Different Types of Debt

Debt comes in all shapes and sizes. You can owe money to utility companies, banks, credit card providers, and the government. There’s student loan debt, credit card debt, mortgage debt, and much more. But what are the official categories of debt and how do the payoff strategies for these debts differ?

Categories of Debt

Debt is generally categorized into two simple forms: Secured and Unsecured. The former is secured against an asset, such as a car or loan, and means the lender can seize the asset if you fail to meet your obligations. Unsecured is not secured against anything, reducing the creditor’s control and limiting their options if the repayment terms are not met.

A secured debt provides the lender with some assurances and collateral, which means they are often prepared to provide better interest rates and terms. This is one of the reasons you’re charged astronomical rates for credit cards and short-term loans but are generally offered very favorable rates for home loans and car loans.

If the debtor fails to make payments on an unsecured debt, such as a credit card, then the debtor may file a judgment with the courts or sell it to a collection agency. In the first instance, it’s a lot of hassle without any guarantee. In the second, they’re selling the debts for cents on the dollar and losing a lot of money. In either case, it’s not ideal, and to offset this they charge much higher interest rates and these rates climb for debtors with a poorer track record.

There is also something known as revolving debt, which can be both unsecured and secured. Revolving debt is anything that offers a continuous cycle of credit and repayment, such as a credit card or a home equity line of credit. 

Mortgages and federal student loans may also be grouped into separate debts. In the case of mortgages, these are substantial secured loans that use the purchase as collateral. As for federal student loans, they are provided by the government to fund education. They are unsecured and there are many forgiveness programs and options to clear them before the repayment date.

What is a Collection Account?

As discussed above, if payments are missed for several months then the account may be sold to a debt collection agency. This agency will then assume control of the debt, contacting the debtor to try and settle for as much as they can. At this point, the debt can often be settled for a fraction of the amount, as the collection agency likely bought it very cheaply and will make a profit even if it is sold for 30% of its original balance.

Debt collectors are persistent as that’s their job. They will do everything in their power to collect, whether that means contacting you at work or contacting your family. There are cases when they are not allowed to do this, but in the first instance, they can, especially if they’re using these methods to track you down and they don’t discuss your debts with anyone else.

No one wants the debt collectors after them, but generally, you have more power than they do and unless they sue you, there’s very little they can do. If this happens to you, we recommend discussing the debts with them and trying to come to an arrangement. Assuming, that is, the debt has not passed the statute of limitations. If it has, then negotiating with them could invalidate that and make you legally responsible for the debt all over again.

Take a look at our guide to the statute of limitations in your state to learn more.

As scary as it can be to have an account in collections, it’s also common. A few years ago, a study found that there are over 70 million accounts in collections, with an average balance of just over $5,000.

Can Bankruptcy Discharge all Debts?

Bankruptcy can help you if you have more debts than you can repay. But it’s not as all-encompassing as many debtors believe.

Chapter 7 bankruptcy will discharge most of your debts, but it won’t touch child support, alimony or tax debt. It also won’t help you with secured debts as the lender will simply repossess or foreclose, taking back their money by cashing in the collateral. Chapter 13 bankruptcy works a little differently and is geared towards repayment as opposed to discharge. You get to keep more of your assets and in exchange you agree to a payment plan that repays your creditors over 3 to 5 years.

However, as with Chapter 7, you can’t clear tax debts and you will still need to pay child support and alimony. Most debts, including private student loans, credit card debt, and unsecured loan debt will be discharged with bankruptcy.

Bankruptcy can seriously reduce your credit score in the short term and can remain on your credit report for up to 10 years, so it’s not something to be taken lightly. Your case will also be dismissed if you can’t show that you have exhausted all other options.

Differences in Reducing Each Type of Debt

The United States has some of the highest consumer debt in the world. It has become a common part of modern life, but at the same time, we have better options for credit and debt relief, which helps to balance things out a little. Some of the debt relief options at your disposal have been discussed below in relation to each particular type of long-term debt.

The Best Methods for Reducing Loans

If you’re struggling with high-interest loans, debt consolidation can help. A debt consolidation company will provide you with a loan large enough to cover all your debts and in return, they will give you a single long-term debt. This will often have a smaller interest rate and a lower monthly payment, but the term will be much longer, which means you’ll pay much more interest overall.

Debt management works in a similar way, only you work directly with a credit union or credit counseling agency and they do all the work for you, before accepting your money and then distributing it to your creditors.

Both forms of debt relief can also help with other unsecured debts. They bring down your debt-to-income ratio, leave you with more disposable income, and allow you to restructure your finances and get your life back on track.

The Best Methods for Reducing Credit Cards

Debt settlement is the ultimate debt relief option and can help you clear all unsecured debt, with many companies specializing in credit card debt. 

Debt settlement works best when you have lots of derogatory marks and collections, as this is when creditors are more likely to settle. They can negotiate with your creditors for you and clear your debts by an average of 40% to 60%. You just need to pay the full settlement amount and the debt will clear, with the debt settlement company not taking their cut until the entire process has been finalized.

A balance transfer can also help with credit card debt. A balance transfer credit card gives you a 0% APR on all transfers for between 6 and 18 months. Simply move all of your credit card balances into a new balance transfer card and then every cent of your monthly payment will go towards the principal.

The Best Methods for Reducing Secured Debts

Secured debt is a different beast, as your lender can seize the asset if they want to. This makes them much less susceptible to settlement offers and refinancing. However, they will still be keen to avoid the costly foreclosure/repossession process, so contact them as soon as you’re struggling and see if they can offer you anything by way of a grace period or reduced payment.

Most lenders have some form of hardship program and are willing to be flexible if it increases their chances of being repaid in full.

Different Types of Debt is a post from Pocket Your Dollars.

Source: pocketyourdollars.com

5 Frugal Ways to Celebrate Your Debt Successes

5 Frugal Ways to Celebrate Your Debt Successes

One of the lessons I’ve learned as I continue to work my way out of debt is that you need to treat yourself and celebrate your little successes along the way so you can avoid debt fatigue down the road. Celebrating small milestones, like getting another $1,000 knocked off your debt total, starting to put money aside for retirement or paying off a credit card balance, is important for both your sanity and your family’s sanity.

Find out now: How much money do I need to save for retirement?

I don’t have kids, but several of my personal finance blogger friends do, and they have talked about how kids don’t always understand how they can contribute to the family financial goals since they don’t earn any money. Plus, sometimes kids don’t understand why there is a sudden need to cut back on expenses they have come to know as normal- things like going out to eat or having a night out at the movies with friends. Allowing yourself and your family to celebrate your financial wins as you work your way out of debt will help them understand that while your family is now living on a different budget, it’s still okay to enjoy the present.

With that in mind, here are five frugal ways you can celebrate your financial successes, so you don’t erase all your progress!

1. Go out for Dessert

As a kid, whenever we’d go out for dessert after a home-cooked meal, it felt like a real fancy treat. Now I know that this was mom and dad’s way of having a celebration without spending a lot of money on paying for a whole meal.

2. Rent a Movie

5 Frugal Ways to Celebrate Your Debt Successes

This may not seem like a treat if you rent movies all the time, but if you are living on a very strict budget and don’t often rent movies, this could be a treat for you and your family. Make it the full experience – popcorn, candy, etc. Renting a movie and making popcorn at home is a fun way to celebrate, and it’s still a lot cheaper than going to the theater.

12 Affordable Ways to Have Fun on a Tight Budget

3. Hit a Matinee

Wait, didn’t I just say to avoid the theater to save money? Yes, but sometimes movie theaters offer cheaper matinee movies earlier in the day. Often showings before noon can be as little as half price. This is a more budget-friendly way to enjoy a new movie.

4. Buy a Book or Magazine

One of the first things that got cut from my budget when I started focusing on financial goals was my magazine subscription. Most of the time I don’t miss it as I have plenty of things to keep me busy, but sometimes it’s nice to somewhat mindlessly flip through a magazine in the evenings. Buying yourself a new book – maybe one of these investing books – or magazine is a fairly cheap way to entertain yourself and if it’s a rare occasion, it can serve as a reward too.

Frugal Summer Fun for Adults

5. Go on a Day Trip

5 Frugal Ways to Celebrate Your Debt Successes

If you aren’t traveling too far, the most expensive part of the trip is usually the overnight accommodations. By taking a day trip instead to the beach or somewhere else, you can get out of town and away from the norm without having to shell out for an expensive hotel room.

What other frugal ways can you think of to celebrate your debt successes?

Photo credit: Â©iStock.com/andresr, Â©iStock.com/sdominick, Â©iStock.com/AleksandarNakic

The post 5 Frugal Ways to Celebrate Your Debt Successes appeared first on SmartAsset Blog.

Source: smartasset.com

Freezing Your Credit

In the age of paperless transactions, identify theft is something that virtually all of us are susceptible to. If your identity is stolen, the consequences can be severe, and in some cases, can take years to recover from. One way to be proactive against fraud and defend yourself from identity theft, is to freeze your credit report with each of the three major credit bureaus—Experian, TransUnion, and Equifax. 

Placing a credit freeze on your credit report will stop identity thieves from being able to open new accounts, lines of credit, or make any large purchases in your name, regardless of whether or not they have your Social Security number or any other sensitive information. 

What a credit freeze means

A credit freeze is a process that shuts off access to your credit reports at your request. Without your verified consent, your delicate information cannot be acquired. This means that if someone were to attempt to apply for credit in your name, your report would come up as “frozen,” and therefore the creditor would not be able to see the information needed for the application to be approved.

You can unfreeze your credit at any time by using a PIN or a password. 

Reasons to freeze your credit

It might be a good idea to freeze your credit if you’re experiencing any of the following situations:

  • Your data has been compromised in a data breach: It happens. If you’ve been a victim of a data breach and personal information related to your identity has been leaked or made vulnerable to cyber criminals, a credit freeze can offer you some extra protection. 
  • You have reason to think you’ve been a victim of identity theft: Perhaps you’ve checked your credit recently and noticed open accounts that you don’t recognize. Maybe you’ve been getting phone calls from collections agencies requesting payments from accounts you know you didn’t open. While a credit freeze won’t be able to stop them from using accounts a thief has already opened, it can stop them from opening any more. 
  • You want to protect your child from identity theft: According to the Economic Growth, Regulatory Relief and Consumer Protection Act, parents and legally guardians of children 16 years old and younger have the right to open a credit account for their child with the sole purpose of putting a freeze on it to protect them from identity theft. 

How to freeze your credit 

The process of freezing your credit is simple but does require a few steps. You will need to get in touch with each of the three major credit bureaus one by one and request a credit freeze:

  • Experian: Contact by phone at 800-349-9960 or go to their website.
  • Equifax: Contact by phone at 888-397-3742 or go to their website.
  • TransUnion: Contact by phone at 888-909-8872 or go to their website.  

The credit bureaus will ask you for your Social Security number, your date of birth and other information to verify your identity.

Once you freeze your credit, your file will be unattainable even if a thief has sensitive information such as your social security number or date of birth. If you need to use your credit file, you can unfreeze your credit report at any time. 

How to unfreeze your credit

Once you’ve frozen your credit file, it will be remain blocked until you decide that you would like to unfreeze it. You will need to unfreeze your credit report in order to open a new line of credit or make a major purchase. 

Unfreezing your credit file is simple. All you will need to do is go online to each credit bureau website and use the personal identification number (PIN) that you used to place the freeze on the account. If you don’t want to complete this task online, you can also unfreeze your credit file over the phone or through postal mail. 

When the unfreezing process is done online or by phone, it is completed within minutes of submitting the request. However, if you send your request via mail, it will take much longer. 

Keep in mind that you don’t necessarily need to unfreeze your credit through all three of the major credit bureaus if you don’t want to. For instance, let’s say you plan to apply for credit somewhere. You can ask the creditor which credit bureau it will go through to pull up your report, and only unfreeze that one credit bureau. 

You may also have the option to unfreeze for a specific amount of time. Once the time is up, your credit file will automatically freeze again. 

Credit freeze pros and cons

There are a few reasons why you might want to freeze your credit in this day and age, but just like with anything else, there are pros and cons to credit freezing. Here is a general breakdown of the benefits and downfalls of putting a freeze on your credit report:

Pros:

  • It prevents thieves from opening new lines of credit: With a credit freeze placed on your account, no one will be able to open a new line of credit or any other type of account requiring a credit check using your personal data. Anyone trying to commit fraud will be stopped in their tracks as soon as lenders notice that the report is frozen. 
  • It won’t affect your credit score: Freezing your credit report will not damage your credit score. Additionally, if you’ve been a victim of identity theft, freezing your credit report could actually protect your credit score from being damaged due to fraud. 
  • It’s free: It used to be the case that some credit freezes would cost a fee, but that is no longer the way it works. 

Cons

  • It requires some effort: Putting a credit freeze on your credit report takes some effort. You will need to get in touch with all three credit bureaus. 
  • You will need to remember your PINs: A PIN is required to lift or freeze your credit report. If you lose it, you will need to jump through extra hoops to create a new one.

It can’t stop thieves from accessing your existing accounts: Credit freezes can only stop fraudsters from opening new accounts using your information. If you’ve already been a victim of identity theft, a credit freeze can’t block thieves from committing fraud with your current accounts. This means that thieves can still make a purchase using a credit card they stole from you.

Freezing Your Credit is a post from Pocket Your Dollars.

Source: pocketyourdollars.com

How to Increase Your Credit Score with a Secured Credit Card

A good credit history means good rates on loans and other credit facilities. Once damaged though, rebuilding your credit can be difficult. However, you can get started by using a secured credit card that is easier to acquire than most other lines of credit. In this post, we shall look at how to increase your […]

The post How to Increase Your Credit Score with a Secured Credit Card appeared first on Credit Absolute.

Source: creditabsolute.com

What is a Foreign Transaction Fee and How Can You Avoid It?

Foreign transaction fees are irritating little charges that every traveler has faced, and most credit card users have questioned. They are the bane of a frequent flyer’s life and if not managed carefully, could result in some serious charges. But what are these charges, why do they exist, what’s the average fee, and how can you avoid them?

What is a Foreign Transaction Fee?

A foreign transaction fee is a surcharge levied every time you make a payment in a foreign currency or transfer money through a foreign bank. These fees are charged by credit card networks and issuers, often totaling around 3%.

For example, imagine that you’re on holiday in the United Kingdom, where all transactions occur in Pound Sterling. You go out for a meal and use your credit card to pay a bill of £150. Your credit card issuer first converts this sum into US Dollars and then charges a foreign transaction fee, after which the network (Visa, MasterCard, American Express) will do the same.

If we assume that £150 equates to exactly $200, this will show on your credit card statement first followed by a separate foreign transaction fee of $6.

When Will You Pay Foreign Transaction Fees?

If you’re moving money from a US bank account to an international account in a different currency, there’s a good chance you will be hit with foreign transaction fees and may also be charged additional transfer fees. More commonly, these fees are charged every time you make a payment in a foreign currency.

Many years ago, foreign transaction fees were limited to purchases made in other currencies, but they are now charged for online purchases as well. If the site you’re using is based in another country, there’s a good chance you’ll face these charges.

It isn’t always easy to know in advance whether these fees will be charged or not. Many foreign based sites use software that automatically detects your location and changes the currency as soon as you visit. To you, it seems like everything is listed in dollars, but you may actually be paying in a foreign currency.

Other Issues that American Travelers Face 

Foreign transaction fees aren’t the only issue you will encounter when trying to use American reward credit cards abroad. If we return to the previous example of a holiday in the UK, you may discover that the restaurant doesn’t accept your credit card at all.

In the UK, as in the US, Visa and MasterCard are the two most common credit card networks and are accepted anywhere you can use a credit or debit card. However, while Discover is the third most common network in the US, it’s all but non-existent in the UK. 

Discover has claimed that the card has “moderate” acceptance in the UK, but this is a generous description and unless you’re shopping in locations that tailor for many tourists and American tourists in particular, it likely won’t be accepted.

There are similar issues with American Express, albeit to a lesser extent. AMEX is the third most common provider in the UK, but finding a retailer that actually accepts this card is very hit and miss.

Do Foreign Transaction Fees Count Towards Credit Card Rewards?

Foreign transaction fees, and all other bank and credit card fees, do not count towards your rewards total but the initial charge does. If we return to the previous example of a $200 restaurant payment, you will earn reward points on that $200 but not on the additional $6 that you pay in fees.

How to Avoid Foreign Transaction Fees

The easiest way to avoid foreign transaction fees is to use a credit card that doesn’t charge them. Some premium cards and reward cards will absorb the fee charged for these transactions, which means you can take your credit card with you when you travel and don’t have to worry about extra charges.

This is key, because simply converting your dollars to your target currency isn’t the best way to avoid foreign transaction fees. A currency conversion will come with its own fees and it’s also very risky to carry large sums of cash with you when you’re on vacation. 

Credit Cards Without Foreign Transaction Fees

All credit card offers are required to clearly state a host of basic features, including interest rates, reward schemes, and annual fees. However, you may need to do a little digging to learn about foreign transaction fees. These fees can be found in the credit card’s terms and conditions, which should be listed in full on the provider’s website.

To get you started, here are a few credit cards that don’t charge foreign transaction fees:

  1. Bank of America Travel Rewards Card: A high-reward and low-fee credit card backed by the Bank of America.
  2. Capital One: All Capital One cards are free of foreign transaction fees, including their reward cards, such as the Venture card.
  3. Chase Sapphire Preferred: A premium rewards card aimed at big spenders. There is an annual fee, but not foreign transaction fees.
  4. Citi Prestige: One of several Citi cards that don’t charge foreign transaction fees, and the best one in terms of rewards. 
  5. Discover It: A solid all-round credit card with no foreign transaction fees. However, as noted above, the Discover network is rare outside of the United States.
  6. Wells Fargo Propel World: An American Express credit card with good rewards and low fees, including no foreign transaction fees.

Summary: One of Many Fees

Foreign transaction fees are just some of the many fees you could be paying every month. Credit cards work on a system of rewards and penalties; you’re rewarded when you make qualifying purchases and penalized when you make payments in foreign currencies and in casinos, and when you use your card to withdraw cash.

Many of these fees are fixed as a percentage of your total spend, but some also charge interest and you will pay this even if you clear your balance in full every month. To avoid being hit with these fees, pay attention to the terms and conditions and look for cards that won’t punish you for the things you do regularly.

What is a Foreign Transaction Fee and How Can You Avoid It? is a post from Pocket Your Dollars.

Source: pocketyourdollars.com

Best credit cards for Lyft

Only a decade ago, people called a taxi company when they needed a ride. The same act is now as simple as hitting a few buttons on your smartphone.

Ride-share companies like Lyft make getting a ride to almost anywhere a breeze, and the service may cost a lot less than you think.

If you charge your Lyft rides to a credit card that doles out points or miles, that’s even better. In this guide, we’ll go over the absolute best credit cards to use when you ride with Lyft as well as other ways to maximize your ride-share dollars.

See related: Everything you need to know about maximizing rewards on ride-shares

Chase Sapphire Reserve®: Best for Lyft discounts

  • Chase Sapphire Preferred® Card: Best for extra value at a lower fee
  • American Express® Green Card: Best for budget-minded travelers
  • Wells Fargo Propel American Express® card: Best no annual fee card for ride shares
  • Best credit cards to earn rewards with Lyft

    There are a handful of credit cards that can help you earn rewards each time you ride with Lyft. Here are your best options:

    See related: Best cards for Uber, UberEATS

    Chase Sapphire Reserve®: Best for Lyft discounts

    In January 2020, the Chase Sapphire Reserve began to offer a one-year complimentary Lyft Pink membership. For a $19.99 monthly fee, Lyft Pink offers passengers 15% off all car rides, in addition to priority airport pickups, special discounts and more flexibility in cancellations, among other benefits. The Reserve is also offering 10 points per dollar on Lyft purchases through March 2022.

    Besides these perks, the card comes with a 3-point-per-dollar rate on restaurants and travel, including Lyft, after the $300 annual travel credit. Speaking of the credit, it applies to most travel purchases, including rides with Lyft.

    The Chase Sapphire Reserve card is one of the best travel credit cards on the market, but it also comes with a rather high price – the card charges an annual fee of $550. If you don’t travel often enough to justify the fee, you might want to look into cards that have a lower annual fee or none at all.

    Here are more details:

    • One-year complimentary Lyft Pink membership (a $199 value)
    • 10 points per dollar on Lyft purchases through March 2022
    • 3 points per dollar spent on restaurants and travel,
    • $300 annual credit travel that applies to most travel purchases, including rides with Lyft
    • 50,000-point sign-up bonus if you spend $4,000 in first three months
    • Redeem points through the Chase Ultimate Rewards portal, and get 50% more travel for free
    • Transfer points to airline and hotel partners at a 1:1 ratio
    • Up to $100 Global Entry/TSA Precheck credit every four years
    • Priority Pass Select membership
    • $550 annual fee

    exciting new benefits for its World and World Elite credit card members. This includes a $10 Lyft credit for World Elite cardholders, which will be automatically applied to your next ride after you take five Lyft rides within a calendar month. The most popular World Elite Mastercards include the Capital One® Savor® Cash Rewards Credit Card*, the Citi Prestige® Card and the Barclaycard Arrival Plus World Elite Mastercard.