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FHA Loan vs. Conventional Mortgage: Which Is Right for You?

When exploring mortgage options, it’s likely you’ll hear about Federal Housing Administration and conventional loans. Let’s see, FHA loans are for first-time home buyers and conventional mortgages are for more established buyers — is that it?

Not necessarily.

Actually, the differences between FHA loans and conventional mortgages have narrowed in the past few years. Since 1934, loans guaranteed by the FHAn have been a go-to option for first-time home buyers because they feature low down payments and relaxed credit requirements.

But conventional loans — which are not insured by a government agency like the FHA, the Department of Veterans Affairs or the U.S. Department of Agriculture — have gotten more competitive lately.

Both types of loans have their advantages. Here are the factors to consider when deciding between an FHA and a conventional mortgage.

Property standards

What kind of property are you buying? You can use a conventional loan to buy a vacation home or an investment property, as well as a primary residence.

The same can’t be said about FHA loans.

An FHA loan must be for a property that is occupied by at least one owner, as a primary residence, within 60 days of closing. Investment properties and homes that are being flipped (sold within 90 days of a prior sale) aren’t eligible for FHA loans.

FHA appraisals are more stringent, as well. Not only is the property assessed for value, it is thoroughly vetted for safety, soundness of construction and adherence to local code restrictions.

Loan limits

Where you’re planning to buy your home can play a role in what kind of loan is best for you. FHA and conventional loan guidelines allow wide latitude for borrowers in expensive areas, but in some cases you may end up needing a jumbo loan, which is bigger than FHA or conventional limits.

FHA loans are subject to county-level limits based on a percentage of a county’s median home price. In certain high-cost areas, the limit in 2017 can be as high as $636,150 — and in Alaska, Guam, Hawaii and the Virgin Islands, limits can be much higher than that.

For loans guaranteed by Fannie Mae and Freddie Mac, the government-sponsored companies that help fund the conventional mortgage industry, single-family home loan limits are $424,100 in most of the country. Again, higher loan ceilings are available in pricier counties.

You can find your county’s loan limits for FHA (shown at the link as “FHA forward”) and conventional mortgages (“Fannie/Freddie”) on the Department of Housing and Urban Development website.

» MORE: Best lenders for FHA loans

Down payment

This is where conventional loans have really improved. FHA loans used to be the low-down-payment leader, requiring just 3.5% down. But now, Fannie Mae and Freddie Mac both offer 97% loan-to-value products; that means a 3% down payment option — even lower than FHA — for qualified buyers.

From time to time, you can find lenders offering down payment options that are even lower on conventional loans. Quicken Loans, for instance, has offered a 1% down loan.


Another instance where FHA and conventional standards have converged: how bad credit is accounted for. Over the past few years there have been numerous changes to the policies regarding bad-credit issues and how they are treated for FHA and conventional loans, with new standards implemented — and then expiring.

However, as it stands now, for a buyer to qualify for either an FHA or conventional loan, it typically must be two years since a bankruptcy was discharged and three years since a foreclosure or short sale.

There will definitely be hurdles to clear to prove to a lender that you have re-established your creditworthiness:

  • You’ll have to document that circumstances leading to the financial setback were beyond your control
  • You may have to attend a credit education course
  • Your loan will likely have to go through a manual loan approval process, which means approval and closing will likely take longer
Mortgage insurance

With a down payment of less than 20%, both FHA and conventional loans require borrowers to pay mortgage insurance premiums. This insurance helps defray the lender’s costs if a loan defaults.

There are some differences between the two insurance programs.

With an FHA loan, if you put less than 10% down, you’ll pay 1.75% of the loan amount upfront and make monthly mortgage insurance payments for the life of the loan. With a down payment of 10% or more (that is, a loan-to-value of 90% or better), the premiums will end after 11 years.

Conventional loans with less than 20% down charge private mortgage insurance. It can be charged as an upfront expense payable at closing, or built into your monthly payment — or both. It all depends on the insurer the lender uses.

“The rates for PMI vary according to two factors: credit score and loan-to-value ratio,” Joe Parsons, a senior loan officer with PFS Funding in Dublin, California, says. He provides the following examples:

  • A borrower with a 620 score with a 97% loan-to-value will pay 2.37%
  • The same loan for a borrower with a 760 score will cost 0.69%
  • A borrower with a 620 score and a 90% loan-to-value will pay 1.10%
  • The same loan for a borrower with a 760 score will cost 0.31%

PMI generally can be canceled once your loan is paid down (and/or your property’s value appreciates) to 78% of your home’s value.

Mortgage insurance FHA Conventional Upfront premium cost 1.75% Depending on the insurer, there may or may not be an upfront premium. You can also opt to make a single-premium payment instead of monthly payments. Monthly premium cost Cost varies. Based on loan term, amount and down payment. For purchase loans, the premium ranges from 0.45% to 1.05%, according to the FHA. Cost varies. Based on credit score and loan-to-value. For purchase loans, fees can range from 0.55% to 2.25%, according to Genworth and the Urban Institute. Duration With down payments less than 10%, you’ll pay mortgage insurance for the life of the loan. With a loan-to-value equal to or greater than 90%, you’ll pay the premiums for 11 years. Usually can be canceled once your loan balance reaches 78% of your home’s value. Credit score standards

Here is the primary distinction between the two types of loans: FHA loans are easier to qualify for. As far as a credit score, FHA sets a low bar: a FICO of 500 or above. Lenders can set “overlays” on top of that credit score requirement, hiking the minimum much higher.

But to qualify for the lowest FHA down payment of 3.5%, you’ll need a credit score of 580 or more, says Brian Sullivan, HUD public affairs specialist. With a credit score between 500 and 579, you’ll need to put down 10% on an FHA loan, he adds.

The average FICO score for FHA purchase loans closed in 2016 was 686, according to mortgage industry software provider Ellie Mae.

Conventional loans typically require a FICO credit score of 620 or better, Parsons says.

“A borrower with that score who can document income and assets will, in all likelihood, receive a loan approval,” he says. “They will pay a higher price for that loan because of ‘risk-based pricing’ from Fannie Mae and Freddie Mac, but it is unlikely that they will be declined because of their credit score.”

Risk-based pricing means compensating the lender for taking the additional risk on a borrower with a lower credit score (the average FICO score for a conventional loan was 753 in 2016, according to Ellie Mae). In other words, the lower your credit score, the higher your mortgage interest rate.

Debt-to-income ratios

HUD’s Sullivan says your debt-to-income ratio — including the new mortgage, credit cards, student loans or any other monthly obligations — must be 50% or less for an FHA loan. Ellie Mae reports the average debt ratio for borrowers closing FHA purchase loans in 2016 was 42%.

Conventional loans usually require a debt-to-income ratio no higher than 45%, Parsons says. In 2016, borrowers with conventional purchase loans averaged a 34% debt ratio, according to Ellie Mae.

Mortgage rates

Another distinction for FHA loans: generally lower mortgage interest rates. However, the difference between the two was incremental last year. The 30-year fixed rate for FHA purchase loans closed in 2016 averaged 3.95%, compared with a conventional mortgage rate on the same term of 4.06%, according to Ellie Mae.


As far as mortgage refinancing goes, the edge goes to FHA “streamline” refinancing. With no credit check, no income verification and likely no home appraisal, it’s about as easy a refi as you can get. But there are five requirements for an FHA streamline refinance.

So, which mortgage to choose?

Your decision may initially be based on your credit score. If it’s well below 620, an FHA loan may be your only choice. Above 620 and you’ll want to run the numbers on both to see what works best for you.

However, if you are serving in the military or are a veteran, a loan backed by the VA may be the way to go. VA loans usually require no down payment. And if you live in a suburban or rural area, a USDA loan could be a smart option, too.

FHA Loans vs. Conventional Loans   FHA Conventional Property type Financing for a primary residence only Financing for a primary residence, second home or investment property Down payment Down payments as low as 3.5% Some programs offer down payments as low as 3% or even lower Mortgage insurance Mortgage insurance premiums required: 1.75% upfront and monthly premiums that vary with your loan term, loan amount and down payment, from 0.45% to 1.05% With a down payment lower than 20%, private mortgage insurance is usually required. Monthly fees vary according to credit score, loan-to-value and insurer, and range from 0.55% to 2.25%. Credit score Credit score of 500 or better is usually required, though this depends on the lender. Average FICO score in 2016: 686. Credit score of 620 or higher is usually required, though this depends on the lender. Average FICO score in 2016: 753, according to Ellie Mae. Debt ratio Average 2016 debt ratio: 42% Average 2016 debt ratio: 34% Interest rates Interest rates for FHA loans tend to be slightly lower than for conventional loans Interest rates for conventional loans tend to be slightly higher than for FHA loans

Hal Bundrick is a staff writer at NerdWallet, a personal finance website. Email: Twitter: @halmbundrick.

5 MoneyTips For Automated Credit Card Payments

MoneyTipsHave you considered placing your credit card on an automatic payment plan? By linking your credit card to a bank account and having your monthly payments automatically deducted, you do not have to worry about the possibility of missing payments and harming your credit score. However, it does take some planning to set up your auto-payment plan properly to avoid other mishaps that can adversely affect your credit. Here are 5 tips to help you embark on an auto-payment program. 1. Schedule Payment Timing and Amount – If your charge pattern and/or income is not predictable, there are going to be occasional mismatches in your cash flow. Without managing your cash flow, your payment deduction date could end up falling in a gap between a peak balance on your card and your next paycheck. You could run the risk of dropping below minimum deposit requirements for your account, or end up with an overdraft and subsequent penalty. Look over your regular cash flow, choose your payment deduction date accordingly, and keep that date in mind when making large, unplanned charges. You could also try to change your credit card due dates to improve cash flow. You can usually set up an auto-payment to provide amounts other than the full balance due, but do so with care. If you set up a fixed payment too low, your balance can creep up over time. Your credit score will be reduced through using more of your available credit, and you will pay unnecessary interest. 2. Keep a Cash Buffer – If possible, keep extra money in your bank account to serve double duty — as an emergency fund and also a cash buffer just in case unexpected expenses disrupt your monthly cash flow. If you don't have the discipline to leave that money untouched, place it in a separate account that can be immediately transferred over to your main account in case of emergency. Quick access is key. 3. Set Up Alerts – Automatic payments are generally reliable, but they are not infallible. Most accounts allow you to set up alerts for specific events such as when payments are due, when payments are posted, or when charges hit a certain limit. Set up all the alerts you need to verify that your payments and charges are on track. At the bare minimum, set up alerts for payment postings, since missed payments have a significant negative effect on your credit report. You can check your credit score and read your credit report for free within minutes using Credit Manager by MoneyTips. 4. Check Your Account Regularly – While alerts are useful, there is no substitute for checking your account regularly to verify that there are no unexpected charges or odd posting times that disrupt your cash flow. Most banks and credit card issuers allow you to check your accounts online, while Money Manager, part of Credit Manager by MoneyTips, can monitor all of your accounts. Get in the habit of checking your account balances several days before the automatic payment is processed. That way you have a few days to correct any issues that you find. A quick check on payment day is not a bad idea, either. 5. Review the Terms and Conditions – Every bank and credit card issuer has different terms and conditions. Be sure to read them in detail so you know how to handle any issues that may arise. If you realize that you are on the verge of an overdraft, what are your options to avoid an overdraft? Can you make manual payments on top of an automated payment? What are the penalties if you do have an overdraft? Don't let the convenience of automated credit card payments lull you into a false sense of security. Follow the tips above and you can enjoy your convenience without having to worry about the effect on your credit score, or your finances in general. If you want more credit, check out MoneyTips' list of credit card offers. Photo © Originally Posted at: Tools for Paying BillsE-Statements: Time To Make The Switch?Lower Bills Through BillFixers

Muslim man sues Little Caesars for $100M over 'halal' pizza dispute

A Muslim man in Michigan is suing Little Caesars for $100 million, claiming he was served a pizza labeled "halal" that contained pepperoni made with pork.

The halal label means the pizza should be prepared in a way that follows Islamic law, and shouldn't contain pork.

>> Read more trending news

The lawsuit was filed by Mohamad Bazzi Thursday and seeks class-action status, The Detroit Free Press reported. Bazzi claims he was twice served "halal" pizza containing pork.

In a statement, Little Caesars said the chain "cherishes our customers from all religions and cultures" and considers the lawsuit to be "without merit."

The Associated Press contributed to this report.

Your 3 Edges Over the Investing Pros

Wall Street and the financial media love to tell individual investors they have no chance in the stock market against big-money professionals using high-tech software to sift through complex stock trends. That’s true to an extent, but it’s only part of the story.

Sure, if individual investors want to play Wall Street’s game, they have little chance of winning. But individual investors don’t have to play by those rules to succeed, because they have some significant advantages of their own. Even better: Those advantages are almost impossible for pros to mimic, so they’re a long-term competitive edge for the little guy.

Individual investors have at least three edges over the pros.

You can focus on the long term

The value of patience is overlooked in a world of high-frequency trading, cheap commissions and one-hour Amazon delivery. But as Wall Street becomes more focused on the short term — the average holding period has shrunk from years to months — the rewards of patience go up.

Unlike individual investors, the pros must try to beat the market every day, every quarter, every year. If they don’t perform, their funds lose money and their jobs are at risk. So they often engage in short-term jockeying, chasing hot stocks that later cool, and trying to sell faster than all the other pros when the market weakens.

You can focus on the long term, however, buying and holding great companies and funds. Investors find the potential super returns by buying when others are selling cheap in periods of market fear, and by buying to hold. Returns like those on Amazon — which has chalked up a 49,000% gain since its 1997 IPO — happen only if you continue to hold.

Of course, an Amazon doesn’t come around very often, and they’re hard to spot before they run higher. But novices also can invest passively using exchange-traded funds and index funds, adding to their investment during times of weakness and continuing to hold. ETFs and index funds also provide diversification, making a safer portfolio than owning just a few stocks.

You don’t have a lot of money

No, really — not having a ton of money is a huge advantage here. Legendary investor Warren Buffett often laments in his annual letter to Berkshire Hathaway shareholders that if he only had less money he could generate higher returns. In fact, he’s famously said that he could earn 50% annual returns if he had less than a million dollars.


Buffett could buy small stocks that almost no one knows. While there’s no promise of 50% returns, this area of the market hasn’t been picked over by big investors, such as Buffett, who can buy only the largest, most-liquid stocks. Among the “small caps” — often defined as companies with a market capitalization less than $2 billion — lie the future great companies, hidden in plain sight. But their size makes them almost untouchable by Wall Street’s big money.

Even the funds and ETFs dedicated to small caps have a hard time and can hold only puny stakes in each individual company, because these funds need liquidity in their positions. So the funds’ exposure to any potential great company is quite small. That leaves opportunity for those able and willing to sift for bargains. But be aware that studies show it’s difficult to pick stocks that beat the broader indexes over the long term. It’s not a tactic to try with your whole retirement portfolio, or with any money you need in the short term.

You can remove emotion from the process

The stock market is the only market where the goods go on sale but people are too afraid to buy them. You’re going to be terrified to buy exactly when stocks offer the best future returns. But to profit, you have to zig when the market zags. You can’t do that if you’re too scared to act.

To take your emotions out of the decision, you can buy stocks or funds on a regular schedule, regardless of market swings. Set up a schedule to buy, or have your brokerage do it for you. Buy weekly, monthly or with every paycheck. If you’re funding a 401(k) plan with your employer, you’re buying regularly already.

The key point is to buy regularly even when the financial media screams that stocks are overvalued or that you’d be crazy to plunge in, like in 2009. After plummeting mercilessly for months, the S&P 500 index bottomed on March 9, 2009. By April 2011, the index had doubled — annual growth of 39%. Now six years further on, the index is approaching another double. From the 2009 bottom, the index is up more than 16% annually — well above the market’s long-run average annual returns of around 10%, or 7% after adjusting for inflation.

Buying all along the way, regular investors throughout the crisis didn’t time the bottom, so their returns aren’t quite as impressive as these bottom-to-top figures. Still, their performance destroyed the returns of fearful investors who scurried away during the height of the financial crisis and then waited for the market to become “safe” in 2011 or 2012, at which point it had already doubled.

Importantly, to get high returns you didn’t need to know which individual stocks to buy. The broadly diversified index fund did great, and such passive index investing is easier to do, too.

The first step? Get started buying stocks.

James F. Royal, Ph.D., is a staff writer at NerdWallet, a personal finance website. Email: Twitter: @JimRoyalPhD

3 Good Reasons to Buy a Stock

For new investors drawn to the $3.4 billion initial public offering of Snap Inc., the parent company of social media darling Snapchat, watching the stock price the past three months has been a roller coaster. The day after its IPO, Snap sold for more than $27 per share, but it has since traded as low as $18.05.

For more experienced investors, the price fluctuations may bring to mind another big IPO: Facebook. Five years ago this month, Facebook went public with shares snapped up at $38.23 — and a little over three months later the price sank to $18.06. The price of Facebook stock took another year to climb above its initial stock price and now trades near $150.

It’s too early to know if Snap stock, now trading around $20, will follow Facebook’s arc. And this points to the difficulty in picking individual stocks and why NerdWallet generally recommends reserving just 10% of your portfolio for them. For most investors, a balanced portfolio is built on exchange-traded funds (ETFs) and mutual funds, which pool individual company stocks, as well as bond funds that allow investors to reap market gains while hedging against inevitable losses.

Even within your portfolio’s stock allocation, it’s helpful to have a framework for knowing whether and when to buy. Here are three good reasons to say yes.

You’re focused on long-term value, not market noise

New investors may see news reports of hot stocks and feel like they are missing out — and maybe they are. Over time, stocks generally return as much as 7% per year after inflation, based on S&P 500 historical averages. But investing is not a get rich quick scheme. In general, if you’re putting money into stocks, you shouldn’t plan on needing to sell for at least five years (original Facebook investors are sure glad they held that long).

Remember, as a shareholder you become a co-owner of the company. As storied investor Warren Buffett once said, “Buy into a company because you want to own it, not because you want the stock to go up.”

Once you buy, check the stock price only on a quarterly, semiannually or annual basis — or buy a lot of antacid medicine to stomach the daily stock-ticker fluctuations.

How do you determine the company’s long-term value? That requires some homework.

The company has strong financial health and outlook

To understand the current and potential value of a company, your appetite for risk must be complemented by a strong taste for research. Understanding company management, competitors and the market are a must, as well as knowing your “price to earnings ratio” from your “earnings per share.” Scratching your head? This guide on stock research will get you started.

At the most basic level, you profit from stocks in two ways: First, of course, is selling at a higher price than you paid — that old maxim, “buy low, sell high.” But many stocks also pay quarterly dividends, a share of the profits, which can give investors a steady return despite fluctuating stock prices. Dividends are often paid by more established companies with strong cash flows — startups and fast-growing companies typically plow all profits back into the company.

>>More: How to buy stocks

The price is right (for you)

Before buying individual stocks, make sure you’ve already done the following financial health basics: topped off your 401(k) contribution to equal any employer match; created an emergency fund equal to at least three months’ worth of expenses; and paid off high-interest debt like credit card balances. Next, budget for how much you want to spend on individual stocks (again, keeping in mind the recommended allocation of 10% of your portfolio).

Timing when to buy a stock is as tricky as knowing when to sell — and unless you possess a crystal ball, it can be a fool’s errand. Instead, create a long-term strategy to build retirement savings with regular, scheduled contributions to your brokerage accounts. Otherwise, you’re more likely to follow the herd and dump investments when the market hits the skids, or hold back from investing altogether, either of which can be costly.

Investors who bought and held Facebook are glad they did, even if they missed the true bottom at $18.06. Will Snap stockholders who bought near $18.05 feel the same way? Only time will tell.

Kevin Voigt is a staff writer at NerdWallet, a personal finance website. Email: Twitter: @kevinvoigt.

Top 3 Reasons To Read Your Credit Report

MoneyTipsWhen you apply for credit, your potential creditor must assess the odds that they will get their cash back if they lend you money. Your credit report, which contains your credit history, gives that creditor some objective evidence to see how well you have handled debts in the past. If you were lending money to your brother-in-law, you would assess the likelihood that he would pay you back based on what you know about him and what you have observed. Has he shown himself to be trustworthy in the past? Has he borrowed and paid back money before, even if that money was borrowed from somebody else? Does he usually show good or bad judgment? You would take all of those factors into account before making a decision. Now assume a stranger asked you for a loan. How would you decide whether to loan money to him or her? You now see the perspective of banks, credit card issuers, and other lenders. Here are three reasons why you should read your credit report: 1. Make Sure the Information is Correct If there are any errors in your report that give an inaccurate picture of you — for example, someone with the same name as you has defaulted on a loan and it is erroneously listed under your account — you could be denied credit unfairly. Even if you are given credit, you could pay a higher interest rate because the creditor thinks you pose a bigger risk of non-payment. Check your information to make sure everything is correct. Errors can leave you unable to secure credit when you really need it, or pay more for the privilege of having it. Over one-quarter of consumers in a recent study found at least one "potentially material" error on a credit report. That means there are tens of millions of credit reports with mistakes. Could one of them be yours? Don't simply accept errors, even though the path to correct them can be long. Matt Schulz, Senior Industry Analyst at, advises: "The best way to resolve negative items on your credit report is to just be persistent and to never take no for an answer." If you find errors in your report via Credit Manager, there are Action Buttons available that can easily alert creditors and the credit bureau. 2. Check For Fraud If your credit information has been compromised, a thief could open up a credit account in your name and rack up large bills before you realize it. Potentially, you could miss payments or default on an account that you don't even know about — ruining your credit for years. By checking your credit report regularly, you can limit the damage on any fraud that has taken place. Signing up for a fraud alert can make it more difficult for others to open other fraudulent accounts in your name. You may even spot a fraudulent request for credit that was denied, and take action before any damage occurs. If you find fraud in your report via Credit Manager, you can easily alert creditors and the credit bureau with the touch of a button. 3. Honestly Assess Your Creditworthiness Once you verify that your information is correct, read your credit report as if it belonged to a complete stranger. If you didn't know this person, would you lend money to him or her? Sometimes it can be enlightening to see your credit information laid out in writing. Is your report short on information? Just as you would be skeptical of a stranger asking you for a loan, a bank or credit card issuer will be wary of lending you money without any way to assess your credit behavior. You will need to create a plan to improve your credit report over time. The article above is an edited excerpt of the free eBook, Give Yourself Credit. For more information on credit scores and credit reports, download the eBook. You can check your credit score and read your credit report for free within minutes using Credit Manager by MoneyTips. Originally Posted at: the Give Yourself Credit eBookGive Yourself Credit – Free EBookOptimize Your Debt!

How to Ask for a Raise

Asking for a raise can be anxiety-inducing, but that one conversation can also mean having more money left over at the end of the month. We asked Robin L. Pinkley, co-author of “Get Paid What You’re Worth: The Expert Negotiators’ Guide to Salary and Compensation,” for tips on how to best make the case.

Just do it

“The most important thing is to just do it,” Pinkley says. You’ll obviously want to strategize when and how you ask for a raise — more on that later. But no one else will ask for you. It pays to advocate for yourself.

Give to get

Once you’ve summoned the courage to ask, what do you say? “If I can’t explain to them why we’d be better off doing what I want than not, then I don’t have any reason to be in that room,” Pinkley says.

What do you bring to the company that no one else can? Is your salary below market rate for your experience and responsibilities? If you can point to ways that you’ve helped the organization succeed, you have a clear justification for your request. “The goal is to get; the strategy is how do I give to get,” Pinkley says.

» MORE: How to negotiate your salary like a champ

Know your negotiation partner

Not only must you explain why your request is reasonable, but you also have to make sure your boss cares about your arguments. Some work better on certain supervisors than others. For example, Pinkley says that if you tried to argue for a raise with one dean at Southern Methodist University where she teaches by leveraging a competing job offer, he would just shake your hand and say, “Good luck.”

Make it easy for them to say yes

Along with considering the tactics your negotiation partner will respond to best, think about the wider context of your company. If business is down, it’s a bad time to ask for a raise. You should also time your request with your review cycle.

“If I wait until they tell me what my increase for this year, that’s a bad time to ask,” Pinkley says. “If I think I’m going to want a substantial increase, I’m going to go and talk about it well before the typical time.”

Honesty can pay off

Some experts caution against threatening to quit if you don’t get your way. But Pinkley says, “They need to understand if you have a walkaway.” Be straightforward if you can’t stay at a job because you can’t make ends meet. It’s reality, not a threat.

And be honest with yourself about whether you have a case for a raise. If you truly believe you do, but your company can’t or won’t give it to you, it might be time to move on. Just ask for clarity on the obstacles that are preventing it from happening before you pull the trigger. The feedback might convince you that staying is best or help you negotiate your next salary.

Stephen Layton is a staff writer at NerdWallet, a personal finance website. Email:

Debt Consolidation in 250 Words: What to Know

What is debt consolidation? It’s rolling several debts — like credit cards and medical bills — into a single payment at a lower interest rate. Ideally, this is part of a plan to become debt-free.

When should I consolidate? Debt consolidation is a good idea if you can qualify for a lower interest rate that makes payments more manageable or gets you out of debt faster. It’s not a good idea if you are likely to run up debt again or if the debt is overwhelming.

How can I consolidate? Two common ways are balance transfer credit cards and personal loans. What works best may depend on your credit score. If your credit score is good to excellent, look for a 0% balance transfer credit card (be sure to pay off the balance before the 0% period expires to avoid interest). If your credit is average, find a personal loan with rates lower than your credit cards.

A poor credit score may disqualify you for a balance transfer card or a personal loan at a rate that would reduce your payments. Keep making on-time payments on current debts; that builds credit, which can help you later.

My debt is overwhelming. What are my options? Schedule a free consultation with a credit counselor to see if a debt management plan could work for you.

If unsecured debts equal half or more of your gross annual income or your debts cannot be repaid in five years, bankruptcy may be the best option.

Amrita Jayakumar is a staff writer at NerdWallet, a personal finance website. Email: Twitter: @ajbombay.

Ask Brianna: Should I Pick My First Job Based on My Debt?

“Ask Brianna” is a column from NerdWallet for 20-somethings or anyone else starting out. I’m here to help you manage your money, find a job and pay off student loans — all the real-world stuff no one taught us how to do in college. Send your questions about postgrad life to

This week’s question:

I’m about to graduate from college, and I’m worried about paying off my student loans. How can I find a job that will help me afford my loan payments?

Your first job might not be perfect — mine, as a paralegal, taught me the invaluable lesson that I didn’t want to be a lawyer — but it should move you in a direction that excites you. That means student debt shouldn’t entirely dictate your career choice. Comfortably paying bills isn’t worth much if you’re miserable 40 hours a week.

You are not the first, though, to read every job description with student debt on the brain. In a 2015 survey of student loan borrowers by the education nonprofit American Student Assistance, more than half of respondents said they took a higher-paying job they were less interested in so they could pay off their loans.

That doesn’t have to be you. Federal student loan repayment programs make lower-paying work more sustainable, and some private companies help pay loan bills. As your job search rolls on, remember that you have options and that having debt doesn’t require you to abandon all your dreams.

Apply for loan forgiveness

More than a third of respondents in the American Student Assistance survey said student loans affected their choice to work at a private company rather than in the public sector. But if you’re planning to work for the government or a 501(c)(3) nonprofit, familiarize yourself with federal loan forgiveness programs. Public Service Loan Forgiveness cancels qualifying public sector workers’ loans tax-free after 120 on-time monthly payments.

The program has very specific requirements and may not apply to those who work for nonprofits with other designations under the tax code, like 501(c)6 or 501(c)19. If you’re not sure what type of nonprofit you’re interviewing with, ask your human resources representative. Make sure you follow the additional guidelines on the Federal Student Aid website and fill out an employee certification form annually, or whenever you change jobs, to ensure you’re on track.

Unfortunately, private student loan borrowers don’t qualify for federal forgiveness programs. Ask your lender about options for lowering your monthly payments. The Consumer Financial Protection Bureau drafted a sample letter you can use.

Get your company to help

Some private companies offer student debt payments — say, $100 a month directly to the loan principal — as an employee benefit, similar to health insurance or 401(k) contributions. A 2016 report from the Society for Human Resource Management found that 4% of member companies and organizations surveyed offered student loan repayment assistance.

And more companies are getting in on the trend. Gradifi, an online platform that helps employers implement loan assistance programs, has signed contracts with more than 20 new companies in the past two months, says Meera Oliva, Gradifi’s chief marketing officer.

Elaine Florentino, 24, receives $100 a month from her employer, financial services firm PwC. She left school with a master’s degree in taxation and $57,000 in loans. The student loan assistance plan will cut her repayment term by one year, she says, if she stays with the company for six years, when the benefit maxes out.

Most workers currently have to pay taxes on employer student loan contributions, Oliva says, which reduces the value of the benefit. And it doesn’t address the forces driving rising student debt, says Suzanne Martindale, a staff attorney at Consumers Union, the policy division of Consumer Reports.

“The fact that even private employers are feeling the pinch of not being able to attract good employees because of debt levels, that really tells us that policymakers have waited far too long to really get at the root of these problems,” she says.

Want to find out if a specific employer can help you beat debt? Companies will often tout their student loan repayment benefits on their websites. You can also ask a company if it offers the benefit when you’ve received a job offer, or let human resources know employees would be interested in it once you’re hired.

Brianna McGurran is a staff writer at NerdWallet. Email: Twitter: @briannamcscribe.

 This article was written by NerdWallet and was originally published by The Associated Press.

How to Save Up for a Secured Credit Card Deposit

A secured credit card may be the simplest and quickest way to build credit, but getting one isn’t always easy. Even if you can get approved for one, you can’t use it until you supply a security deposit, usually a minimum of $200 or $300.

The deposit protects the credit card issuer in case the cardholder doesn’t pay as required, which is why issuers are willing to take a chance on people with no credit or bad credit. Putting the money together for the deposit may pose a challenge for those who have little or no extra income to spare. That’s where it helps to think creatively.

Whether you’re starting out or starting over, a deposit requirement doesn’t have to prevent you from building credit.

Finding the money for a deposit

Before saving for a secured credit card, it’s smart to build an emergency fund, money set aside for unforeseen expenses. The ideal emergency fund has at least three months of living expenses. If that’s not realistic, shoot for a smaller cushion; $500 is enough to avoid most debt traps. It’s also wise to pay off any debt you can, since it will cost you in interest. Divert extra money to these priorities first.

When you’re ready to start saving, consider these strategies.


The right adjustments can free up money for a deposit.

  • Get a new bank account: Switching to a low-fee bank account can save on monthly fees and other costs. If you don’t have an account at all, getting one can open up more secured credit card options, as having an account is often a requirement. A bank account is also less expensive than alternative financial services such as check-cashing stores, money orders or money transfers. If a bad banking history is an obstacle, try applying for a second chance checking account to save money.
  • Contact your utility provider: If you had to pay a deposit when you set up service, you may be able to get it back. Such deposits are usually refundable after a year with good payment history. Follow up with the utility provider. Also ask about low-income assistance programs for gas, electricity or water bills.
  • Change your phone plan: Join someone’s family plan or switch to a prepaid carrier, whichever saves more. These options are usually slightly cheaper than traditional plans. You can also lower your data usage or get rid of a landline you don’t need.
  • Weigh transportation options: Public transportation is usually cheaper than driving.
  • Rethink cable: Cut out your cable bill and opt for over-the-air TV or a cheaper subscription service such as Netflix or Hulu.
  • Ditch the gym membership: Exercise at home with YouTube videos.

Outside-the-box thinking can generate extra cash to set aside for a deposit. For example:

  • Use cash-back shopping sites: Shop at your favorite retailers through websites like Ebates and BeFrugal to receive 1% or more in cash back for purchases made online or in store. Buy only what you need to avoid overspending.
  • Crowdfund your deposit: Family or friends might support your campaign, especially if it’s a New Year’s resolution or birthday wish. Sharing your goal also helps with accountability. Consider how private you want your campaign to be. Ask about a crowdfunding site’s privacy settings and fees before getting started. The goal amount you set should take into account the website’s cut of the funds raised.

Saving by yourself is a thing of the past. Banking portals and tools can simplify budgeting.

  • Automate payments: Set up monthly automatic transfers to a savings account. Even $5 a month brings you closer to your goal.
  • Use a budgeting app: Mobile apps link bank accounts to track spending. Some let you set goals according to your budget and spending habits.

» MORE: How to build an emergency fund

Understanding secured credit cards

Once you have a deposit, it’s time to choose a secured card. Secured credit cards offer the chance to build credit. Look for one that reports to all three credit bureaus so that your on-time payments will help build your credit. Many issuers offer the option to upgrade to a regular unsecured card (and get your deposit back) without having to close the account, which will be better for your credit score.

Secured credit cards aren’t meant for heavy use. Their purpose is to demonstrate that you can be trusted with credit. Make a few purchases each month, then pay the balance in full and on time to avoid interest and fees. Don’t charge more than 30% of your credit limit, which can hurt your credit score; with a $200 or $300 deposit, that’s only $60 or $90.

Get to know your secured credit card and swipe by its rules. It may be temporary, but the impact on your credit isn’t.

» MORE: NerdWallet’s best secured credit cards

Melissa Lambarena is a staff writer at NerdWallet, a personal finance website. Email: Twitter: @LissaLambarena.

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