Post-Vacation Money Blues: Those Beachside Splurges May Be More Costly Than You Think

Nearly half of Americans spend beyond their means on vacation — and suffer guilt, stress, and financial consequences because of it.

Everyone knows the feeling: It’s your first day back after a relaxing vacation and you just can’t deal. All the worries you left behind are there waiting for you, but sometimes there are new ones, too — money woes.

We surveyed 7,480 American adults and found that a shocking percentage (43%) admitted to spending beyond their means on vacation. And many came home to a rude awakening because of it:

  • 27% suffered financial consequences that included excessive credit card debt, missed payments, or being forced to borrow money from family or friends.
  • 49% reported spending-related guilt.
  • 46% experienced stress from their spending, with more than half (55%) of those losing sleep because of it.

The state where residents ranked worst for managing money while on vacation? New Mexico, which also holds one of the highest percentages of credit card debt in the country. At the top for guilt was West Virginia, and Utah ranked No. 1 for post-vacation money stress.

Surprisingly, the states where residents had poor money management habits weren’t necessarily the ones where they had the highest levels of stress and guilt. In fact, New Mexico ranked No. 1 (followed by New Jersey and New York) for poor money management but relatively little guilt. At the other end of the spectrum was Iowa (followed by Oregon and Nebraska), where residents had good vacation money management but still felt guilty about their spending.

Money Blues: Which States Feel Most Guilty About Vacation Splurges?

Post-vacation money blues

Excessive Vacation Spending

According to our survey, almost half of Americans spend more on vacation than they should.

  • 43% of respondents admitted to taking a vacation they couldn’t afford within the past five years.
  • 43% said they typically spend outside their means on vacation.
  • 59% of respondents indicated that a “vacation mentality” causes them to make poor spending decisions.

To pay for out-of-budget trips, many respondents in our survey said they rely on credit cards or loans — 42% said they’ve used one or the other to help fund a vacation they couldn’t afford otherwise.

Financial Consequences

While vacation purchases may feel innocent at the time, breaking budget can cause serious money troubles. Twenty-seven percent of respondents in our survey said a vacation splurge in the past five years had led to negative financial consequences. The most common problem they encountered was high levels of credit card debt.

  • 49% of respondents reporting financial consequences took on excessive credit card debt.
  • 34% missed important payments.
  • 16% took out a loan.
  • 35% borrowed money from friends or family.

Stress and Guilt

In addition to a financial toll, overspending can have a psychological impact, too. About half of survey respondents reported experiencing guilt or stress from their vacation splurges within the past five years.

  • 49% said they have felt guilty about vacation spending.
  • 46% said they have suffered stress from overspending on vacation.
  • Of those who have suffered stress, 55% said they’ve lost sleep because of it.

Of those who experienced guilt, 83% said it primarily set in after vacation — not when they were spending.

  • 49% of respondents reporting guilt said it typically set in once they returned home.
  • 34% of respondents reporting guilt said they usually felt most guilty once they saw their credit card statements or checked their bank account.

In Which States Are Residents Best at Managing Money on Vacation?

Overall, our survey revealed a nationwide trend of risky vacation spending. However, residents in some states practice better vacation spending habits than others: they were less likely to take vacations they knew they couldn’t afford, experience financial consequences because of their vacation spending, or use credit cards or loans to pay for out-of-budget trips.

States Where Residents Are Best at Managing Money on Vacation

  1. New Hampshire
  2. Wisconsin
  3. Connecticut
  4. Louisiana
  5. Vermont
  6. Idaho
  7. North Dakota
  8. Alaska
  9. Minnesota
  10. Iowa

States Where Residents Are Worst at Managing Money on Vacation

  1. New Mexico
  2. Maryland
  3. New Jersey
  4. Kentucky
  5. West Virginia
  6. New York
  7. Nevada
  8. Arizona
  9. Florida
  10. Arkansas

States Where Residents Feel Most Guilty About Vacation Spending

Guilt was a common emotional consequence of vacation overspending. West Virginia came in at No. 1 for states with the highest levels of post-vacation spending guilt, and Louisiana was No. 1 for low-guilt spending.

States With the Highest Levels of Guilt

  1. West Virginia
  2. Utah
  3. California
  4. Oregon
  5. Iowa
  6. South Carolina
  7. Nebraska
  8. Nevada
  9. Missouri
  10. Indiana

States With the Lowest Levels of Guilt

  1. Louisiana
  2. Connecticut
  3. New Hampshire
  4. Rhode Island
  5. Oklahoma
  6. Colorado
  7. Ohio
  8. Massachusetts
  9. Alabama
  10. Michigan

States Where Residents Report the Most Stress About Their Vacation Spending

The top 10 states where residents reported spending-related post-vacation stress were led by Utah while those with the lowest levels of stress were led by Ohio.

States With the Highest Levels of Stress

  1. Utah
  2. West Virginia
  3. Wyoming
  4. Montana
  5. New York
  6. California
  7. Pennsylvania
  8. Arkansas
  9. New Jersey
  10. Kansas

States With the Lowest Levels of Stress

  1. Ohio
  2. Louisiana
  3. Alabama
  4. Michigan
  5. Rhode Island
  6. Texas
  7. Mississippi
  8. South Dakota
  9. North Carolina
  10. Nebraska

States Where Residents Are Too Hard on Themselves — Or Not Hard Enough

One interesting finding from our survey is that the states where residents were most likely to overspend were not necessarily the states with the highest levels of spending guilt. And the reverse of this is true, too — some states spent responsibly but nonetheless had high levels of guilt.

Iowa led the country for states where residents had relatively good vacation money management and disproportionately high levels of guilt. New Mexico led the country for poor spending but low levels of guilt.

States That Are Too Hard on Themselves

  1. Iowa
  2. Oregon
  3. Nebraska
  4. Alaska
  5. California
  6. North Dakota
  7. South Carolina
  8. Vermont
  9. Wisconsin
  10. Missouri

States That Are Too Easy on Themselves

  1. New Mexico
  2. New Jersey
  3. New York
  4. Maryland
  5. Ohio
  6. Texas
  7. Rhode Island
  8. Louisiana
  9. Massachusetts
  10. Florida

How to Bounce Back After Vacation Spending

For vacation-goers who overspend while away, the flood of bills and a depleted bank account can be a harsh welcome home. But there are ways to get back on track. We asked Len Hayduchok, founder and president of Dedicated Financial Services, for his best advice. Here’s what he recommends.

1. Go on a spending ‘fast.’ To get your budget back on track, cut your spending to the essentials. Separate ‘need’ expenses (rent, utilities) from ‘want’ expenses (lattes, eating out). Do this for a week and see how much you save. Rinse and repeat as needed.

2. Break it down. Change large annual payments on life or auto insurance to bite-size monthly installments. Keep in mind that the additional cost for spreading out the payments should be less than the monthly finance charges on the credit cards.

3. Put the piggy bank on a diet. Especially if credit card interests are high, temporarily put savings strategies on hold. Even contributions to 401(k) plans should be limited unless matched by an employer. Feel free to pork up the bank again once credit card balances are back under control.

4. Channel your inner minimalist. Take some time to look through your closet for those items that haven’t seen the sun in a few years. Make some quick cash by bringing them to a consignment store, co-hosting a garage sale with some friends, or selling them online!

5. Think outside the wallet. In addition to reducing your spending and boosting income, find potential borrowing sources (if you must) such as 401(k) plans or life insurance policies as a temporary financial buffer. Caveat: Make sure you pay those loans back as soon as possible!

Len HayduchokLen Hayduchok is a Certified Financial Planner™ practitioner with over 25 years of experience. A graduate of the Wharton School and a Master of Divinity recipient, he is the founder and president of Dedicated Financial Services. His firm advises clients on taxes, income, retirement, estate planning, and asset management and protection. He and his wife live in Princeton Junction, New Jersey, and Rehoboth Beach, Delaware, and are the parents of four adult children.

How to Relieve Post-Vacation Stress and Guilt

According to our survey, about half of Americans have recently suffered post-vacation guilt or stress from their spending. How can they beat their blues? Here are five tips from Raffi Bilek, director of the Baltimore Therapy Center.

1. Harness the guilt. It’s normal to feel guilty after overspending. Use the discomfort to motivate yourself. Sit down and create a budget. Call up a financial coach and request an appointment. Make a change, no matter how small. Harness your feelings and turn them into action.

2. Engage in self-care. Life is stressful enough, even before you upped your budget problem. Take care of yourself by engaging in the things that help you keep an even keel — whether it’s yoga or painting, mountain biking or meditating. Everyone needs to manage their stress. This is all the more important when your stress is on the rise.

3. Allow for imperfection. Everyone makes mistakes. Remember that even your friends who look like they have it all together on Facebook sometimes mess up — they just tend not to post those moments. You shouldn’t ignore problems, financial or otherwise, but you also shouldn’t allow them to consume you. You’re human. It’s OK.

4. Get some perspective. How bad is it really? What are the ramifications of your overspending? Going over budget by $100 is different from going over by $1,000, and it certainly depends on your individual financial situation. Don’t assume the worst — crunch the numbers and see whether you’re actually in hot water or you just dipped your toe in it.

5. Start saving up again. There’s a Japanese proverb that says, “Fall down seven times, get up eight.” If you’ve overspent your budget, the time to start saving back up is now. Skip the Starbucks today and put $2.10 aside. Consider this financial misstep the beginning, not the end.

Raffi BilekRaffi Bilek, LCSW-C, is a clinical social worker and director of the Baltimore Therapy Center. He graduated from Brown University with honors and has a diverse professional background that includes clinical experience in psychiatric outpatient settings, family therapy institutes, domestic violence units, community service agencies, and private counseling practices. He lives in Pikesville, Maryland, with his daughters and wife.

How Do the States Stack Up?

Alabama
No. 11 for responsible spending
No. 42 for guilt
No. 25 for should feel less guilty
No. 48 for stress

Alaska
No. 8 for responsible spending
No. 15 for guilt
No. 4 for should feel less guilty
No. 15 for stress

Arizona
No. 43 for responsible spending
No. 24 for guilt
No. 11 for should feel more guilty
No. 19 for stress

Arkansas
No. 41 for responsible spending
No. 11 for guilt
No. 24 for should feel less guilty
No. 8 for stress

California
No. 27 for responsible spending
No. 3 for guilt
No. 5 for should feel less guilty
No. 6 for stress

Colorado
No. 14 for responsible spending
No. 45 for guilt
No. 17 for should feel more guilty
No. 35 for stress

Connecticut
No. 3 for responsible spending
No. 49 for guilt
No. 22 for should feel less guilty
No. 40 for stress

Delaware
No. 13 for responsible spending
No. 39 for guilt
No. 24 for should feel more guilty
No. 39 for stress

Florida
No. 42 for responsible spending
No. 29 for guilt
No. 10 for should feel more guilty
No. 23 for stress

Georgia
No. 39 for responsible spending
No. 26 for guilt
No. 12 for should feel more guilty
No. 34 for stress

Hawaii
No. 34 for responsible spending
No. 16 for guilt
No. 23 for should feel less guilty
No. 30 for stress

Idaho
No. 6 for responsible spending
No. 40 for guilt
No. 18 for should feel less guilty
No. 21 for stress

Illinois
No. 16 for responsible spending
No. 33 for guilt
No. 20 for should feel less guilty
No. 24 for stress

Indiana
No. 22 for responsible spending
No. 10 for guilt
No. 11 for should feel less guilty
No. 29 for stress

Iowa
No. 10 for responsible spending
No. 5 for guilt
No. 1 for should feel less guilty
No. 14 for stress

Kansas
No. 36 for responsible spending
No. 22 for guilt
No. 16 for should feel more guilty
No. 10 for stress

Kentucky
No. 47 for responsible spending
No. 14 for guilt
No. 13 for should feel more guilty
No. 26 for stress

Louisiana
No. 4 for responsible spending
No. 50 for guilt
No. 8 for should feel more guilty
No. 49 for stress

Maine
No. 30 for responsible spending
No. 35 for guilt
No. 14 for should feel more guilty
No. 20 for stress

Maryland
No. 49 for responsible spending
No. 23 for guilt
No. 4 for should feel more guilty
No. 27 for stress

Massachusetts
No. 29 for responsible spending
No. 43 for guilt
No. 9 for should feel more guilty
No. 16 for stress

Michigan
No. 19 for responsible spending
No. 41 for guilt
No. 19 for should feel more guilty
No. 47 for stress

Minnesota
No. 9 for responsible spending
No. 30 for guilt
No. 13 for should feel less guilty
No. 36 for stress

Mississippi
No. 35 for responsible spending
No. 20 for guilt
No. 20 for should feel more guilty
No. 44 for stress

Missouri
No. 24 for responsible spending
No. 9 for guilt
No. 10 for should feel less guilty
No. 17 for stress

Montana
No. 33 for responsible spending
No. 21 for guilt
No. 22 for should feel more guilty
No. 4 for stress

Nebraska
No. 12 for responsible spending
No. 7 for guilt
No. 3 for should feel less guilty
No. 41 for stress

Nevada
No. 44 for responsible spending
No. 8 for guilt
No. 21 for should feel less guilty
No. 13 for stress

New Hampshire
No. 1 for responsible spending
No. 48 for guilt
No. 14 for should feel less guilty
No. 22 for stress

New Jersey
No. 48 for responsible spending
No. 31 for guilt
No. 2 for should feel more guilty
No. 9 for stress

New Mexico
No. 50 for responsible spending
No. 25 for guilt
No. 1 for should feel more guilty
No. 12 for stress

New York
No. 45 for responsible spending
No. 32 for guilt
No. 3 for should feel more guilty
No. 5 for stress

North Carolina
No. 17 for responsible spending
No. 37 for guilt
No. 25 for should feel more guilty
No. 42 for stress

North Dakota
No. 7 for responsible spending
No. 17 for guilt
No. 6 for should feel less guilty
No. 38 for stress

Ohio
No. 31 for responsible spending
No. 44 for guilt
No. 5 for should feel more guilty
No. 50 for stress

Oklahoma
No. 15 for responsible spending
No. 46 for guilt
No. 15 for should feel more guilty
No. 31 for stress

Oregon
No. 18 for responsible spending
No. 4 for guilt
No. 2 for should feel less guilty
No. 18 for stress

Pennsylvania
No. 40 for responsible spending
No. 13 for guilt
No. 23 for should feel more guilty
No. 7 for stress

Rhode Island
No. 20 for responsible spending
No. 47 for guilt
No. 7 for should feel more guilty
No. 46 for stress

South Carolina
No. 25 for responsible spending
No. 6 for guilt
No. 7 for should feel less guilty
No. 33 for stress

South Dakota
No. 26 for responsible spending
No. 19 for guilt
No. 19 for should feel less guilty
No. 43 for stress

Tennessee
No. 28 for responsible spending
No. 28 for guilt
No. 21 for should feel more guilty
No. 25 for stress

Texas
No. 37 for responsible spending
No. 34 for guilt
No. 6 for should feel more guilty
No. 45 for stress

Utah
No. 38 for responsible spending
No. 2 for guilt
No. 12 for should feel less guilty
No. 1 for stress

Vermont
No. 5 for responsible spending
No. 27 for guilt
No. 8 for should feel less guilty
No. 28 for stress

Virginia
No. 21 for responsible spending
No. 38 for guilt
No. 18 for should feel more guilty
No. 32 for stress

Washington
No. 23 for responsible spending
No. 18 for guilt
No. 16 for should feel less guilty
No. 11 for stress

West Virginia
No. 46 for responsible spending
No. 1 for guilt
No. 15 for should feel less guilty
No. 2 for stress

Wisconsin
No. 2 for responsible spending
No. 36 for guilt
No. 9 for should feel less guilty
No. 37 for stress

Wyoming
No. 32 for responsible spending
No. 12 for guilt
No. 17 for should feel less guilty
No. 3 for stress


Methodology

Money Management Score

The Money Management Score is based on 7,480 responses to the following questions and calculated as follows:

“In the past 5 years, have you taken a vacation you knew you couldn’t afford?”

  • 0 points were assigned to those who respond, “No, I haven’t.”
  • 50 points were assigned to those who respond, “Yes, but just once.”
  • 100 points were assigned to those who respond, “Yes, multiple times.”

“In the past 5 years, have you used a credit card or loan to help fund a vacation you couldn’t otherwise pay for?”

  • 0 points were assigned to those who respond, “No, I haven’t.”
  • 50 points were assigned to those who respond, “Yes, but just once.”
  • 100 points were assigned to those who respond, “Yes, multiple times.”

“In the past 5 years, have you suffered negative financial consequences for vacation spending?”

  • 0 points were assigned to those who respond, “No, I haven’t.”
  • 50 points were assigned to those who respond, “Yes, I’ve suffered mild to moderate financial consequences.”
  • 100 points were assigned to those who respond, “Yes, I’ve suffered severe financial consequences.”

Each respondent’s Money Management Score was calculated as a weighted average of the points assigned to their responses for each of the three questions: (0.25)(Q3) + (0.25)(Q4) + (0.50)(Q6).

Each state’s Money Management Score is equal to the average of all the respondents’ scores from that state. Within each state, responses were weighted based on gender so that males and females received equal weight. After weighting, the effective nationwide sample size for the Money Management Score is 5,948.
The states are then sorted by their score from low to high and ranked such that Rank No. 1 is the lowest score (best money management) and Rank No. 50 is the highest score (worst money management).

Guilt Score

The Guilt Score is based on 7,480 responses to the following question and calculated as follows: “In the past 5 years, have you felt guilty about spending too much on vacation?”

  • 0 points were assigned to those who respond, “No, I’ve never felt guilty.”
  • 50 points were assigned to those who respond, “Yes, but only once.”
  • 100 points were assigned to those who respond, “Yes, after a few or more vacations.”

Each respondent’s Guilt Score is equal to the points they were assigned for Q8 (0, 50, or 100). Each state’s Guilt Score is equal to the average of all the respondents’ scores from that state. Within each state, responses were weighted based on gender so that males and females received equal weight. After weighting, the effective nationwide sample size for the Guilt Score is 6,055.

The states were then sorted by their scores from low to high and ranked such that Rank No. 1 is the lowest score (least amount of guilt) and Rank No. 50 is the highest score (highest amount of guilt).

Stress Score

The Stress Score is based on 7,480 responses to the following question and calculated as follows: “In the past 5 years, have you experienced stress from overspending on vacation?”

  • 0 points were assigned to those who respond, “No, I’ve never experienced stress from overspending on vacation.”
  • 50 points were assigned to those who respond, “Yes, I’ve experienced mild to moderate stress from overspending on vacation.”
  • 100 points were assigned to those who respond, “Yes, I’ve experienced severe stress from overspending on vacation.”

Each respondent’s Stress Score is equal to the points they were assigned for Q10 (0, 50, or 100). Each state’s Stress Score is equal to the average of all the respondents’ scores from that state. Within each state, responses were weighted based on gender so that males and females received equal weight. After weighting, the effective nationwide sample size for the Stress Score is 6,107.

The states are then sorted by their scores from low to high and ranked such that Rank No. 1 is the lowest score (least amount of stress) and Rank No. 50 is the highest score (highest amount of stress).

Guilt vs. Money Management Gap

The Guilt vs. Money Management Gap is calculated as Guilt Score – Money Management Score.

The Gap is highest if the Guilt Score is high and Money Management Score is low, meaning the respondent has high guilt, but good money management. They should feel less guilty. The Gap is lowest if the Guilt Score is low and the Money Management Score is high, meaning the respondent has low guilt, but poor money management. They should feel more guilty.

Each state’s Guilt vs. Money Management Gap is equal to the average of all the respondents’ gaps from that state. Within each state, responses are weighted based on gender so that males and females get equal weight. After weighting, the effective nationwide sample size for the Guilt Score is 6,093.
The states are then sorted by their gaps from low to high and ranked such that Rank 1 is the lowest score (too easy on themselves) and Rank 50 is the highest score (too hard on themselves).

Why Did My Credit Score Drop?

By Andrew Tavin

Let’s count it down! Here are five reasons your score may have taken a hit.

You know your credit score is important. Maybe you have known that for a long time, or maybe you learned it while reading an informative article on the OppLoans Blog.

Regardless, even if you know the importance of your credit score for obtaining things like personal loans; credit cards; an apartment; and in some cases, a job; do you know what tends to make it drop?

Missing bills or misusing credit are not the only mishaps that will ding your credit score. There are unexpected factors that can cause your credit score to drop, as you likely surmised from the title of this article. Here are five of them.

No. 1: Closing a card or account

Variety is the spice of life. It also helps when it comes to your credit score.

“Credit cards, bank loans, and mortgages can all add diversity to your credit,” said Logan Allec, CPA, owner of personal finance website Money Done Right. “If you have all of your credit concentrated on one credit card, however, you can hurt your credit. To avoid this impact, make sure to diversify your credit with at least multiple credit cards.” Of course, if you are going to have more than one credit card, make sure you are able to pay off your balances each month to avoid accruing more debt, falling into a debt spiral, and negatively impacting your credit score.

With this in mind, you need to be careful about closing credit cards and may be better off keeping a card open, even if you are not using it at all. In this case, this can positively help to diversify your credit.

We also previously covered the ways in which paying off a loan can cause a small, often temporary drop in your credit score. Student loans are particularly susceptible to this, as it is often one of the oldest accounts an adult may have.

So does that mean you shouldn’t pay off your loans completely and should never close any credit cards? Of course not! It just means you should be prepared for a possible credit drop and keep an eye on your score so you are not caught by surprise if you undergo a credit check soon afterwards.

No. 2: Identity theft

These days, it feels like there is a new massive hack or data breach every other week. If your information has been stolen, you could find yourself facing credit drops you were not expecting.

“Identity theft is one reason your credit score may suddenly drop,” said Justin Lavelle, chief communications officer for BeenVerified.com. “One way this can happen is via a data breach involving a company’s customer’s records being accessed in a fraudulent manner. These records often include the customer’s name, social security number, date of birth, home address, and driver’s license number.”

Lavelle explained how once a thief has access to this information, they can make as many purchases as they want or attempt to take out credit in your name. As you might imagine, this can tank your credit score before you even realize it has happened.

“Once you have been the victim of credit fraud, an extended fraud alert – lasting seven years – may be placed on your account until you authorize that it be lifted,” Lavelle said. Once this is in place, lenders must take additional steps in verifying your identity.

“If you suspect that you’ve been the victim of credit fraud, you can request an initial fraud alert be placed on your credit score for 90 days. This way, lenders must notify you when any new credit inquiries are made using your personal information. It also gives you the option to permanently remove your name from prescreened offers for 5 years.”

There is only so much you can do to prevent someone from stealing your identity, so it is important to pay close attention to your credit report and finances.

No. 3: Foreclosure

When it comes to finances, unfortunately, the poor often get poorer and one financial setback can leave you further behind. It certainly is not fair, but you should be wary of it, especially if you are in dire straits with your finances.

“Foreclosure can have many negative ramifications within your life, including hurting your credit score,” Allec said. “A lost home can lead to the ratings agencies deciding you are more of a credit risk and a corresponding drop in your score. However, many people didn’t realize this in 2008/2009 when housing prices were impacted. It was only after the housing market recovered that millions of Americans learned their credit had been negatively impacted.”

To avoid the risk of foreclosure, Allec suggested avoiding mortgages you will not be able to easily handle. For example, consider avoiding mortgages that require balloon payments and see if renting might make the most sense at the moment.

No. 4: Credit checks

You will likely need to undergo a credit check at some point, whether it is for a loan, credit card, or any number of other things. If you are subjected to a soft credit check, it will not affect your credit report and you may not even be aware it happened.

Hard credit checks, on the other hand, require your permission, so you should know that you will have a brief and small credit dip before you accept. As long as you are prepared, you should be able to manage it.

No. 5: Credit bureau mistakes

Finally, there are times when your credit can drop because the bureaus simply make a mistake.

“Did you know that the rating agencies often make mistakes when recording people’s credit?” Allec asked. “One company, Equifax, was hacked and exposed millions of people’s data. Other agencies have been documented to make mistakes where they routinely confuse different people and negatively lower the wrong person’s credit score.”

Allec recommends taking advantage of a free yearly credit report to check for any anomalies and ensure a bureau error doesn’t negatively affect you.

Getting ahead of the curve

Your credit will go up and down throughout the course of your financial life. As long as you know what causes those fluctuations to happen, you can work to make the ups more common than the downs.

Contributors

Logan Allec is a CPA and owner of the personal finance website Money Done Right. After spending his twenties grinding it out in the corporate world and paying off more than $35,000 in student loans, he dropped everything, and in 2017, launched Money Done Right. His mission is to help everybody—from college students to retirees—make, save, and invest more money. He resides in the Los Angeles area with his wife Caroline. Follow him on Twitter @moneydoneright.
Justin Lavelle is chief communications officer for BeenVerified.com and a leading expert on identity theft and scams. BeenVerified is a leading source of online background checks and contact information. It allows individuals to find more information about people, including phone numbers, email addresses, property records, marital status, and criminal records in a way that’s fast, easy, and affordable. Follow him @BeenVerified.

Renting When Your Credit Score Won’t Vouch for You

by Carly Rae Zent

You have low credit, but need a place to live. What else can you do to lock in a lease?

Everybody needs a place to live, but unfortunately, low credit scores make potential landlords nervous.

Some landlords may feel a low credit score is an indication the tenant is more likely to lapse on rent. If you fall into this camp, it might make it hard to find a place to rent if landlords keep passing on your application for someone else’s with a better credit score.

Luckily, there are ways to find a great place to rent regardless of your score. If you’re currently struggling with a low score, follow these tips for negotiating with the landlord.

Be upfront and communicate

It’s best your potential landlord is not taken by surprise when they run your credit report. When you file your application, be upfront about your credit score and why it is low. After all, not every credit score is low because of missed payments. Maybe you divorced recently; maybe you were sick, and have medical debt; maybe you fell victim to a predatory payday loan or title loan and took a dent in your score. You should also discuss your current plan for addressing your credit score and keeping up with future payments. Maybe you recently lost your job, but you’ve found another one, so your credit score will go back up, or maybe you’ve formulated a payment plan. Let them know.

If you have proof of reliable income, or an impressive savings account balance, now is the time to show proof of that in order to demonstrate you will have the funds available to cut a rent check every month.

Communicating with your potential landlord during the beginning of the application process will make you seem responsible and aware. This will give them more reassurance that you will be a great tenant who reliably makes on-time payments. Discussing your situation will provide more information to help them decide whether to make an exception to their credit score rules and rent to you.

Ask a reference to vouch for you

Your past landlords — if they have high opinions of you — will be able to reassure your future landlords that they have nothing to worry about by renting to you. When discussing your low credit score, include the phone number of at least one person who will be able to share that you’ve kept up with payments in the past. Also ask your references to vouch for your character — they can let future landlords know that you take good care of the house, are clean and respectful, and are a great tenant.

References will help landlords get that whole-picture view of what kind of tenant you are and make it more likely to view you as a great tenant.

Find a roommate or guarantor with better credit

If you’re renting a two-bedroom, see if you can find a roommate to sign the lease who has better credit than you. Seeing that one person on the lease has a good credit history will provide the potential landlord with extra reassurance the rent will get paid on time.

Getting a co-signing guarantor is also a great idea, especially if you plan to rent alone. A guarantor is someone who the landlord can legally hold accountable for rent, even if they aren’t necessarily living with you. Ask someone who trusts you to back up your lease with their great credit score by taking on the guarantor role. This is an especially common move for those who are young or renting for the first time and have no credit history at all.

There are also companies that offer co-signing a lease as a service, but do your research before working with one. Not every such company will be legitimate.

Offer a larger security deposit

Some landlords already have set policies that say they will charge higher security deposits to tenants with lower credit scores. You can get ahead of the game and help reassure your landlord by going ahead and offering a larger security deposit that is 50% more than or double the normal deposit.

A higher security deposit ensures that the landlord is going into the transaction with less risk — if you end up not being able to pay rent, then they can absorb the security deposit to make up for any lost profits or cash.

If you can save up even more, consider paying several months’ rent at once.

Seek rentals that don’t require credit checks

Believe it or not, not every potential landlord will perform a credit check. Just as there are no-credit-check loans, there are also no-credit-check landlords. If you do your research, you might be able to find such a landlord in your area.

Landlords who are most likely to take a chance on a tenant without a credit check are individual or small-time local landlords. Faceless property management organizations with hundreds of properties are more likely to rely on black-and-white policies to choose tenants —meaning they might choose to turn you down for having a low credit score no matter how awesome you are otherwise.

Finding landlords who don’t mind low credit scores or not checking credit at all can be done by:

  • Asking your friends for recommendations
  • Submitting a post with your housing requirements in neighborhood groups on Facebook or Nextdoor
  • Driving through neighborhoods in search of “for rent” signs
  • Looking in areas with less competitive rental markets. Landlords might be more likely to take low credit score renters if they have fewer tenant options.
  • Looking on listing sites like Craigslist and Zillow (Be sure to avoid rental scams for this one. Sometimes scammers will post fake properties aiming at low-income or poor-credit tenants in order to steal information.)

Remember: It’s not all about credit

Great credit scores are not the only things that landlords look for in a tenant. They look at the whole picture of an individual’s character. If you’re struggling a little financially, but you have no criminal history and you’re communicative and respectful, then a landlord might just give you a chance.

With these tools and tips in arm, you’re ready to face the world of home rental — no matter what your credit score may be. Good luck!

Struggling with other rent-related questions? Check out these articles for those who are either renters or looking for someone to take on a lease:

The Consequences of Medical Debt

Unpaid medical bills can end up on your credit report.


The cost of receiving medical care is a big problem in the United States. Not only are one-third of GoFundMe campaigns related to covering medical bills, according to a 2018 interview with the organization’s CEO, but various sources in recent years have also tagged medical debt as a leading cause of bankruptcy.

Even for folks who don’t end up going bankrupt over their medical bills, there are still several ways that these debts can negatively affect their life. Excessive medical debt can deplete savings and tank your credit score, leaving you vulnerable during a future financial emergency and relying on no credit check loans, payday loans, and cash advances to get by.

The relationship between medical debt and credit isn’t exactly a straight line. But while medical debt doesn’t necessarily affect a person’s credit score, there is one fairly direct path that can be followed from high medical costs to bad credit.

First things first: debt affects your credit score

When you take out a personal loan or put a balance on your credit card, the amount that you borrow ends up on your credit reports. These are documents that track your history as a borrower and user of credit, typically over a seven-year period (although some information, like bankruptcies, can stay on your report for longer). Credit reports are maintained by the three major credit bureaus: Experian, TransUnion, and Equifax.

Your credit score is based on the information contained in those reports. The most common type of credit score is your FICO score, which is based on a scale from 300 to 850. The higher your score, the better your credit.

When it comes to debt, your credit reports not only track the number of accounts you have open, but they also tally the amount of money you owe on each account. Payment history is the most important part of your credit score—it makes up 35% of your overall score—but your total debt is a close second, comprising an additional 30%.

Owing too much debt will have a negative impact on your credit score. This is especially true if you owe a large amount of high-interest consumer debt through credit cards and personal loans. Ten-thousand dollars in credit card debt will likely have a much larger negative impact on your score than $100,000 in mortgage debt.

Medical debt can fall into a gray area and doesn’t necessarily go on your credit reports — but it can.

The ambiguity of medical debt

“An unpaid medical debt will likely not show up on your credit report,” said Mike Pearson, founder the personal finance site Credit Takeoff. “This is because unlike, say, a credit card company, your doctor’s office or hospital probably doesn’t directly report payments to the three credit bureaus — which is how information shows up on your credit reports in the first place.”

However, just because your health care providers aren’t reporting your unpaid bills directly to the credit bureaus, they may still hire someone to take care of dealing with the outstanding balances for them. As a result, owing a large amount of medical debt can still easily tank your credit score. As Pearson put it: “You’re not in the clear yet.”

Debt collection accounts 

Banks, credit card companies, and other types of personal lenders report information to the credit bureaus — and many landlords report to them, as well. Meanwhile, debt collectors also report to the credit bureaus, but they don’t report loans or credit cards; they report unpaid debts, also referred to as  “collection accounts.”

If you stop paying your credit card, it will get sent to collections and eventually show up on your credit report as one of these collection accounts. The same is true of personal loans, installment loans, and other unsecured debts — including medical bills.

“If you continue to ignore the medical bill, what your medical provider will likely do is turn your account over to a collection agency,” Pearson said. “It’s at this point the bill may turn up on your credit report.”

In addition to that, unpaid medical debt won’t just affect your credit, it could drop your score from good to bad in one fell swoop. “Having an unpaid medical bill on your credit report can drop your credit score up towards 100 points,” Pearson said, “and can remain on your account for seven years.”

Tips for handling medical debt

The threat that unpaid medical debt poses to your credit score and your overall financial well-being isn’t just theoretical — it’s very real. Bankruptcy attorney Joy Alford-Brand says she’s seen hundreds of credit reports full of negative entries from debt collectors who were collecting on medical debt. Here’s how she recommends managing the fallout:

Maintain careful records. For those who are struggling under the weight of their medical bills, Alford-Brand says that your best weapon is organization. “Make sure you are keeping careful records about your debt. Medical debt can be incredibly confusing; don’t get caught in the trap of not knowing what you owe to who and why,” she said. “Check your bills for accuracy, too. Information is entered by humans and they can make mistakes. Small mistakes on medical bills can be costly.”

Know your rights. Alford-Brand makes clear that you should know your debt collection rights. “Debt collectors regularly, and blatantly, violate the Fair Debt Collections Practices Act. Make sure you are familiar with it and holding debt collectors to the letter of the law.”

Consider all options. While bankruptcy should never be your first option — especially when it comes to your credit score — Alford-Brand lays out how it can still help you discharge those debts once all other options have failed. “While it is not pleasant to consider declaring yourself insolvent, the promise of a fresh start can be worth it if you are suffering under a mountain of medical debt,” she says. “Medical debt is routinely discharged in bankruptcy, and while it stays on your credit for 10 years, the automatic stay and the discharge injunction can help you get back on your feet after a traumatic medical experience.”

Moving on past medical obligations

Maintaining a good credit score is an important part of your financial health — but when it comes to digging out from underneath a mountain of medical debt, maintaining good credit isn’t always possible. In cases like that, building up a well-stocked emergency fund can go a long way to providing you some financial stability, even if you have lousy credit.

To learn more about how to build your savings and plan for major life expenses check out these related posts and articles from OppLoans:

Contributors

Joy Alford-Brand became a licensed attorney in North Carolina in 1999.  She has practiced bankruptcy law for 17 years. In 2015 she published a book on personal finance based on her experience as a bankruptcy attorney called Money Basics, Keeping It and Growing It. She also founded NewCashView.com to teach people basic personal finance techniques to help them avoid filing for bankruptcy and learn to be financially empowered. Follow her on Instagram @joyalfordbrand.
Mike Pearson is the founder of Credit Takeoff, a research-driven personal finance site for people looking to improve their credit. A proud member of the 800 Credit Club, Mike writes about practical steps that everyday consumers can take to increase their credit scores. His advice on credit repair and credit scores has appeared in QuickBooks, Go Banking Rates, and MortgageLoan.com.

 

Credit Checks 101: the What, the When, and the Why

Not all credit checks are the same. Here’s a rundown of how they can work both for and against you.


If you have ever applied for a loan, there is a good chance you may have undergone a credit check. Or maybe you have never had a first-person experience with credit checks but are concerned that you will one day.

No matter how you reached this article, you are here to learn why credit checks exist and how they work—maybe even what they taste like.

OK, so maybe not what they taste like. But we will be talking about everything else. Welcome to your Introduction to Credit Checks class.

What is a credit check?

A credit check is a review of your credit report, which can be compiled and made available by any of the three major credit bureaus. Your credit report contains information about your payment history, the current amounts you owe, employment status, and other financial and personal information.

“A credit check reveals your financial history and plays a role in making a decision about you,” Patrick Barnett of The Income Spot explained. “It demonstrates your financial habits and the risk you present. The information contained within the report will indicate payment history, total outstanding debt, total open accounts, and types of accounts. It discloses public records such as tax liens, bankruptcy, foreclosures, and civil judgments.”

The information on a credit report can fluctuate over time, but remember that negative credit information will stick around for a while. Negative credit information can remain on your credit report for 7 years, while bankruptcy can linger for up to 10 years.

Types of Credit Checks

There are two kinds of credit checks. Hard credit checks and soft credit checks.

Soft credit checks are often used by companies looking to make you a “preapproved” offer. They do not show up on your credit report and thus, do not affect your credit score. An entity performing a soft credit check does not require your permission to do so.

Hard credit checks are essentially the opposite of soft credit checks in nearly every way. They don’t require your permission and will appear on your credit report. That means you do not want to allow too many hard credit checks in a row or else your credit score will take a hit.

Why do credit checks occur?

Credit checks tend to be performed by lenders when considering the likelihood of a potential borrower or applicant to pay back a loan, but it is far from the only occasion.

“If someone wants to run a credit check on you, it’s likely because they need to make a decision on your character,” said Nathan Wade, managing editor for WealthFit Investing. “Landlords, lenders, and employers all might ask for it. If you’re trying to pull out a loan, then the lender wants to ensure you have a good financial history before approving you for that loan.”

However, as noted above, lenders aren’t the only decision-makers who can run a credit check on you. “Some employers also run a credit check to ensure you as an individual have financial responsibility and stability,” Wade said. “Landlords want to ensure you have the financial ability to afford the listed rent and that you don’t have a bad history paying off bills.”

You might also face credit checks from insurance companies, court orders, and utility companies.

Can you avoid credit checks?

Theoretically, avoiding hard credit checks is easy. Because you cannot be subject to a hard credit check without explicit agreement, you could avoid every hard credit check by just never agreeing to one.

Once you move beyond theory, it becomes a lot more difficult to avoid hard credit checks. Unless you are able to pay for everything—from rent to a car—in cash, then you are probably going to have to face a hard credit check at some point.

The best you can do is to prepare for the credit checks you will have to face. That means either building or improving your credit history and paying down your debts to the best of your abilities.

Build up your credibility

Proper credit card use is one of the most reliable ways to build up your credit history. Even if you cannot qualify for a traditional credit card, you should be able to get a secured credit card. By never spending more than one-third of your credit limit and paying off your bill in full each month, you should be able to make a positive impact on your credit. It is also important to create a budget that will allow you to pay down your debts if you want to see an improvement on your credit report.

Finally, you are entitled to a free copy of your credit report annually and in some other circumstances. Seeing your credit report will let you know in advance what others will see after performing a credit check and allow you to know exactly what will happen if you agree to it. You should also check your credit report for any errors and report them to the proper agency.

Credit checks are likely going to be a part of your financial life. Hopefully this article has helped you prepare for them.

Contributors

Patrick Barnett has a passion for entrepreneurialism that traces back to his days as a teenager. He is always learning and seeking out ways to refine his skills. Through his blog, he offers advice and training – from niche research to case studies of successful small business entrepreneurs. He is also a licensed private investigator and runs a background check website.
Nathan Wade is a licensed attorney for the State of Hawaii and the U.S. District Court of Hawaii. He holds a law degree with a focus in business and has extensive experience in entrepreneurship and international business. He is also a Managing Editor for WealthFit Investing, a financial education blog dedicated to curating advice on investing, entrepreneurship and money.

 

Your Credit Score vs. Your Card Limits

How does one impact the other?

The relationship between credit cards and credit scores can often be fraught. Proper credit card use will help build your score, and advanced credit card use can allow you to benefit from rewards programs in ways that can save you a lot of money. Poor credit card use, however, can drag your credit score down and leave you in a spiral of debt.

“People who have lower credit limits can easily fall into a trap of overusing their credit card,” warned Igor Mitic, editor-in-chief of Fortunly.com. “And when that happens, credit reports will show it and it will decrease their credit score.”

But that’s not all. Not only will your credit card use affect your credit score, but your credit score is the most significant factor when it comes to determining what credit cards you can access, if any.

Read on to get the rundown on starting your path toward credit card mastery.

The importance of having a credit card

A common misconception around credit scores is that every individual starts out with good credit, and only through bad financial decisions can you harm the pristine credit score you inherited at birth. However, we arrive on Earth with no credit score at all. Only by demonstrating proper use of credit can you build a credit history, which is the most impactful ingredient in cooking up your credit score.

Proper credit card use is one of the most reliable ways to build a credit card history or improve a poor or fair credit card score. By keeping the balance on the card to around one-third of your spending limit and paying the bill in full every month, you won’t have to pay interest costs and your credit score will grow and grow.

Unfortunately, this creates somewhat of a “chicken and egg” dilemma.

Your credit score’s impact on credit card access

Without a good credit score, you will have difficulty qualifying for a credit card with a good rate and spending limit, as Dave Sullivan, vice-president of marketing for the People Driven Credit Union, explained: “Most banks have something called risk-based pricing. Risked-based pricing is used to match the risk of the credit card holder to the appropriate interest rate. The lower the score, the higher the rate.”

If your credit score is low enough, you may not be able to qualify for a traditional credit card at any rate. Fortunately there are reasonable nontraditional options.

Secured credit cards are one common solution. The “security” comes through a cash collateral that you must provide to the bank during your use of the card. If you don’t pay your bills, the bank can seize the money.

While having the cash on hand to apply for a secured credit card may require some saving, if you do have the cash, you shouldn’t have a problem. “All borrowers should be able to get a secured account regardless of their credit profile,” Sullivan assured.

Mitic offered a couple other options you could consider (with caution):

Store credit cards: “Some retail stores are approving applicants with bad credit,” Mitic said. “However, people should be aware that those credit cards can be used only at that store and they usually have high interest rates.”

Companies that look at the big picture: For those who have a low credit score or don’t have one at all, there are companies that have their own process for evaluation credit card applications. For instance, Mitic said, they might look at employment and bank account balances and also may not ask for a security deposit.

You should also do your own research to find out what available credit card options might work best for your specific situation. Regardless of what option you choose, it is vital to always remember to pay down your entire bill every month.

Advanced credit card techniques

Once you manage to build up your credit score, you can start exploring advanced credit card use. You will still want to maintain the same general practices that got you to your good credit score, but you can begin researching cards that will reward you rather than penalize you for using them.

Different cards offer different kinds of rewards for different kinds of spending. Be aware that some of these cards will require you to pay an annual fee, but by strategically managing your credit cards, you can maximize your savings and benefits. Consider creating a spreadsheet or using some other method of tracking your card use so you don’t make any mistakes and risk letting your score fall again.

Proper credit card use is a skill that will require practice to build the best habits. The sooner you can get started, the sooner you will be on your way to mastering your cards.

Contributors

Igor Mitic is an experienced writer and content creator in the financial niche. He has extensive experience working with banks, insurance companies, and other institutions that create financial products and services. He is passionately sharing his knowledge as the editor-in-chief at Fortunly.com, a website dedicated to the simple explanation of financial matters to ordinary people.
Dave Sullivan is the VP of Marketing for People Driven Credit Union. He started in the mortgage industry as a loan officer in 1991. Less than one year later started selling credit reports to mortgage companies, banks, and credit unions. On September 19, 1997, he started AIR Credit Midwest out of his car. During the next two years, Air Credit Midwest grew to a multimillion dollar company. In 2000, he sold Air Credit Midwest to one of the largest credit reporting bureaus. In 2011, Sullivan started a YouTube channel providing free advice on improving your credit. He is the author of the book Transform Your Credit. Follow him @peopledrivencu.

 

What is Fair Credit?

Borrowers with a fair credit score have room for growth if they are willing to be persistent. 

Credit scores can be confusing. You might not always be certain of the meaning behind the three-digit number that comprises your credit score. But you generally can understand what it means to have a credit score that is “good” or “bad.”

But what if you have a “fair” score? What exactly does that mean?

Credit score review

Your credit score is a three-digit number compiled by Fair, Isaac and Company, or FICO. FICO calculates your score using information about your payment history and debts that have been gathered by the three major credit bureaus.

Your score is a number between 300 and 850. The higher this number, the better your odds of qualifying for loans and the better rates you can access.

You also have a VantageScore, which is similar but was created more recently as a competitor to the FICO score.

Fair credit

“A ‘fair’ credit score falls in between a 580-699 on the FICO and VantageScore Model rating charts,” said Beverly Friedmann, content manager for ReviewingThis. “It’s technically right in the middle, above a bad or poor rating and below a good or excellent score. But while a fair credit rating is in the middle of the index and not considered poor, it is also not considered good (in terms of qualifying for loans and credit cards). You’ll end up paying higher interest rates on any loans, cards, or mortgages with a fair score than someone with a good or excellent reputation.”

Friedman also pointed out that there’s a… fair… degree of variance within that “fair” rating: “However, where you fall on this index can often make quite a difference. A few points can change the way lending companies interact with you, and a 580 score is quite different than a 699 score. It’s important to bear in mind, however, that fair credit is certainly superior to poor credit. You can qualify for different loans and credit cards and rebuild your reputation score easily, which is very challenging for those with poor or bad credit scores.”

If you find out that you have fair credit, you should take that as a sign that you have room to grow while not letting any bad habits you have drag your credit down into the “poor” range.

Moving beyond fair

Payment history is the most important factor contributing to your credit score, followed by the amount of debts you currently owe. That is why Nathan Wade, managing editor for WealthFit Money, recommends focusing your attention in that direction.

“Having fair credit means you’re much closer to improving it than someone with bad credit,” he said. “Ensure that you’re paying bills on time, pay off any debt you’re in, and avoid applying for too much credit in a short period of time. It’s also important to look for any mistakes on your credit reports and dispute them immediately.”

You can get a free copy of your credit report from AnnualCreditReport.com. Do not use any other sources to get a copy of your credit report, no matter how catchy their jingle might be, as it could be an attempt to scam you.

How credit cards can help (if used wisely)

Since you don’t have poor credit, you don’t have to be quite as risky about taking out loans, though you should still utilize significant discretion.

While you should heed Wade’s warning about applying for too many different forms of credit too quickly, a credit card can be a good way to build your credit score, as long as you don’t use it too much and you pay off your entire bill each month. If you are paying off your whole bill each month, then it won’t matter that the interest rates on your card might be higher since you won’t actually have to pay any interest anyway. However, if you aren’t paying off the full amount, you will end up owing more on the balance and hurting your credit utilization ratio.

You could also consider a secured credit card to help build your credit. This is a credit card that requires the user to put down cash as collateral, but it is easier for borrowers to qualify.

Building credit can be a long and dedicated process, but you should feel encouraged in the knowledge that you aren’t starting from the bottom. Pay down your debts in full and on time, and you’ll be well on your way to “good” credit before you know it.

For more information on credit scores and how they work, check out the following:

Visit OppLoans on YouTube | Facebook | Twitter | LinkedIN | Instagram


Contributors

Beverly Friedmann works as a content manager for the consumer website ReviewingThis, has a background in sales and marketing management, and is from New York, NY.  Find more information on Twitter @ReviewingThis.
Nathan Wade is the Managing Editor for WealthFit Money. Find more information on Twitter @GetWealthFit.

 

8 Credit Card Mistakes That Will Tank Your Credit

Think that new TV was expensive? It probably was—in more ways than you know.

Credit cards are convenient. They’re also one of the best ways to build a strong credit history and boost your credit score—if used responsibly.

But for all the perks credit cards offer, there are just as many dangers. It’s easy to overspend, miss payments, and carry high balances. And while responsible use will give your credit score a boost, irresponsible use will send it in the other direction.

Ready to make credit cards work in your favor? Here are eight common mistakes you definitely want to avoid, and expert-approved tips on how to avoid them.

Mistake No. 1: Overspending on credit cards

Devon Horace, founder of Horace Consulting, LLC

Some common mistakes people make with their credit cards are paying for things too far from what they can afford, letting the charge sit in their account over multiple months, and not using their credit cards for all their expenses.

Avoid these mistakes by not paying with a credit card and using a debit card [instead]. This will prevent [you] from spending money [you] don’t have and crawling into debt. If you are going to use your credit card, have the funds available in your bank account to pay off the fee immediately. If you don’t have the funds, you will be charged interest rate fees.

Lastly, you can use your credit card for just groceries and small [expenses] like your cell phone, subscription account like Netflix, Hulu, etc. A lot of people are in the process or want to increase their credit score. If you pay on small accounts that you can control and [keep] your credit card utilization rate lower than 20% of your total credit limit (credit available) you can avoid these issues.

Mistake No.2: Applying for too much credit

Karen Ford, Money Matters! financial coach

One more mistake some people make is that taking out a credit card will change your credit score. If you’re getting ready to make a large purchase, such as a house, don’t apply for any other loans until that house is closed.

Mistake No. 3: Making minimum payments

David Mitroff, founder of Piedmont Avenue Consulting, Inc.

Most credit cards ask you to make a minimum payment each month, which you generally owe a fixed amount of 25% or a percentage of your balance, usually 1 to 3%. It is tempting to pay minimum monthly payments when you are under financial stress. Paying the minimum payment on your credit card [will give you] temporary relief. But you’re also committing to paying more with interest in the later stage. It is just like the less you pay now, the more you will have to pay later.

If you pay a minimum amount of your credit card each month, it won’t only take longer to pay your debt, but also you will have to pay bigger interest charges and you’re your credit card score could take a hit.

My advice is to make the highest payment you can afford and reduce spending in other areas to focus on paying off the debt. This won’t only improve your credit card history, but also make you debt-free earlier, as this will reduce the amount of interest you’ll have to pay.

Richard Best, personal finance expert at Don’tPayFull

This could very well be the most costly mistake you could make as it can add hundreds or even thousands of dollars of interest charges over time, and it can adversely impact your credit score. Making minimum payments on your credit card balance can explode your interest costs to nightmarish proportions to where it could take years to pay down the debt. Also, the credit bureaus don’t take too kindly to minimum payments, especially if it results in your debt-to-credit limit ratio to increase. You should always make more than the minimum payment on your credit card balance, even if you have to cut other things out of your budget.

Mistake No. 4: Late or missing payments

Richard Best, personal finance expert at Don’tPayFull

When finances get tight, people sometimes need to do some major juggling of expenses and payments to get through to the next pay day, and it is often the credit card payment that falls on the priority list. The rationale for some people is that, as long as they pay it before 30 days, it won’t be reported as a late payment. While that may be true, the damage to your credit begins the moment your payment is late. That’s because the credit card issuer is likely to boost your interest rate, especially if you have had more than one late payment. In addition to a late payment fee, you may see your interest rate increase by as many as four or five points. That could lead to more problems if you find yourself having to make minimum payments as a result of the higher costs.

Mistake No. 5: Ignoring annual fees

Karen Ford, Money Matters! financial coach

Some folks make the mistake of taking out a credit card and not realizing that there is an annual fee for that particular credit card.

When considering applying for a certain credit card, always ask if there is an annual fee for having such a card.

Mistake No. 6: Relying on balance transfers

Richard Best, personal finance expert at Don’tPayFull

There are few things more tempting than a 0% introductory rate offer, especially if you’ve managed to rack up some high-interest debt on another card. The problem is, if you are having problems paying down the debt on one card, you are very likely to continue having problems on the new card. Balance transfers can provide some temporary relief from high-interest payments; however, once the introductory period expires, you’re right back where you started with another high-interest payment to make. You could also find yourself with too many credit cards (another mistake), which can hurt your credit score.

Balance transfers only make sense if you are able to pay off the balance during the introductory period, or, at the very least, you are able to take advantage of the 0% interest to substantially pay down the debt.

Mistake No. 7: Not utilizing the benefits of credit cards

Trevor Oldham, founder at Podcasting You

The common mistake I see people making is two things: 1. Not purchasing everything with their credit card, and 2. Not paying their credit card off in full each month. I purchase everything on my Fidelity Visa card. At the end of every month, I pay the card in full. With the 2% I get back, I automatically have it go into my Roth IRA.

A debit card gives you nothing back and you’re not protected the way you are with a credit card. With a debit card, it can take months to get reimbursed… I’ve found out the hard way. With a credit card, you can be reimbursed almost instantly.

Mistake No. 8: Canceling credit cards

Richard Best, personal finance expert at Don’tPayFull

One of the things some people do when they turn over a new leaf in their credit management is to cancel some of their credit card accounts. While this might seem like a positive step to better credit management, it can be a big mistake. When you cancel a credit card account, you also reduce your available credit. This could have the effect of increasing your debt-to-limit ratio, especially if you hold on to accounts that have a balance. It’s better to focus on paying down your debt and keeping your debt-to-limit ration well below 25%.

If you want to cancel credit accounts, you could probably get away with canceling some store credit cards because their credit limits are usually very low.

Bottom Line

Credit cards are a useful financial tool, but they can easily lead to debt and a plummeting credit score. Before you open your wallet, read up and handle responsibly.

Contributors

Richard Best is a writer for money-saving platform DontPayFull with more than 30 years’ of experience in financial services.
Karen Ford is a master financial coach, public speaker, entrepreneur, and author at KarenFord.org. She has coached people with a variety of money issues, from just US$500 in debt to $800,000 in debt. She has coached folks with up to 86 credit cards and taught them how to pay down and pay off those credit cards in record time.
Devon Horace is an investor, personal finance, and business strategist, and founder of Horace Consulting, LLC. From $47,238.38 in debt to millionaire, Horace now helps other young professionals achieve their personal finance and business goals through Horace Consulting, LLC. His goal is to increase financial and business literacy in his community.
David Mitroff, Ph.D. is a business consultant, marketing expert, author, and keynote speaker who founded Piedmont Avenue Consulting, Inc.,where he advises on leveraging new technology to create brand awareness, strengthen customer loyalty, and generate new business leads. Dr. Mitroff leverages his extensive professional and educational background, including a Ph.D. in Clinical Psychology to motivate people to create change, while understanding the psychology behind business and marketing decisions. He is also a college instructor in entrepreneurship and marketing for the University of California, Berkeley International Diploma Program and a Google mentor for the Google Launchpad Accelerator. Through his consulting, lectures, trainings, and keynotes David Mitroff, Ph.D. has educated more than 35,000 business owners.
Trevor Oldham is a founder at Podcasting You, A Done For You Podcast Booking Agency.

What credit card advice do you have to share? Tell us on Twitter at @OppUniversity.

How to Reward Yourself for Good Financial Behavior

Treating yourself after hitting a financial goal doesn’t have to mean spending some of that hard-saved dough!

We tend to talk about the “vegetables” of finance here on the OppLoans Financial Sense Blog. You know, articles about the stuff you should cut out of your budget, how you can stay out of debt, how to use credit cards and personal loans responsibly, and information about good financial habits in general.

But life isn’t only about the vegetables! Sometimes you want some dessert, and that’s OK! How else are you supposed to reward yourself for all of the vegetables you eat?

You still need to be careful, however. You don’t want your reward to wipe out all the progress you were rewarding yourself for in the first place.

So what are some rewards you can give yourself for fixing your budget that won’t break your budget all over again?

We spoke to the experts to find out!


Create a reward space at home.

If you’re the sort of person who enjoys drinking responsibly, you might consider a night out on the town as a reward for a week of financial discipline. But depending on what you’re drinking and what city you’re drinking it in, you could be blowing a LOT of money on reward booze. Especially because once you start drinking, your judgment can become impaired, and you might start paying less attention to your tab. After all, that’s not much fun, is it?

While there are good reasons to limit drinking, if you like to celebrate by drinking responsibly, you can still do so in a much more affordable way.

“If going out for a drink is one of your favorite ways to celebrate, consider creating a home bar instead,” suggested Logan Allec, CPA (@moneydoneright), owner of personal finance website Money Done Right. “You can often buy the ingredients you need to make your favorite cocktail several times at home for less than the price of a drink or two at a bar.

“Invite your friends over, and ask some of them to bring ingredients for their own favorite drink and others to bring snacks. You and your friends might even decide that this is actually more fun than going out for happy hour!”

Create free rewards.

Not all rewards cost money!

“Really consider if the reward needs to be monetary,” offered portfolio manager Pauline Yan of Sunday Brunch Cafe (@s_b_cafe). “Are you personally motivated by getting ‘things?’ Or are you rewarded with something else? Praise? Or a day ‘off?’ A good meal?”

Using vacation days, if you have them, as a reward to yourself is nothing to sneeze at! Sick days are what you should be sneezing at. Deploying vacation days strategically can make for a “free” reward.

“If you’ve been working long hours and pulling all-nighters to get to where you are financially, it may be time to indulge in a few days off of work,” recommended Beverly Friedmann, content manager for ReviewingThis (@ReviewingThis). “You can easily reward yourself for your good financial behavior by taking a few off days off, or a long weekend to relax, if given the opportunity.

“This doesn’t mean you have to splurge on a pricey trip, instead you can use the time to have a fun and rejuvenating ‘staycation.’ Spending some time with friends and family to take a much-needed and deserved break can be an excellent way to celebrate success. If you’re not able to get time off of work, even taking an evening off to spend time with friends and family and watch a movie or spend a night in can be very rewarding.”

That time off could also be a chance to try out future free reward possibilities.

“If you’ve had recent work successes and your finances are in good shape, you may be tempted to splurge on pricey Groupon packages or the latest weekend spa deal you find online,” warned Friedmann. “While there is nothing wrong with the occasional indulgence, you may not want to negate all of your recent hard work.

“If you have a favorite activity or hobby you enjoy, it’s often easy to get involved for free or at a very low cost. Local meet-up groups in your area are a great opportunity to meet new people with shared interests while trying out new hobbies. You may even want to take a trip to your local park or spend weekend hiking. Free and low-cost leisure activities are both an excellent reward for good financial behavior and a perfect way to decompress.”

Keep the reward in mind as a motivator.

If you work the idea of your chosen reward into your everyday budget efforts, you’ll have something to focus on besides how annoying it is to bring your own lunch every single day of the week. Or whatever budget concessions you’ve been making.

“I have a ‘sunny day fund’ that I add to over time,” recounted Deborah Sweeney (@deborahsweeney), CEO of MyCorporation.com (@mycorporation). “It’s kind of the opposite of a rainy day fund. I contribute money there that would have normally been spent on smaller, splurge purchases like lunches out, and use it to buy myself something great in the future. I think focusing on saving for something in the future keeps you from spending more today. It gives you something to shoot for and focus on.”

If you’re the artsy type, you can even create some visual aids to help your motivation.

“By using spending trackers and motivational charts, you can reward yourself for good financial behavior by seeing the fruits of your own labor and continuing to make gains over time,” advised Friedmann. “It’s akin to making a gold star chart for rewards for good test scores as a kid. It may seem silly at first, but you may find it incredibly helpful.

“It’s useful to see your own progress in real time, and to set new goals for the future. It may be as simple as jotting down two divided columns on a piece of paper, one with financial goals and one with corresponding rewards. This way you can track your own progress and stay motivated in the long-term at the same time.”

Paying off a hefty installment loan or online loan can be tedious work, requiring strict financial discipline. The easier and more enjoying to make it to track your progress, the better!

Enjoy the relief of being financially secure.

OK, we’re sort of ending this article with a little more vegetables. But you can have vegetables for dessert! Ever had candied yams? Yum yum!

“Paying off any outstanding debts is a great way to relieve any worries and a perfect reward for good financial behavior,” suggested Friedmann. “While it may not be the same as a trip to the Bahamas, getting rid of any accrued debts can provide feelings of relief and help your credit score. You’ll likely find it incredibly rewarding and any upcoming fears about receiving calls from credit agencies will be assuaged. Debt relief can be incredibly rewarding, and you won’t have to worry as much about future bills piling up.”

As with any indulgence, too much dessert will be a problem. But no dessert at all? Well, that’ll leave you with a bitter taste in your mouth.

Building better money habits is a neccessary step to achieving financial stability—and putting expensive short-term bad credit loans and no credit check loans (like payday loanscash advances, and title loans) behind you for good. To learn more about how to build better financial habits, 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 | Instagram


Contributors

Logan Allec (@moneydoneright) is a CPA and owner of the personal finance website Money Done Right.  After spending his twenties grinding it out in the corporate world and paying off over $35,000 in student loans, he dropped everything and launched Money Done Right in 2017.  His mission is to help everybody—from college students to retirees—make, save, and invest more money.  Logan resides in the Los Angeles area with his wife Caroline.
Beverly Friedmann works as a Content Manager for the consumer website ReviewingThis (@ReviewingThis)—with a background in Sales and Marketing Management—and is from New York, NY.
Deborah Sweeney (@deborahsweeney) is the CEO of MyCorporation.com (@mycorporation). MyCorporation is a leader in online legal filing services for entrepreneurs and businesses, providing start-up bundles that include corporation and LLC formation, registered agent, DBA, and trademark & copyright filing services. MyCorporation does all the work, making the business formation and maintenance quick and painless, so business owners can focus on what they do best.
Pauline Yan is a Personal Finance Coach and an Institutional Portfolio Manager for the wealth management arm of a multinational financial institution.  After 15 years in Finance helping organizations, from Fortune 500 companies to Not-For-Profits, achieve their financial goals, she now brings her expertise to guide individual investors.  She graduated from McGill University and has earned the right to use the prestigious Chartered Financial Analyst designation as well as the Chartered Alternative Investment Analyst designation. Featured in Women who Money, WellWallet and The Globe and Mail, you can find out more at SundayBrunchCafe.com (@s_b_cafe).

The Debt Spiral: What It Is and How to Escape It

If you end up having to take out new debt to cover costs incurred by all the payments you have to make on your old debt … you just might be in a debt spiral!

Finance, like life in general, is often unfair. The richer you are, the easier it’ll be for you to hold on to your money. And the more you’re struggling with debt and budget issues, the worse those issues will become.

Almost like some sort of… slippery slope. Or maybe even a spiral. A debt spiral!

Yes, one financial slip-up, whether within or outside of your control, can set you down an unfortunate path. One late payment or unexpected expense causes you to fall behind on your financial obligations, and it can seem impossible to catch up.

So what is the debt spiral, how can it trap you, and how can you escape it?

Read on to find out!


The debt spiral: What is it?

We alluded to the definition of the debt spiral in the intro, but let’s just lay it out really quickly. Or rather, have one of our valued contributors lay it out.

“A debt spiral is when an individual, company, or even country falls into major debt over time,” explained Monica Eaton-Cardone, owner & COO of Chargebacks911 (@Chargebacks911). “The reason behind this is simply because individuals don’t know how to use their credit cards properly. You begin to miss payments and the number of late payment fees you have increases.

“You’re eventually in debt and decide to borrow money, but then you aren’t able to pay off the money you borrowed and get a little more behind. Ultimately, the whole thing snowballs on you as your interest rates get higher and higher. You’re then stuck with multiple loads of debt. The more you try to catch up, the worse it gets and the more behind you get.”

Credit cards are a common cause of a debt spiral, but they can also result from unsecured personal loans, installment loans, and online loans or even home, auto, and student loans. People with poor credit scores can also easily get caught up in a debt spiral if they’re relying on short-term bad credit loans and no credit check loans (like payday loanscash advances, and title loans) to regularly make ends meet.

It won’t always be obvious that you’ve entered a debt spiral.

“You may not even realize at first that you’re on your way into a debt spiral,” warned Leslie H. Tayne Esq. (@LeslieHTayneEsq), Founder and Head Attorney at Tayne Law Group (@taynelawgroup). “It can start as simply as not paying off your full credit card balance one month and then spending more on top of it the following month.

“Before you know it, your balance is continuing to increase each month as interest accumulates and your minimum payment is not making a dent. If you continue to be unable to make significant payments, it will just continue to grow and grow, making it even more difficult to break free of the spiral.”

Now how can you escape it?

Recognize the spiral.

You can’t fix a problem until you realize the problem exists.

“The first step to getting out of a debt spiral is recognizing that this is the problem,” offered Tayne. “One of the reasons debt spirals can get out of control is from a sense of denial or not recognizing how serious the problem is. While it can be difficult to admit that your finances have gotten out of control, this is the first step to getting yourself back on track.”

Make a plan.

Odds are you never wanted to get into a debt spiral. If you did, you need to get better goals! But you probably didn’t, which means you’re going to have to make some changes. And that means making a plan.

“Imagine you’ve just started college,” suggested Ben Watson, CPA, virtual CFO of DollarSprout.com (@DollarSprout) and founder of Fiscal Fluency. “But instead of carefully choosing courses, you take a few random classes each semester and hope you’ll have the requirements to graduate in four years.

“Newsflash: you won’t. Now apply that concept to your finances. Without a blueprint for your income and spending, your finances will consistently teeter on collapse. Also, people graduate from college early all the time. Based on the amount of time, effort, and earning potential, it’s possible you can pay off the credit cards in a shorter time than you even realize.”

You might already think you’ve cut everything you can out of your budget, but it could be worth taking another look.

“It’s important to take a good, long look at your finances,” urged Tayne. “Review your budget and see if you can find areas where you can cut back or downsize to free up some funds to make more sizable payments on your debt. If there aren’t any places where you can cut back, many times this signals a cash flow problem.

“Consider ways to increase your income, whether it’s taking more hours at your current job, looking for different opportunities, or taking on a side job. Use your extra income to make payments on your debt.”

Seek help.

It might be embarrassing to admit you’re stuck in a debt spiral, but you also may not be able to get out of it without some help.

“Finances aren’t just pushing numbers around, there are a lot of emotions attached to money,” Watson explained. “Reaching out to a financial coach or some sort of accountability partner can greatly increase your chances of successfully navigating the hurdles you’re facing. One of the main things they provide is helping you refocus, making a plan, and then gaining control as you move forward with the plan.”

If the situation is dire enough, you may need to look into bankruptcy options.

Preventing future debt cycles.

Even if you claw your way out of debt, if you don’t have an emergency fund, a surprise expense could throw you right back in.

“Don’t worry about putting together 6-12 months worth of expenses,” began Watson, “but having even $500-$1,000 in a savings account set aside for legitimate emergencies can save a lot of lost sleep and stress. If you’re starting from zero cash, spend a weekend or two cleaning out the attic, garage, and spare room and sell things you don’t need anymore.

“Go full Marie Kondo on your place and list items on Facebook Marketplace and eBay, or have a garage sale. Anything you haven’t even thought about for more than 12 months should be considered as potential cash. There are tons of simple ideas to make a quick buck on the internet, find one that fits you and go for it.”

The debt spiral is not a fun ride to be on. Hopefully, you won’t need a ticket! To learn more about how to improve your long term financial outlook, 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 | Instagram


Contributors

Monica Eaton-Cardone is the owner, co-founder, and COO of Chargebacks911 (@chargebacks911), the first global company dedicated to preventing chargeback fraud, eliminating cyber-shoplifting and safeguarding the “eCommerce experience” for retailers, banks, buyers and sellers.  Chargebacks911 manages billions of online transactions annually and has helped its clients recover over $1 billion in disputed revenue. Monica is also the author of Chargebacks for Dummies (published in 2018), part of the best-selling instructional/reference book series.
Leslie Tayne HeadshotLeslie 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.
Ben Watson, CPA is the virtual CFO of DollarSprout.com (@DollarSprout) and founder of Fiscal Fluency, a personal finance and business coaching company. He equips small businesses and entrepreneurs with the skills and accountability to manage their businesses with confidence rather than fear. He’s also the co-creator of the Business Launch Kit—an online course with simple to follow steps of how to create your own business without making a mess.