deposit $200 with the bank, your credit card will then be given a $200 credit line. ... This little quirk, plus high int
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Debt Management Video Transcripts With Citations
How to Rebuild Your Credit (Video 1) Meet Sara and Randy. Sara is a newly-arrived immigrant1 to the United States and Randy is a middle manager at Corporate Co. The two met six months ago on Tinder and have been together ever since. Their future looks bright, except for one thing: bad credit. To put it bluntly, Randy has horrible credit, mostly due to a previous bankruptcy. Sara’s isn’t much better. As a newly minted permanent resident, she has no credit history to speak of. Both of them would like to improve their credit, but have no idea where to start. What should they do? Well, luckily for Sarah and Randy, there’s actually a product, called a secured credit card, designed specifically for people in their situation. However, if Sara and Randy don’t have a firm understanding of what a credit card or credit score is, or how to effectively use either, we highly recommend watching our three videos “Credit Cards 101”, “Credit Scores and Reports 101”, and “Credit Cards: Mistakes and Best Practices” before continuing further. But let’s get back to the matter at hand. What are secured credit cards2?
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How to Build Credit as an Immigrant: http://abcnews.go.com/Business/build-credit-usa/story?id=17741760 Getting a Social Security Number: https://www.ssa.gov/people/immigrants/#&ht=1&a0=-1 2 Secured Credit Card Overview: http://credit.about.com/od/creditcardbasics/a/proconsecured.htm
Simply put, they are credit cards designed for people with minimal income3 and no or low credit scores, generally below 6004. Normally, banks consider these people very risky, aren’t willing to give them a credit card. However, in the case of secured credit cards, they’re actually willing to make an exception, simply because they require applicants to deposit cash with them. This cash then serves as the basis of the card’s credit line. For example, if you deposit $200 with the bank, your credit card will then be given a $200 credit line. Not only that, if then you max out your card and fail to repay, the bank can take that money as collateral5. This little quirk, plus high interest rates, can make secured credit cards seem unattractive. However, they do have one undeniable benefit. Any transaction done with one is reported to the three credit bureaus. That means if Randy and Sara responsibly use their secured credit cards, the bureaus will eventually bump up their credit score6. Pretty great right? So what’s the best way to “responsibly” use a secured credit card? Well, turns out it means almost never using it. Randy and Sara should continue to use debit cards for almost all of their purchases. In fact, they should only ever use their secured credit cards for one small purchase every month, like a gallon of milk, and always completely pay that balance off on time7. This regimen will
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Secured Credit Card Income Requirements: http://credit.about.com/od/applyforcredit/fl/How-to-Get-a-Credit-Card-Without-aJob.htm 4 Minimal Credit Score Requirement: http://www.moneyunder30.com/credit-score-needed-to-get-approved-for-creditcard 5 Secured Credit Card Overview: http://credit.about.com/od/creditcardbasics/a/proconsecured.htm 6 Secured Credit Card Overview: http://credit.about.com/od/creditcardbasics/a/proconsecured.htm 7 How to Rebuild Your Credit with a Secured Credit Card:
minimize the amount of credit used, while maximizing on-time payments, both of which overtime will lead to a very healthy credit score8. In fact, within a year or two of responsibly using a secured credit card, Sara and Randy should have credit scores at least above 6409. At this point, they should be eligible for great-unsecured credit cards and loans! Hopefully you now understand how to rebuild your credit. Be sure to watch our next video, which covers how to get out of credit card debt, and be sure to check out our website, where you can find more educational content, your free credit score, and great credit card recommendations. How to Get Out of Credit Card Debt - Part 1 (Video 2) Meet Tom. Tom is a few years out college with a great job and a lot credit card debt. Tom wants to get out of debt, but isn’t quite sure how. Luckily for Tom, there exists a great solution to his problem: balance transfer cards. However, before we continue, if Tom doesn’t have a firm understanding of what a credit card or credit score is, or how to effectively use either, we highly recommend watching our three videos “Credit Cards 101,” “Credit Scores and Reports 101,” and “Credit Cards: Mistakes and Best Practices” before continuing further. But let’s get back to the matter at hand. What is a balance transfer? http://lifehacker.com/5976175/how-to-build-your-credit-from-nothing-in-sixsimple-steps 8 Credit Score Overview: https://en.wikipedia.org/wiki/Credit_score_in_the_United_States 9 How to Rebuild Your Credit with a Secured Credit Card: http://lifehacker.com/5976175/how-to-build-your-credit-from-nothing-in-sixsimple-steps
Well, a balance transfer is simply the act of transferring an existing credit balance to another credit card10. Most credit cards aren’t good this for: they’ll immediately start charging interest on the transferred balance, plus a fee, generally about 3-5% of the transferred balance11. However, there is a specific subset of credit cards, called balance transfer cards, that won’t immediately start charging interest, instead giving Tom a 1521 month window of 0% APR to pay off his balance interest-free12. This is a great deal, but let’s still walk through the steps you’ll need to take to get one: ● Step 1: Before doing anything, make a debt repayment plan, ideally using our free recommended website, and rank your credit cards by interest rate, as no matter what you end up doing, you’ll always want to tackle the highest interest rate debt first. ● Step 2: Once that’s done, call your credit card company and try to get them to lower your APR. Emphasize that if they don’t agree, you’ll move your balance to another company offering lower rates. ● Step 3: If the call fails and you still want to transfer, keep in four three things. ○ One: You’ll need good credit13 to get a balance card. 10
Balance Transfer Overview: https://en.wikipedia.org/wiki/Credit_card_balance_transfer https://www.discover.com/credit-cards/resources/balance-transfers/balancetransfer 11 Balance Transfer Overview: https://en.wikipedia.org/wiki/Credit_card_balance_transfer https://www.discover.com/credit-cards/resources/balance-transfers/balancetransfer 12 Balance Transfer Overview: https://en.wikipedia.org/wiki/Credit_card_balance_transfer https://www.discover.com/credit-cards/resources/balance-transfers/balancetransfer 13 Balance Transfer Credit Score Requirements:
○ Two: You can’t transfer a balance to a card offered by your current bank14. ○ Three: Depending of the size of your debt, you may not be able to pay it off by the end of the promotional period, so have a plan for that. ○ And Four: The credit line on your balance transfer card may be below your total debt load, meaning you’ll either have to: ■ Apply for a second balance transfer card ■ Keep the remaining debt on your current card and pay the high rate. ■ Or use a personal loan, which is slightly more expensive than a balance transfer card, but comes with a lower credit score requirement. And don’t worry, we’ll cover this option in our next video. However let’s assume for now that Tom has been approved for a balance transfer card with a high enough credit limit. This is an important first step, but they’re still a few more things to keep in mind: ● One: Don’t spend on the card, as the 0% APR period may not extend to purchases15. ● Two: Complete the transfer as fast as possible or the 0% APR offer may expire16. ● Three: Be careful about consolidate multiple balances onto one card17, as that will lower your credit score18. https://www.creditkarma.com/article/applying-for-and-using-balance-transfers 14 Balance Transfer Bank Restrictions: https://www.creditkarma.com/article/applying-for-and-using-balance-transfers 15 Balance Transfer and Purchases: https://www.discover.com/credit-cards/resources/balance-transfers/balancetransfer 16 Transfer Windows: https://www.creditkarma.com/article/applying-for-and-using-balance-transfers 17 Balance Transfer Consolidation: https://www.discover.com/credit-cards/resources/balance-transfers/balancetransfer
● Four and Finally: Once you’ve completed the transfer, always pay on time and don’t close out your old accounts, as failing to follow either will lower your credit score19. Hopefully you and Tom now better understand balance transfer cards. Be sure to check out our next video, where we’ll teach you how to get out of credit card debt without them, and be sure to website, where you can find more educational content, your free credit score, and great credit card recommendations. How to Get Out of Credit Card Debt - Part 2 (Video 3) Meet Tom. Tom is a few years out college with a great job and a lot credit card debt. Tom just watched our first video, “How to Get Out of Credit Card Debt - Part 1”, so he understands that balance transfer credit cards are a good debt management solution. Unfortunately, he just can’t qualify for one with a big enough credit line. What should he do? Well, Tom’s not out of luck. He can instead use a personal loan pay off his remaining credit debt. Personal loans are great. They come with fairly low credit score requirement20s, generally around 640, and have interest rates lower than almost every credit
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Credit Utilization Overview: http://www.experian.com/blogs/ask-experian/2013/10/30/how-utilization-rateaffects-credit-scores/ 19 Account Closing Overview: http://money.usnews.com/money/blogs/my-money/2014/06/12/the-dos-anddonts-of-closing-credit-cards http://www.experian.com/blogs/ask-experian/2013/06/05/why-closing-a-creditcard-can-hurt-your-credit-scores/ 20 For example, Upstart, a prominent personal loan lender, only requires a credit score of 640:
card21. Not only that, most modern personal lenders will allow you to check your rates for free, without hurting your credit score. In the end, these loans actually only have one caveat, you just have to be sure their one-time setup costs are less than the interest you’ll save by transferring. If this sounds confusing to you, don’t worry. We do the math for you on our website, plus we teach you everything else you need to know in our video “Personal Loans 101” Finally, even if personal loans doesn’t work, there are still a few more last resort options beyond asking your friends and family for money: ● Option One: You could use the money from your retirement accounts, like a 401(k) or an IRA. However, this option is problematic, as any withdrawal before age 59 and a half with be subject to a 10% penalty, plus taxes, not to mention raiding your retirement account is generally a bad long-term move22. ● Option Two: You could use a 401(k) loan, in which you can borrow up to 50% of your current 401(k) contribution23s as a loan, up to a maximum of $50,000. This definitely has advantages: there’s no credit check, plus the interest rate will almost certainly be better than your credit card. However, there are serious flaws to this loan as well: not only are you http://upstarthelp.upstart.com/7619-Borrower-Eligibility/108501-what-are-theminimum-credit-requirements-to-receive-a-loan 21 Personal Loan vs. Credit Card Interest Rates: On average 33% lower than credit card interest rates according to Lending Club, a main personal loan lender. Here's the link: https://www.lendingclub.com/public/personal-loans.action They also have credit score benefits: http://lifehacker.com/boost-your-credit-score-by-moving-credit-card-debt-to-a1503442291 22 Raiding Your Retirement Account to Pay for Credit Card Debt: http://www.aarp.org/money/credit-loans-debt/info-01-2012/use-retirement-fordebt.html 23 401K Loan Overview: http://www.finra.org/investors/401k-loans-hardship-withdrawals-and-otherimportant-considerations http://money.cnn.com/pf/money-essentials-401k-early-withdrawals/
prohibited from contributing to your 401(k) while the loan is active, but if you leave your job, willingly or not, you’ll have only 60 days to repay the loan, otherwise it’s considered an early withdrawal24. ● Finally, we have Option Three: You could use a HELOC25, which is a revolving line of credit like a credit card, just much larger and secured by a house. Again, this has advantages, mainly a lower interest rate, but this is balanced by a major flaw: unlike a credit card, failure to repay a HELOC can result in losing your home26. Finally, if none of our proposed solutions have solved your problem, we highly recommend contacting the National Foundation for Credit Counseling, or NFCC27. They’re a nonprofit whose goal is to help you avoid bankruptcy. To this end, they’ll create a personalized payment plan for you and work with your lenders to both reduce your debt load and interest rate28. Hopefully you and Tom now have a better idea of how to get out of credit card debt. If you want to see our balance transfer card recommendations, your free credit score, or just more educational material, be sure to check out our website! Personal Loans 101 (Video 4) Meet Tom. Tom is a few years out college with a great job and a lot of credit card debt. He wants to get out of debt, but isn’t quite sure how, especially because he didn’t qualify for a good enough balance transfer card, detailed in our two-part video series “How to Get Out of Credit Card Debt”. 24
401K Loan Overview: http://www.finra.org/investors/401k-loans-hardship-withdrawals-and-otherimportant-considerations http://money.cnn.com/pf/money-essentials-401k-early-withdrawals/ 25 HELOC Overview: https://en.wikipedia.org/wiki/Home_equity_line_of_credit 26 HELOCs and Credit Card Debt: http://www.360financialliteracy.org/Topics/Credit-and-Debt/Credit-Cards/Howcan-I-pay-off-my-credit-card-debt 27 NFCC Website: https://www.nfcc.org/ 28 What the NFCC Does: https://www.nfcc.org/our-services/credit-debt-counseling/debt-management-plan/
While Tom may think all hope is lost, there is another way: personal loans. However, before we continue, if Tom doesn’t have a firm understanding of what a loan is, or how to effectively use one, we highly recommended watching our two videos “Loans 101” and “Loans: Mistakes and Best Practices” before continuing further. But let’s get back to the matter at hand. What is a personal loan? Well, like most loans, personal loans offer Tom a fixed amount of money at a certain interest rate for a set period of time29. However, unlike most loans, personal loans can be used for a wide variety of expenses, ranging from home improvement projects to paying off credit card debt30. Speaking of credit cards, personal loans, especially those from online lenders, will have interest rates lower than almost every credit card31. In addition, if Tom borrows from an online lender that considers not just his credit score, of which he’ll need at least a 640, but also his education status and earnings potential, those interest rates can be even lower32. Plus, even better, applying for a personal loan from an online lender couldn’t be easier33. All Tom needs to do is fill out a short credit application. Then, the 29
Personal Loan Overview: http://www.dailyfinance.com/2010/04/30/personal-loans-get-the-money-youneed/ 30 Personal Loan Overview: http://www.dailyfinance.com/2010/04/30/personal-loans-get-the-money-youneed/ 31 An average 33% lower than credit card interest rates according to Lending Club, a main personal loan lender. Here's the link: https://www.lendingclub.com/public/personal-loans.action 32 One example of this type of company is Upstart, who states "on average, rates are 30% lower than other lenders [Lending Club and Prosper]". Here's the link: https://www.upstart.com/ 33 How to Get a Personal Loan Overview (using two prominent personal loan companies as an example): https://www.lendingclub.com/public/how-peer-lending-works.action https://www.upstart.com/
lender will likely use a “soft pull” for his credit history, which won’t hurt his credit score, and within a few minutes, Tony will be able to see the amount see can borrow and the APR he qualifies for34, a process he can then repeat at multiple online lenders. Should Tom instead choose to get personal loan from an offline lender, like a big bank or credit union, which just have one warning. These institutions tend to have higher interest rates due to their much greater overhead35, plus they tend to avoid “soft-pulls”, which makes it harder to check your rates without hurting your credit score. So let’s assume Tom has chosen to get a personal loan through an online lender. What’s his next step? Well, assuming he’s chosen his lender and has checked his rates, he can then fill out the actual loan application online. This should be very simple process, but there is one thing to watch out for. Online lenders often charge a nonrefundable origination fee for creating the loan, generally ranging between 1-5% of the loan’s value36. This generally means two things: ● One: If Tom wants to borrow exactly $10,000, and has to pay a 1% origination fee he’ll need to borrow $10,100 dollars instead. ● Two: If Tom wants to use the loan proceeds to pay off credit card debt, he needs to make sure the origination fee is less than the interest he’ll save by using a personal loan. And don’t worry, our online calculator makes this process a breeze.
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Hard vs. Soft Pulls: http://www.myfico.com/crediteducation/questions/inquiry-credit-score.aspx 35 Online Lenders Offer You Lower Rates: http://www.huffingtonpost.com/simple-thrifty-living/are-people-ditchingbanks_b_5666693.html 36 Origination Fee Overview: http://kb.lendingclub.com/articles/Borrower/What-is-the-origination-fee http://blog.upstart.com/personal-loan-faq/#.VrOnTTYrJBw
Finally, assuming the math checks out, Tom just needs submits his application. At this point, there will be a hard credit check, but assuming Tom is approved, his bank account will generally be funded within a few days37. Tom is now on his way to being debt free. Congratulations! You’ve finished our personal loan basics curriculum! If you want to see our free recommendations for personal loan lenders, or just check out more educational material, be sure to check out our website!
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When Will My Personal Loan Be Funded? http://kb.lendingclub.com/borrower/articles/Borrower/How-long-does-it-take-toget-my-loan/?l=en_US&fs=RelatedArticle http://blog.upstart.com/personal-loan-faq/#.VrOoFTYrJBw
