Can Paying off a Loan Hurt Your Credit Score?

Don’t worry, it is very rare that paying off a personal loan will cause your score to drop, but it does happen every so often.

Wait a minute, did you read that title right? Paying off a personal loan might lower your credit score?

Unfortunately, it is indeed possible. Thankfully, it’s far from the norm. We’ll reiterate this point later on, but paying off your debts is almost always going to help your credit score.

So if you only take one thing away from this article, it’s that you should pay your bills on time and in full.

OK, now let’s actually address the question.


But first, let’s go over credit scores.

If you’re a regular reader of the Financial Sense Blog, you probably already know the factors that make up your credit score inside and out. But this could be someone’s first financial article ever! So we’ll just do a quick run-through.

The three major credit bureaus, Experian, TransUnion, and Equifax collect financial information which is used to generate your FICO credit score. FICO scores are a number between 300 and 850. The higher the score, the better loans you’ll be able to access and at better rates.

There are five factors that go into your credit score. In descending order of importance, they are:

  • payment history
  • amounts owed (also known as credit utilization)
  • the length of your credit history
  • credit mix
  • new inquiries

Want a more in-depth break down of each of those factors and the activities you should pursue to positively affect them? Well, then we’ve got an article for you!

Pretty much never.

As we made clear in the opening paragraph, paying off your loans is almost always going to have a positive effect on your credit score.

“Paying off your credit card or loan will never negatively impact your credit score,” advised Mike Pearson, founder of personal finance website Credit Takeoff. “In fact, making on-time payments on your accounts is actually the single most important factor when it comes to calculating your credit score. So where does this misconception come from?

“I believe it’s when you pay off a credit card completely … and then close the account. When you close a credit card, it can end up hurting your credit score because you have just lowered the amount of available credit you have, which will increase your credit utilization, which is the second most important credit score factor.

“Generally, you want to keep a credit utilization under 30 percent. For example, say you have two credit cards, both with a $5,000 limit, and your credit card balance is $2,500. Since your balance is only 25 percent of your total available credit between your two cards, you are in good shape. However, look at what happens when you close one of those credit cards.

Suddenly, your total available credit is only $5,000 in total. And if you have a $2,500 balance, your credit utilization has just doubled to 50 percent. In this instance, your credit score will definitely drop as a result of having a high credit utilization.

“In short: paying off your credit card will never hurt your score, only when you close the card for good.”

So that’s the story with credit cards. But perhaps there are some instances where paying off an installment loan will have a negative impact on your credit score?

But not quite never.

There are actually a few instances where paying off a loan may have a somewhat negative impact on your score.

“In general, paying down a balance will help your credit rating,” explained Todd Christensen, education manager for Money Fit by DRS, Inc. (@MoneyFitbyDRS). “Paying it off is even better. That said, there is some gray area where some balance payoffs may not help much if at all. This is particularly true for old collection accounts that are about to fall off your credit report or already have.

“If the debts are no longer reporting to your credit (in theory, seven years from the last time your account changed status, such as from on time to late or from late to paid as agreed, though in practice seven-and-a-half years is what you can expect), they have no impact on your credit rating.

“By paying them down or off, you are possibly changing the reporting status form late or default to paid, which could restart the seven-year reporting period. But such accounts, even though paid, would still report for those seven years as a collection or charged off account, albeit with a $0 balance.

“Paying a balance down to $0 is one of the best things you can usually do to build or rebuild your credit. After keeping your account status in the ‘paid as agreed’ range, lowering your account balances should be your next priority.

“It is not an easy choice. Most people want to pay off or down their debts. In cases of very old debts, doing so can complicate, if not damage, your credit rating. It never hurts to ask the collection agency or creditor holding your old debt to accept the payment but not to restart the credit reporting period. Just getting it in writing.”

Dave Sullivan, vice-president of marketing for the People Driven Credit Union (@peopledrivencu) reiterated that paying off a loan can occasionally lower your credit score and urged the always important advice of looking at each instance on a case-by-case basis:

“Paying an installment loan off can also reduce a credit score if there are no other installment or mortgage accounts on the credit history. As with all credit advice, it depends on the individual’s credit profile.”

There’s also the issue of student loans. While paying off your student loans is, of course, something to be celebrated, it’s not unlikely that doing so will cause a hit to your credit score. We’ve actually covered the phenomenon previously.

Lastly, there are no credit check loans like payday loans, cash advances, title loans, and other types of bad credit loans. Many of these lenders don’t report payment information, which means that the loans won’t affect your score at all—unless it gets sold to a debt collector.

So to sum up, you should pay off your debts. Just know there is a chance your credit score could go down and plan accordingly if necessary. To learn more about how you can improve your credit score, check out these other 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.

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Contributors

Author and Accredited Financial Counselor®, Todd R. Christensen, MIM, MA, is Education Manager at Money Fit by DRS, Inc. (@MoneyFitbyDRS), a nationwide nonprofit financial wellness and credit counseling agency. Todd develops educational programs and produces materials that teach personal financial skills and responsibilities to all ages. Having facilitated nearly two thousand workshops since 2004 on the fundamentals of effective money management, he based his first book, Everyday Money for Everyday People (2014), on the discussions, tips, stories and ideas shared by the tens of thousands of individuals and couples in attendance.
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.
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. Over the next two years, Air Credit Midwest grew to a multi-million 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.

How to Raise Your Credit Score by 100 Points

The two most important parts of your score are your payment history and your amounts owed, so those are great places to start.

For folks with bad credit, improving that score is step number one on their journey to financial fitness. Otherwise, when times get tough and they need to borrow money, they’re going to be stuck taking out predatory no credit check loans and short-term bad credit loans like payday loans, cash advances, and title loans to make ends meet (which probably won’t end well).

Raising your score means being able to secure lower interest rates and better financial products. Even if your score is just okay, taking that score from “good” to “great” could be the key to unlocking your financial future. If you want to raise your credit score by 100 points or more, here’s what you should do.


Check your credit report.

Your credit score is based on the information contained in your credit report. These are documents that catalog your history as a borrower, and they are compiled by the three major credit bureaus: Experian, TransUnion, and Equifax.

As such, the best place to start when fixing your credit score is with your credit report. Not only will it give you an idea of what areas you need to fix, but it might even contain mistakes that are artificially lowering your score.

“Carefully check your credit report and make sure there are no errors. If there are, dispute them,” said OverdraftApps.com (@overdraftapps) co-founder Uri Abramson, adding that you can get a free copy of your report once a year by visiting AnnualCreditReport.com.

And since you can request one free report from each credit bureau, that means you can get as many as three free credit reports annually!

“The credit bureaus process untold trillions in payments and accounts, and they make mistakes all the time,” said Brian Davis, co-founder of SparkRental.com (@SparkRental). “It’s your responsibility and your responsibility alone to make sure your credit report is accurate, and that you don’t have errors hurting your credit score.”

To learn more about disputing errors on your report, check out our blog post: How Do You Contest Errors On Your Credit Report?

Start building your payment history.

There are five different categories of information from your credit reports that make up your credit score. The most important category is your payment history, which makes up 35 percent of your score. When fixing your credit score, paying your bills on time is going to be key.

“Pay all accounts on time every single month,” said Davis. “Even if you can only make the minimum payment, make sure it’s on time because late payments mar your credit score.”

“Credit cards must be paid before anything else, like utility bills, (although not before the mortgage),” advised Abramson. “Wait for 30 days and your delinquency may be reported by your credit card issuers.”

They aren’t kidding; even one late payment that’s reported to the credit bureaus could dramatically lower your score. If you know you’re going to be late, call the company in question to see what can be done.

You can also take a look at your bill schedules to see if a certain cluster of due dates is causing financial strain. If you call your lenders or utility companies, the odds are pretty good that you can have those due dates changed to ease the pressure.

But what if you don’t have any loans or credit cards? How do you start building your payment history then? Don’t worry. There’s a solution.

“If you’re new to credit or have weak or poor credit, become an authorized user on someone’s credit card,” advised Debt Assassin RJ Mansfield (@DebtAssassin1). “As an AU you are never responsible for payments, but it will be reported on your credit report and help your score.”

And if you can’t become an authorized user, try taking out a secured credit card to start building a better payment history. Above all else, a good credit score begins with paying your bills on time. There’s no way around it!

Keep your credit utilization low.

The second most important part of your credit score is your amounts owed, which makes up 30 percent of your total score. If you have too much outstanding debt on loans and credit cards, your score is going to drop. Likewise, reducing that debt load will help improve it!

However, there one specific aspect of your amounts owed that you should keep an eye on, as it can have a huge effect on your score: And that’s your credit utilization ratio, which affects any debt like credit cards where you can borrow up to a certain credit limit.

“One of the metrics that determine your credit score is the ratio of credit used to credit available. Keeping all your balances below 30 percent of the limit keeps your score higher,” said Davis.

This goes beyond paying off your credit card balances every month. To make sure you don’t get caught flat-footed by the start of the billing cycle, you should try and keep your balances below thirty percent at all times.

“Try to pay your credit card bill BEFORE your statement is cut rather than by the due date,” said Abramson. “Most credit card issuers report your balances to credit bureaus around the time your statement closes.”

And in terms of maintaining lower balances, Abramson went even further. “Try to keep your utilization ratio (the ratio of your debt to your line of credit) below 10 percent for each of your credit cards,” he said. “That’s an aggressive goal, but your utilization ratio is the second most important component of the FICO score.”

Let’s be clear: 30 percent isn’t some kind of magic threshold; dropping underneath it won’t magically “fix” your score. It’s a good place to start, but you should be getting your balances as low as possible—on the way to paying them off entirely.

In order to bust some myths surrounding the 30 percent line, Mansfield conducted a personal experiment using his own credit cards. Here’s what he found:

“Popular advice from ‘so-called’ credit experts is that it’s fine to carry up to thirty percent of your available credit lines. It is not. I did it. I carried twenty-nine percent to test the theory and my score dropped from 811 to 730, a drop of 81 points. Only carry a balance if you can’t pay it in full to maximize your score.”

Keep those old cards open.

Paying down your debts is good—and be good we mean “pretty necessary to maintaining a good credit score”—but there are other actions you can take to make sure that your credit utilization remains as low as possible.

Remember, there are two sides to your credit utilization ratio: The balances owed, and the total available credit. So while you pay down your balances, why not make sure that your total available credit remains as high as possible?

“Avoid closing down a credit card even if you don’t need it anymore (unless it has an annual fee).” said Abramson. “When you close a credit card, your available line of credit shrinks, which can negatively impact your utilization ratio.”

And that’s not the only reason you should keep those old cards open. “Credit bureaus look at the average age of your accounts,” said Davis. “The older, the better.”

Be patient.

This is the hardest part of building your credit score. But if you’re really serious about the project, it’s something you can’t avoid.

“Time is the best credit-builder,” said Abramson. “If you handle your credit responsibly and avoid any derogatory remarks on your credit file, you will easily increase your score by a large margin within a year.”

These changes aren’t going to happen overnight. In order to fix your credit score—whether you want to raise it by 50 points, 100 points, or 150—you’re going to need to be patient. Just remember: The reward waiting for you on the other end will be worth it!

Here’s a story from someone who did it.

Before you set out on your own financial journey to improve your credit score, we figured you might like to hear a real-life story from someone who pulled it off. In his own words, here’s how Brandon Ballweg, founder and editor of the photography and tech website ComposeClick (@ComposeClick), managed to increase his credit score over 100 points over the past two years:

“I verified any collections that were showing on my credit report. I had several. One was reporting incorrectly, which was removed when brought to the creditor’s attention. The others I paid off, a couple of which I was able to get a pay for deletion agreement. I just did this over the phone with the collection agencies—there’s no reason to send them letters or try to get anything in writing.

“I started with a secured card and opened up a few regular credit cards and have paid them all off when the statement comes. I keep at least a small balance for most of my cards before the statement to show utilization. I keep my overall utilization under 20 percent, usually lower.

“I still have a ways to go because there are some missed payments showing on my credit report from a student loan provider. I hope to get these removed by communicating with the provider and pointing out the fact that I haven’t missed a payment in over a year and a half.

“That’s it. I don’t think anyone should be using expensive credit repair services that only do things that you would be able to do more effectively yourself. It’s all about getting as many negative marks removed from your credit reports and showing consistent responsible credit use.”

To learn more about how you can improve your credit score and your long-term financial outlook, check out these other 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

Uri Abramson is the co-founder of the growing personal finance blog OverdraftApps.com (@overdraftapps), which specializes in transparent and honest reviews of financial products for low-medium credit score population and debt resolution advice.
Brandon Ballweg is a photographer and entrepreneur. He is the founder of ComposeClick (@ComposeClick), an educational site for photographers that provides information on the technical aspects of photography and how to succeed in the photography business.
G. Brian Davis is a landlord, personal finance writer, and co-founder of SparkRental.com (@SparkRental), which provides free video courses and rental investing tools for landlords. He spends most of the year overseas, splitting his time between Abu Dhabi, Europe, and his hometown of Baltimore.
RJ Mansfield (@DebtAssassin1) is a consumer’s rights advocate and author of Debt Assassin: A Black Ops Guide to Cleaning Up Your Credit.

Loans With No Credit Check Sound Great; Here Are the Risks

It’s all about finding the right loan for you … and also avoiding the many no credit check loans out there that could trap you in a predatory cycle of debt.

When you have bad credit and you need a loan, the last thing you want is some lender running a credit check on your application. You already know your score is lousy, and you don’t need a hard credit check dropping it even further.

That’s where no credit check loans come in. But while they might seem perfect for someone who needs money now and has bad credit, they come with significant risks. Before taking out a loan with no credit check, you need to know exactly what you’re getting yourself into and what potential pitfalls to avoid.


What are no credit check loans?

The most common types of no credit check loans are payday loans, which are also known as “cash advances.” These are small-dollar short-term loans that rarely run more than a couple of hundred dollars and that come with an average repayment period of two weeks.

Title loans are another type of short-term no credit check loan; they come with slightly higher principals and longer repayment periods. Unlike payday loans, title loans are secured, using the title to the borrower’s car or truck as collateral.

No credit check loans are oftentimes much easier to obtain than regular personal loans. Even though they don’t run a credit check, some lenders will verify a borrower’s income before lending to them, while others simply ask for as little as an ID and a valid bank account.

Why don’t these lenders check credit scores?

When you apply for a loan from a traditional lender like a bank, they will check your credit history as a part of the application. This involves running a “hard check” on your credit, which returns your credit score and a copy of your credit report.

Checking your credit history allows these companies to assess how you’ve fared when borrowing money in the past, and it also gives them a window into how much debt you currently owe. Both of these factors help them make their decision. If you have a poor credit score, the odds are very high that you’ll be rejected.

But with no credit check loans, the process is quite different. These are bad credit loans, which are most often used by people who already have low credit scores. This makes checking the borrower’s credit a little beside the point.

When a lender runs a hard credit check on a person’s credit history, that check is recorded on the borrower’s credit report and can temporarily lower their score—even if the application is denied. One of the main advantages to no credit check loans is that applying for one won’t impact the borrower’s credit score at all.

However, there are also many downsides …

They’re more expensive.

Since most no credit check loan borrowers have lower credit scores, the default rate (or the percentage of customers that fail to pay back their loan) is much higher than the default rates for regular loans.

As such, no credit check loans come with much higher interest rates than standard personal loans. And some of them, including payday loans and title loans, come with rates that are way, way higher! (This is true for both online loans and loans from a brick-and-mortar lender.)

But it can tricky to see just how much higher they really are. Standard personal loans come with interest rates below 36 percent—and oftentimes well below that for borrowers with prime credit scores. Meanwhile, the average rate for a payday loan is 15 percent, while the average rate for a title loan is 25 percent. Those numbers seem a little on the higher side, but generally fine.

Except here’s the catch: The interest rate for those personal loans is assessed on an annual basis, while those interest charges for payday loans are only assessed over periods of two weeks and one month, respectively.

Whenever you’re shopping for any kind of loan or credit card, make sure you check its annual percentage rate (APR) to get a similar comparison between products. The APR for a two-week payday loan with a 15 percent interest charge is almost 400 percent, while the APR for a one-month payday loan with a 25 percent interest charge is 300 percent!

As we said, the interest rates for some of these no credit check loans are way, way higher!

It won’t help your credit score.

The most important part of your credit score is your payment history, which makes up 35 percent of your total score. Every time you make a credit card payment, a loan payment, or even pay your rent (in some cases), that information gets recorded on your credit report. So much as one late payment can dramatically impact your score.

For folks with bad credit, building a positive payment history is one of the best things they can do to improve their score. But with short-term no credit check loans, most lenders don’t report payment information to the credit bureaus, meaning that on-time payments can’t help borrowers build their payment history and improve their overall score.

This is the flipside of no credit checks. These lenders don’t care if their customers have poor credit, but they don’t take steps to help customers improve their credit, either.

But this isn’t true for all bad credit lenders. Some companies, like OppLoans, do report payment information to the credit bureaus. Before you take out a loan, check and see whether it could help you build better credit!

You risk entering a cycle of debt.

Here’s how a cycle of debt works: A borrower has so much debt that they can’t afford to pay it off. All they can afford to do is make their minimum payments—which isn’t nearly enough, but still adds up to quite a bit of money every month.

Because they’re putting so much money into their debt, they can’t afford to save any money either. When an unexpected bill arises, all the person can do is …. take on more debt to cover it! This means they have to start putting even more money towards their monthly minimum payments. And so the cycle continues.

Here’s a slight variation on that: A person takes out a $300 payday loan to cover a car repair and has to pay back $345 two weeks later. When their due date arrives, they find that paying $345 all at once will leave them with no money to buy groceries.

This person then pays off their loan and immediately takes out a new payday loan, once again paying $45 in interest on a $300 loan. Two weeks later, the same thing happens. This time, they roll over their loan, paying off the $45 owed and receiving a two-week extension … in return for an additional $45 interest charge.

Two weeks after that, they still can’t afford to pay back their loan, and so the cycle continues.

A study from the Pew Charitable Trusts found that well over 80 percent of payday loan borrowers didn’t have the money in their monthly budgets to cover their loan payments. This is partly because payday loans (and other short-term no credit check loans) require borrowers to pay their loans off all at once.

If you’re looking for a no credit check loan, look into the benefits of an amortizing installment loan. These loans are designed to be repaid in a series of smaller, regularly scheduled payments—and their amortizing structure means that every payment goes towards both the interest and the principal amount owed. Each payment you make will bring you one step closer to zeroing out your debt.

Look into a “soft credit check” loan.

Folks with bad credit who need to borrow money to bridge an unexpected financial gap—and who can’t borrow it from friends or family—should look into a variation on no credit check loans called “soft credit check” loans.

A soft credit check returns less information than a hard credit check, but it still gives a lender some idea of a borrower’s history with credit. Along with other underwriting factors, like income verification, a soft credit check can help a lender determine whether or not a person can actually afford the loan they’re applying for.

And that’s really the key. When you have bad credit and you need a loan—especially in times of financial emergency—it’s all too easy to borrow a loan that you can’t really afford to pay back. That’s how people end up trapped in a cycle of debt, with their financial outlook looking dimmer by the day.

Credit-building. Manageable, amortized payments. Soft credit checks. Reasonable interest rates. Find a lender who can offer you all of these, and you’ll be well on your way to finding a no credit check loan that works for you.

Other than building an emergency fund, the best way to avoid no credit check loans is to … improve your credit score! To learn more about how you can fix your credit, 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.

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How to Separate Your “Wants” from Your “Needs”

Some needs and wants are easy to distinguish. But other times, you’ll need to dive a little deeper to figure out what you can cut and what you really can’t live without.

When building your first budget, everyone is going to tell to separate your “needs” from your “wants.” No matter how you plan on using the money you save—whether it’s to pay down your debt or build a hefty nest egg—those extra funds are going to come from cutting down on superfluous costs, not the necessary ones.

But while a lot of your expenses will be easy to categories—rent is a definitely a “need,” while ice cream is undeniably a “want”—some spending areas won’t be so easy. That’s why we spoke to a number of experts to dig into the budgetary nitty gritty and find out just how exactly one goes about separating their “wants” from their “needs.”


This won’t be easy, but it will be helpful.

“Few people really understand how much money they actually spend buying items that they may want when first seeing them—but that aren’t true necessities,” said Timothy G. Wiedman, professor emeritus of Management and Human Resources at Doane University (@DoaneUniversity).

“For a great many folks, I’d bet that figure is quite a bit more than they’d ever imagined; and when a credit card is used to finance those unnecessary impulse purchases, the eventual damage is even greater!

William Acheson, CFO of GWG Holdings, Inc. in Minneapolis lamented how making good financial decisions, big and small, has gotten more difficult. “This is despite the proliferation of online and app-based spending, budgeting and investing tools,” he added.

According to Acheson, this increased difficulty was due to two main factors.

  1. “The amount, intensity and sophistication of highly targeted advertising pushing us to spend more and more (to keep up with others).
  2. “The vast, and often conflicting, amount of advice and opinions from the ‘experts’ who usually are trying to separate you and your money—see item number one above.”

“The result,” said Acheson, “can often be a disengagement from any form of advice or tools while you chalk it up all to noise and spend merrily ever deeper into debt.”

Getting a firm grip on what spending you should cut back on is a critical first step towards taking control of your financial future. It won’t be easy, but the benefits can’t be denied.

No more purchasing on impulse.

When you have a monthly budget, impulse purchases can throw everything out of whack. And if you’re buying something that can be categorized as a “splurge,” that pretty much tells you right there that it’s a “want,” not a “need.”

But cutting out impulse spending is easier said than done. So what can you do to keep those excess items out of your shopping cart? Here’s Wiedman with a very simple solution:

“I often used to fritter money away by making unnecessary impulse purchases, but I found a prevention strategy that has worked well for me.

“Before buying anything beyond my basic, everyday necessities (especially if an item is ‘pricey’), I put off the purchase decision long enough to ‘sleep on it.’  Then, after a day or two, I make a quick mental list of the pros and cons related to that particular purchase.

“Sometimes purchasing that item still seems reasonable, and I’ll shop around to find the best deal available.  But, on the other hand, if buying that product hardly makes much sense at all, I’ll skip that purchase entirely.”

Does it need to be replaced?

Sometimes, a thing will break and you’ll definitely need to replace it. That’s a need. But with other items—ones that are still working fine, but are a little outdated or worse for wear—the line between “want” and “need” gets a little bit blurrier.

“In our modern society, we are quick to buy new because we’re constantly fed the information on the ‘latest and greatest.’” observed Shane Walker, executive VP and CMO at ProActive FinTech LLC.

But, even if an item breaks and needs to be replaced, there are larger principles at work that are likely hitting you right where it hurts: the bank account.

“As sad as it is, we also live with the reality that companies no longer design products to last,” said Walker. “Things are made to wear out or break down so we are forced to buy again. Unlike years ago, when products were made to last for years, we are faced monthly with needing to replace items.”

Even so, you need to think long and hard before spending to replace an expensive item that works fine but isn’t the newest, most fashionable item. Walker also noted that buying better-quality, longer-lasting items might cost you a little more in the short term but will save you money overall.

Follow the Rule of Eight.

There’s a flipside to buying nicer, more durable items over cheaper ones: Past a certain point, high-end products aren’t that much better than the middle-range ones. If you’re constantly buying the most expensive products out there, you’re adding a whole bunch of costly “want” on top of a basic “need.”

To combat this phenomenon and help people manage their money more effectively, Acheson has a simple system called the “Rule of Eight” that he believes leads to better and more informed spending choices across the board. Here’s how described it:

“The Rule of Eight has two components.  First is the quality component. The Rule of Eight says that you get what you pay for any good with the quality of rating between one and eight on a 10-point scale.

“In other words, once the quality (you can substitute the word ‘luxury’ here) exceeds eight on the 10-point scale, the price rises very rapidly yet the usefulness of the item (economists call this the “utility” of the item) barely changes at all.

“An example from the household is that a GE Profile Range (seven or eight out of ten) has virtually the same utility as a luxury brand such as Wolf but at a fraction of the cost.  This rule applies to virtually everything in the world from concert tickets to cars to coffee.

“The second component of the Rule of Eight is quantity. This is an easy one: 80 percent of your purchases should conform to the Rule of Eight.  So, only on relatively rare occasions should you be buying nine or 10-points quality of anything.

“Save your 20 percent for those ‘luxury’ items that really matter and really mean something to you. For the rest of your purchases, ‘pretty good’ is more than good enough. Adopt the Rule of Eight into your lifestyle and you may surprise how much money you are wasting on needless ‘luxury.’”

Can you live without it?

Let’s cut to the chase. Something you need is something that you can’t live without. So why not just ask yourself, “Can I live without this?” That’s exactly what Jill, owner of the frugal family living blog Organizational Toast (@organizationaltoast), did—and it worked out great.

“When we became a one-income family we realized very early on that we had to openly and honestly look at what a want vs. a need was. This meant asking the simple question ’Can I live without this?’ Meaning will my life go on without this item,” said Jill.

“If the answer was ‘no’ we asked ourselves what were the most cost-effective options for that item? We did this for everything!  From the smallest purchase at the grocery store to large purchases like a family vehicle. This questioning process made us really think about what we were buying and not only curbed  our spending on wants but also cut down on impulse buying!”

If you want to make the decision process a little more scientific, Certified Financial Planner R.J. Weiss, founder of the personal finance site The Ways to Wealth (@thewaystowealth), has a solution that might appeal to you. “One way to separate wants from needs is to create a ‘To Buy’ list of items you’re looking to buy,” he said.

“Once you place something on the to buy list, make a note of how many times you would have used that item over the next 30 days. If it is something that will improve your daily quality of life, considering buying it. If you would have just used it once and it wasn’t critical, now you can take a pass.”

Consider cutting back in these four areas.

Some lifestyle areas are more likely to carry waste than others. Jeremy Rose, Director of the U.K. web hosting site CertaHosting suggested four areas of spending that were ripe for cutting back:

“Food, as one of the most frequent and largest monthly expenses, or to be exact, irrational buying of food (which are then not used, buying more types of the same food, accumulating food and the like) are in the first place when it comes to uncontrolled spending, “ he said. “Our actual biological needs differ from the ‘wants’ and indulgences we often do to feel better, not realizing it’s costing us money.”

Beyond food, Rose also suggested cutting back in the following two areas:

Cable TV: Subscription to cable programs can burden the home budget, especially if we take into account the breadth of the currently available software packages on the market, their prices and their ability to combine.”

Gym membership: Membership in a gym is one of the costs we are getting into because we think we need it in order to live a certain way. For those who use it occasionally and aren’t active members of the gym, this expenditure is unnecessary.”

Lastly, Rose advocated for staying in—which is usually very inexpensive—over going out, which is usually … not. “The decision to reduce monthly expenses and to cut on the things you really don’t need can be achieved by lowering or quitting altogether eating out,” he said.

However, he made to note that going out, shouldn’t be eliminated entirely “as social contacts play an important role in the private and business world.” He simply meant that habit should be “reduced to an acceptable level.”

This might take some time, so be patient.

With the exception of winning the lottery, there’s nothing you can do overnight to help your finances. Maintaining a budget and trimming your expenses is something that will take time—which means that it will also take patience.

Besides, the longer you track your expenses, the larger the sample size you’ll have to work with and the easier you’ll be able to pick out your own problem areas with money.

“Folks who are having trouble budgeting should track each and every expenditure they make for at least six weeks so that they can see where every bit of their money is going,” advised Wiedman. “At that point, they can begin to assess exactly where unnecessary spending is occurring and then formulate a plan to improve their spending habits.”

To underline his advice, Wiedman cited one of the world’s most famous (and accurate) pieces of financial wisdom: ‘Watch the pennies and the dollars will take care of themselves.’”

Plan ahead for future needs.

If you have bad credit and insufficient savings, an unexpected bill or financial shortfall could leave you needing bad credit loans to make ends meet. This will leave you vulnerable to predatory no credit check loans like payday loans, title loans, and cash advances. Not great!

While choosing a more affordable installment loan is probably be the better option, your best option is to avoid needing any high-interest personal loans in the first place! Maintaining well-stocked emergency fund, managing your debt, and taking care of your credit score will turn that “need” into a “no need to worry!”

That’s why you need to plan ahead! To learn more about budgeting, saving, and proper money management, check out these other 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

William Acheson, Chief Financial Officer for GWG Holdings, Inc., has more than 25 years of experience in positions of importance for financial services firms around the globe. Prior to joining GWGH in 2014, Mr. Acheson served as Managing Director of Global Structured Finance and Investments at Merrill Lynch in London. Mr. Acheson earned B.S. degree in accounting from the College of St. Thomas in St. Paul, MN, and earned his CPA certificate in 1991.
Jill is the owner and voice of Organizational Toast (@organizationaltoast), a resource for families looking for budgeting and frugal living tips. Her personal experience becoming debt free as a one income family drives the content and resources and provides the tools and insights other families need to successfully manage their finances, reduce their spending and reach their financial goals.
Jeremy Rose has ten years’ experience as a hosting provider and has been running a highly successful telecoms business from the town for 20 years.
R.J. Weiss is a CFP® and founder of the personal finance site The Ways to Wealth (@thewaystowealth).
Shane Walker is the executive VP & CMO at ProActive FinTech LLC. He gives people better control of their finances by digitizing the successful concept of the envelope system for budgeting. At ProActive Budget, they’ve combined the modern convenience of a debit card with the proven budgeting system of using envelopes. It works because it requires a person to consult their budget before they spend. It changes the behavior of spending money.
After 13 years as a successful operations manager working at two different ‘Fortune 1000’ companies, Dr. Timothy G. Wiedman spent the next 28 years in academia teaching college courses in business, management, human resources, and retirement planning.  Dr. Wiedman recently took an early retirement from Doane University (@DoaneUniversity), is a member of the Human Resources Group of West Michigan and continues to do annual volunteer work for the SHRM Foundation. He holds two graduate degrees in business and has completed multiple professional certifications.

Building Savings or Paying off Debt: Which Should You Prioritize?

Building up savings and paying down high-interest consumer debt are both critical financial cornerstones, but which one you should you put first?

There are many endless debates that have resonated throughout all of human history. Ketchup versus mustard. Fries versus onion rings. Dogs versus cats. Scots versus Scots versus other Simpsons references.

But perhaps no debate has baffled humanity quite like the one between savings and debt. If you’ve got enough income to contribute a healthy amount to building up both your savings and your debt, then bully for you—but unfortunately, most people will have to make some hard choices.

And given that building your savings and paying off your debt are both crucial financial cornerstones, it can be tough to know which you should consider more important.

There’s not necessarily one answer that will fit everyone’s situation. That’s why we spoke to the experts to find out what you should consider when considering your financial priorities.


The case for building your savings:

While paying off your debt is undoubtedly important, if you don’t have any savings, you’ll be at risk for any number of unseen events that leave you relying on high-interest no credit check loans like payday loans and cash advances to make ends meet—driving you further into debt.

“Whether paying off debt or prioritizing savings is a better idea depends on your particular situation,” Associate Financial Planner Anna Keisler explained.

“Let’s start with your current situation. If you have extra cash to either save or put towards debt, look at your current savings amount. While it may be appealing to put all of your extra income towards your debt, it may not be the best idea.

If you don’t have three to six months worth of expenses saved up in an emergency fund, you should focus on building up the emergency fund and just paying minimum debt payments until you have an adequate reserve set aside.

“Remember, life happens whether you’re ready or not. It doesn’t help to spend $2,000 paying down debt, only to have a $2,000 car repair that you have to take out debt to pay for.”

The case for paying off your debt:

As Keisler said, what you should prioritize will always depend on your situation. Which is what all of our experts generally agreed on. Though just as Keisler leaned towards savings, others leaned a bit more towards paying down your debt.

“When choosing between building up savings or paying off debt, my advice is to pay off any existing debt as quickly as possible,” suggested Deborah Sweeney (@deborahsweeney), CEO of MyCorporation.com (@mycorporation).

“From credit cards to student loans, pay off the debt that has the highest interest rate first and then work your way through debt with lower interest rates. Doing this improves your credit score and makes you a more attractive candidate for other financial opportunities later on.”

The debt repayment method that Sweeney’s referring to is called the Debt Avalanche. Check out this post to learn more.

Josh Hastings, the founder of Money Life Wax (@moneylifewax), got into some of the different types of debt and how that should impact your priorities:

“High-interest consumer debt and student loans should be priorities before investing. Improving your debt to income ratio is important and freeing up your cash flow by paying off your debt allows you to throw more into investing down the road.

“By focusing on debt payoff you also develop good financial behavior habits that teach you to focus on priorities instead of variable spending. Once those good financial habits are established and the debt is paid off you will be more committed to investing/saving.”

And he wasn’t the only one to explain how different kinds of debt might require different levels of urgency.

“Prioritize paying off debt before building up savings,” recommended Katie Ross, Education and Development Manager at American Consumer Credit Counseling (@TalkCentsBlog). “The longer you hold your debt, the more you will pay in interest in the long run.

“Focusing on paying off your debt allows you to reduce the amount paid to debtors, thus enabling you to more effectively save in the long run.

“However, prioritizing debts like mortgage payments are an exception. Mortgages are installment loans, and while paying extra can help you repay your loan faster, as long as you can make your monthly payments, growing your savings may take the priority to paying extra.”

The case for … both:

Of course, the best thing you can do, if it’s financially feasible, is finding a balance between paying down your debt and building up your savings.

“While it’s important to pay off debt, you also want to ensure that you have savings for the future, emergencies, and to avoid going into more debt into the future,” urged Ross.

“Create a budget and make a debt repayment plan. Decide how much you are going to pay towards each debt every month. Then, based on how much money you have left over, choose a percentage to put towards savings each week or month.”

At the end of the day, whether you prioritize savings or debt will depend on your specific situation, as all of our experts made clear. You’ll need healthy savings and as little consumer debt as possible to keep your finances on steady ground and keep bad credit loans like payday or title loans away from you.

Want to learn more about saving money and getting out of debt? Check out these other 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

Josh Hastings is a former High School Athletic Director at the secondary level who shifted his focus in 2016 to focus more effort on his entrepreneur endeavors. In 2017 he founded Money Life Wax (@moneylifewax), a personal finance site dedicated to helping millennials with student loans. With an emphasis on money and finance behavior, Josh started Money Life Wax to help millennials realize there are other ways to make money and be happy in the 21st century.
Anna Keisler is a Financial Planning Associate with SG Financial Advisors in the Atlanta, GA area.  When not assisting with financial planning, you can find her at the gym or trying new restaurants. She currently resides in the metro Atlanta area with her husband and two cats.
Katie Ross joined the American Consumer Credit Counseling (@TalkCentsBlog) management team in 2002 and is currently responsible for organizing and implementing high-performance development initiatives designed to increase consumer financial awareness. Ms. Ross’s main focus is to conceptualize the creative strategic programming for ACCC’s client base and national base to ensure a maximum level of educational programs that support and cultivate ACCC’s organization.
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.

5 Questions to Ask Yourself Before Taking out a Cash Advance

Short-term cash advances come with many downsides that could trap you in a cycle of debt, so make you shop prepared!

Cash advances can seem like a good way to paper over a hole in your budget: They’re fast, they’re easy, and you can pay them back with your next paycheck. But there’s a lot more to these short-term small-dollar loans than meets the eye.

Before taking out a cash advance loan, make sure answer these five questions so that you don’t end up in an even bigger financial hole than the one you started in.


1. What’s the interest rate?

Cash advances are a type of short-term no credit check loan; in many ways, they’re basically the same thing as a payday loan. With average principal amounts of a few hundred dollars and an average repayment period of two weeks, they’re meant as nothing more than an “advance” on your next paycheck.

And yet, cash advances also come with some significant downsides: Namely, they cost way more than a traditional personal loan or even other types of bad credit loans. While any loan that you take out when you have bad credit is going to cost more than a regular loan, the high price of cash advances should give you pause.

At first glance, their interest rates won’t seem so bad; the average interest rate for a cash advance is only $15 per $100. That’s not bad at all! Except … that it is. Those short repayment terms obscure how much a cash advance will cost in comparison to other loans.

In order to determine the true cost of your cash advance, take a look at its annual percentage rate (APR). This will give a standardized measure to use when comparing costs between a loan you pay back in two weeks and an installment loan that you’d pay off over a year or more.

Here’s the truth: The APR for a two-week cash advance with a $15 per $100 interest charge is a staggering 391 percent! That’s a lot! And while a sky-high APR might not worry you so much when you’re planning to pay the loan back in a week or two, there’s a good chance that those interest charges will start adding up …

2. Can I afford to pay this off?

If you pay off your cash advance on the original date it’s due, the amount of money you’ll be paying towards interest is fairly reasonable; a 15 percent rate might be a little on the higher side for a personal loan, but if you have poor credit, that 15 percent is going to be totally fine.

Still, you really do need to ask yourself whether or not you can afford this loan. Instead of looking at the interest rate, look at the size of the payment.

If you were to take out a $300 cash advance with a 15 percent interest charge, your payment amount would be $345. Given that you need the $300 right now, is $345 really something you can afford to pay back in only a few weeks?

Research suggests otherwise. In fact, a study from the Pew Charitable Trusts found that well over 80 percent of payday loan borrowers didn’t have the money in their monthly budget to cover their loan payment. And if you’re counting on the lender to only lend you a loan you can afford to pay back, think again …

3. Will this lender check my ability to repay?

When a borrower takes out a cash advance loan that they can’t afford, they’re often faced with a choice between two outcomes, neither of which is good.

If they’re in a state where the practice isn’t banned, the borrower could choose to roll over their loan. This means that they make a nominal payment—usually covering just the interest owed—in order to extend the loan’s due date. That new loan term comes with a fresh interest charge, doubling the cost of their cash advance in one fell swoop.

The other choice that borrowers have in situations like these is to reborrow, whereby they pay the first loan off and then immediately turn around and take out a new one. In many ways, reborrowing is no different from rolling a loan over; borrowers are still paying extra and remaining in debt.

This can kick off a process known as a cycle of debt, wherein a person keeps throwing more and more money towards interest and other fees while never actually bringing themselves closer to being debt free. With payday loans and cash advances, this cycle can be especially fierce. The Consumer Financial Protection Bureau (CFPB) estimates that the average payday loan customer takes out 10 loans per year and spends almost 200 days in debt.

When a traditional lender checks your credit score during the application process, they are looking to see whether you can pay back the money you’re looking to borrow. But with no credit check loans and cash advances, lenders not only don’t check people’s credit scores, but many of them don’t do anything to confirm whether or not these people can afford their loans at all!

So when you’re considering a cash advance loan, take a few moments and see whether or not this lender is checking your ability to repay. If they’re not, that might be a sign that they’re actually counting on their customers having to roll over and reborrow their loans; after all, additional money paid towards fees and interest helps their bottom line.

If that’s the case, then it’s also a sign that you should take your business elsewhere.

4. Will this help my credit score?

This will be a pretty easy question to answer. When it comes to short-term no credit check loans and cash advances, you’ll be hard-pressed to find one that helps your score.

While pretty much every traditional lender and credit card company reports payment information to the credit bureaus, the practice is much rarer with non-prime lenders—especially ones offering short-term products that are paid off in a single, lump-sum balloon payment.

To put it simply: Lenders that don’t check their customers’ credit scores before lending to them often don’t feel much of a need to report the information that helps shape those scores in the first place.

But this isn’t true of all bad credit lenders. Some, including OppLoans, do report their customers’ payment information, which means that making your loan payments on-time could help improve your score. Installment products, which feature multiple, smaller payments instead of a single balloon payment, also provide borrowers with more opportunities to build a positive payment history.

5. What are other customers saying?

Finally, before you sign your name on the dotted line or click “I agree” on that online loan
agreement, take some time to research a potential cash advance lender and see what other customers have to say about them.

Don’t just do a cursory Google search either. Check out their customer reviews on lending platforms and social media. Go to their BBB page and see what kinds of complaints have been lodged against them and whether they’ve been able to resolve them.

Taking out a small-dollar cash advance loan might seem like no big deal, but the risks involved are greater than you probably realize. Taking the time to answer these questions will ensure that you find the loan (and the lender) that’s right for you.

The best way to avoid short-term cash advance loans is to build up an emergency fund and improve your credit score. To learn more about financial best practices, 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.

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How Will a Cash Advance Loan Affect Your Credit?

One of the many annoying things about cash advances is that they can’t help your score, but they can definitely hurt it.

When you have zero money in savings and a surprise car repair or emergency room bill is suddenly plopped in your lap, you’re probably thinking about only one thing: How you can get the money you need fast. The last thing on your mind is how that cash advance loan’s going to affect your credit score—especially if your score is already pretty lousy.

But that sort of short-term mindset is going to come around and bite you later on. Aside from finding a loan that has reasonable interest rates and, even more importantly, payments you can afford to make, you should be taking into consideration how that loan affect your credit score.

There are plenty of reasons why should think twice before taking out a short-term cash advance, but the effect (or lack thereof) that that loan will have on your credit score shouldn’t be forgotten.


What is a cash advance loan?

If you’re familiar with payday loans, then you’re familiar with cash advance loans, as those are simply two names for the same thing. It’s a short-term high-interest loan designed as an advance on the borrower’s next paycheck, usually with a due date set for their following payday.

Cash advance loans have an average repayment term of only two weeks and an average interest charge of $15 per $100. Unlike installment loans, cash advances charge interest as a flat fee, with the entire amount (principal and interest) paid back in a single lump sum.

A 15 percent interest charge might seem reasonable when compared to standard personal loans, but the cost for cash advance loans is actually far higher. When measured as an annual percentage rate (APR), the interest for a two-week cash advance is almost 400 percent!

Cash advance loans are a type of bad credit loan, which means that they’re aimed at people whose poor credit scores lock them out from borrowing with traditional lenders. While the cost for most bad credit loans is higher than the rates for traditional personal loans, the cost for cash advance loans is especially high.

How do personal loans affect your credit score?

Your FICO credit score is a number between 300 and 850 that’s based on information in your credit reports. You actually have three different credit reports, one each from the three major credit bureaus—Experian, TransUnion, and Equifax. Since information can vary between your reports, and your credit score can vary depending on which report was used to create it.

FICO scores are built on using five different categories of information: payment history (35 percent), amounts owed (30 percent), length of credit history (15 percent), credit mix (10 percent), and new credit inquiries (10 percent).

Your payment history relies on lenders, landlords, and utility companies reporting to the credit bureaus. When you make on-time payments, those help your score; when you pay your bills late—or don’t pay them at all—that hurts your score.

Traditional lenders like banks, credit unions, and credit card companies all report their customers’ payment information to the credit bureaus. With bad credit lenders, however, things aren’t so simple.

Are your cash advance payments being reported?

Most bad credit lenders offer no credit check loans, which means that they do not check a person’s credit score when evaluating their loan application. For people with bad credit, this can be nice, because hard credit checks will temporarily lower their score; that’s the last thing they need!

But there’s a flipside to this: Those same lenders often don’t report payment information either. This means that the payments you make on your loan won’t get recorded on your credit report and, thus, won’t affect your score.

This is especially common with short-term bad credit loans, including cash advances. If you take out a cash advance loan and then pay it back on time, there isn’t going to be any effect on your credit score.

Here’s the annoying part: Paying off your cash advance loan won’t help your score, but failing to pay the loan back will hurt it. So how does that work?

Debt collectors report to the credit bureaus.

Whereas most no credit check lenders don’t report to the credit bureaus, the vast majority of debt collection agencies definitely do report to them. And if you fail to pay back your cash advance loan, the lender will very likely sell that outstanding debt to a debt collector.

Once the debt collector has purchased the debt, it will be reported to the credit bureau as a “collection account” which goes into your payment history as a record that you failed to pay back a debt.

It takes a long time to build up a solid positive payment history, but all it takes is one late payment to wipe out much of that hard work. And the same is true for collection accounts. Even if your score is already in the tank, that account is going to make sure it stays there—or might drop it even further.

If the debt collector ends up taking you to court over the unpaid debt, the decision could result in your wages being garnished—and that garnishment will also be reported on your credit report. Cash advance loans may not be able to help your credit score, but there are several ways that they can hurt it.

To learn more about credit scores, 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.

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Cash Advance Loans: Here’s 4 Things You Should Know

Cash advance loans are supposed to be an easy way to cover emergency expenses, but they could end up trapping you in a long-term cycle of debt.

When you need money and you need it fast, taking out a cash advance might seem like your best option—especially when you have lousy credit. But there is more to these seemingly simple loans that meet the eye.

Before clicking “I agree” on that online loan offer or heading down to your neighborhood check-cashing store, here are four things you really need to know about cash advance loans.


1. Cash advance loans are paid back quickly.

When it comes to short-term no credit check loans, the terms “payday loan” and “cash advance” are almost interchangeable. Both names do a good job of describing how the loans work: They’re meant as an “advance” on your next paycheck designed to be repaid on your following payday.

That’s why the average repayment term for a payday cash advance is only 14 days. They’re meant to be a form of quick-and-easy bridge financing that lets you cover unexpected costs or paper over a pre-paycheck shortfall.

14 days (or seven days or one month) sounds kind of nice. You’re able to get the money you need and get out quick! But those short terms can come back to bite you, especially when combined with the next two items on this list.

2. Cash advance loans also have sky-high interest rates.

When you have bad credit, you are going to end up paying more for personal loans and credit cards. That’s simply unavoidable. A low credit score tells lenders that you’re not the most reliable borrower; many traditional lenders won’t lend to you at all.

But with cash advance loans, you’ll end up paying much higher rates than you will with other types of bad credit loans. Even a rate that seems very reasonable is going to be many times higher than the rates for a regular loan.

The average interest rate for a cash advance loan is $15 per $100. Doesn’t sound too bad, right? Well, here’s the thing: A flat 15 percent rate is really high for a loan that’s only two weeks long!

When you compare annual percentage rates (APRs), it quickly becomes clear just how much pricier these cash advance loans are. A regular personal loan will have an average APR anywhere between 6 and 36 percent; a cash advance loan with a 15 percent rate, on the other hand, has an APR of 391 percent!

3. You pay off cash advances in one lump sum.

Cash advance loans can be difficult for many borrowers to repay on time. And while high rates are certainly a factor, there’s a lot more to it than that. One of the other major factors is how these loans are designed to be repaid.

Most personal loans are structured as amortizing installment loans. With these products, you pay off the loan in small increments over time, with each payment going towards both the loan principal and the interest owed.

But short-term loans like cash advances and title loans are designed to be paid back in a single ballon payment that includes all the principal and all the interest. This is referred to as a “lump sum repayment” model, as the loan is repaid in a single lump sum.

Let’s say you take out a two-week payday loan for $300 that carries a 15 percent interest charge. In 14 days, on the loan’s due date, $345 will be automatically deducted from your check account. Now ask yourself: Is that a payment you would actually be able to afford?

According to a report from the Pew Research Centers, many payday loan borrowers cannot. They found that well over 80 percent of payday loan borrowers didn’t have the funds in their monthly budget to cover their loan payments.

Much of this difficulty is due to the lump-sum repayment model, which creates individual payments so large that borrowers struggle to afford them. This leads us to the fourth thing you should know about payday cash advances …

4. Cash advance loans can easily snare you in a debt trap.

When a borrower can’t afford to make their payment on a cash advance loan, they are usually faced with two options: rollover or reborrow.

Rolling the loan over means that the customer extends the loan’s due date in return for an additional interest charge. Oftentimes, they will only have to pay off the original interest charge in order to do so. Loan rollover is a practice banned in many states.

Reborrowing the loan simply means that the borrower pays back the original loan and then immediately takes out another. In certain states, borrowers have to wait out a mandatory “cooling off” period before they can take out another payday loan.

When a cash advance borrower rolls over or reborrows their loan, they are taking the first step in a cycle of debt. Since they can never afford to pay off their debt entirely, they are constantly racking up additional charges—essentially paying more and more each time to borrow the same amount of money.

Statistics back this up. Research from the Consumer Financial Protection Bureau (CFPB) found that the average payday loan customer took out 10 payday loans a year and spend almost 200 days in debt annually.

There are better options out there.

Remember when we talked about those sky-high APRs for cash advance loans? They might not mean much for a 14-day loan, but for a 200-day loan? That’s a different story. In the end, the most important thing you should know about payday cash advances is that they should be avoided at all cost.

Creating a cash emergency fund is one of the best ways to keep cash advance loans away from you. Start by saving up $1,000 and go from there. You can also try borrowing money from friends and family members, although you’ll want to be careful and make sure that both you and the person lending you money are on the same page.

Lastly, you could consider a bad credit installment loan, one with lower rates and more manageably-sized payments. Even better, some lenders (like OppLoans) report your payment information to the credit bureaus, which means that paying your loan back on time could help boost your credit score.

To learn more about how you can improve your financial situation, 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

What’s The Most Important Part of Your Credit Score?

There are five different categories that make up your credit score, and one of them makes up over one-third of your score all by itself.

Welcome to the Score Countdown, where we’re counting down the most important scores!

Score number 5? The score for Star Wars: A New Hope, which was labeled the number one greatest movie score on AFI’s list of greatest film scores. And how could it not be?

Score number 4? That would be 370, which was the combined score of the highest scoring NBA game in history on December 13, 1983, when the Pistons beat the Nuggets 186 to 184.

Coming in at score number three is 1,247,700, the current high score for the “Donkey Kong” arcade game, set by Robbie Lakeman on February 2018.

The second most important score is the “four score” of Gettysburg Address fame.

And coming in at number one, the most important score there is … your credit score! Yes, your credit score is very important if you’re looking to get a personal loan, an apartment, a car, or any number of other things. And it’s made up of different parts.

But let’s just ask the question you came to have answered: What’s the most important part of your credit score?


The most important part of your credit score is …

Of the five factors that make up your credit score, the most important one is payment history. We’re glad we could answer that question for you. Have a nice day! Keep warm!

Wait, how do you improve your payment history?

Don’t worry, we weren’t just going to leave you to fend for yourself. We spoke to the experts to find out how you can improve your payment history. The first piece of advice may seem obvious, but it’s also very important.

“Start making payments on time,” urged Leslie H. Tayne Esq. (@LeslieHTayneEsq), Founder and Head Attorney at Tayne Law Group (@taynelawgroup). “If your credit score is hurting because of your payment history, this likely means you haven’t been making your payments on time. In order to begin to remedy this, you need to start paying on time.”

“Paying as much as you possibly can by the due date will be the fastest way to improve your score, but even making the minimum payment on time will help. Do whatever you need to do to remember to make a payment.

“I write all of my due dates on my desk calendar in red pen so I don’t forget. Or perhaps set a calendar reminder in your phone or leave yourself notes where you’ll see them and remember. You can’t erase late payments from your history. The only way to repair it is to change your habits.”

“Be patient: One on-time payment won’t erase years of damage from late payments. Boosting your score will be a gradual process, particularly if it’s very low. Late payments appear on your credit report for seven years. You will need to establish a consistent pattern of paying on time to help counteract late payments. Late payments affect your credit more the more recent they are, so working to pay on time consistently will help lessen the damage.”

Request a (free) copy of your credit report.

“Aside from the obvious answer of pay your bills on time, there are a couple other things you can do to help your payment history on your credit score,” explained Joyce Blue (@EmpoweringYouLEC).

“The first thing is to get a copy of your credit report from all three credit bureaus and make sure the information reported is accurate. You’d be surprised to find out that it isn’t always right. Since this category of your score is 35 percent of how your credit score is calculated you want to make sure that the reports are correct.”

Here’s the good news: you can get one free copy of your credit report from all three credit bureaus once a year! To request a free copy of your credit report, visit www.AnnualCreditReport.com.

“Make sure to dispute anything on your report that is not correct,” Blue continued. “Payment history stays on your report of 7 years. If you have anything reported that is older than seven years you can request that it be removed as well. You can also request things to be removed that are not quite seven years old, and sometimes you will be successful in having those removed as well.”

Ask your landlord to report your rent.

“Are you great at paying your rent, but not all your other bills? You can go to your landlord and ask them to report your on-time payment history to the credit bureaus,” said Blue.

“Usually, the larger apartment complexes will be more apt to do this for you, but it never hurts to ask even with a landlord with a single rental. If you don’t ask, the answer will always be no.

“This will help show your on-time payment history and can be a boost to other things you might not have as good a track record paying.”

Use a credit card … carefully.

If you don’t really have a payment history to speak of, the best way to build one is through limited and responsible credit card use.

“Whether with a standard or secured card, just make one small purchase a month and pay it off in full,” advised Todd Christensen, education manager for Money Fit (@MoneyFitbyDRS).

“Best examples are Netflix and cell phone bills. They are small and typically the same every month. Do NOT carry the card with you into a consumer purchase situation (store).”

While payments you make on an installment loan can also help your credit score, this isn’t true for all types of personal loans. If you have lousy credit, be warned that most short-term bad credit loans like payday loans, cash advances, and title loans can’t help your score; they can only hurt it.

That’s because most lenders who offer no credit check loans don’t report payment information; they basically opt out of the credit check ecosystem altogether.

Of course, there are four other factors besides your payment history.

The other four factors.

Even though payment history is the most important part of your credit score, you don’t want to neglect the other four factors, which are, in descending order of importance: amounts owed or credit utilization, length of your credit history, credit mix, and new credit inquiries.

“Aside from your payment history, your credit utilization ratio is another major factor in your credit score,” Tayne told us. “This is the amount of money you owe versus your total credit line, and it includes all of your credit cards and loans.

“Keeping a low credit utilization ratio—under 30 percent is preferred, but you should aim for even less than 30 percent—can also help to offset a negative payment history. Working to get under or stay under that ratio, while also making payments on time, can help repair your credit.”

OK, now you have some solid advice to help you build up your credit score. Stay warm! And to learn more about credit scores, check out these other posts and articles from OppLoans:

Do you have a question about credit scores? Let us know! You can find us on Facebook and Twitter.

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Contributors

Money relationship expert and self-empowerment coach, Joyce Blue is a certified Rapid Results coach. Joyce is passionate about empowering others to master their relationship with money, so all of their relationships thrive, they step into their power and fall in love with their lives. Contact Joyce at joyce@joyceblue.com or on Facebook and Instagram @EmpoweringYouLEC.
Author and Accredited Financial Counselor®, Todd R. Christensen, MIM, MA, is Education Manager at Money Fit by DRS, Inc. (@MoneyFitbyDRS), a nationwide nonprofit financial wellness and credit counseling agency. Todd develops educational programs and produces materials that teach personal financial skills and responsibilities to all ages. Having facilitated nearly two thousand workshops since 2004 on the fundamentals of effective money management, he based his first book, Everyday Money for Everyday People (2014), on the discussions, tips, stories and ideas shared by the tens of thousands of individuals and couples in attendance.
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.

12 Tips for Talking About Money With Your Spouse or Partner

Talking about money with your spouse or partner isn’t easy, but these helpful bits of expert advice should help make the conversation a healthy and productive one.

Maintaining a healthy marriage or long-term relationship takes a lot of work and communication. But if you and your spouse or partner aren’t talking to each about money, specifically, it could be undoing all the hard work you’re doing in the other areas of your marriage.

“Occasionally I’ll meet with clients and can tell that they’re on different pages financially,” said Holly Peterson, owner of Elite Retirement Strategies in Pocatello, Idaho. “When I meet with a couple and one indicates that they are an aggressive saver and the other is laid back and doesn’t track their spending, I know immediately that they are not on the same page in multiple ways. Each person will have a completely different attitude when it comes to money and how they treat it.”

If you and your spouse are unable to communicate about money, then neither of you is setting your partnership up for success. Don’t let that happen. Here are twelve pieces of advice from financial and relationship experts that can help you and your partner start a healthy, productive money conversation.


1. Be honest and be open.

Chad Rixse is the founder of Far North Capital (@farnorthcapital) in Anchorage Alaska. He cited “honest and open communication” as a crucial component in successful marriages and long-term relationships. “Relationships that harbor secrets or are dysfunctional on the communication end rarely, if ever, work out long-term,” he said.

“Even if you and your spouse (or significant other) share different financial principles or goals, if you are able to be open and honest about your current individual financial pictures, expectations, management styles, and habits, it’s far easier to find common ground and align your financial lives together.”

Personal finance educator Denise Myhand, founder of The Wealth Culture, an organization dedicated to the narrowing the wealth gap for women and minorities, agreed that partners being honest and open in their communications is key to successful money conversations.

“Let your partner know what is going with you financially or if you have any concerns,” she said. “Do you have debt that the partner needs to know about, maybe you have nothing saved for retirement or you don’t like combining your money because you feel like you are being controlled. Whatever the issue is you have to share it to resolve it. You and your partner can not address issues if you both are not aware of them.”

2. Don’t wait. Start talking now.

Syble Solomon is the creator of Money Habitudes (@moneyhabitudes), a personality profile and financial conversation starter game for couples. Her advice is to quit waiting and start talking about money with your partner ASAP.

“Start by acknowledging to your partner that talking about money can feel awkward, but it builds trust and lays a stronger foundation for your relationship,” she said.

Sounds scary, right? Don’t worry, Solomon offered some other helpful tips to help you ease into the conversation:

  • H.A.L.T.: When getting started, give yourself the advantage of a time and place where you can relax; planning a quiet evening to talk about money over coffee is much better than right after fighting about the credit card bill. Think of the acronym H.A.L.T.; don’t try to have this conversation when someone is hungry, angry, lonely or tired.
  • Avoid numbers—at least at first. There seems to be a lot of advice that tells couples that the first money conversation they should have is doing a budget or going over credit reports. Think about working up to that and first get comfortable talking about finances in more general terms.
  • Reminisce. An easy way to begin is to just share your memories. Remember the first time you bought something with your own money? What did you buy? How did you get the money? A simple conversation like this proves that you can talk about money in a constructive way and lays the foundation for future conversations and understanding. Then you can talk about debt and credit scores, etc.!”

3. Pull your credit reports and go through them together. 

Todd Huettner is the president of Huettner Capital (@HuettnerCapital), a residential mortgage bank located in Denver, CO. He recommended that you and your spouse start your financial conversation by going through your credit reports.

Credit reports document your history as a borrower and contain the information used to create your credit score. Most information on these reports goes back seven years, while some information (like bankruptcies) stays on your reports for longer.

You actually have three different credit reports, one each from the three major credit reporting agencies: Experian, TransUnion, and Equifax. You can request one free copy of each report annually, just visit www.AnnualCreditReport.com.

Huettner suggested that you pull your credit reports and walk through them together looking for the following:

  • What are your credit scores? Similar scores can highlight common attitudes toward risk and finances including savings, borrowing, managing debt. Vastly different scores are definitely something to discuss. If you both have low scores, now is the time to look at how you can improve your finances together.
  • Why are any scores low? There are perfectly understandable reasons why someone may have bad credit. However, repeated mistakes can indicate something other than bad luck.
  • Look at prior names and name variations. Now is the time to fess up if you were previously married. It is much uglier to find out later.

4. Learn your partner’s underlying values.

The way your partner deals with money might completely confound you. If that’s the case, it’s safe to assume that you don’t just find their behavior confounding, but extremely frustrating as well. So instead of looking at the things they do with money, take the time to figure out why they’re doing them.

“When it comes to communication about money between partners, I like to take a holistic approach,” said money coach and founder of Bountiful Money Cecilia Case. I ask my clients and their partners to both go through exercises that help them understand their underlying values. They then compare their answers.”

“This provides a basis for understanding what your partner is valuing when they do something with money that isn’t what they would do. When they understand their partner’s values and motivations, it becomes easier to see that the spouse wasn’t doing it to make you mad, they were doing it because it made sense to them. That can be the start for a supportive and understanding give and take between loving partners.”

Certified Financial Education Instructor Kassandra Dasent (@kassandradasent) likewise stressed the importance of “how each person’s experience with money in the past has shaped their understanding and interaction with it in the present.”

“Through open, honest and non-judgmental communication, couples will be able to make financial decisions that meet their needs, address some of their wants and overall improve their quality of life,” she said.

5. Decide on one common financial goal. 

They say that opposites attract. And they’re often right. This is just as true for money as it is anything else—maybe even more so. The odds are good that you and your partner have very different approaches to money and financial issues.

That’s why Holly Peterson suggests you and your partner pick one common financial goal and work towards it, “whether it’s creating a budget, getting credit card spending under control or pledging to put a portion of your income towards retirement.”

“It’s also important to be on the same page for overall goals,” she added. “You both probably want to retire by a certain age, now you need to work together to figure out how to make that a reality. Have regular check-ins with each other for support and accountability.”

Additionally, focusing on one financial goal will also help you and your spouse from biting off more than you can chew!

6. Make regular appointments to talk.

Dasent recommended that couples in a marriage or a committed relationship set aside time regularly to talk about finances. She also specified that these sessions should be held on a minimum monthly basis.

“Regardless if one partner is responsible for the day to day financial decisions, it is important that both partners know what their money is being spent on and how that may be affecting the progress of their financial and life goals,” she said.

“Expect to talk about money in casual spontaneous times but also in scheduled and routine times,” offered Carrie Krawiec (@CarrieJKLMFT), a Licensed Marriage and Family Therapist at Birmingham Maple Clinic in Troy, MI. “Monitor your body for signs of getting overwhelmed or frustrated and plan to take breaks, limit time, or reschedule if either person gets too heated.

“If you must take a break or quit early,” she added, “make a concerted effort to return as avoiding only makes it harder to come back and makes it more difficult as a couple to resolve money problems.”

7. Don’t make it personal.

A marriage is a very personal thing, but talking about how money works in your relationship is going to require a bit more detachment. Otherwise, the conversation could go off the rails fast.

“When discussing past mistakes or current debt, don’t make it personal, just remain objective,” said Rixse. “Ultimately, your goal is to move forward in harmony and work towards mutual goals that will benefit not only each of you individually but your marriage as well.

“If objectivity is difficult to obtain, bring a third-party in like a financial planner or trusted family member that can remove any negative emotions that might be wrapped up in the conversations together and help you see each other’s side in a healthy way.”

8. Be proactive.

Are things going okay between you and your spouse right now money-wise? Great. That means this is the perfect time to start talking about finances.

“Be proactive,” said Myhand. “Discuss your finances regularly and be planful. Don’t wait for something to come up to discuss what you are going to do.

“Waiting till something happens can create extra financial and emotional stress that can be a burden on your relationship.  Setting financial goals and budgeting regularly will help you be proactive and keeps everyone on the same page.”

9. Learn healthy problem-solving skills.

Identifying a problem is step one. Step two is actually fixing it. The more tools and positive problem-solving skills you have at your disposal, the better.

“Create a goal, Brainstorm objectives for reaching the goal, choose a handful of objectives that make sense,” said Krawiec. “Rough out a plan saying who will do what and then meet weekly to track progress and troubleshoot as necessary.”

She also offered the following guidelines for healthy problem-solving:

  • “A goal should be positive and future-focused so not ‘Spend less’ but rather ‘Put 20 percent of income in savings each month.’
  • “When brainstorming each idea should not be judged. Then cross off ideas that don’t work. Choose a few you are willing and able to do.
  • “Don’t expect 100 percent success.
  • “Meet weekly to congratulate successes and rework problem areas.”

10. Practice positive reinforcement.

When you’re part of a couple, you divide the chores and other household duties. Money is no different. One person is going to end up being responsible for the couple’s finances. That’s no small job, and it’s on the other partner to give them positive reinforcement.

“Give frequent gratitude and praise to the person responsible for managing the household finances,” said Krawiec, adding that, “Happy marriages have five positive interactions for each one negative.

“If you are the person responsible for money give specific directions of your expectations and frequent positive feedback for cooperation. If you are the person who is not the household accountant give thanks that this important job function is done for you.”

More than simply offering positive reinforcement, Krawiec laid out how you can avoid negative behaviors and modes of communication:

“Avoid criticism (character attacks; “you are so stingy” or “you think money grows on trees” and stick to factual complaints “I dislike when you spend cash on out to eat meals when you can pack a lunch or eat at home.” )

“Avoid defensiveness (cross-complaining, rebutting, denying). Avoid contempt (which is eye-rolling, sneering, sarcasm, name-calling) and lastly, avoid stonewalling which is shutting down.

“These are John Gottman’s 4 Horsemen of the Apocalypse or 4 behavior characteristic of marriages that end in divorce,” she added.

11. Choose success over shame.

Do you and/or your spouse have trouble maintaining positive financial behaviors over a longer period of time? You’re not alone. Here’s Huettner’s description of what he calls the “Financial Shame Cycle”:

“Paying your bills on time, spending wisely, saving money are all things people could tell you are good financial habits just like eating right, exercising regularly, and getting lots of sleep are good health habits. Then why are they so hard to do?

“The Financial Shame Cycle is something I created to explain why personal finance can be so difficult for many people even though we “know” the basics.

“Shame is different because we do not feel we simply made a mistake. With shame we feel we are bad inherently and ‘just aren’t good with money.’

“The stages in the cycle are:

  • “We don’t know what to do/how to start so we don’t do anything.
  • “We know what to do, but we don’t have a plan that we feel will succeed, so we don’t start.
  • “We don’t see progress/success so we reinforce our belief that we are not good and start back at one.”

“If you or your significant other experiences these feelings, you need to do a little more work,” said Huettner. Luckily, he also offered the steps that a couple can take to exit the “Financial Shame Cycle” and enter the “Financial Success Cycle” instead:

“It all begins with the acceptance that we are not the only ones who have these struggles and we just need to get learn to handle our finances.” The steps for Huettner’s Financial Success Cycle include:

  • Information: get help and informed on where you are financially.
  • Confidence: create a plan to achieve your goal.
  • Progress: create small steps to take to see your successes.

“Communication is a key part of building a strong relationship and financial conversations are no different. You will have this conversation at some point; either now to start your relationship or far too late when it is ending. There is too much at stake to wait,” said Huettner.

12. See how one CFP talks to their spouse.

Getting your finances together can seem like a pretty daunting task. And it’s certainly going to take some hard work—from both you and your spouse. The other 11 tips contained in this article can help you out, but it’s always nice to see healthy financial practices in action.

That’s why we’ll leave with you with this snapshot from Certified Financial Planner Krista A. Cavalieri, owner of Evolve Capital (@EvolveCap), of how she and her husband talk to each other about money:

“My husband and I have a pretty decent baseline of healthy communication which is key to any conversation but especially so when it comes to money because as we all know, money is a very sensitive topic.

“We do not have formal monthly or weekly meetings, which are sometimes needed depending on the couple. We have a very open line of communication and both log into our budgeting tool quite often to ensure things are moving along. We casually chat about money about once a week often in relation to going to dinner or a possible weekend trip. These conversations help us reconnect and confirm that we are on the same page about the overall goal of our money.

“We often clear out of the ordinary purchases with one another. While it used to be of a certain dollar amount (about $100) we have found that because of the Amazon prime and the good old add on items, we talk about purchase more frequently.

“We also discuss activities for the children and try to come to a common ground on what activities we feel are worth spending money on and when. Such as gymnastics for our middle child, we both agree it might be better to wait until she can do it without needing a parent.

“While we haven’t settled on a date for retirement we talk about it in theory, such as if we might relocate and also to confirm with one another that we would like to travel.”

Talking to your spouse about money isn’t something you can do in a one-time-only session; it’s a conversation you two will be having for the rest of your lives. If you want some financial topics to help carry you through the decades, check out these related posts and articles from OppLoans:

How do you handle money issues with your partner? We want to hear from you! You can find us on Facebook and Twitter.

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Contributors

Cecilia Case is a Money Coach and founder of Bountiful Money. Money intertwines with nearly every aspect of our lives, and its power can make it an intimidating problem to fix. Cecilia uses a direct but gentle method of exploring your past, understanding your values and goals, and helping you find your own path to money health and success. You can heal your relationship with money, and find peace and prosperity in your personal finances!
Krista Cavalieri started Evolve Capital (@EvolveCap) when she realized there was no way for young people (like her) to get good financial advice tailored to them. Not one size fits all financial products or minimums they can’t reach. Just because they are young doesn’t mean they should be ignored. Krista has been in financial planning since 2010 and prior to that traded foreign exchange with UBS after graduating from The Ohio State University. She also holds the CERTIFIED FINANCIAL PLANNING designation.
Kassandra Dasent (@kassandradasent) is a Certified Financial Education Instructor, certified credit analyst, and personal finance expert. “Minding Your Money” is what Kassandra Dasent specializes in. Focusing on how the emotional quotient can have a direct and lasting impact on one’s relationship with money, she successfully communicates to her audiences practical ways on how to improve their financial circumstances. To learn more, visit KassandraDasent.com.
A recognized real estate and personal finance expert with over twenty years of experience, Todd Huettner is frequently quoted in the business press including The Wall Street Journal, CNBC, Credit Karma, and Realtor.com. He is President of Huettner Capital (@HuettnerCapital), a residential mortgage bank located in Denver, CO.  In addition to earning an economics degree and an M.B.A., Todd has held his real estate license in multiple states and been an underwriter, financial analyst, and consultant.
Carrie Krawiec (@CarrieJKLMFT) is a Licensed Marriage and Family Therapist at Birmingham Maple Clinic in Troy, MI. Carrie provides individual, couple and family therapy with interest areas including a variety of relationship issues such as adult family conflict, family business conflict,  family conflicts between parents and teens, relationship and marriage counseling,  peer relationships, communication, and emotional regulation. Carrie has specific training in Parent Management Training-Oregon (PMT-O Specialist); a behavior management technique for parents to utilize with children to prevent and reduce behavior issues in children age 7 to 17.
Denise Myhand is a personal finance advocate who is passionate about people, life, knowledge and new experiences. She is the founder of The Wealth Culture, an organization dedicated to the narrowing the wealth gap for women and minorities where they advocate four core principles: budgeting, debt repayment, generational wealth, socializing financial responsibility and empowerment. In addition to the Wealth Culture, Denise has recently completed her first ebook: The Debt Slay Guide – An autobiographical and instructional guide to paying off debt.
Holly Peterson is the owner of Elite Retirement Strategies in Twin Falls, Idaho.
Chad Rixse was born and raised in Anchorage, Alaska until the age of 18. He then spent the next 11 years in Seattle where he graduated from the University of Washington and got his start in the financial services industry. Chad has since moved back to Anchorage to found Far North Capital (@farnorthcapital) and continue pursuing his lifelong passion for helping others. He finds the positive difference he’s able to make in people’s lives the most rewarding aspect of his work. Outside of work, Chad loves enjoying all that Alaska has to offer. In the summer, he loves to camp, hike, fish, and golf. In the winter, he downhill skis and gets to the rock gym a few times per week. Chad is also active in the Anchorage Chamber of Commerce’s Young Professionals Group.
The creator of Money Habitudes (@moneyhabitudes), Syble Solomon, is an educator and coach who specializes in the psychology of money. Since 1995, she has been an executive coach and adjunct faculty member with the Center for Creative Leadership. She was a doctoral fellow at University of Pittsburgh, received her Masters in Education at George Washington University and her B.A. in Economics with a minor in psychology from Rutgers University beginning her career as a Peace Corps volunteer, teaching in the Philippines.