6 Great Reasons To Check Your Credit Report

Can’t think of a good reason to order a free (we repeat: free) copy of your credit report? No worries, we’ve got six.

Our world is filled with unsolved mysteries. What happened to Roanoke? Who built Stonehenge? How many licks does it take to get to the center of a Tootsie Pop?

But some information can be known and should be known. For example, the information in your credit report. And unlike those other mysteries, this one is pretty easy to solve.

“It is important to check your credit report from all three major credit bureaus (Experian, Equifax, TransUnion) at least once every 12 months,” urged Audrey Washington, founder and CEO of Fiercely Financial Coaching (@FiercelyFinance). “You can obtain a free copy of your credit history from AnnualCreditReport.com. This service was established by the federal government in response to identity theft.”

There are a few other ways to get your credit report, but it’s important to be careful that you aren’t scammed. And if you’re still not convinced, here are seven reasons you should check your credit report!

1. Because your credit score depends on it.

Your credit score is a three-digit number determined by the information in your credit report. That number is very important since it will determine if you can get a loan and more.

“Since everything from loan and credit card applications, interest rates, getting hired by a new employer, car and homeowner’s insurance premiums, apartment applications, utility deposits, and cell phone plan services are based to one extent or another on your credit rating, and since your credit rating is based 100 percent. on the information on your credit report, you want to make sure that the information on your credit report is both accurate and up-to-date,” advised Todd Christensen, education manager for Money Fit by DRS, Inc. (@MoneyFitbyDRS).

2. To correct errors.

You know what would be really unfair? If the three major credit bureaus, who will track your credit-worthiness whether you ask them to or not, made frequent errors when compiling your credit report. Sadly, this unfair scenario we’ve just described is also our reality! That’s why it’s important to check your credit report for errors.

“The last thing you want on your credit score is an error that goes unnoticed,” advised Kelan Kline of The Savvy Couple (@TheSavvyCouple). “It’s important to check often and keep track of your credit score to prevent your score from dropping.”

And what might those errors be?

“Your credit report helps you identify errors and/or outdated claims that negatively affect your credit score,” explained Jory McEachern, Operations Manager at ScoreShuttle (@scoreshuttle). “Such errors can contain minor name spelling errors or major collections that you’ve already paid off in previous years.”

3. To spot identity theft.

Some errors on your credit report are actual errors. Other errors are due to stolen identities.

“The biggest concern when checking your credit report should be to ensure that no one is opening or using credit accounts in your name,” recommended Christensen. “Identity theft can cost thousands of dollars to correct and take a couple of years to work through, so the earlier you spot any such troubles, the better.”

And you may not be the only one at risk.

“Parents should also contact the three major credit bureaus on how they can check to see if anyone is using their children’s social security numbers for credit,” advised Washington.

4. You’re applying for a job.

A potential employer may perform a credit check on you, especially if the job you’re applying for is in the financial realm. You should know what’s on it before they do.

“If you are in the job market and you suspect your employer will be running a credit check, prepare by taking a look,” suggested Nathalie Noisette, owner of Credit Conversion (@credconversion).

“You want to preempt any possible reason the employer will deny you the job. Some employers will keep you in the candidate pool if your credit is not stellar, but you offer an explanation as to why your credit isn’t in great shape.”

5. You made or are making a big purchase.

It’s always good to know your financial situation when you’re making a big purchase, but it’s particularly important if you’re going to be making a purchase that could require interest payments.

“If you are considering a major purchase, you definitely want to check your credit report,” urged real estate professional Chantay Bridges. “Your score can affect your interest rate for a large number of years, especially on a purchase such as real estate or an automobile.

“You want to make certain everything is intact before you sign on the dotted line. In addition, you could be rejected based on something that’s there, so you want to have a chance to clear it up ahead of time, especially lates, tardies, or delinquents that are not yours.”

6. Because the possibility exists, so why not take advantage of it?

You get at least one free chance to check out your credit report each year. Why throw that away? And there are other services to consider as well.

“Many credit card companies, credit score apps, and websites offer free credit score monitoring so taking advantage of them is a no brainer,” Kline outlined. “Keeping an eye on your credit score not only protects you but ensures you are moving in the right direction with improving your overall credit score.”

Hopefully, that’s enough reasons to check your credit score. Still not convinced? Well then here’s one more: ‘Cause we think it’d be pretty cool. To learn more about how your credit score works—and how you can improve it—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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Chantay Bridges is America’s leading mogul, who utilizes her gifts and abilities in outreach to her community and world around her. She is an exceptional Realtor, (translation: the one you want to hire), Author, Speaker and a keen philanthropist with a strong business acumen.
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.
Kelan and Brittany Kline aka The Savvy Couple are two thriving millennials that are daring to live differently. They started their personal finance blog in September 2016 to help others get money $avvy so they can live a frugal and free lifestyle. Brittany is a full-time 4th-grade teacher and Kelan runs The Savvy Couple full-time and works as a digital marketer. You can follow them here: FacebookTwitterPinterest, and Instagram.
As a credit specialist at ScoreShuttle (@scoreshuttle), Jory McEachern helps individuals reach their ideal credit score so that they can qualify for all the important things in life. With ScoreShuttle’s online first-of-its-kind technology, members receive the most current updates and tips and advice on how to boost their score, fast.
Nathalie Noisette is the Founder of Credit Conversion (@credconversion), a credit counseling, and repair company located in Avon, MA. Credit Conversion uses principles of behavioral change to not only allow clients to improve their score but understand the habits that lend to poor credit.
Audrey Washington, Founder/CEO of Fiercely Financial Coaching (@FiercelyFinance) has been an entrepreneur since 2005 and is a personal finance coach, educator, and speaker. She is the author of the book Transform Your Money Mindset – Simple Steps for Financial Fitness. Her signature programs are Workplace Financial Fitness,  financial education for employees; Financial Fitness Boot Camp; and Debt Free Boot Camp. She is also an affordable housing/community development consultant. She is a certified Financial Capability Coach, Homeownership Counselor, Homebuyer Educator, and Foreclosure/Default Counselor. Audrey teaches Personal Financial Management at Monroe College and is a Life Member of the National Council of Negro Women. She enjoys the beach, reading, baking and time with family and friends.

Do No Credit Check Loans Show up on Your Credit Report?

With traditional lenders, reporting payment information to the credit bureaus is a two-way street. But with no credit check lenders? Not so much.

No credit check loans aren’t known for offering lots of fancy perks. They’re a way to get you the cash you need when you need it: ASAP. But are these loans so no-frills that they don’t even end up on your credit report? And is that a good or a bad thing?

How do no credit check loans work?

If you have good credit, you can easily get a personal loan from a bank, credit union, or another traditional personal lender. But if you have bad credit, your options are going to be more limited.

For one thing, traditional lenders will run a hard credit check when they evaluate your application. And those hard checks will actually ding your score. And while the damage is small and temporary, it’s still the last thing someone with bad credit needs—especially when they’re going to get denied anyway!

That’s where no credit check loans come in. These are smaller loans—both online loans and cash loans from brick and mortar lenders—designed to provide emergency bridge financing for people with bad credit. And just like the name suggests, no credit check loans will not involve a hard check being run on your credit history.

There are three main kinds of no credit check loans. The first is payday loans—also known as cash advances. These are small-dollar loans with very short repayment terms and extremely high interest rates. A typical two-week payday loan with a 15 percent interest rate has an APR of almost 400 percent!

Title loans are also common, but, unlike payday loans, these products are secured by collateral—namely, the title to the borrower’s car or truck. You can generally borrow more money with a title loan than you can with a payday cash advance, but you’ll still encounter APRs averaging around 300 percent!

Lastly, there are bad credit installment loans, which are structured more like traditional loans. Unlike payday and title loans, which you pay off in a single lump sum, installment loans are paid off in a series of set, regular payments over a period of months or years, not weeks.

How does credit reporting work?

Your credit score is based on information in your credit reports. These are documents that track your history as a user of credit. Generally, the information stays on your credit reports for seven years, but some information sticks around for longer.

You have three different credit reports, one each from the three different credit bureaus: Experian, TransUnion, and Equifax. And those credit bureaus rely on businesses like lenders, landlords, and debt collection companies reporting information to them in the first place.

Some businesses only report to one or two of the credit bureaus, not to all three. This is why information can vary across your reports, and why a credit score created from, say, your Experian report could be higher or lower than a score created from your TransUnion report.

Credit reporting is a two-way street. Businesses that check consumers’ credit scores rely on the credit bureaus to provide them accurate scores and credit histories, while the bureaus rely on these same businesses to report this very same information.

No credit check loans don’t show up on your report.

With no credit check lenders, however, there is no two-way street. In most cases, there isn’t even a one-way street. No credit check lenders don’t rely on the credit bureaus, and they don’t report to them either.

Case closed, right? Actually, no. Not quite yet.

There’s one big exception.

While no credit check lenders don’t report payment information to the credit bureaus, debt collectors most certainly do. And if you end up defaulting on your no credit check loan, the odds that the debt gets sold to a collection agency are pretty good.

If that happens, and the debt collector reports your account to the credit bureaus, your score is going to take a big hit. This is one of the annoying things about no credit check loans: You don’t get the bump from paying one off on time, but you do get dinged for failing to make your payments.

Consider a soft credit check loan instead.

There is an alternative to choosing no credit check loans when you’re in need of some quick cash: You could apply for a bad credit loan that performs a “soft” credit check instead. Unlike hard checks, soft checks don’t end up on your credit report and don’t affect your score.

What’s more, a soft credit check lets you know that the lender is taking your ability to repay into account, making it less likely that you’ll borrow more than you can repay and end up either defaulting entirely or stuck in a dangerous, costly cycle of debt.

Even more than finding a lender who performs a soft credit check, you should focus on a lender that checks your ability to repay—whether that’s a soft check, an income verification, or another type of underwriting process. Anything is preferable to no check at all.

Some of these soft credit check lenders even report your payment information to the credit bureaus! So if you make your payments on time, that information will go on your report and can help you build a better credit history!

To learn more about how you can improve your financial situation, check out these other 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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If You Have Bad Credit, Watch out for These 5 Predatory Loan Warning Signs

High interest rates and short repayment terms are a good start, but you should also find a lender that checks your ability to repay!

Bad credit loans can be a great tool to help people bridge unforeseen financial gaps, but the wrong loan can leave you trapped in a bad cycle of high-interest debt. In order to avoid predatory lenders, here are five warning signs that you should use to sort out the good loans from the not-so-good.

1. Ridiculously high APRs.

When you have bad credit, you’re shut out from borrowing at traditional lending institutions. And the kinds of loans you will be able to get approved for are going to carry higher interest rates due to the increased likelihood that you (and other customers) will default.

But there’s a limit. And predatory lenders charge interest rates that go way beyond it. You might not be able to tell just by looking at their stated interest charges, but some of these loans cost could be charging over 40 times what standard personal loans would charge—or even more!

We’ll cover more about the dangers of short-term bad credit loans in the next section, but we can’t talk about the sky-high high interest on these loans without mentioning them. That’s because the interest rates on short-term loans can obscure how expensive they are compared to regular loans.

Why is that? Well. your standard personal loan states its interest rates on an annual basis, while short-term loans state their rates on a weekly or monthly basis. This is why you should use a loan’s annual percentage rate, or APR, to measure its true cost.

Once you do that, the high rates of these short-term predatory loans will become clear. For instance, if you borrow a two-week payday loan with an interest charge of $20 per $100 borrowed, that 20 percent fee would seem a little high, but nothing too bad. However, that two-week loan carries an APR of 520 percent!

2. Short terms.

Then again, if you’re borrowing a two-week bad credit loan, why should you care about how much it’s costing you on an annual basis? After two weeks, you’re going to pay off the loan and free and clear … right?

Maybe not. Short-terms not only mean higher overall rates, but they also carry with them some other serious obstacles, ones that could prevent you from paying your loan off on-time. Once you’re forced to rollover or re-borrow a loan, those costs start adding up. Fast.

One of the primary issues with short-term loans is that … well …. they have such short repayment terms! What seems like an easy way to get out of debt fast turns into the opposite: A loan that becomes much too difficult to pay off.

A lot of this comes down to the size of the loan’s payments. With short-term loans, you’ll pay them all off in a single lump sum. It’s convenient, sure, but that single large payment can leave people right back where they started: After taking out a payday cash advance to bridge a financial gap, they find themselves facing a brand new gap.

Studies bear this out. According to one report from Pew Research Centers, well over 80 percent of payday loan customers didn’t have enough money in their monthly budget to cover their loan payments. And a study from the Consumer Financial Protection Bureau (CFPB) found that the average payday loan customer takes out 10 such loans every year.

When you’re looking for a bad credit loan, you should see what installment loans are available in your area. Since these loans are paid off a little bit at a time, their smaller payments might fit more easily into your budget than a short-term payday loan, title loan, or cash advance.

If you can easily make your payments without having to roll over, reborrow, or refinance, that’s a sign that you found the right bad credit loan for you. Heck, some installment lenders even report payment information to the credit bureaus, which means that paying your loan off on time can help improve your credit score!

3. They don’t check your ability to repay.

One of the appeals of no credit check loans is right there in the name: This is a lender that won’t be checking your credit. Hard credit checks will often lower a person’s score, after all, and when you’ve got lousy credit, that’s the last thing you need!

But there is a difference between not checking your credit score and not checking your ability to repay. And even if a lender isn’t doing the former, they definitely should be doing the latter. If they’re not, you should take that as a flashing red warning sign.

Even if a lender isn’t checking your credit score, there are ways that they can check your ability to afford a given loan. One thing they can do verify your income. Another way is by running a soft credit check that won’t affect your score.

Lenders that don’t do any of the things are sending a message loud and clear: That it doesn’t matter to them whether or not you can actually afford your loan. And if you have to roll over your loan or take out a new loan immediately after paying off your old one, that’s all the better for them.

Finding a company that checks your ability to repay is a great way to avoid predatory bad credit lenders. Otherwise, you could find yourself trapped in an unceasing cycle of debt, taking out loan after loan without ever getting closer to being out of debt.

4. Hidden costs or fees.

You’ll find these with bad credit and no credit check loans, but they can be even worse when it comes to products like secured credit cards and debit cards. In some cases, you could end up paying exorbitant fees simply to access money that’s already yours!

This is why it’s critical that you read the fine print before signing up for any financial product, whether that be a loan, a credit a debit card, or a lease. And if a product comes with lots of hidden fees or extra charges, then that’s a sign that this not the product for you.

5. Poor customer reviews.

One of your best resources for unbiased information on a lender or finance platform is going to be people like you. So before you sign yes on that online loan agreement, check out that company’s reviews to see what their other customers are saying!

Sites like LendingTree and Google are a great place to start, but you should go deeper than that. Visit the company’s social media pages to see what kind of experiences customers are reporting. Better yet, visit their BBB page to see a) whether they even have a BBB page, and b) what kind of rating they’ve received!

There isn’t a 100 percent surefire way to avoid predatory lenders—even if you have good credit! But heed these warning signs, and you should put yourself in a position to find the bad credit loan that works best for you.

To learn more about how you can improve your financial situation, check out these other 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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20 Must-Know Terms to Boost Your Financial Literacy Vocabulary

Want to be fluent in financial literacy? Start with these 20 essential words.

Pop quiz: What does ‘creditworthiness’ mean? How about ‘principal’ or ‘credit report’?

Understanding financial terminology is an essential part of financial literacy. At first, the words might sound like a foreign language. They might be intimidating, but it’s an important language to learn—it’s how lenders, banks, and credit card companies talk about you, so study up because you want to know what they’re saying!

To begin, cover the basics. Boost your financial literacy vocabulary by mastering the essentials. Take a financial literacy lesson or two, and go from there.

Ready to get started? Here are the 20 most important terms to strengthen your financial literacy vocabulary.

Financial literacy vocabulary words

1. Annual percentage rate

Annual percentage rate, or APR, is the yearly interest rate charged on borrowed money. The rate is expressed as a percentage and indicates how much interest the borrower will pay over the course of a year.

2. Asset

An asset is any resource (tangible or intangible, owned or controlled) that holds value. In other words, assets contain value that can be converted into money. An individual, company, or country can own or control assets, which include things like cash, investments, art, technology, real estate, and intellectual property.

3. Bankruptcy

Bankruptcy is a legal status that a person or entity can enter when they’re unable to repay their debts. Bankruptcy shields borrowers from debt collection, but it requires that they sell their assets to repay the money they owe. Bankruptcy carries significant financial consequences.

4. Budget

A budget is a plan for using income to meet financial obligations. It tracks how much income a person receives and details how that money will be allocated to pay for expenses, build savings, and meet financial goals.

5. Comparison shopping

Comparison shopping is a strategy that consumers can use to save money on purchases. It consists of comparing the prices of similar products to determine which is least expensive.

6. Credit

Credit is a financial arrangement in which money is borrowed for a purchase and paid back at a later date. It allows consumers to make purchases that they wouldn’t be able to afford if they had to pay the full price in one installment. By spreading the cost over time, credit enables borrowers to make big-ticket purchases such as homes and vehicles. Common forms of credit include loans and credit cards.

7. Credit report

A credit report is a record of a borrower’s credit history. It is produced by the credit bureaus and typically consists of four sections: personal information, financial account history, history of credit applications, and public records. The information in a credit report is used to calculate a consumer’s credit score, which is one of the primary factors that lenders consider when evaluating a credit application.

8. Credit score

A credit score is a three-digit number that represents how likely a borrower is to repay a debt. It is calculated based on the information in a borrower’s credit report and ranges from 300 to 850. Borrowers with higher scores are viewed as more likely to repay debt obligations and are thus more likely to be approved for credit and receive lower interest rates.

9. Creditworthiness

Creditworthiness is a term that refers to how much confidence a lender can have in a borrower’s ability to repay a loan. Creditworthiness is primarily determined by how well a borrower has managed previous debt obligations.

10. Debit card

Unlike a credit card, a debit card immediately withdraws funds from the user’s bank account. Debit cards are less likely to contribute to excessive debt than credit cards, but users face fees if they overdraw their account.

11. Debt

Debt is the money that a borrower owes to a lender. It can be accrued through any form of borrowing—credit cards, mortgages, personal loans, and auto loans among others.

12. Default

Default occurs when a borrower is unable to meet the obligation of debt repayment. Default is the second and more serious stage of nonpayment that follows the stage of delinquency. Once a loan enters default, the lender typically reports it to the credit bureaus and sells the debt to a collection agency.

13. Diversification

A core principle of investing, diversification spreads investments over different assets with varied risk potential. Diversification is a strategy to reduce the overall risk of loss.

14. Emergency fund

An emergency fund is money set aside for big, unexpected expenses such as job loss or large medical bills. It provides a financial buffer that shields against accruing unwanted debt.

15. Income

Income is money received through sources such as employment, investments, or business transactions. There are two ways to measure income: gross income and net income. Gross income is the total amount that’s earned before expenses, taxes, and other costs. Net income is what remains after these expenses are deducted.

16. Interest

Interest is the percentage of a loan principal that lenders charge borrowers. There are two primary kinds of interest: simple interest and compound interest. Simple interest is calculated exclusively on the initial amount of money borrowed, while compound interest is calculated based on the loan principal plus the interest that accumulates each period.

17. Need vs. want

One of the most basic concepts of personal finance is being able to differentiate between needs and wants. A “need” is defined as an essential expense, such as food or housing. A “want” is an expense that would be nice to have but isn’t essential, such as designer clothing.

18. Pay yourself first

Pay yourself first, or PYF, is a strategy in which saving is prioritized and made an essential cost in a budget. Typically, in PYF a certain percentage of income is deposited in a savings account each month. Just as other “needs” such as rent and food are essential, so is saving, and only once those “need” expenses are covered can money be used for “want” purchases.

19. Principal

Principal is the amount of money due on a loan before interest.

20. Time value of money

Time value of money, or TVM, is the concept that money available now is worth more than an identical amount in the future. This is because money that’s invested has the potential to grow, and the longer that it’s invested, the more it will appreciate. Money that’s acquired later has less time to grow through investments, and is thus considered less valuable.

Read more

What terms would you include in a financial literacy guide? Let us know over on Twitter at @OppUniversity.

Will Closing a Credit Card Affect Your Credit Score?

It might seem odd, but closing a credit card can actually hurt your score, especially if it’s one of your oldest cards and/or carries a high credit limit.

There are a lot of myths out there surrounding credit scores and credit-related topics. But sometimes a thing that sounds like an urban legend turns out to be true! If you’re skeptical that closing a credit card could hurt your credit score, well, you’re in for a bit of a shock.

Yes, it will affect them—probably for the worse.

Credit scores are complicated, with a number of factors coming together to make up that single three-digit number. There are many different things you can do to hurt your score and many things you can do to help it. Plus, context matters.

“If you have multiple credit cards and cancel a card with a modest credit limit that you’ve only had for a couple of years, there may be very little impact on your credit score,” said Timothy G. Wiedman, professor emeritus of Management and Human Resources at Doane University (@DoaneUniversity).

“On the other hand,” he added, “if you only have two or three credit cards and cancel your oldest card that you’ve had for a dozen years that had a $15,000 credit limit (and that was the card with your highest limit), it may matter quite a bit.”

So what gives?

“Credit scores take into account how long you’ve had your credit card accounts and the percentage of your total credit limits that you utilize,” explained Wiedman. “So if you cancel your oldest account (especially if it has a healthy credit limit), it can matter a lot—especially if you only have one or two other (much newer) cards.”

How credit scores work.

In this piece, we cover two different parts of your credit score at length. We don’t want you getting lost, so here’s a brief refresher on how credit scores work.

Your FICO credit score—created by the FICO company—is a three-digit number between 300 and 850. The higher your score, the better your credit.

FICO credit scores are based on information taken from your credit reports, which track your history as a borrower and user of credit over the past seven years. (Some information, however, will stay on your report for longer.)

You score is made up of five different categories of information:

  • Payment history: This makes up 35 percent of your score. Basically, do you pay your bills on time?
  • Amounts borrowed/credit utilization: This makes up 30 percent of your score, and it tracks how much money you’ve borrowed.
  • Length of credit history: This makes up 15 percent of your score. The longer you’ve been borrowing money, and the longer you’ve had revolving accounts (like credit cards) open, the better.
  • Credit mix: 10 percent of your score. What different types of credit (credit cards vs personal loans vs home/auto loans vs student loans) do you have? A more diverse mix is better.
  • New credit inquiries: 10 percent of your score. Have you recently made a bunch of inquiries for new loans or lines of credit? If you have, maybe that’s a sign that you’re desperate to borrow more money …

If you have bad credit and you want to know why, you should order a free copy of your credit report, which you can do by visiting AnnualCreditReport.com. To find out where you need to do better, look at your payment history and your credit utilization. Together, they make up 65 percent of your total score.

Closing a card hurts your credit utilization ratio.

“Whether you get stung when you close a credit card account depends on a measurement known as the balance-to-limit ratio or credit utilization ratio. This compares how much credit is available to you to how much credit you actually borrow,” explained Stephen Hart, CEO of Cardswitcher.

“A high balance-to-limit ratio, where you borrow a large amount of money, is usually considered a sign of increased financial risk by lenders and a low balance-to-limit ratio is considered good.”

Still not sure how your credit utilization ratio works? Here’s an example from CPA Logan Allec (@moneydoneright), owner of personal finance website Money Done Right:

“Let’s say you have a total credit balance of $4,000 across all your credit cards.  Now let’s say you have a total credit limit across all of your credit cards of $20,000. In this case, your total utilization rate is 20 percent—or $4,000 divided by $20,000.

“Now, what if one of your credit cards has a $10,000 credit limit, and you cancel it? In this case, your total credit limit across all of your credit cards would go down to $10,000. What would happen to your total utilization rate?  It would skyrocket to 40 percent—or $4,000 divided by $10,000, which could adversely affect your credit score.”

For the sake of your credit score, it’s best to keep your credit utilization ratio below 30 percent. Even if you’re paying off your cards every month, you should try to avoid accruing more than 30 percent of your total limit at any one moment in time.

And if you’re thinking about closing that one card that has a super high credit limit, maybe don’t.

Closing old cards dings your credit history.

Remember, the length of your credit history doesn’t just measure how long you’ve been using credit, it also tracks how long you’ve been using specific accounts. The longer you’ve had a credit card, the more it helps your score.

“While it’s not as weighty a factor as payment history or credit utilization,” says Allec, “it’s still worth paying attention to.” And he’s right! Closing your oldest card will lower the average age of your accounts, likely dropping your score.

“This is why I keep my oldest credit card—the one I opened in college—open,” added Allec. “Even though I don’t use it because its rewards structure is a boring one percent back on everything.”

And if you’re not certain which of your credit cards is the oldest, Allec offered this tip: “Make a list of all of them and see if you can see online which one is the oldest based on their statement dates.”

Looking to erase past mistakes? Not so fast.

One of the reasons that someone might look to close an old card is because they think it will remove any bad information related to that card from their report.

Unfortunately, it will not.

“Bear in mind that the credit card isn’t erased from your credit record straight away,” said Hart. “Negative entries usually stay on your credit record for around seven years—so it isn’t necessarily a quick fix for making your credit history appear rosier than it actually is.”

“The good news,” he added, “is that positive entries stay on your credit record for much longer—usually a decade.”

Keep them open—just don’t use them.

As you can see, the reasons for keeping an old card open are generally more compelling than the reasons to close it. Still, in case you’re not convinced, here are a couple more common reasons that people close their old credit cards—and ways that you can get around them:

“If your newer cards provide better “reward” deals, just use them as your main cards while using the older, longstanding card once in a while to keep that account active (and keeping its high credit limit as part of your credit file),” said Wiedman.

“If you have high balances on other credit cards, you might find that you’re faced with charges when you try to close your credit card account. A way to avoid this to make sure that you pay off the balances of all your accounts in full before you try to close any,” offered Hart.

“If your reason for wanting to cancel a credit card is its high annual fee, call the credit card company to see if they will waive it for the year,” advised Allec.

Just make sure you don’t do one thing, and that’s to start using the card to spend beyond your means and rack up excess debt! To learn more about managing your debts responsibly, 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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Logan Allec (@moneydoneright) is a CPA and owner of the personal finance website Money Done Right.  After spending his twenties grinding it out in the corporate world and paying off over $35,000 in student loans, he dropped everything and launched Money Done Right in 2017.  His mission is to help everybody—from college students to retirees—make, save, and invest more money.  Logan resides in the Los Angeles area with his wife Caroline.
After working in the financial industry for several years, Stephen Hart left his role as Chief Financial Officer at WorldPay to launch the UK’s first payment processing comparison site, Cardswitcher. Nowadays, he helps SMEs save money on their payment processing costs.
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.

Financial Basics: How to Use Credit Responsibly

To help celebrate National Financial Literacy Month, we’re getting back to basics: If you want to use credit responsibly, you should start by focusing on the right kinds of debt.

If you want to get credit, you have to show that you can use credit. And specifically, you have to show that you can use credit responsibly.

That means you’ll have to figure out how to get some credit in the first place. And you’ll want that credit to be good credit. And then you’ll also need to know how to use that good credit properly.

Phew! Someone should gather all of that information relevant to proper credit use and stuff it into one easy-to-read article!

Guess what? They did. And the “they” is “us.” And you’re reading that article right now!

How to get credit when you have none.

This topic deserves an entire article of its own. Which is why we gave it one. But we’ll still address it briefly here.

Two of the best ways to start building credit are to either get a secured credit card or become an authorized user on someone else’s card. A secured credit card requires cash collateral, but you’ll be able to get one even if you don’t have a good credit score or any credit at all.

Becoming an authorized user on someone else’s card will allow you to start building your credit off of theirs. You could also mess up their credit, however, so be sure to take it seriously.

Now let’s get into good and bad debt.

Try to focus on good debt.

This is the credit you want. The credit or debt that, if used properly, will bring your credit score up.

“Potentially good credit involves no fees or interest,” explained Todd Christensen, education manager for Money Fit by DRS, Inc. (@MoneyFitbyDRS). “It has a positive impact on your credit rating but does not lead to overspending. Good credit also leads to growth in your net worth. Good credit is directly tied to potentially beneficial debts, such as a mortgage or a business loan.”

Certified financial educator Maggie Germano (@MaggieGermano) provided some additional markers of what makes debt good: “Good debt is considered an investment that will typically grow in value or generate income over time. Good debt also tends to have low interest rates. An example is student debt. The idea is that this debt will eventually result in higher income over the course of your life.”

And do your best to avoid bad debt. 

And now for the credit and debt you want to keep away from. Unsurprisingly, it pretty much has all the opposite qualities of good credit.

“Bad debt is any debt that is taken out to pay for things that lose value over time and don’t result in higher income,” clarified Germano. “This type of debt also usually comes with high interest rates. Basically, you end up paying more than the cost of the original purchase. An example is credit card debt. If you keep a balance on your credit cards, the interest grows and makes it difficult to pay off the amount. You can get caught in a cycle that feels like it will never end.”

And Christensen offered his take as well: “Bad credit involves fees and interest. It does nothing to improve your household finances, or it leads to smaller net worth.”

Additionally, and while this may seem obvious, good credit instantly becomes bad credit once you take out more than you’re able to pay back.

“With most credit accounts, whether they are good or bad depends on each situation, and most often when the debt is bad, it’s because the individual borrowed too much for the start,” advised  Jacob Sensiba, financial advisor with CRG Financial Services (@CRGFS).

“The amount you spend on total housing should be less than one-third of your take-home monthly pay. You can get a decent, reliable car anywhere from $5,000 to $10,000. Nobody needs to spend over $20,000 for a car.

“Before you even start borrowing, it’s important to evaluate your credit health/score. If it’s below average, you should take the necessary steps in boosting it before borrowing money. People with healthy credit scores tend to get better interest rates and loan terms than those with poor credit.”

Here are some tips for using credit responsibly.

So you’ve got that good credit. But now that you have it, what do you do with it? How do you use it properly?

“Only charge what you can afford to pay back in full every month,” urged Mike Pearson, founder of personal finance website Credit Takeoff. “The number one factor that goes into calculating your credit score is your payment history. Basically, if you miss even one payment, it will seriously lower your credit score.

“So if you plan on using credit, you need to make sure that you’re only spending what you can actually afford—because if you charge too much and end up missing a payment, it will hurt your credit score.

“Keep your credit utilization under 35 percent. The #2 factor that goes into determining your credit score is something called your ‘credit utilization.’ This simply means the amount of credit you’re using compared to your total credit limit. For example, say you have a $10,000 credit limit on your credit card. You’d want to keep your balances below $3,500 (35 percent) at any given time so you don’t damage your credit score.”

Another way to improve your credit utilization is by gaining a greater line of credit.

“Call current creditors and ask if they will increase your credit line,” suggested real estate broker, loan broker, and credit consultant Julie Marie McDonough (@juliemarie0711) “Example: current credit limit on a credit card of $1,000 with a $900 balance is using 90 percent of the credit line. The amount owed or utilization ratio can be reduced to 45 percent of the credit line just by increasing the credit limit from $1,000 to $2,000.

“Now you owe the same $900, but with the credit limit increased to $2,000 you are only using 45 percent of the credit limit. Thus increasing your credit score up to 30 percent in 30-90 days. The hard part is not charging more on the credit card. Have a little self-discipline and know you have just created a sort of emergency fund if needed.

“Don’t make things worse, just one ‘30 day late’ will stay on your credit for up to seven years. If you can’t pay on time, pay the minimum monthly payment as soon as possible, but make sure the payment is posted on the 29th day after the due date. You will owe a late fee in the following month, but that is still better than a bad mark on your credit for seven years and the decrease in credit score.”

Building good credit habits is the hardest part. But eventually, it’ll be like second nature to you. May you and your credit soar! To learn more about managing your finances responsibly, 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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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.
Maggie GermanoMaggie Germano (@MaggieGermano) is a Certified Financial Education Instructor and financial coach for women. Her mission is to give women the support and tools that they need to take control of their money, break the taboo of discussing debt and income, and achieve their goals and dreams. She does this through one-on-one financial coaching, monthly Money Circle gatherings, her weekly Money Monday newsletter, and speaking engagements. To learn more, or to schedule a free discovery call, visit MaggieGermano.com.
Julie Marie McDonough (@juliemarie0711) has more than twenty-eight years’ experience as a real estate broker, loan broker, and credit consultant. She started her career in the mortgage lending industry and later added a Real Estate division and Credit Consulting. Julie is known as “The Credit Lady” and is the author of “How to Make Your Credit Score Soar”. She has been featured on SiriusXM, Corporate Talk, The Answer and written articles for Credit Karma, Credit.com and many others. Julie is a consumer advocate and speaker who has helped countless people correct errors on their credit reports so they can optimize their credit scores and get the best mortgage rates possible when purchasing a home. Some of her credit-consulting clients refer to her as a miracle worker. Julie is recognized for her vast knowledge in the industry and is sought out for her expertise.
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.
Jacob Sensiba is a Financial Advisor. His areas of expertise include, but are not limited to, retirement planning, budgets, and wealth management. His process entails guiding my clients through their financial journey and educating them along the way. Sensiba’s goal is to make the public more aware of their finances and to improve their level of financial literacy. Visit their website for our disclosures: CRG Financial Services (@CRGFS).

How to Get a Free Copy of Your Credit Report

The three major credit bureaus are required by federal law to provide you with one free copy of your credit report per year. Just make sure you go to the right website to order them.

Hop into our musical time machine and let us take you back to a legendary era of sound. No, we’re not talking about the New Orleans Jazz clubs of the 1920s. Nor are we talking about the Beatlemania of the 60s. We’re talking about one of the hottest musical crazes in human history.

We’re talking about the “free credit report” songs of the late 00s. Yes, you could hardly turn on a television without hearing one of the catchy FreeCreditReport.com jingles. The commercial would normally begin with an unfortunate soul in some negative position because they didn’t know what their credit report said. Then you’d get a little song about how easy it is to get a free copy of your credit report at FreeCreditReport.com. Why don’t you see those ads anymore?

Well, unfortunately, FreeCreditReport.com should have been called FreeCreditReportWithASignificantAsterisk.com, as customers who used the site were signed up for credit monitoring services that cost $14.95 a month. Admittedly, that name would be harder to write a song about, but it would also be more accurate.

So how can you avoid misleading credit report sites (and even outright scams) and still get a proper credit report of your own?

There is one website that’s legitimate.

There is one website you can go to if you want your credit report, totally free, once a year.

“It’s very easy to get a no strings attached credit report,” explained attorney Eric Klein. “Simply go to AnnualCreditReport.com and follow the instructions for obtaining a credit report from each of the three credit reporting agencies.

“They offer online access to your reports or they will mail them to you via United States Post Office. AnnualCreditReport.com is a truly free way to obtain your credit reports and not be bombarded with advertisements and hundreds of drip emails in your inbox all day.”

By federal law, all three of the major credit bureaus—Experian, TransUnion, and Equifax—must provide you with a free copy of your credit report once a year, so long as you request one. AnnualCreditReport.com is the site where they make good on that offer.

“There certainly are scams you should avoid and almost every other site out there that offers free credit reports simply wants to obtain your email address and personal data so they can bombard you with advertising,” added Klein.

If you go to any other website—especially ones that have the word “free” splattered across their homepage—the odds are high that you’re getting taken for a ride. Whether they’re selling your personal data or trying to sign up for a separate (and expensive) service, you should steer clear of these sites and stick with the AnnualCreditReport.com.

There are other ways you can get a free credit report.

You can also get your credit report directly from one of the credit bureaus even if you’ve already received your one free credit report for the year. It’ll just require certain conditions to have been met.

“If you have recently been denied credit, send the bureaus the denial letter in addition to a request for an updated credit report and they will send you one,” recommended Nathalie Noisette, owner of Credit Conversion (@credconversion).

“The credit bureaus do this to let you explore the reasons why you may have been denied. If you were denied a job due to your credit, request a form stating so and send it to the bureaus requesting your credit report. The bureaus will send one for free.

“If you’re currently unemployed and are looking for work, let the bureaus know your current situation and they will send you a report. The idea is that if your potential employer is going to be running a credit check, you want to preempt what might be on your report.

“If you believe you are a victim of identity theft, file a police or credit card fraud report and send the information to the bureaus. They will send you updated reports with recent information for you to challenge what accounts may or may not be for you.”

Here’s what you should look for on your report.

So you got a copy of your credit report. What’s actually going to be on it?

“It will provide a summary of your credit history, and certain other information, reported to credit bureaus by your lenders and creditors,” outlined financial coach and author Karen Ford.

But there’s one thing that won’t be on it. Well, more than one thing. It won’t have the scores to last night’s MLB game or a list of the top ten most adorable skateboarding puppies. It actually won’t have a lot of things. But there’s a significant thing you might assume would be on your credit report that won’t be.

“There is a difference between a credit report and your credit score,” clarified Klein. “If you want to obtain your credit score, you’re going to have to go through a company such as Discover for your free FICO score. Again, beware of the email blasts; but Discover is a reputable credit card and if you unsubscribe from their email advertising, they will honor your request.”

(Also missing from your credit report will be any no credit check loans like payday loans, cash advances, or title loans that you’ve taken out and paid off. While some lenders that offer bad credit loans report your payments to the credit bureaus, most no credit check lenders do not.)

But regardless of whether you can see your credit score, you’ll want it to be higher, rather than lower. That’ll provide you with better access to credit at better rates. And you can use the information on your credit report to that end.

“The best way to improve your credit score is to be sure that the total amount of money you carry month-to-month on your credit cards does not exceed 31 percent of your total available credit on your cards,” suggested Klein.

“Another way, although obvious, to improve your credit score is to be sure that you make your payments timely. Further, another way to improve your credit score is to obtain your three credit reports, go through them, look for any mistakes, and dispute the mistakes you find.

“One should know that there are roughly 19,000,000 mistakes on peoples’ credit reports at any one time, so it is not uncommon that peoples’ credit scores are lower than they should be.”

Hopefully, this post has taught you not to trust every catchy song you hear. Now if you’ll excuse us, we have a coconut with a lime in it, and we need to drink it all up. To learn more about credit scores, 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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Karen Ford is a Master Financial Coach, Public Speaker, Entrepreneur, and Best- Selling Author. Her #1 Amazon Best Selling Book “Money Matters” is a discovery for many.  In “Money Matters” she provides keys to demolishing debt, shares how to budget correctly, and gives principles in wealth building.
Eric Klein is the Principal Attorney and President of Klein Law Group, P.A. He has spent over 22 years practicing law and guiding clients through some of the most challenging times of their lives. Although his firm has multiple practice areas of law, most of his clients’ legal needs come at a time in their lives when they are experiencing a major change. Eric pursues his client’s interests zealously and his philosophy of aggressive representation is practiced by all of his associates.
Nathalie Noisette is the Founder of Credit Conversion (@credconversion), a credit counseling, and repair company located in Avon, MA. Credit Conversion uses principles of behavioral change to not only allow clients to improve their score but understand the habits that lend to poor credit.

How Do Overdraft Fees Stack up to Bad Credit Loans?

Short-term bad credit loans like payday loans and cash advances have ridiculously high APRS—but overdraft fees can be even more expensive!

When faced with a surprise financial shortfall, you might find yourself having to choose between bad credit loans and overdraft fees to make ends meet. And while a $30 overdraft fee might seem preferable to short-term no credit check loans and cash advances, it might actually be the more expensive option!

Bad credit loans can be really expensive.

When you have bad credit and you need a loan—whether that’s an online loan or one from a brick-and-mortar lender—you aren’t going to be able to borrow that money from a bank or a traditional lender. You simply pose too high a risk.

Instead, you’ll have to take out a bad credit loan which—as the name suggests—is a loan that’s designed for people with lousy credit scores. These loans are oftentimes much more expensive than regular personal loans, but the right bad credit loan can still be a helpful financial too.

There are a couple of different types of bad credit loans. First, there are payday loans, which are small-dollar, short-term loans with an average principal of only a few hundred dollars, and an average repayment term of two weeks.

The average interest rate for a payday loan is $15 per $100 borrowed. But while that seems like a fairly reasonable rate, appearances can be deceiving. A two-week payday loan with a 15 percent interest rate actually carries an Annual Percentage Rate (APR) of almost 400 percent!

Title loans are another kind of popular, but highly risky bad credit loan. These loans are secured by the title to the borrower’s car or truck, which means that you can usually borrow more money with one than you can with a payday loan.

However, title loans are also incredibly expensive, with an average monthly rate of 25 percent that works out to a 300 percent APR. Furthermore, studies have found that one in five title loan borrowers has their vehicle repossessed after they can’t pay the loan back.

Lastly, there are bad credit installment loans, which function much like a regular personal loan, just with higher interest rates. Unlike short-term payday and title loans, which are paid back all at once, installment loans are paid back gradually over a set period of time.

But overdraft fees can be even more expensive!

Anyone who has ever maxed out their credit cards knows well that sinking sensation when the card is declined. Well, overdraft protection exists to prevent that same feeling from occurring when you use your debit card.

If you make a purchase that exceeds your bank account balance, overdraft protection covers the additional amount. However, the service will charge you quite the hefty fee in order to do so. While overdraft fees vary, they often average around $35 per transaction.

Oh yeah, that’s another thing about overdraft fees: They apply to every debit card transaction you make that overdraws the account. If you aren’t aware that your checking account is in the red, you could end rack up hundreds of dollars in overdraft fees on any number of small purchases.

(For an example of how a $15 McDonald’s outing can return a $120 bill—all thanks to overdraft fees—check out our recent blog post on ways you can avoid these fees altogether.)

Since overdraft fees are levied on a transaction of any size, so long as it exceeds the available funds, nailing down a relative APR for these charges can be difficult. But even the more generous estimates would still produce a rate that puts payday and title loans to shame.

In 2014, the Consumer Financial Protection Bureau published a study on overdraft fees. They found that the average overdraft transaction was $24, the median overdraft fee was $34, and that most of those fees were paid back within three days. If someone borrowed paid $34 to borrow $24 over three days, they reasoned, that would add up to an APR of 17,000 percent.

Yeah. Overdraft fees are really expensive.

Verdict: The right bad credit loan can be better than an overdraft fee.

When you’re facing a financial shortfall, you’ll often find yourself with a series of not-great to flat out bad options. And if you don’t have an emergency fund that you can dip into or friends and family that you can borrow money from, taking out a bad credit loan is probably your least-bad option.

But really, this verdict isn’t about taking out just any bad credit loan, it’s about taking out the right bad credit loan. Namely, one from a lender that cares about your ability to repay, that charges reasonable rates, and that reports your payment information to the credit bureaus—which could help improve your credit score over time.

This verdict also speaks to the extremely high costs of overdraft fees, which dwarf the rates on most bad credit loans, and also the way those costs can stack up in such short order. Once your account is in the red, any subsequent transaction racks up a new fee.

Of course, there are always exceptions The wrong bad credit loan can do just as much damage to your financial wellbeing as any overdraft fee could. And in certain circumstances, an overdraft fee might be a flat-out better option for you than even the best bad credit loan.

In the end, the best thing you can do for your long-term financial outlook is to create your own options. Building up a well-stocked emergency fund—maybe even one that’s linked to your checking account for a more affordable type of overdraft protection—lets you cover future financial shortfalls yourself. No borrowing required.

To learn more about managing your financial future, check out these other 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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So You’ve Maxed out Your Credit Cards … Now What?

First things first: don’t panic! Next, consider using the debt snowball or the debt avalanche methods to dig yourself out of debt.

Credit cards hold many advantages over cash. They’re much more convenient, both to carry and use. If you lose a credit card, you can cancel it and get a new one. If you lose cash, on the other hand, you don’t have too many options other than putting up “Lost Cash” posters with a picture of the cash you lost.

But credit cards also come with a major downside that can lead to other downsides. Because credit cards essentially allow you to take out loans on the spot, you can easily be spending money you don’t have. Even if you’re able to pay the minimum required amount on your bill, interest will start accumulating and the debt will begin piling up.

That only gets worse the more credit card bills you can’t pay. And it’ll be really, really bad if all of those credit cards are maxed out. So what should you do if you’ve maxed out your credit cards?

Don’t panic.

It can be easy to panic when you’ve maxed out all your cards. It is not good news for your credit score, and odds are those credit card bills are not the only bills you’re struggling with. But panicking, while understandable, is not going to be helpful.

“The first thing to do if you’ve maxed out your credit cards and you’re worried you can’t pay the bills is to not panic and make any rash decisions, like getting out more loans to meet your financial commitments,” cautioned Stephen Hart, CEO of Cardswitcher.

“Borrowing money to pay off what you owe will just end up trapping you in a vicious cycle of debt, where you end up owing more money in the long-term. Whilst it might solve problems in the short-term, in the long term this approach will just store up problems and amplify them.”

Leslie H. Tayne Esq. (@LeslieHTayneEsq), Founder and Head Attorney at Tayne Law Group (@taynelawgroup), offered a similar suggestion:

“Asking for a larger credit limit or applying for another credit card may seem like a simple solution. However, this is only a temporary solution that will only lead to more problems down the road when you’re in more and more debt that you can’t pay off.

“Both of these solutions will only enable you to continue your spending habits. Payday loans are another source that can be tempting in these situations, but once again, these will only lead to longer-term problems, because payday loans essentially thrive on trapping you in a debt cycle.”

Make a plan to pay it off.

Now that you’re not panicking, it’s important to start figuring out how you’re going to actually pay off your debt. One popular strategy is the “debt snowball” method.

“If you’ve maxed out your credit cards, a critical step to getting out of the red is paying off the highest-rate debt first,” advised Kimberly Foss (@KimberlyFossCFP), President and Founder of Empyrion Wealth Management. “This gives you a ‘snowball effect’: As you pay down the high-interest-rate debt, less money is required to feed the ‘interest monster,’ which allows even more money to be diverted toward other financial goals like reducing other debt, saving for retirement, investing, etc.

“The point I try to make to my clients is that every dollar paid as interest to someone else is a dollar that cannot compound for you. Paying off debt—especially high-interest debt—is like a double boost: You are improving your cash flow and directly increasing your overall net worth at the same time. Then, if you can leverage that extra cash flow by increasing investing and saving, it becomes a triple boost.”

But maybe you’d prefer to try a different method?

“There are two ways you can start to tackle this debt,” explained Marissa Sanders, personal finance expert at Simple Money Mom (@simplemoneymom). “One way is the debt snowball. This is where you will begin paying the smallest balance first. Once that card is paid off then you will apply that payment to the next smallest balance. Continue this cycle until you have paid off all your debt.

“The next method is called the debt avalanche. This is when you will pay toward the highest interest rate first. After it is paid off, you will apply that payment toward the next highest interest rate. Continue this cycle until you have paid off all of your debt.”

Consider getting additional help.

You might not be able to handle your credit card debt on your own. Fortunately, there are options you can consider for relief.

“If all else fails, seek professional help,” recommended Tayne. “If you are struggling to repay your debt on your own or find the process to be stressful, don’t be afraid to ask for help. Sometimes significant problems require bigger steps.

“If your debt is keeping you down, it may be time to look into other debt repayment options or visit a debt consolidation expert. Many companies and nonprofits are designed to help you resolve your debts and eventually be debt-free.

“Before signing up with any debt relief service, do your research and make sure they are reputable. While you can take on the task of settling credit card debt on your own, using a debt settlement attorney who understands how creditors work, will most likely bring you the best settlement results and savings in the negotiating process.

“A professional will be well-versed in what creditors are looking for and will be your best bet going up against large national banks, credit unions, collection agencies, and multiple legal representatives.”

You can also look into settling.

“Debt settlement programs are for people who are seriously struggling and often the debt prevents people from making serious changes to their spending habits,” explained Tayne. “Proper debt settlement helps people get a fresh start and enables them to get their life back on track.

“It’s important to note once you do have relief of debt, it is still imperative to take the necessary steps to stay out of debt. Carefully research the matter. Look for someone who you can go see who has been doing this a long time, and this is all they do.

“Try not to listen to other debtors since their situation is not necessarily the same as yours. Reputation and time in the industry are essential. Your gut feeling, too, is important. You need to make sure they are going to do right by you and not right by them.”

Follow these tips moving forward.

Proper credit card use is important. It’s how many people actually build their credit score. We’ve even got some tips for you to check out. But right now, you have to make some changes to keep from maxing out your cards again in the future.

“If you’re worried about paying your bills, you may need to take another look at your budget,” suggested Tayne. “Many times, the reason people fall into debt is that they are living beyond their means. Are there places you can cut back? If you’re having trouble finding full budget lines to cut out, see if there are spots where you can downsize.

“For example, are you using all the data you’re paying for in your cell phone plan? Can you cut back on your cable or cut it out entirely? Are you paying for subscriptions you’re not using? You may need to make some temporary sacrifices, but any money you free up can help you get closer to what you need.”

It won’t be easy, but it’s possible to get past having all of your credit cards maxed out. Once you’re on the other end, you can start building your path to a better financial future. To learn more about managing your money responsibly, 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


Kimberly Foss (@KimberlyFossCFP) is the New York Times bestselling author of “Wealthy by Design: A 5-Step Plan for Financial Security.” She is also the founder and president of Empyrion Wealth Management™, where she brings both technical expertise and real passion to her work with clients, including affluent family stewards, women in transition, and thriving retirees. Kimberly began her career at Merrill Lynch as the youngest female account executive in its long history. She later left the commission-driven environment of a stock brokerage firm to found E&A Investment Advisory, which grew into the independent Empyrion in 2002. Kimberly is a thought leader in the financial industry and frequently shares her expertise on the markets, financial planning, and investing with leading media outlets—including The Today Show, Good Morning America, CNBC, Forbes, The Wall Street Journal, Fox News, Fox Business, MSN Money, Investor’s Business Daily, and U.S. News & World Report.
After working in the financial industry for several years, Stephen Hart left his role as Chief Financial Officer at WorldPay to launch the UK’s first payment processing comparison site, Cardswitcher. Nowadays, he helps SMEs save money on their payment processing costs.
Marissa Sanders is the founder and author of Simple Money Mom (@simplemoneymom). She is a personal finance expert and coach who aims to educate women about finances so that they can budget better, save more money, and become financially free. Her desire to teach others about personal finance came from her own success in becoming debt-free and building a net worth to over $100k in less than two years on one income.
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.

Should You Drive for a Rideshare as Your Side Hustle?

Ridesharing can be a source of regular side income, with the added benefit of a flexible schedule, but that road is not without its bumps.

If you’re reading this, then congratulations, you’re living in the future. Why? Because we’re all living in the future.

“Doesn’t that make it the present?” you ask. No. Just look around. The Internet exists. Smartphones exist. There are self-driving cars. Clearly, this is the future.

But while some parts of the future are nice, some parts can be tougher to manage. One example is the “gig economy,” which is truly an economy of contrasts. In some ways, it offers more flexibility by allowing you to work when you want to work. In other ways, it provides more instability because it tends to come without benefits or a regular paycheck. Are “gigs” worth the trouble—even as a side hustle?

It depends on the gig. Today, we’ll look at the ins and outs of driving for a rideshare.

How driving for a rideshare works.

There are many rideshare services these days. It’s easy to make one, after all. Just take a word related to driving, like “engine” or “manual transmission” and then remove some vowels, so it becomes something like “eng” or “mnulmiss.”

Once that’s out of the way, you just hire a bunch of programmers, make some deals with local governments, and bada bing bada boom, you’re in business! (Okay, we know, it’s slightly more complicated than that.)

Because different rideshares have different rules and because those rules could change from the time we’re writing this until its published, we’ll just speak in broad terms.

To qualify for most rideshare services, you’ll need to have certain qualifications. There tend to be age requirements, as well as a lack of a negative driving record. You’ll probably need your own car, though some services have partnerships that may give you a discount on acquiring one.

Once you actually start driving, the rideshare company will take a percentage of your fares. The percentage varies and may not be as advertised. Uber, for example, claims to take 25 percent, but some experts believe their cut is actually larger than that.

To drive …

We’ve alluded to most of the reasons that you might consider driving for a rideshare, but we’ll reiterate them.

The flexibility is a big one, as you’re pretty much free to set your own schedule and work as much or as little as you want. If you don’t have a regular day job, you can also have another or multiple other side gigs and weave them all together.

And if you do have a full-time job, you can drive for a rideshare in your off time. But please take care of yourself and get some rest if you’re able to. Working all the time is not good for your health.

If you do decide to drive for a rideshare, however, it’s extra important to make sure you aren’t too exhausted so as not to accidentally cause harm to yourself or others.

… or not to drive.

For folks without a steady day job, an uncertain or sporadic income makes budgeting very difficult. And driving for a rideshare means having a pretty irregular income. The amount you make will depend on where you’re driving when you’re driving—not to mention lots of luck.

Everything from surge pricing to tips to whether the rideshare app decides to start taking a higher percent of your fares is out of your hands. It’s these sorts of issues that have led some rideshare drivers to go on strike.

Additionally, if you had to purchase or lease a car to start driving for a rideshare, you may find yourself having trouble making payments if the fares start getting skimpier.

“Driving for companies like Uber and Lyft does not seem as profitable as even when I first started,” warned counselor and rideshare driver Willard Vaughn. “I think this is due to oversaturation, at least in my area. The companies also took away surge pricing for drivers, which was one of the ways we maximized our profits.

“With surge, the cost of the ride is multiplied by the amount shown. So an average ride that would be $3.75, with a good surge, could be three to four times that or more. Now we’re just given a set dollar amount, even though the customer is still paying the surge amount. So to answer if it is worth it: not really unless you’re just doing it extremely part-time and you have a fuel efficient vehicle.”

So should you?

It depends. Really, it does. But if you’re looking for a side hustle on nights and weekends, you can certainly give ridesharing a shot—especially if you enjoy driving!

If you want to make rideshare driving a principal source of income, on the other hand, you should probably, be a little more cautious. Take all of this into account, do more research that relates to your specific situation, and then see what makes sense.

Use that extra money wisely.

Once you’ve earned all that extra cash from your side gig, what are you going to do with it? While the urge to splurge is very real, you should resist! Using that money to build your savings, pay down debt, and improve your credit score is the wiser financial decision by far.

After all, folks with bad credit and no savings are the ones who end up relying on predatory no credit check loans and short-term bad credit loans like payday loans, title loans, and cash advances to make ends meet when an unexpected financial shortfall rears its ugly head.

And sure, choosing an affordable installment loan to cover that surprise bill is a pretty good solution, but having a well-stocked emergency fund (or even the ability to borrow a low-interest personal loan) is much, much better.

We can’t tell you what do you with your money, but we can sure tell you what we recommend: Use that extra cash to build your savings and pay down debt. Trust us, you won’t regret it. For more tips on how you can increase your income, check out these other posts and articles from OppLoans:

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Willard Vaughn is a Licensed Counselor in Virginia and Indiana, and currently operates his own private practice specializing in delivering quality, compassionate care online. He has been driving part-time for Uber and Lyft for about two years and has somewhere around 2400 trips between them, with an average rating of 4.8.  He has a Bachelors Degree in Psychology from Longwood University in Virginia, and a Master of Arts degree in Counseling from Argosy University in Atlanta, GA. A native of Indiana, he now lives in the Hampton Roads area of Virginia with his fiancée, soon to be stepson, and Golden Lab named Elvis.