your budget.

You should try to avoid as many of these predatory aspects as you can, but you’ll probably have to make some concessions.

“If you have a credit score of under 660 you are either going to be declined, asked to make a substantially higher down-payment than normal or approved at an extremely high interest rate,” acknowledged RJ.

“If you must have a car is that predatory or helpful? The most important factor in an borrowing is, ‘Can I afford the monthly payment?’”

We’ve given you the warning signs to look out for, but at the end of the day, you have to take stock of your needs and make a decision. We get that owning a car might be a complete and total necessity. Hopefully, this advice will help you shop around to find best (or maybe just the least bad) car loan you can.

If you have bad credit, you’ll need to watch out for more than predatory car loans. Short-term no credit check loans like payday loans, title loans, and cash advances could also put your finances in danger. To learn more about borrowing money when you have bad credit, check out these related posts from OppLoans:

What other questions do you have about predatory lending? We want to hear from you! You can find us on Facebook and Twitter.

Visit OppLoans on YouTube | Facebook | Twitter | LinkedIN


Contributors

RJ Mansfield (@DebtAssassin1) is a consumer’s rights advocate and author of Debt Assassin: A Black Ops Guide to Cleaning Up Your Credit

Financial Literacy Spotlight: Indiana University

Financial literacy program spotlight for the University of Alaska Anchorage

A focus on financial wellness, which includes a student’s overall well-being, makes this program one of the best.

Indiana University’s financial education program was created with the goal of helping students make informed financial decisions before, during, and after their academic careers. By establishing successful money habits early, students are equipped with the skills and “money smarts” to thrive later in life.

One distinction of IU’s MoneySmarts program is a foundation built on financial wellness that goes further than traditional financial literacy. This means that the program staff focuses not only on teaching financial knowledge, but on getting students to understand how finances impact their mental and physical health—and ultimately, their overall well-being.

Why is this important?

“There are significant levels of students that drop out due to financial issues,” explains Director of Financial Literacy Phil Schuman. “We really focus on trying to make them aware of how finances play a role in their lives and that we’re here to help them get through any issues they may have and get their degree and get out the door. And obviously put themselves in a better position for the rest of their lives.”

As the director of financial literacy at Indiana University, Phil Schuman has emphasized overall financial wellness in addition to financial education. 

Further, he explained that it’s always concerning to him and his staff that students tend to think about their academics and financial situations from a short-term perspective. This results in students dropping out when they experience financial troubles. Financial wellness aims to change students’ outlooks by highlighting long-term benefits.

“Hopefully they can try and endure a little bit of pain for a few years, and then through that they’ll put themselves in a much better position when they graduate,” Schuman said.

Elevating the subject of financial wellness in higher education to a national level, Schuman brings a much-needed dose of dedication and humor to his role.

“It’s a serious topic, but we don’t necessarily need to take it seriously. We can approach it in a fun way,” he said.

Program History

Schuman graduated with a degree in psychology and an MBA from the Kelley School of Business at Indiana University. After receiving his MBA, he tapped into his connections within the university, which coincided with the chief financial officer’s interest in research on student debt and how the university could better address it. As a result, Schuman was placed on the financial literacy task force, established in 2011.

Then came the recommendation for a separate office, he said. One “that was dedicated to providing financial education for students along with altering some of our financial aid processes to make it more transparent for students to help them with their financial aid decision-making,” Schuman said. And, of course, a focus on getting students to graduate on time—within four years.

Thanks in part to University President Michael A. McRobbie, there has been a greater focus on affordability since the program’s start.

“Whatever we can do to help our students graduate on time, that’s what he’s been all about,” said Schuman, noting the relationship between delayed graduation and higher student loan debt.

Director of Financial Literacy Phil Schuman

Schuman brings a level of lightheartedness to financial conversations, which can otherwise seem daunting for college students.

“Part of the reason why I qualify for this job…is yeah I’ve made a lot of stupid mistakes over the years, so I can bring those to the table,” he jokes. “I think self-depreciation and honesty about who you are and where you’re coming from is really crucial to this; and that you’re not putting yourself above everyone else.”

He often likes to use anecdotes from his own personal finance journey in conversations with students.

In presentations about credit metrics, Schuman uses an example of a time when he bought a $1,300 engagement ring on a credit card with a maximum balance of $1,500. Despite having enough money in his bank account, he was fixated on the one percent cash back that his credit card offered. (As a note, a good portion of one’s credit score is dependent upon remaining below 30 percent utilization.) As a result, his credit report was negatively impacted by the high balance he ended up carrying for seven years. All because he was interested in that one percent cash back, or $13.

Then there’s his example of home ownership when he resided in South Bend, Indiana, with his wife. In order to feel more settled they bought a house, only to have a job opportunity move them to another city a year later. After experiencing a substantial financial loss, Schuman warns students that there is no reason to force themselves to buy a home, or make other huge financial decisions before they’re truly ready.

Office of Financial Literacy

Schuman’s office is responsible for delivering financial education to students across every Indiana University campus by staying at the forefront of innovative and effective programming.

Since the creation of the MoneySmarts program in 2012, Schuman has seen his role shift with the hiring of staff and a changing program direction.

“Initially, I was the one who was doing all the on-the-ground work, all the presentations, creating all the content, doing everything that needed to be done to launch the program,” he said.

After the addition of staff members, his role took a step back from handling day-to-day initiatives and looking at the big picture, such as how to grow the program and how to reach more students on a larger level.

One staff member has taken over the direction of the peer-to-peer program. They are responsible for the delivery of both one-on-one financial education presentations and staff training.

Another staff member is responsible for campus coordination since IU has a total of seven campuses. (Or eight, depending on whom you ask.) They ensure that the same quality of financial education is delivered everywhere.

All three make up the financial education office and work together on outreach to various departments across the university, making partnerships to improve access to and increase the reach of the program.

Now Schuman finds that in his current role he is promoting college savings and 529 plans.

He explained that the CFO wanted to focus not only on helping IU students eliminate debt, but advocating state and nationwide for college savings as the largest public institution within Indiana.

To accomplish this, five years ago Schuman and a colleague started the Higher Education Financial Wellness Summit. They work with colleagues around the U.S. to put on an annual national conference that connects collegiate educators who have a passion for student financial wellness. An event like this one is necessary given how relatively new the field is. In fact, financial wellness is “something that really hasn’t been talked about a whole lot over the past decade or so,” Schuman said, highlighting how his staff gets to play a role in this by promoting financial wellness in higher education.

According to Schuman, the conference helps those in education understand what’s going on and how to better advocate for financial wellness on their own campuses.

“We’ve just put ourselves in a position where we get to help other universities and help their students move forward…in a very direct and indirect way we’re really helping students out,” he said.

He noted the colleagues on the advisory board as a tremendous support, especially in helping the field grow.

“At the end of the day that’s what we’re all passionate about,” he said, “and we all just feel fortunate that we can be a part of that.”

Schuman and his team prove that it really does take a village to create “money smart” IU students while tackling the issue of financial illiteracy nationally—or at least a dedicated staff of three and quality partnerships.

MoneySmarts Initiatives

The MoneySmarts program is the product of several initiatives formulated to cater to the unique needs of students and the rest of the IU community.

According to Schuman, the reason that his team chose to create such varied initiatives “is because, as an academic institution, [they] have to recognize that students learn in different capacities.”

In order to remain accessible to auditory, visual, and textual learners his team decided that they couldn’t cater to just one audience while neglecting other populations.

“We need to do everything we possibly can to adapt to different learning styles,” he said.

In creating such varied content, he said that it has been fun, too.

“Since the field is relatively new and no one knows what’s going on, that unknown provides the freedom to let us dabble in whatever it is that we’re most passionate about,” he said. He assumes that “part of the reason why [his] staff likes working in the office is that they get to kind of say what they’re interested in and explore that as a way to deliver financial education, which is a lot of fun.”

“A lot of the stuff that we’ve done over the years is just based on what we think would be good for our students based on our own experiences,” he said. “Because there’s nothing out there that says this does or doesn’t work. So we’re just a science experiment every single day with what we try to implement.”

Estimated Cost Calculator

The MoneySmarts cost calculator is designed to help students and their parents estimate the out-of-pocket costs of an IU education. Users must take about 15 minutes to input a variety of information and then the calculator provides a reliable estimate.

For those with questions, the MoneySmarts team is available to help students and their families understand and navigate the calculator by phone or appointment.

Peer Educators

The IU MoneySmarts team provides guidance and support to college students who are often attempting to manage their money for the first time.

Peer educators are self-proclaimed “financial literacy geeks,” available to IU students for consultations. These money experts are specially trained in personal finance, but with the added benefit of being students themselves who bring approachability to their role.

This team of experts also provides their services to the IU community at large, including faculty, staff, and alumni.

Free 30-minute appointments are offered to members of the IU community on any campus. For those at IU’s Bloomington, Indianapolis, or South Bend campuses, appointments are available in person. Otherwise, the team uses video chat for those on other campuses or out of state.

MoneySmarts experts help with a number of topics:

  • Budgeting and saving money
  • Managing credit cards
  • Handling student debt
  • Building and establishing credit
  • Dealing with identity theft
  • Tackling student loan repayment
  • Preparing for graduation and getting a job

Presentations

In addition to individual appointments, the MoneySmarts staff and peer educators offer free sessions to groups of friends and classmates. Student organizations and faculty are able to book presentations during classes. The facilitator can pick any financial topic they’d like the educators to speak on, including food and housing costs.

Wellness Sessions

In addition, everyone is able to set up an appointment with a MoneySmarts financial well-being consultant in order to tackle the psychological issues that arise from financial stress.

Meetings focus on a student’s overall well-being as it relates to financial situations as opposed to specific financial issues. The consultant helps with issues that arise from finances including anxiety, stress, and effects on the student’s personal and social life. Ultimately, consultants look at financial stressors and their effects on mental, emotional, and physical well-being. The consultation, however, is not intended to replace mental health services.

MoneySmarts Courses

The office of financial education also provides a series of for-credit financial literacy courses. The three five-week classes cover everything from foundations of financial literacy to risk management. There is also a three-credit-hour class (the only one offered on all IU campuses) that includes everything the shorter courses do, plus more. The only course that is mandatory is a freshman year one that is currently not for credit.

MoneySmarts U

Open to students, alumni, staff, faculty, and parents of students, MoneySmarts U is a financial education platform created by Indiana University in partnership with financial wellness expert Peter Dunn, also known as “Pete the Planner.” Luckily, the office of financial literacy is working with other universities to make the online courses available to their students through a subscription service.

The online platform teaches financial lessons whenever it is most relevant and needed. The curriculum is designed to help people understand personal finance rather than bog them down with irrelevant information in order to guide them through financial decisions. There are courses that cater to every potential step in a student’s academic career, from high school to graduate school.

By using the online program, the financial literacy staff hope that IU students graduate with a well-developed financial sense to last for the rest of their academic and life pursuits.

MoneySmarts U also has a financial metric creatively referred to as the “MoneySmarts U Score.” The score and accompanying grade level reflects a user’s changing financial literacy while advancing through the online courses. After completing each course, users are able to reflect on their MoneySmarts U score to get a picture of their financial habits and how they have changed each year in college.

Schuman noted that what’s most interesting about the variance of the scores is that when students fill out the MoneySmarts U Score at home, alone, their score is twice as high as when they are in front of another person. He suggested that perhaps when students are talking about their financial situation in front of somebody else, such as a counselor, they’re more honest, as opposed to when they’re on their own and not subject to external accountability.

MoneySmarts Library

In case the free peer consultations and financial literacy curriculum weren’t enough, the MoneySmarts team created a mix of content housed within the MoneySmarts library, which is constantly being updated.

Check out the library if you have a serious financial question and want an answer in the form of a podcast, blog post, or article. Whatever you’re looking for, you’re guaranteed to find a great resource here so long as it’s financially related.

Financial topics include:

  • How to afford a social life
  • Tuition and fees
  • Budgeting
  • Credit cards and credit
  • Financial aid and loans
  • Financial wellness
  • Housing
  • Jobs and internships
  • Savings and investments
  • Transportation and travel

Unique Programming

When asked what makes the MoneySmarts program unique, Schuman responded that it’s the diversity of the programming, but more specifically the personality of his team and IU’s administration. This is primarily due to his team’s administrative backgrounds, as well as the administrative support they receive. He also acknowledged the people not only in his office, but outside of it, too.

“We’ve been fortunate to have partners throughout the university that have come to us and helped us build programming,” he said.

The Results

Although the MoneySmarts program is still in its early days, it has already made a noticeable impact on reducing IU students’ loan debt. Since 2011, there has been a $126.4 million reduction and a 19 percent decrease in student borrowing across all IU campuses.

Another measure of success pertains to the 529 initiative. The idea behind the 529 initiative is to focus not solely on debt reduction, but on saving for college, too.

“We’re going to start tracking faculty and staff direct deposits into 529 accounts to see whether the messaging we’re providing is causing a shift,” Schuman said.

For one-on-one appointments with peer mentors and staff, the team tracks stress levels of students.

“We track stress of students before and after appointments in order to make sure we’re doing everything that needs to be done there,” he said, adding that they are seeing a noticeable level of stress reduction.

Planning for the future, Schuman said that one of the metrics they want to address is assessing retention levels. Thinking about students dropping out because of financial stress, he wants to know if MoneySmarts is having a large enough impact for students to stay in school as a result of interventions.

The Future of Financial Education

When asked what aspect of the MoneySmarts program Schuman is most proud of, he responded that it is how his team has built the program over the years. He urges people to learn more about the MoneySmarts U experience and understand why the IU team chose to build their own financial literacy curriculum. He explained that it was the result of a number of lessons learned over the first few years of the program, which sets a valuable example for others to model when building their own financial education programs.


Do you know a financial literacy program that deserves a spotlight? Email us and let us know!

5 Questions to Ask Yourself Before Taking out a Bad Credit Loan

Once you answer these questions, that short-term loan payday loan you’ve been eyeing might not look like such a great idea anymore.

Borrowing money when you have a lousy credit score isn’t easy. There are tons of lenders out there offering easy approval loans, but it can be really hard to figure out which of them are worth it. And choosing the wrong bad credit loan could end up wrecking your finances for a long time to come.

That’s why we want to make the process a bit easier for you. Here are five important questions that you should ask before taking out a bad credit loan. The answers to these questions should go a long way towards guiding your decision—and helping you make the right one.


1. What’s the annual interest rate?

Okay, so this is a question you should be asking about any personal loan, not just a bad credit loan. But it’s also true that loans for bad credit—even the good ones—are going to come with much higher interest rates than standard personal loans. Choosing the wrong bad credit loan could end up costing you hundreds or even thousands of dollars in additional interest.

When you look at the interest rate for short-term bad credit loans like payday loans, you’ll often see an interest rate in the range of $15 per $100 borrowed. That seems a bit high, sure, but you know that this is the cost of borrowing money with poor credit. (These rates will also vary depending on what state you live in.)

But with those sorts of loans, the simple interest rate doesn’t tell the whole story. You also need to look at the annual percentage rate, or APR. This is a standardized metric that measures how much a loan would cost over the course of a full year, letting you make cost comparisons across all different kinds of loans.

Let’s return to that $15 per $100 borrowed rate: For a two-week payday loan, that cost works out to an APR of 391 percent. That’s a lot! And while it might not seem like annual rates would matter when it comes to short-term payday loans, they definitely do. We’ll explain more in later sections.

In fact, when it comes to short-term loans, those sorts of sky-high interest rates are pretty common. Title loans, which are secured by the title to your car or truck, come with average APRs of 300 percent, while cash advances loans are pretty much just payday loans using a different name.

Checking out a bad credit installment loan could be a good way to sniff out lower annual rates, but your best bet will come with joining a local credit union, many of which offer Payday Alternative Loans (PALs) that come with a max interest rate of 28 percent. Our advice is to join a credit union now so that you’ll be able to access a PAL later.

2. Is the loan amortizing?

While the overall interest rate on your bad credit loan is going to be important, you’ll also want to make sure that the loan is amortizing. This could be the thing that saves you from getting trapped in a predatory cycle of debt.

Amortizing loans don’t charge interest as a single flat fee; they accumulate interest over time, which means that a) your loan will accrue less money in interest as you pay down the principal, and b) that paying your loan off early will save you money overall.

(That second benefit assumes that your loan doesn’t charge prepayment penalties. So make sure you find that out as well before borrowing.)

But here’s the most important thing about amortization: It ensures that every payment you make goes towards both the principal and the interest. So each time you make a payment towards your loan, you get one step closer towards being out of debt.

That seems … pretty obvious, right? Well, unfortunately, it’s not always the case. Short-term bad credit loans often charge interest as a flat fee, and they come with the option of rolling over your loan in order to extend your due date. Rolling over a loan often consists of paying only the interest owed in exchange for receiving a new loan term, complete with additional interest.

For people who struggle to afford their loans, loan rollover can leave them trapped in a dangerous cycle. Every couple weeks or every month they make payments towards the interest owed without ever paying off any of principal loan amount. No matter how many payments they make, they never get any closer towards actually getting out of debt.

This is why amortization is so important. If you’re taking out a bad credit loan, choose a loan that has an amortizing payment structure—otherwise, you could find yourself in a cycle of high-interest debt.

3. Can I afford the payments?

Earlier in this piece, we mentioned that the annual rate for short-term loans can be far more relevant than you might think, which mostly comes down to people not being able to afford their payments. The more that people have to roll over their loan or reborrow another loan in order to make ends meet, the more they end up paying in interest.

This is especially relevant when it comes to short-term bad credit loans like payday and title loans. Think about it: If you borrowed $400 at a 15 percent interest rate and then had two weeks to pay back $460, would you be able to swing it? Many can’t, at least not without having to take out another loan in order to pay the rest of their bills and living expenses.

In fact, a study from the Pew Charitable Trusts found that only 14 percent of payday loan borrowers had enough money in their budget to make their payments. And data from the Consumer Financial Protection Bureau (CFPB) has stated that the average payday loan borrower takes out 10 loans per year, spending an average of 200 days in debt.

The higher interest rates for bad credit loans are always going to mean some belt-tightening in order to make your payments. But there’s a big, big difference between tightening your belt and having to cinch it so small that you practically cut yourself in half.

Bad credit installment loans often mean paying more money towards interest overall when compared to payday and title loans, at least on paper. But that longer loan repayment term also means smaller individual payments. Having payments that fit within your budget and let you get out of debt on-schedule can definitely be worth the extra money.

4. Do they check my ability to repay?

Bad credit loans are also sometimes referred to as “no credit check loans” because the lenders in question don’t do a hard credit check when processing a customer’s application. This makes sense since people applying for these loans already have poor credit scores.

But there’s a big difference between not running a hard credit check and not checking whether a customer can afford their loan altogether. One of them speaks to the realities of bad credit borrowing, but the other can be a sign of something far more sinister.

Lenders that don’t do any work to verify a customer’s ability to repay their loan could very well be actively hoping that their customers don’t repay on time. That way, they roll over or reborrow their loan, which means increased profits for the lender.

On the flip side, lenders who want to check a customer’s ability to repay can run what’s called a “soft” credit check, either from one of the three major credit bureaus (Experian, TransUnion, Equifax) or from an alternative consumer reporting agency.

These checks return less information than a hard credit check, but they also won’t affect your credit score. There are also other methods beyond a soft credit check—like verifying your income—that lenders can use to determine your ability to repay a loan.

Nobody who has bad credit wants a hard credit check when they’re applying for a loan. All it’s going to do is ding their credit; that’s the last thing they need! But they should still choose a lender who cares about their ability repay. That’s a sign that this loan will help forge a path to a bright financial future instead of digging their finances into an even deeper hole.

5. How do other customers feel?

When you’re looking for a place to eat or a new place get your hair cut, do you check the customer reviews? Well, why wouldn’t you do the same thing when deciding to borrow money? The experiences of other customers can tell you loads about what a place is really like.

So check out a lender’s customer reviews on Google, and Facebook before applying for a loan. You should check with lending platforms like LendingTree or CreditKarma, as they often have reams of customer feedback and reviews.

And go beyond that! Search out the company’s BBB page to see if they’ve had complaints registered against them and how those complaints have been resolved. Even a thorough Google search for the company might turn up information that will sway your decision.

There are any host of factors to consider when applying for a bad credit loan, and there are many questions you should be asking beyond the five we’ve listed here. But possibly the most important question is: What’s the best loan for you? Once you have that figured out, your decision should be an easy one.

In the long-term, the best way to avoid predatory bad credit lenders is to … fix your credit score! To learn more about improving your score, check out these related posts from OppLoans:

What other questions do you have about borrowing with bad credit? We want to hear from you! You can find us on Facebook and Twitter.

Visit OppLoans on YouTube | Facebook | Twitter | LinkedIN