If you believe that there is inaccurate information on your credit report, it’s important to know what you can dispute and the steps to take.

Before Disputing, Review Your Credit Reports 

Start by getting a highlighter and a pen out and go through your credit report item by item, page by page; highlight the items that are reporting incorrectly and make a note next to the item to help you in the dispute process following these guidelines:

• Incorrect personal information – Name, addresses, social security numbers, date of birth reporting incorrectly.
• Negative items that are beyond the statute of limitations for reporting – There are specific reporting laws with regard to how long a negative item must report on a consumers credit report.*See below the Statute of Limitations for Reporting
• Inaccurate reporting of account or other information – for example, a collection was paid 2 years ago, but it still shows a balance. Or an account was included in a Chapter 7 bankruptcy but it is reporting as a charge off account with a balance still owing.
• Mixed or split credit files – for example a father and son have the same name, Sr. and Jr. Or credit from someone who has the same name is on your credit report.
• Duplicate reporting of an item – for example two collections for the same debt.
• Fraud or Identity Theft information – where you may see inquiries, accounts or collections you never applied for.

Dispute Credit Report Inaccuracies:

You may write to the credit reporting agencies with the information you have highlighted with a request for correction/deletion depending on your specific dispute. Mailing your letters certified or return receipt is recommended. Sample disputes letters can be found on page 113 of credit.org’s ebook, Consumer Guide to Good Credit, available for free download in English and Spanish.  You may also dispute some items online at www.annualcreditreport.com.

Statute of Limitations for Reporting:

Negative entries on your credit report have different reporting limits. Typical retention periods are stated below, and may vary by state:

• Chapter 7 Bankruptcy: 10 years from the date of entry of the order of relief or adjudication.
• Chapter 13 Bankruptcy: 7 years from the date of filing if discharged. However, if the case is dismissed for non-payment and the Chapter 13 plan was not completed, the derogatory trade line item could then stay on for seven years from the date it became delinquent.
• Unpaid tax liens: report indefinitely while unpaid.
• Paid tax liens: report for 7 years from the date of payment.
• Unpaid child support: varies by state and does not always report but in general will show as a judgment while unpaid. The judgment may be renewed in some states, so it will continue to report as long as a balance remains. Once paid, may remain for 7 years.
• Civil suits and judgments: 7 years from the date of entry or 7 years from the paid date.
• Late payments: 30, 60, 90 or 120 days late payments may be reported up to 7 years from the date of delinquency.

Knowing these limits is an important step to determine if the information is obsolete and if a dispute is an appropriate course of action to pursue.

How to Dispute Credit Reports

Individual credit bureaus may have their own process for disputing credit report information. Experian, TransUnion and Equifax all have their own processes, so depending on which report you need to dispute, you may need to reach out individually.

Most credit bureaus have different options for reporting credit report inaccuracies, including via online, phone, or mail. Some have a dedicated dispute center on their website.

If you have questions about disputing credit reports, you can talk to a certified credit counselor for free. Call us today or get started online.

The post Dispute Credit Reports: How to Dispute Credit Reports appeared first on Credit.org.

What is a debt-to-income ratio (DTI)?

A debt-to-income ratio (DTI) is the percentage of your gross (pre-tax) monthly income spent on repaying regularly occurring debts, including mortgage payments, rents, insurance premiums, outstanding credit card balances, and other loans. There are two types of ratios that lenders evaluate, a front-end ratio and a back-end ratio. The front-end ratio is what percentage of your income would go towards housing expenses, and the back-end ratio includes the aforementioned along with other reoccurring monthly debt obligations.  Living expenses, such are food and utilities are not included. For the purposes of this article, we will focus on the back-end ratio which includes all debt.

How to Calculate Debt-to-Income Ratio

In order to figure your back-end debt-to-income ratio, you need to determine your monthly gross income before taxes. This must include all sources of income you may have.

Next, determine what your monthly debt payments are. If you’ve already created a budget or used a free debt management tool, this should be easy. Be sure to include credit cards, student loans, auto loans, mortgage/rent, insurance premiums, child support, and other reoccurring debt obligations.

The final step in calculating your debt-to-income ratio is to divide your total monthly debt payments by your monthly income gross. To get a percentage, move the decimal point over to the right two times.

Here’s an example of a monthly debt-to-income ratio formula calculation:

Monthly debt total:

• Mortgage: + $1,100
• Auto loan: + $300
• Credit card payments: + $200
• Monthly debt total = $1,600

Monthly income gross:

• Primary job: $3,000
• Part-time job: $1,200
• Monthly income gross = $4,200

Debt-to-income calculation:

1. First, divide your total debt by your total income:

• 1,600 / 4,200 = .3809

2. Then, multiply the number by 100 to find your percentage:

• 0.3809 x 100 = 38.09

3. Calculated debt ratio = 38.09%

What is a Back-end Good Debt-to-Income Ratio?

Generally, an acceptable debt-to-income ratio should sit at or below 36%. Some lenders, like mortgage lenders, generally require a debt ratio of 36% or less. In the example above, the debt ratio of 38% is a bit too high. However, some loans allow for higher DTIs, please see below.

Why is Your DTI Ratio Important?

A DTI is often used when you apply for a home loan. Even if you’re not currently looking to buy a house, knowing your DTI is still important.

First, your DTI is a reflection of your financial health. This percentage can give you an idea of where you are financially, and where you would like to go. It is a valuable tool for calculating your most comfortable debt levels and whether or not you should apply for more credit.

Mortgage lenders are not the only lending companies to use this metric. If you’re interested in applying for a credit card or an auto loan, lenders may use your DTI to determine if lending you money is worth the risk. If you have too much debt, you might not be approved. 

How Much Do Debt Ratios Affect a Credit Score?

Your income does not have an impact on your credit score. Therefore, your DTI does not affect your credit score.

However, 30% of your credit score is based on your credit utilization rate or the amount available on your current line of credit. Generally, your utilization rate should be 30% or lower to avoid having a negative effect on your credit score. That means that in order to have a good credit score, you must have a small amount of debt and actively pay it off. 

How to Lower Debt-to-Income Ratio

The only way to bring your rate down is to pay down your debts or increase your income. Having an accurately calculated ratio will help you monitor your debts and give you a better understanding of how much debt you can afford to have.

Avoid employing short-term tricks to lower your ratio, such as getting a forbearance on your student loans or applying for too many store credit cards. These solutions are temporary and only delay repaying your current debts.

What is the Best Debt-to-Income ratio?

Long term, the answer is “as low as you can get it.”

However, hard numbers are better tools for comparison. Take a look at the following DTI ranges:

•       36% or less = Ideal
•       37%-42% = Acceptable
•       43% = Typically the maximum for some lenders, with some exceptions up to 45%
•       50% and up = DTIs of 50% or below with FHA, but exceptions can be made for an FHA or VA mortgage

If you’re trying to get a home loan, it’s a good idea to keep your back-end DTI ratio below 43%, though 35% or less is considered “ideal.”

Need Help to Lower Your DTI Ratio?

Your DTI is an important tool in determining your financial standing. If you’re struggling to come up with ways to lower your ratio or are looking for financial guidance, our expert coaches can help you. Contact us today to learn more about how our Debt Management Plans can help you take control of your debt payments.

The post What’s a Good Debt-to-Income Ratio & How Do You Calculate It? appeared first on Credit.org.

The process of buying a house can be long and involved, but thankfully no one has to go through it alone. Every homebuyer has access to professional help, from housing counselors to real estate agents, mortgage brokers, inspectors, etc. Anyone who is planning to buy a home should take advantage of all of the assistance available to ensure his or her success.

The home-buying process

1. Pre-purchase education

Too many people skip this crucial first step. There is first-time homebuyer education available to help new home buyers understand the entire journey that lies before them. The earlier one takes this kind of course, the better.

A lot of people get around to taking the class too late and for the wrong reasons. That’s because there are avenues of assistance open to people who complete first-time home buyer education, like down payment assistance or closing cost assistance. To get the assistance, one must show a certificate of completion indicating they’ve taken the pre-purchase education course. Where too many people go wrong is taking the class at the last possible minute, just to get a certificate. Taking the course early will save any homebuyer money and stress as they understand how to avoid mistakes and navigate the home-buying process efficiently.

2. Check your credit

Before you let a lender check your credit, look at your own reports. You can do this for free using www.annualcreditreport.com, and doing so before your mortgage application is essential.

If you see any mistakes, whether they be errors or outdated information, you can get these items corrected before your lender requests your credit report and score. You might also see items on your report that are legitimate, but you had forgotten about it. The more you know in advance, the better off you’ll be when you fill out your mortgage application.

The goal is to ensure your credit reports are accurate, up to date, and reflect positively on you. We offer a free Consumer Guide to Good Credit to help understand the process of reading and updating your credit reports, and there are credit report review services if you’re struggling to interpret what you find in your credit reports.

3. Get pre-qualified for a mortgage

This is another area where many homebuyers make a mistake. If you start shopping for a home too soon, you’re likely to waste time looking at properties you might not be able to afford. In the worst-case scenario, you fall in love with a particular property and are eager to make an offer, only to find you can’t be approved for a mortgage in that amount.

Pre-qualifying means the lender gives a rough idea of whether you’ll be approved and approximately how much you can afford to borrow. This pre-qualification isn’t a guarantee that you’ll be approved, and it doesn’t mean you have to borrow from that particular lender. It’s just a way of getting a lender to tell you realistically what your price range should be.

Once you have this pre-qualification, then you can start looking for a home without being in danger of overspending; you can avoid looking at homes that might be outside of your true price range.

We always caution people not to borrow the maximum amount they qualify for. It’s wiser to stay well within your means, and only borrow what you can comfortably afford.

4. Work with a real estate agent

A professional real estate agent will look out for you, making sure you find the best home for your situation, and that you are protected in the negotiating process. A good local agent will also know more about the areas you’re shopping in, so you can avoid areas with poor-performing schools and public services, crime problems, etc.

You will also need other professional help along the way, like home inspectors, insurance companies, contractors, etc. A real estate agent will be able to make informed recommendations that you can trust more than an online review. It’s VERY rare for a home buyer to navigate the home buying process without a real estate agent. And the agent is paid out of the proceeds of the sale, so you don’t have to worry about his/her fees.

5. Shop for a mortgage

At this point, it’s okay to start shopping around for a mortgage. There are different types of home loans available, so get help if you need it to figure out what your best option is. Pre-purchase coaching is a good option if you want to be sure you’re making the best possible decisions.

This is the step in the process where you officially fill out a mortgage application, so hopefully, you have already reviewed your credit and made any necessary corrections. The lender will give you a pre-approval for a particular amount and interest rate, so you’ll be able to hone in on the right property to buy. In a hot market, it may be necessary to make an offer fast and sellers give preference to buyers who are pre-approved. Pre-approval tells them that when it’s time to close, they will have the money.

Also, do some comparison shopping for mortgage products, and compare the costs from one lender to the other.

6. Shop for a home

This can be a stressful time. In a good market, houses won’t stay available for long, so you might feel pressure to make offers quickly rather than lose a property. Try to strike the right balance; don’t move too quickly and pay more than you have to, and don’t go so slowly that every good property is snatched up before you make your offer.

If you’re working with competent professionals, they’ll be able to help you weigh all of the considerations and make a good choice. Bear in mind that first-time homebuyers will move eventually, so the house you buy now probably won’t be the one you’ll spend the rest of your life in. If you’re moving into your 2^nd or 3^rd home, then you probably have formed some strong ideas about the kind of place you’d like to live in.

7. Get inspections

After you make a formal offer on a property, your lender and real estate agent will work with you to hire inspectors. You will want to know if there are any concerns about the property before you go forward, and your lender will not want to give you money for the purchase unless they know the property is sound.

Besides the home inspector who checks out the electrical, heating & cooling, and plumbing systems, you’ll want secondary inspectors to check for insects, radon gas, mold, etc. The area you’re buying in will determine which specialists are needed to ensure you don’t have other problems. An older home might need more inspections than a newer home. Don’t skip any recommended inspections!

Ten Important Questions to Ask Your Home Inspector: https://www.hud.gov/program_offices/housing/sfh/insp/inspfaq

For Your Protection: Get a Home Inspection:
https://www.hudexchange.info/resource/4747/for-your-protection-get-a-home-inspection/

Once you have the inspection report, you might want to amend your offer. If there are major repairs needed, you could request the seller complete them, or take some money off of the sale price for you to do the repairs yourself. Don’t turn this part of the process into a way to negotiate a lower price—the point of the inspections is to ensure the house is safe and in good repair.

8. Set up home insurance and utility services

Your mortgage lender will require home insurance. If there is a fire or other disaster, they will want to know that the mortgage will be repaid. You should also make sure the insurance you get is truly enough to cover any potential losses you could suffer. Some things, like flood damage, aren’t covered by traditional homeowners insurance, so you’ll want to get supplemental coverage if you need it.

For utilities, the goal is to have services switched to your name on the same day as the loan closing or the next day. If these things don’t coincide, then the seller will want to shut off utilities altogether, and then you’ll have to arrange to have them turned back on in your name. This is a slow process that could leave your home without heating, cooling, running water, etc. The best way to handle utilities is to time things so that they’re never shut off, but transition smoothly from one owner to another.

9. The loan and home closing

The final paperwork to close on the home and the mortgage loan will involve more professionals, like title companies and potential attorneys. You’ll get a disclosure in advance that tells you what fees will be due at closing.

All of this paperwork and fees are to be disclosed in advance and are a standard part of every mortgage transaction, but don’t let yourself be blindsided. If you started with first-time homebuyer education or pre-purchase coaching, then you’ll be fully prepared for this part of the process.

Don’t spend your last available cash on closing costs and fees. You’ve got one last big step to follow, and you’ll need some funds available to complete the process.

10. Move in

Now that you’ve closed the loan, it’s time to move in. Using professional movers will make things go quicker and come with some protection from damage and the like but can get expensive. Moving in yourself will save you money, but involve extra time and stress.

It’s important to do some quick repair work while the house is vacant before you move all of the furniture in. Do you need to have the carpets cleaned? Patch drywall and paint?

As you settle in, take the last steps to make the house truly yours: re-key the locks and change the garage door opener codes.

Taking the steps toward homeownership in the right order will ensure you and your family are fully prepared, and that you have professionals on your side to make sure everything goes smoothly. We can’t say enough about the benefits of pre-purchase homeownership counseling.

The post Process of Buying a House from Start to Finish appeared first on Credit.org.

10 rules of financial management:

Rule 1: Plan Your Future. 

Plan for the future, major purchases, and periodic expenses. You will not arrive on the financial freedom parkway without a roadmap to guide you.

Practicing basic money management means having a plan.

Rule 2: Set Financial Goals. 

Determine short, mid, and long-range financial goals. Continue to nurture and adjust your goals monthly. Evaluate your shortcomings and celebrate your achievements.

Write your goals down, as goals set out in writing are more likely to be achieved.

Rule 3: Save Your Money.

Save for periodic expenses, such as a car and home maintenance. Save 5%-10% of your net income. Accumulate at least 3 to 6 months’ salary in an emergency fund.

Make saving into a habit, and never break it; always have a planned, written goal that you’re saving toward.

Rule 4: Know Your Financial Situation. 

Determine monthly living expenses, periodic expenses, and monthly debt payments. Compare outgo to monthly net income. Be aware of your total indebtedness.

Knowing your finances involves another skill of basic money management: tracking. Track your income, your spending, and your debts. Make this a habit, just like saving. 

Rule 5: Develop a Realistic Budget.

Learn to budget, and follow your spending plan as closely as possible. 

Evaluate your budget. Compare actual expenses to planned expenses.

Rule 6: Keep a Record of Daily Expenditures.

How do you evaluate your budget? Keep tracking, even after you start living on your new spending plan. 

Be aware of where your money is going. Use a spending diary to assist you in identifying where adjustments need to be made.

Rule 7: Distinguishing the Difference Between Wants and Needs. 

This seems like the most elementary aspect of basic money management, but most people don’t understand this well enough. 

Take care of your needs first. Money should be spent on wants only after needs have been met.

If you’re having trouble drawing the line, ask yourself before any purchase: “How did I get by for so long without this?” The answer should help you separate wants from needs.

Rule 8: Don’t Allow Expenses to Exceed Income.

Avoid paying only the minimum on your charge cards. Don’t charge more every month than you are paying to your creditors.

Get help from a nonprofit credit counselor if you find you’re spending more than you are taking in every month.

Rule 9: Use Credit Wisely.

Use credit for safety, convenience and planned purchases. Determine the amount that you can comfortably afford to purchase on credit. 

Don’t allow your credit payments to exceed 20% of your net income. Avoid borrowing from one creditor to pay another.

Just like all of the other spending in your budget, every purchase made with credit should be planned in advance and budgeted for.

Rule 10: Pay Your Bills On Time. 

Maintain a good credit rating. If you are unable to pay your bills as agreed, contact your creditors and explain the situation. 

It’s easy to set sensible rules of financial management like these, but sometimes living by them is harder than it sounds. 

Nonprofit credit counseling can help you make sense of your budget, plan to pay off your debts, and answer any questions you have about your credit or personal finances. 

Look for more free tips and basic money management advice in our FIT Academy.

The post 10 Basic Rules of Money Management appeared first on Credit.org.

In giving this advice, the FTC cautions readers that “just because an organization says it’s “nonprofit,” there’s no guarantee that its services are free, affordable, or even legitimate.” Indeed, it’s important to ensure that any credit counseling agency you use is reputable before taking advantage of their services.

But how can you know you’re working with a legitimate credit counselor? Here are some tips:

1. COA Accreditation

A great signal that a counseling agency is on the level is COA (Council on Accreditation) approval. The COA conducts regular audits and ensures that the service an agency offers is truly a nonprofit benefit to the community.

Ask your counselor if they are COA accredited or look for the COA logo:

2. HUD Approval

Not every credit counselor will offer housing counseling, but if they do, make sure they’re HUD approved. HUD conducts rigorous audits and their approval is a good indication that a counseling agency is trustworthy:

Look for HUD’s logo of approval:

3. NFCC Membership

Membership in a national organization isn’t a guarantee that an agency will be reputable, but it’s something you should look for as a bare minimum. If an agency doesn’t belong to the nation’s primary credit counseling group, you should be very skeptical.

4. Better Business Bureau Approval

Credit counseling agencies should be members in good standing with the Better Business Bureau. No agency with thousands of clients will be completely free of complaints, but BBB membership ensures that agencies make every effort to respond to consumer complaints until the client is satisfied.

5. Suspicious Services

Most nonprofit credit counselors don’t offer services like debt settlements or credit repair. If an agency advertises credit repair services, consider another alternative.

6. US DOJ Approval

The US Trustee Program keeps a list of credit counseling agencies approved to provide pre-bankruptcy counseling. This approval doesn’t imply any endorsement of counseling services, but it’s another good sign that an agency has taken steps to verify that they are a legitimate nonprofit organization.

If you are looking to speak with a credit counselor, credit.org has certified credit counselors standing by to offer immediate counseling by phone or internet, as well as numerous face-to-face counseling locations.

The post How to Find Legit Credit Counseling Services appeared first on Credit.org.

Some people might think buying online makes it harder to save money on groceries, but it can actually be easier to stay on budget when shopping remotely. Here are some reasons shopping from home can help you spend less:

You Spend Less If You Aren’t Browsing

Wandering the aisles of a grocery store puts you face-to-face with endless temptations, and every shelf can contain something you weren’t planning to buy but could end up in your cart all the same.

Shopping from home makes it easier to stick to your list—sure, you’ll see ads and “related items” on the website, but it’s nothing like the hundreds of things you’ll find in every aisle of the supermarket. If you search for an item on your list, add it to your cart, and move on, you’ve quickly made your purchase without having to walk past any products that aren’t on your budget.

More Resources: How to Avoid Overspending at the Grocery Store

You’ll Be Close to Your Pantry

How to save money on grocery shopping? One trick is to stop buying things you already have on hand. If you don’t know what’s already in your kitchen, you’re likely to spend money on things you don’t need. Even if the item is something you’ll use eventually, you should only buy it when it’s part of your planned budget.

Shopping without a plan and stocking up unnecessarily just puts you in the hole financially. If you are shopping from home, you can look at your refrigerator and pantry and verify how much of everything you have in stock, and avoid buying unnecessary duplicates.

Alerts When Items Come in Stock or Go on Sale

Many retail apps and websites have features that can alert you if certain items come in stock or go on sale. This feature is especially great if you’re waiting for an item that is in short supply to come back in stock. If your smartphone alerts you that the store now has the item you need, you can add it to your cart and buy it on the spot without having to drive to the store to see if they’ve re-stocked that item first.

You can also set price alerts so that you don’t overspend on particular items. The store might have what you want on hand, but if the price is too high, set an alert and hold out for a better deal.

Easier to Comparison Shop

If you’re comparing prices from one store to another, you used to have to drive back and forth and keep track of what each store was charging. With online shopping, you can flip from one website to another and see what prices each store is asking.

Comparison shopping face-to-face can actually be a money-loser if you’re using gas and time to drive all over town. By shopping online, there’s no downside to shopping around for the best deal.

Shop on Your Own Schedule

Stores can be crowded and hectic, and your schedule might not leave you time to go when it’s most convenient. Instead of having to shop during the busiest times of the day, you can log in remotely and do your shopping at any time.

When people go to the store during busy times, they might cut corners to get in and out of the store quickly. Maybe you’ll buy a more expensive item off of an endcap instead of navigating the aisle to find a cheaper version of the product. You might grab quick (and expensive) snacks from the checkout line instead of taking the time to shop for a better deal farther into the store. Avoiding the stress and crowds of shopping is a money-saver and a major reason to embrace online shopping for groceries.

Once you’ve committed to shopping online, and you’re ready to gain from the financial savings, privacy, and health benefits you’ll get, you’ll want to think about how to maximize your savings when shopping online:

Follow the Basic Grocery Shopping Advice

There are lots of basic tips for saving money when grocery shopping that will benefit you at home as much as they do in the store. Create a meal plan and shopping list. Don’t shop when you’re hungry. Use coupons judiciously. Buy fresh foods when they’re in season, and don’t buy more than you can use. Buy generics to save money whenever you can.

The basic tips on how to spend less on groceries don’t change just because you’re shopping online. All the things you’d do to save money at the grocery store, do them when shopping through an app or website.

Use a Credit Card That Gets You Rewards

Shopping with a credit card at the grocery store isn’t a great idea. We want people to only use credit cards if there is a plan to pay off the balance in full before the end of the month. If you carry a balance, you’ll incur interest charges that will wipe out any savings you may have gotten from smart shopping.

But when shopping online, you have to use some kind of card, whether it’s a credit card or debit card. So, make the most of it and use a card that comes with rewards. Definitely pay off the card right away, but since you’re having to provide payment info online, you might as well do it in a way that gets you cashback, reward points, or some other credit card rewards.

Check this out for things to consider before getting a credit card.

Download Individual Store Apps

Online retailers and grocers want you to use their apps whenever possible. They’re so keen on it that they’ll offer you bonuses to do so. Using a store’s dedicated app might get you a one-time discount, free delivery, or some other perk.

As long as the retailer is willing to entice you in this way, we say let them—take advantage of that one-time discount and see how you like that store’s service. Just don’t commit to one store until you’ve tried multiple competitors. You might like the product from one store better than another, the delivery options, or even the features of their app. Try each store’s app until you find the one that gives you everything you want.

Use social media to ask your friends and family which apps and retailers they use. You might learn about some new options that will help you save money on groceries. Because the landscape of online shopping is always evolving, it’s better to seek out fresh information rather than rely on search results that might be outdated.

Don’t Pass Up Bonus Offers

While you’re using the stores’ apps to shop, make sure you don’t pass up any bonuses they offer. If you have a loyalty card, link it to your online account—this will help the store know what kinds of items you buy and offer you the right coupons and discounts.

Some people have privacy concerns about letting retailers track what they buy. That’s valid, but in the end, their true objective is to make you a loyal shopper for life. What they do with the information they gather is tailor the shopping experience to you, and give you what you want. 

If there’s anything you don’t want to be tracked, put that on a separate shopping list and buy that in-store sometime. But for online shopping, plan for everything to be tracked, and embrace it; retailers will often show you how to spend less on groceries if you are willing to share some data with them.

Get Some Things Delivered on Schedule

There are many things you will be buying regularly, like kitty litter, deodorant, toothpaste, etc. Set up recurring subscriptions to have those kinds of items delivered on a set schedule. You often get an extra discount for setting up a recurring subscription this way, and every item you have on your subscription is something you don’t have to worry about when doing your regular shopping list.

You’ll want to be diligent about tracking these things—if you run out too soon, or end up with more than you need, you should adjust your delivery schedule so that there are no big gaps or overlaps for those items.

Set Reminders for Any Subscriptions

While you’re thinking about it, set a calendar reminder on your smartphone to let you know when your subscriptions are coming up. If you get an alert that you have a delivery soon, but you still have plenty of that item, you can delay or cancel that order before you end up with too much product on hand.

You might also find a better deal on a particular item, but forget to cancel that item from your regular subscription. Setting a calendar reminder will ensure you don’t renew any items you no longer need.

While you’re at it, do this for any kind of subscription you have. Whatever app or subscription service you pay for, set up an alert so you’re reminded every month before you are charged—you may decide in any given month to pause or cancel a subscription.

Be Careful About Really Heavy Items

We mentioned kitty litter in the last point, but this may not be something you want to have delivered if it costs extra. If you order large quantities, kitty litter is heavy and expensive to ship. With some online retailers, you lose free shipping options if you order certain heavy items.

Knowing how to save money on grocery shopping doesn’t do much good if you give up those discounts in the form of expensive shipping fees.

Besides litter, extra shipping costs might apply to cleaning supplies, laundry detergent, or anything else that is heavy or oversized. If your online retailer of choice doesn’t charge extra to ship heavy items, that’s great, but don’t assume anything until you’ve verified. 

If shipping costs extra or negates a discount you’d otherwise get, think twice about ordering bulky items online.

We know people shopping from home have no choice but to use plastic to pay, but we urge everyone to be careful and pay off their balances in full as fast as they can. Anyone who has trouble paying off their credit cards can contact us for help at any time.

The post How to Save Money When Buying Groceries Online appeared first on Credit.org.

Paying off credit card balances is one of the primary goals we at credit.org help people achieve. It’s on practically everyone’s roadmap to financial freedom.

The process of paying down a credit card balance may seem obvious, but there are some things anyone who pays off a credit card balance should know.

1. Should you pay off your credit card every month?

For most people, making that final payment to wipe out a credit card balance is a special event. Many clients we work with spend years grinding toward that final goal.

But that isn’t the way it’s supposed to be. If you’re using credit cards wisely, you’re paying off your balances in full every single month. Even better, pay off your credit card after every purchase, and don’t even wait for the monthly bill to come.

If you keep your credit card use under control and pay off the entire balance each month, you are operating under the best-case scenario; you get the positive impact on your credit score that comes from healthy credit card activity, and you pay little to nothing in the way of fees and interest for using the credit card.

Getting into this healthy routine of using your credit cards sparingly and paying off the balances in full every month isn’t easy; credit card companies make more money if you carry big balances from month to month, so that’s what they encourage. It’s up to each of us to resist the temptation to charge more than we can afford to repay at the end of the month.

2. Credit counseling can help you plan to pay off your credit card.

With credit counseling, you get personalized coaching and assistance to help you create a budget and a plan to become debt free over a set period of time.

People come to us looking for tricks to paying off credit cards, but there’s no trickery needed. Time-tested techniques and principles of sound money management are the keys to staying on top of credit card debt.

You can even sign up for a Debt Management Plan (DMP) to really increase your chances of success.

DMPs are optional, and they aren’t for everyone, but if you’re a good candidate, a DMP lets you consolidate all of your monthly credit card payments into one payment that you send to a credit counseling agency. Then the credit counseling organization distributes your payments to your creditors, ensuring everyone is paid on time.

A major benefit of the DMP is many creditors will reduce the required monthly payment amount, lower or suppress interest, waive fees, re-age or bring the account current, and other concessions to make it easier for you to pay off that credit card balance in full.

There are sacrifices to be made in exchange for these concessions, though. You may not open any new credit or use credit cards at all while on a DMP. Your cards will be cut up and accounts closed when you begin the repayment plan.

But one thing that is crucial to bear in mind is that a DMP is here as long as you need it. If your financial circumstances change and you’re able to manage your finances on your own, you’re always free to leave the DMP, reapply for credit card accounts, and resume your normal payments.

Get free credit counseling from credit.org.

3. “Should I pay off my credit card in full?” Yes. “Once it’s paid off, should I close the account?” No!

Paying off a credit card balance will feel like a liberating moment. You’ll probably be tempted to close the account and never look back.

Believe it or not, that’s not usually the best idea.

When people ask “Should I pay off my credit card in full?”, the answer is yes, of course. Paying off a balance helps your credit score in several ways. The good payment habits you’ve shown in the process of paying off the debt will certainly help your credit history and keep your score healthy. 

But after it’s paid off, keep the account open. There are benefits to having an open account with an available balance on it. As long as you don’t go out and max out the card again, that available balance will really help your credit score. Just make sure you keep the account active by using it every few months so your creditor won’t close it for inactivity.

Credit scores also reward you for having a good credit mix. So it’s better if you have different kinds of loans, like auto, home, and revolving debts like credit cards. Closing your credit card account may hurt your mix and lower your score.

By all means, feel free to celebrate when you pay off that big credit card balance; but don’t cut up the credit card into confetti. Keep the account open, and your credit score will thank you.

4. Will paying off my credit card increase my credit score?

We talked about how having an available balance helps your score, and how a good credit mix is important, but the truth is, your score might not go up that much when you pay off the balance.

The biggest factor in your Fair Isaac Corporation (FICO®) score is payment history at 35% (and it’s very important to your VantageScores as well). But if you were making timely payments before you paid off the account, then your payment history already looks good as far as your credit score goes.

When we advise you to not close the account, that’s more about preventing your score from going down than ensuring it will go up. Your credit mix won’t change if you don’t close the account—which is a good thing, but doesn’t necessarily mean your score will go up.

The one factor where your score will probably improve is utilization. It’s 30% of your FICO and approximately 23%* of your VantageScore. And paying off a big balance will surely improve the overall utilization rate, so long as you keep the account open and don’t run up any more long-term debts on the account.

Once you’ve got the account paid off, the most important thing for your score is your payment history. Using credit wisely and remembering to pay off that credit card after every purchase will be the most effective way to get your score up and keep it up in the long term.

5. The Crucial Next Step: Save.

Let’s recap: Should you pay off your credit cards every month? Yes. Should I pay off my credit cards in full? Yes. Should I pay off my credit card after every purchase? Yes! All of these things are important, but they are only the first steps on the road to financial freedom. Your next steps after paying off your debts will have a big impact on your personal finances.

We’ve already talked about the importance of keeping the credit card account open and not running up any new debts with it. Once you’ve paid off that credit card balance, the next thing you should focus on is what you do with your regular credit card payment.

One of the tricks to paying off credit card debt is to use the snowball method. You have a fixed payment, as large as you can afford, that goes to credit card debt. Then as you pay off one card, keep the total payment the same and shift that payment to your next highest (or next-most costly) debt. As you pay off debts, that payment will “snowball” and wipe out your remaining debts faster, even if you don’t ever increase the payment amount.

But then, when everything is paid off, keep setting aside that same amount you were sending to the credit card companies, only now you’ll set it aside for your own savings goals.

If you were paying $200 toward that credit card balance every month, you’ll be tempted to spend that extra $200 now that the balance is paid off. This is a critical moment for your financial health—you must shift from debt repayment to saving for your goals.

Your first goal should be to establish an emergency savings fund. Three months’ income is the minimum, and nine months’ worth would be better. Everyone needs to save for emergencies or job loss, but one thing to bear in mind is that your emergency fund should prevent the need to go deeply into credit card debt again in the future.

If you have an emergency home or auto repair, the best way to pay for it is out of your emergency fund, not by using a credit card. By saving the money you were sending to credit cards, you’ll be able to painlessly establish this fund over time.

Once you’ve built up your emergency fund, you’ll be positioned to start saving for more fun goals, like vacations or a new car. Once you’re able to set aside extra money for the things you want, you’ll be well on the way to financial freedom.

Paying off credit card balances takes time and diligence, but if you do it and learn to handle your finances better in the process, you’ll be left in a much stronger financial position in the end.

And remember, help is available. Call us today for financial coaching that will help you create a budget, pay off your credit cards, and become more financially literate.

The post Pay Off Your Credit Card Every Month: The Top 5 Tips appeared first on Credit.org.

Here are some key ways homeownership is different from being a renter:

The pros of renting a home

1. Home insurance doesn’t cost you a fortune

Insuring your home is generally much more expensive as an owner than a renter. Renter’s insurance is designed to cover your personal property only, while homeowner’s insurance covers both the actual structure itself as well as your personal belongings and property.

If you have a mortgage, homeowner’s insurance is a requirement of all lenders, and there must be enough coverage, at minimum, to cover the cost of the dwelling itself. In a rental situation, the property owner typically has dwelling-only coverage, therefore a renter’s personal property-only policy is generally the choice of the renter to obtain. We do, however, definitely recommend you do so to protect your personal items from fire, theft, or other types of covered loss or damage. To learn more about homeowner’s insurance check out this article.

2. You don’t have to commit to home costs and fees

As a homeowner, you are inherently making both a commitment to the property itself and also its location and surrounding neighborhood. If issues arise that are detrimental in any way, as a homeowner, versus a renter, it’s not so easy to just pack up and relocate. In addition to the basic costs of moving, there are also transactional costs associated with initially buying and later selling the property. There are sizable transactional costs when you sell your home—real estate taxes, closing costs, and, if using a realtor to sell the property, a percentage of the sale price will go to covering their commissions, your agent, and the buyer’s agent split the commission fee—typically 6% of the purchase price of the home. If there’s a good chance you will want or need to relocate within the next few years, buying a home right now might not be a wise financial idea.

Renters are free to leave when their lease ends, and under certain situations, a landlord may be willing to end a lease early, but usually with a cost. This is usually much less expensive than the costs of selling your home.

Home repairs and maintenance costs can be expensive

As a homeowner, you are the sole party responsible for all of the maintenance and repairs to the property. These costs might include repairing the roof and siding, broken windows, heating and air conditioning maintenance, lawn care, snow removal, plumbing, electrical, painting, and pest control. As a renter, typically this upkeep is the owner or landlord’s responsibility.

3. You aren’t responsible for property taxes

Property Tax rates vary widely and are set by the location, city, county, and state. While a homeowner will pay taxes directly, a landlord will generally factor the tax rate they are paying into the rental amount that you ultimately pay.

The big difference between homeownership and renting here is the personal tax benefit currently associated with homeownership. Under the current tax code, all amounts you pay in mortgage interest is 100% tax-deductible (up to $750,000 in mortgage debt for heads of household, single filers, and married couples filing a joint return; the limit is $375,000 if married and filing separately).

The final impact depends on your personal financial situation and overall tax liability. As a sole renter, however, there is no associated tax benefit other than a potential small renters’ credit. Check out this basics of taxes article to learn more, and remember our information is strictly educational. Always consult your own tax, legal and accounting advisors prior to acting on any information.

The pros of buying a home

1. Home equity builds over time

When you are a homeowner, a portion of every mortgage payment you make typically increases the excess value, more commonly known as equity that you have in the home. Each mortgage payment you make has a portion paid for interest, which the lender keeps and a portion that reduces the unpaid principal balance. If, for example, your total monthly house payment is $1,200, $85 of it would cover insurance, $210 to taxes, $630 to mortgage interest, and the remainder $275 would reduce the principal balance, and that portion is considered additional equity in the property.

As each payment is made, the amount paid directly to the outstanding principal balance increases as the amount of interest decreases. As more payments are made, the total portion of the reduced principal serves to build equity in your property. This, in turn, is a form of savings that eventually translates to a more valuable asset. Some people borrow against that equity to make home improvements, sell the home and take equity in cash or use it as a down payment on their next move-up home.

Renters, conversely, do not build any equity. The rental payments to the landlord are just that, payments.

So as a homeowner, you are generally growing equity as you make each mortgage payment, and as a renter, there is no savings or equity wealth accumulation.

These rates are for illustrative purposes only. Actual rates may vary and are subject to change.

2. The value of your home appreciates as the market grows

Besides building equity from your monthly mortgage payments, generally, over time, your home’s value will appreciate. Under normal market conditions and depending on your location and property condition, it’s assumed that a home’s value could appreciate or increase each year. The amount of increase is very market-specific and it’s important to understand that there is also a risk that property values could decline. If your area has low demand, rising crime rates, or aging properties that aren’t being maintained, property values could fall. Things like the quality of schools and the local government could also have a significant impact on your potential appreciation.

When it comes to considering appreciation in the homeownership decision, the unknown property values, both appreciation or depreciation factors make homeownership a higher risk versus a rental situation. Being a renter in a location with great schools may be more expensive than being a homeowner in an area with high crime rates.

Consider our example from point 2, above. Over the course of 5 years, you might build $18,500 in equity from the reduction in your principal balance. If the property value appreciates by 5%, it will be worth an extra $55,250 after 5 years. So appreciation can build your wealth twice as fast as your payments to equity. Now after 5 years you could have $73,750 in total equity and appreciation. As a renter, you would have zero in either.

These rates are for illustrative purposes only. Actual rates may vary and are subject to change.

3. Homeownership can be rewarding

As a homeowner, you are generally free to modify the property however and whenever you like (subject to building code, community-related regulations, and the like). Want to build a deck out back? Plant a garden? Change paint colors or tile the bathroom? You are free to do all of these things if you’re a homeowner. As a renter, it’s unlikely that you will have such liberties and will have to get your landlord’s permission for every little and big thing done to the property. Additionally, if you make or pay for any changes that increase the value of the property, the property owner will benefit, not you.

Even in rent-to-own situations, until you are the actual homeowner, paying for and doing improvements is usually not a good idea. When the time comes for you to purchase the property you’ve been renting, the appraisal will take into account the improvements, (and will not consider that you paid for those directly), thus increasing your cost of buying assuming the property. This can be a rude awakening for many people who enter into rent-to-own arrangements.

You can see that renting vs. buying isn’t a clear-cut decision. If you think you might move frequently, renting might be better. You might also want to rent if you don’t like the idea of performing or paying for regular maintenance on the property. Financially speaking, however, homeownership is more often than not the better option. In the end, homeownership is a path that helps you build wealth while renting simply does not.

Remember that even though renters don’t see a bill for property taxes or pay the property insurance, the owner or landlord has factored those costs into your rental payment amount.

Whether you are a current renter who wants to become a homeowner or an existing homeowner that needs help in budgeting and debt management, we’re available with coaching, counseling, and advice about budgeting, debt repayment, or any step of the homeownership process. Call today for credit counseling or pre-purchase homebuyer education.

The post Buying vs Renting: Which is Better? appeared first on Credit.org.

Gas prices in the US remain at high prices, and for our clients who are trying to practice sound money management and pay down their debts, high prices at the pump have a big impact.

The use of gasoline is regular and predictable for most drivers. Unfortunately, fluctuating prices make it difficult to budget in advance. If effective money management is your goal, then you’ll need to try some new strategies to cut gas spending:

6 Tips to Save on Gas

1. Don’t buy gas on the weekends.

The best time to buy gas is early in the morning, on a weekday (not Friday). Gas prices almost always go up before and during weekends and holidays, so the best time to top off your tank is first thing Wednesday morning. If you must get gas on a weekend or holiday, only get what you need, and wait to finish filling up after prices drop a little.

2. Use the gas rewards your grocery store offers.

Many grocery stores now offer discounts on gas at affiliated stations. The discounts they offer are an enticement to get more people to buy their groceries; they’re not expecting to make money on the gasoline sale. If your grocery receipt offers gas rewards, take them up on their offer.

3. Consider a gas credit card.

Unless you are on a Debt Management Plan or are trying to be careful about credit card use, you may want to consider a gas company credit card. The main benefit of gas cards is the rewards and or discounts for gas purchases. Some companies offer as much as 3% back on gas station purchases made with the card. These types of cards are also a good option for people trying to build their credit rating. Gas company cards can only be used at the corresponding gas station – so they are a good choice for a credit card that won’t get out of control. As long as you pay off the balance in full every month you won’t incur (the often high) interest charges or get into unwanted debt. Gas cards are also a great way to track and analyze your gasoline spending. For tips on owning a credit card check out our credit building services.

4. Be a responsible driver.

This includes being a good car owner. Drive within speed limits, accelerating slowly and without sudden stops, and you’ll use less gasoline. Also, take good care of your car. Give it routine maintenance, keep your tires properly inflated, use the right grade of gas for your engine, etc.

5. Shop around for the best prices.

These days, you can use the internet and smartphone apps to find good deals on nearby gas prices. GasBuddy.com is probably the most popular tool of this kind, but there are many other choices available. For instance, the Waze app will show you gas prices on your route. Ask your friends and family if they have any recommendations.

6. Beware of pre-authorizations.

When you rent a hotel room or a car, your credit card is pre-authorized for a larger amount to make sure you can afford any extra expenses incurred. Likewise, if you pay at the pump, the gas station does not know how big your tank is, so they will pre-authorize a high amount to make sure you can afford all of the gas you’re pumping. Recently, the amount the gas station can hold went up to $175! The amount you do not actually spend will usually be released after a few hours but having that much of your available balance tied up can seriously wreck your day. The solution is to pre-pay for a specific amount of gas with the station attendant rather than pay at the pump – especially if you do not have a large available balance to put on hold. (And paying with the attendant rather than at the pump also helps avoid getting caught by identity thieves using credit card “skimmers” to steal your credit card info.)

Money management can be a chore, but if you get into the habit of controlling regular expenses like gasoline purchases, things will go easier for you. With gas prices at record highs in the US, it’s worth the extra effort.

If you know anyone who needs personalized budget, money management, or credit advice, we recommend a one-on-one counseling session with a certified credit counselor. The counseling is confidential and completely free of charge. If you’re already on a Debt Management Plan and need budget help, reach out to us any time, and be sure to take advantage of the free educational resources we offer through our FIT Academy.

The post How to Save on Gas this Summer appeared first on Credit.org.

We hope all current and former military service members will take advantage of the professional services available to help them establish and improve their credit, become homeowners, and balance their household budgets.

For our armed forces, it’s not always easy to achieve financial security. Military personnel face special challenges that others don’t. Military life makes it difficult for spouses to pick up outside employment, and veterans may find it difficult to convince private sector employers that their military service is applicable in other job fields.

Getting military and veteran credit counseling

Current members and veterans of our military are a treasured resource, and our nation’s gratitude toward our veterans is celebrated every November 11th – as well as the rest of the year. It’s very important to us that both veterans and active military members know that there are many options available to them for help with their debts, credit, and personal finances:

• Free Credit Counseling for Veterans– Working with a credit coach can help service members and veterans pay off debt and manage personal finances. Free credit coaching includes advice on credit and debt management, as well as a personalized financial action plan.
• Financial Coaching– Professional financial coaching is available, for credit, debt, homeownership, and more (like bankruptcy help and foreclosure prevention help).
• VA – The Veterans Benefits Administration offers special programs for veterans and their beneficiaries. They also offer home loans, life insurance, education, and access to health benefits for veterans.
• GI Bill– The VA-administered GI Bill offers benefits for eligible service members seeking education and training assistance.
• Military Saves– Our friends at America Saves sponsor Military Saves, designed to motivate and support military families to save money, reduce debt, and build wealth.
• Military OneSource – Military OneSource is funded by the Department of Defense to help members of military families get tax services, employment help, and assistance with relocation and deployment.

Charities and other sources of aid:

• Red Cross – The American Red Cross offers financial assistance for military families, which can include funds for emergency travel, burial expenses, emergency food & shelter, and more.
• American Legion – The American Legion offers Temporary Financial Assistance for military families in need.
• Veterans of Foreign Wars – The VFW offers financial grants through their Unmet Needs program, designed to help America’s military families who have run into unexpected financial difficulties.
• Operation First Response – Since 2004, Operation First Response has helped almost 23,689 families of wounded and disabled veterans with emergency financial needs.
• Operation Home Front – Operation Home Front offers help to military families with financial assistance, housing programs, and caregiver support
• DAV (Disabled American Veterans) – DAV helps veterans get the benefits they’re entitled to. They helped over a million vets and their families every year.
• USA Cares – USA Cares is a veteran and family support system; a national nonprofit organization that assists veterans and military families facing hardships related to their military service.
• Hope for the Warriors – Hope for the Warriors offers “a full cycle of care to restore self, family, and hope” to service and family members, as well as families of service members we have lost.
• Coalition to Salute America’s Heroes – The Coalition to Salute America’s Heroes serves to help the wounded veterans of Operation Enduring Freedom, Operation Iraqi Freedom, and Operation New Dawn, as well as their families.
• Air Force Aid Society – AFAS offers emergency assistance to Air Force families and service members through no-interest loans and grants.
• Army Emergency Relief – AER provides assistance to soldiers and families with scholarships, grants, and interest-free loans.
• Navy-Marine Corp Relief Society – The NMCRS offers assistance for urgent financial needs through financial counseling, grants, interest-free loans to active duty or retired sailors and marines, eligible family members, surviving spouses, and reservists on active duty.
• Coast Guard Mutual Assistance – CGMA helps members of the Coast Guard and their families, including active duty and retired personnel, civilian employees, Reservists, Auxiliarists, and commissioned officers of the Public Health Service.
• Local programs – Your city, county, or state might have local aid programs for current and former military personnel. For example, in our home base of Southern California, we have STEP, or Support The Enlisted Project. The Red Cross, Military OneSource, or your local military aid society might be able to help you connect with programs near you.

However one gets the help they need, we want each veteran and member of the armed forces to know that it is possible to have healthy credit and live debt-free. We urge everyone who needs it to seek out professional assistance and take advantage of all of the help that exists to support the journey to financial freedom.

Even if you’re not ready to reach out directly, free financial education and other resources are available right here online. And personal help is only a call or chat away.

The post FREE Military Credit Counseling for Veterans and Service Members appeared first on Credit.org.

Government loans or Conventional loans:

• Government loans, or non-conventional loans, are mortgages that are insured or backed by the government, most commonly either the FHA (Federal Housing Authority) or the VA (Veteran’s Administration). When you obtain either an FHA or VA loan, the lender, or mortgage holder, has insurance through that agency that if you are unable to pay back the loan, they will step and cover the loss, if any. By design, to enable a wider range of people to be homeowners, a government-insured loan is typically easier to qualify for, and down payment amounts are lower.
• Conventional loans are, in short, all other types of non-government-insured or backed mortgage loans. The lender assumes the payback risk, therefore the qualification standards are more stringent and the down payment amounts are higher. Private mortgage insurance is often required for loans that have down payments of less than 20%.

Most standard first mortgage conventional loans offered by lenders or banks will follow loan guidelines that are set by the quasi-government entities — the Federal National Mortgage Association (Fannie Mae) and/or the Federal Home Loan Mortgage Corporation (Freddie Mac). This allows for conformity in the conventional mortgage market. Broadly speaking, conventional loans will require you to have good credit, a steady, consistent and documented income, and a down payment of at least 20% of the loan amount. If you have less than the 20%, you will likely need to pay for PMI (Private Mortgage Insurance) which serves to minimize the loss risk to the lender if you are unable to repay the mortgage.

A government, non-conventional loan is usually easier to qualify for, requires decent or average credit, and is a little less stringent on income requirements. The FHA down payment amount is usually 3.5% of the loan amount and there are even some programs where no down payment is required. There are loan balance limits and in almost all cases there is a mortgage insurance premium amount factored into the loan payment. The approval process does take a bit longer too as there are more steps in the process versus a conventional loan.

Some common government or non-conventional loans include:

• FHA loans, insured by the Federal Housing Administration is just about available to everyone who can qualify. The FHA loan requirement guidelines for loan qualification are the most flexible of all mortgage loans, so first-time home buyers can qualify to get a loan. With a FHA loan too, part of the loan’s closing costs can be included in the loan amount rather than having to come up with that much more money at this time of the closing.
• VA (Veterans Administration) loans are for specifically for active duty or retired, service members. Under certain criteria, spouses and widows/widowers of service members are eligible too.   VA loans do not require down payments and there is no additional costs for mortgage insurance. For this type of loan, there are though unique fees such as a VA funding fee.
• USDA (US Department of Agriculture) loans are available for borrowers in rural or suburban areas. These loans come from the USDA Rural Development Guaranteed Housing Loan Program. Like other government loans, they have low or no down payment options, lower interest rates, and do require mortgage insurance.

All the government-backed loans have their own specific requirements. VA loans may depend on the length of one’s military service, or when s/he served. USDA loans are limited to people with a demonstrated need and may exclude metropolitan areas. there are also generally two (2) types of interest rate structures.

Fixed-rate loan and an Adjustable rate loan:

• Fixed-rate mortgages carry one fixed rate for the life of the loan. If you borrow today at 6%, you will always pay 6% interest until the loan is repaid in full.
• Adjustable-rate mortgages, also commonly referred to as “ARMs” have interest rates that change over time. The rates can change once per year, or any interval from 6 months to 10 years. Each loan will have a specific term. Some ARM loans specify an introductory period during which the rate won’t change. A 7/1 ARM will have the same rate for the first seven years, then adjust every year thereafter.

The amount by which your ARM rate will adjust depends on market conditions and which market index the rate is set from. There are usually caps or limits on how much a rate can change during any adjustment period, however, ARMs do carry an added risk as you just don’t know the exact amounts until 45-60 days before the adjustment is made. A fixed-rate mortgage lets you plan further ahead, knowing what your mortgage payment will be for the foreseeable future.

Choosing between a fixed or adjustable rate mortgage does require a strong financial analysis and there are various qualification requirements depending on the type you want. First-time home buyers should get pre-purchase education so they understand the full choices available to them.

Other kinds of home loans:

• Balloon loans include a “balloon payment” at some point during the loan. The mortgage payments might be much lower, or they might include interest-only payments for a time. Then, usually at the end of the loan, the remaining balance will be due all at once. For example, you might make a much smaller loan payment for 7 years, after which the remaining balance is due. So if you paid $50,000 over that time toward a total debt of $200,000, you will owe the remaining lump sum of $150,000 at the 7-year mark. People who get balloon mortgages typically intend to sell the property or refinance before the balloon payment comes due.
• Combo loans combine multiple mortgages, a first and a second mortgage simultaneously, where you would get one loan, the first, at 80% of the home’s value, and another, the second loan at 15% of the value. This type of loan helps when your down payment is less than 20%, in this case 5%, and helps you avoid the need for mortgage insurance. The second loan typically carries a higher interest rate, so it’s usually only a good idea if the combined total payment is still less than paying PMI on the primary mortgage. The two mortgages in a combo loan can be fixed, adjustable, or one of each.
• Improvement loans, or “K” loans, allow the borrower to renovate a property that is in disrepair. An FHA 203K loan is the most common loan of this type. Because it is FHA-insured, lenders are more likely to offer funding, even if the house is not in good condition. There are extensive rules on this type of loan, such as repairing and in living conditions within six months. The loan can include the mortgage and renovation loan, or just be for home improvement expenses.
• Bridge loans combine one’s current mortgage with the new property they are buying. This allows a seller to buy a new home and move, then sell the previous property and repay the bridge loan. These are also called swing loans.
• Equity loans are made after a homeowner has purchased a home and built up equity. This loan is backed by the equity in the home, so failure to pay can lead to foreclosure on the property. An equity loan can be fixed or adjustable and may be established as a revolving line of credit from which the homeowner can withdraw funds.
• Reverse mortgages are unlike traditional mortgages, which decline as a homeowner pays down the loan, reverse mortgages rise over time as interest on the loan accrues. The most common type of reverse mortgage loan is a Home Equity Conversion Mortgage (HECM), which is available to eligible homeowners who are 62 and older.

Conforming vs. Jumbo

A conforming loan means the loan conforms to Fannie Mae and Freddie Mac guidelines, while a jumbo loan is too large to conform to those loan limits. The specific amount that makes a loan go from conforming to jumbo depends on the local market. Jumbo loans will be more expensive and harder to qualify for since they are not government-backed or easily sold to other financial institutions. Borrowers might get a combo loan in order to get their first mortgage down to conforming size or make a large down payment to avoid ending up with a jumbo loan.

We know there is a lot to think about when getting a home loan, and the different choices available can be confusing. A HUD-approved housing counseling agency can offer First-Time Home Buyer coaching that will help inform you on these and many other helpful homeownership details. We think it’s essential for first-time homebuyers to take advantage of this education because buying a home is most likely the largest purchase one will ever make. Take the extra time to learn all about the process and all of your options.

The post Different Types of Home Loans appeared first on Credit.org.

There are some loans, however, that should never be part of your credit mix. Even though it might be appropriate to borrow to own a home or have reliable transportation, not all borrowing has an upside. Here are six types of loans you should never get:

401(k) Loans

Loans taken out against your 401(k)-retirement account may seem like an easy route to take, but you should consider other options first because they attack the retirement savings you’ve worked very hard to build up.

It’s true that 401(k) loans carry a relatively low-interest rate and are tax-free money, but you repay the loan with after-tax dollars, all while you are losing out on the earnings those retirement funds are supposed to be accumulating for you.

If you lose your job either through a layoff, furlough or a voluntary resignation most plans require that you pay off the loan within a short period of time, typically 60 days. In the unfortunate event, you can’t repay the loan, it gets more complicated. In this case, the money you took out is considered a hardship distribution, and you will be required to pay taxes on the unpaid balance and an early withdrawal fee.

There are some experts who can show you math that makes 401(k) loans look better than other options, but you should not thoughtlessly listen to them. The money you pull together to repay this kind of loan could have earned more for you if you had contributed it to your retirement account rather than used it to get out of the hole the debt created.

Payday Loans

Payday loans are usually small, averaging under $500. These kinds of loans are repaid with one payment, usually within two weeks to one month of when the loan was given. On “payday”, you are expected to pay back the loan in full. If you have a regular income, whether through a job, social security check or pension, you can get one of these loans (assuming they are legal in your state).

These loans are very expensive, but in a deceptive way. Typically, one of these loans might come with a fee of $15 to $30 for every $100 borrowed. Because the cost is fixed in this way, people don’t think of it in terms of an annual percentage rate (APR). If you calculate it compared to traditional loans, the APR for a payday loan is near 400% or higher. Shorter term loans have even higher APRs. Rates are higher in states that do not cap the maximum cost.

How can that be, if you’re only paying a fee of $15 for every $100 borrowed? Isn’t that 15%? It’s because payday loans have a very short repayment schedule relative to other loans. If you borrowed $100 by shopping with a traditional credit card and paid it off within 2-4 weeks like a payday loan, you’d probably pay no fees or interest due to grace periods. And if you took a full year to pay it off, you’d pay around 15% APR, not 400% like a payday loan.

Learn More: What are Interest Rates & How Does Interest Work?

The Consumer Federation of America published a report showing that:

• Payday loans have a 50-50 chance of causing defaults in the first year of use
• They leave borrowers twice as likely to file for bankruptcy
• Loan borrowers are more likely to default on their other debts, like credit cards.

Just say, “no” to payday loans.

Home Equity Loans for Debt Consolidation

This is a tricky one, because home equity loans—where you borrow against the part of your home that you have paid off—may be a good idea for home improvements, but you should avoid them for debt consolidation.

You work hard over many years to build up the asset that is your home, and cashing in those funds is something that should be done with great care. Typically, the only time you’ll cash in home equity is when you sell the home and put that money into the next home you buy.

There are some cases where you might get a home equity loan and use that money to improve your property. This can make good financial sense if the property increases in value more than the amount you borrowed against your home equity. As a bonus, if you use home equity loans or a HELOC (Home Equity Line of Credit) to substantially improve your home, the interest paid on that loan is tax deductible.

What doesn’t make financial sense is paying off credit card debt using equity from your home. People do it because home equity loans are less expensive than credit cards, and they can usually pay off a lot of debt with one big home equity loan. This consolidates a lot of small debt payments into one larger monthly payment at a lower interest rate.

Learn More: Understanding Debt Consolidation Options

That said, this seldom works out. Once people pay off their credit cards, they are free to use them, all while trying to pay off their home equity loan. They end up needing credit counseling because they’ve given up their ownership of their home and still end up with credit card debt.

Our advice is to never trade good debt for bad. Mortgages are “good” debt, in that they help you build wealth over time. Don’t use a good debt like a home loan to pay off “bad” debts like credit cards.

Related Articles: Good Debt Vs. Bad Debt

The worst-case scenario is one where you can’t afford to repay the home equity loan and you end up having to sell your house or lose it to foreclosure. Don’t ever put yourself into that position—never borrow against your home equity unless those funds are earmarked to make the home worth more money.

Title Loans

An auto title loan lets you borrow in the short term by putting the title to your car up as collateral. Like payday loans, these loans are short-term and have a very high APR. And like home equity loans, you cash in an asset—in this case, your car—in exchange for quick funds.

The risk is great, as you can lose your car if you don’t repay as agreed. Even worse, people can lose their car over an amount much lower than the car’s value. The Consumer Federation of America report cited above, it states that half of car title loans are for $500 or less and come with an average APR of 300%. Tens of thousands of cars are repossessed every year because of these small loans.

We stress the importance of preserving your ability to earn an income, so if you need a reliable car to get to work, an auto loan is warranted. But getting a title loan against a car you already own is the opposite—it’s risking an important asset for a short-term infusion of cash at very bad terms.

Cash Advances

You use credit cards to make purchases, so why not use them to get cash? Because it’s a terrible idea. Cash advances aren’t like withdrawing money from the bank. This is a loan and one that is very expensive and too easy to get.

If you get a cash advance, you’ll be charged a fee upfront, typically up to 8% percent of the amount you borrow. Then you pay interest on the debt that is higher than the regular interest rate for credit card transactions. On average, the interest rate for cash advance balances is around 7% higher than the normal rate for purchases.

The downsides don’t stop there. Cash advances don’t have a grace period like purchases do—you’ll start paying that extra-high interest from day one until you pay off that balance.

You typically get cash advances using an ATM, but those checks that your credit card company sometimes sends you are the same loan product, and carry the same bad terms. Shred those checks immediately when you get them, and don’t get a cash advance through your credit card company for any reason.

Personal Loans from Family

It should be obvious how many ways this kind of loan can go wrong. When you borrow from your loved ones, your failure to repay can damage the most important relationships in your life.

Worse, it’s more likely you’ll fail to repay because your family members will be unlikely to pursue collections as aggressively as a traditional lender. That leads to lax repayment schedules, which only increases the tension.

In the age of social media, your family will probably see pictures of you online where you are enjoying yourself. Every vacation you take, every concert you go to, every activity that people like to document and share will be a trigger for the people who loaned you money. Think very carefully about how you would feel if you had loaned any of your friends and family money based on their online presence.

If you are considering borrowing money from a family member, stop and assess your situation. Have you reached the point of desperation where you see no choice but to risk your relationship by asking for money? What got you into this kind of financial trouble? Doesn’t your family member deserve to know, before they give you the funds?

If what you need the money for is too embarrassing or difficult to talk about with family, then it’s a bad idea to ask them for this loan. Address the root causes of your financial situation, rather than applying a band-aid in the form of more debt.

If you’re thinking of getting one of these kinds of loans, talk to a debt coach first, and see if there’s a better solution. Work to pay off your existing debts and build good credit so you have access to reputable loan products at reasonable rates. Don’t put your home, car, retirement, or family relationships at risk when there are better ways to reach your financial goals.

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