Debit & Credit

Summary

• Know the risks.
• Be sure you can afford to pay the loan.
• Ask for notification if the borrower misses a payment.

What do you do if a friend or relative asks you to co-sign a loan? Before you say yes, think about the obligations involved and how they may affect your own finances and creditworthiness. When you agree to co-sign a loan, you’re taking a risk a lender won’t take.

The co-signer’s notice

When you co-sign a loan, the lender (known as the “creditor”) must spell out your obligations in a co-signer’s notice, which says:

• You are being asked to guarantee this debt. Think carefully before you do. If the borrower does not pay the debt, you will have to. Be sure you can afford to pay if you have to, and that you want to accept this responsibility.
• You may have to pay up to the full amount of the debt if the borrower does not pay. You may also have to pay late fees or collection costs, which increase this amount.
• The creditor can collect this debt from you without first trying to collect from the borrower.* The creditor can use the same collection methods against you that can be used against the borrower, including suing you or garnishing your wages. If this debt is ever in default, that fact may become a part of your credit record.
• This notice is not the contract that makes you liable for the debt.

 *Depending on the laws in your state, this may not apply. If state law forbids a creditor from collecting from a co-signer without first trying to collect from the primary debtor, this sentence may be crossed out or omitted.

Before you co-sign

Despite the risks, there may be times when you want to co-sign. Your child may need a first loan, or a close friend may need help. Before you co-sign, consider how it might affect your financial well-being.

• Can you afford to pay the loan? If you’re asked to pay and can’t, you could be sued, or your credit rating could be damaged.
• Even if you’re not asked to repay the debt, your liability for the loan may keep you from getting other credit. Creditors will consider the co-signed loan as one of your obligations.
• Before you pledge property to secure the loan, like your car, furniture or jewelry, make sure you understand the consequences. If the borrower defaults, you could lose these items.
• Ask the creditor to calculate the amount you might owe. The creditor doesn’t have to do this, but might, if you ask. You also may be able to negotiate specific terms of your obligation. For example, you may want to limit your liability to the principal on the loan, and not include late charges, court costs, or attorneys’ fees. In this case, ask the creditor to include a statement in the contract—like “The co-signer will be responsible only for the principal balance on this loan at the time of default.”—before you co-sign.
• Ask the creditor to agree, in writing, to notify you if the borrower misses a payment or the terms on the loan change. That will give you time to deal with the problem or make back payments without having to repay the entire amount immediately.
• If you’re co-signing for a purchase, make sure you get copies of all important papers, like the loan contract, the Truth-in-Lending Disclosure Statement, and warranties. These documents may come in handy if there’s a dispute between the borrower and the seller. The creditor doesn’t have to give you these papers; you may have to get copies from the borrower.
• Check your state law for additional co-signer rights.

Source: The Federal Trade Commission, http://www.consumer.ftc.gov/articles/0215-cosigning-loan

Summary

Used responsibly, a credit card can save both time and money.

Perhaps you manage your debt efficiently, but if not, what can you do to control credit card use and avoid the pitfalls of high-interest debt? Here are some suggestions:

Reduce your use

Are you using credit cards to pay for everyday expenses, such as groceries or rent? If you find yourself charging necessities, then you’ll probably be in serious debt within a few months. If cash is tight, focus on budgeting and cutting back on “extras” rather than relying on credit. Put your cards away (or even cut them up) until your financial picture is brighter.

Are you using credit cards to buy luxuries that you just can’t afford? Take those cards out of your wallet and leave them at home until you’re out of debt. By controlling credit card use, you’ll avoid temptation and high bills.

How many cards?

If you carry a variety of credit cards, consider canceling most of them. With only one or two cards, you’ll have fewer opportunities to get into debt and find it easier to keep track of how much you owe.

Debit cards

Instead of using a credit card, use a debit card. The charges will be paid directly out of your bank account. Be sure to track what you spend so you don’t accidentally overdraw your account. 

Fixed-income groups

Senior citizens, students, and anyone on a strict budget should be particularly aware of the risks of credit card debt. The Consumer Credit Counseling Service, a nonprofit organization that offers debt and credit counseling, warns seniors about using credit cards to offset a reduced income. Students should be careful, too. A Government Accountability Office study found that students were more likely than other borrowers to run up debts they could not pay because of financial inexperience.

Get help

Most importantly, ask an unbiased financial counselor for advice as soon as you feel overwhelmed. The earlier you seek help, the sooner you’ll be out of debt. Avoid quick-fix credit “doctors” who promise instant solutions to your fiscal problems, and instead get advice from a reputable source. Contact your local branch of the nonprofit Consumer Credit Counseling Service for additional information and education about debt-management.

Enjoy the benefits of credit cards by charging responsibly and paying off your bill at the end of each month. Take control of your credit card use, and don’t let the cards control you!

By Lauren Greenwood

©2000-2019 Carelon Behavioral Health

Source: Consumer Credit Counseling Service, www.credability.org/en/homepage.aspx; American Bankers Association, www.aba.com; Cardweb.com; Federal Reserve

Maybe your credit card debt is growing faster than the weeds in your yard. Or, perhaps you have plenty of money to pay your bills and live comfortably now, but fret about retirement or a looming crisis that, one day, could leave you penniless.

Financial stress and your health

When it comes to reasons behind stress, concerns about money top the list. We worry about not having enough, spending too much, not managing or investing wisely—even about having more than we can handle responsibly. And financial stress, like any other, can be bad for our mental and physical health.

People under financial stress might be so anxious about their financial situation that they can’t concentrate on their work or even want to get up in the morning to go. This kind of stress, if it continues, can turn into depression.

Control your finances, don’t let finances control you

So how do you get a handle on financial stress? First, take charge of your finances. Controlling your finances, rather than having them control you, will make you realize you aren’t powerless over your situation. Start with a simple plan so you don’t get overwhelmed:

• Record what you spend. It might sound like a chore, but keeping an expense log is the easiest way to see where you’re spending your money. Your system could be as simple as a notebook and pencil. The key is to be consistent. Try recording your expenses at the end of each day and totaling them at the end of each week.
• Prioritize your spending. Figure out the most important things you must spend money on regularly—savings, rent or mortgage, car payment—and prioritize your spending. Then look at your income and figure out which items at the bottom of your list you can eliminate or spend less money on. Once you’ve created a budget, stick to it.
• Examine your lifestyle. Are you living above your means? If so, look at ways to cut back. Can you eat out less or buy less expensive clothes? Take fewer vacations or live without the cell phone? It’s important to take stock of your lifestyle from time to time to see if it’s in sync with your earnings. If not, make adjustments.
• Set goals. If you have debts, set reasonable goals for paying them off. Look at your budget and decide where you will get the money. Then, create a payment schedule and abide by it. You might want to look at ways of consolidating your debt and focus on paying off debt with the highest interest rates first. Do the same thing if you are planning for retirement or to pay for your children’s college tuition. Once you figure out how much you want to save and a timeline for doing so, you can continue working toward that goal.

If you need help sorting out your finances, consider hiring a debt counselor or financial planner. Shop around, since they can be expensive. You also can get a good self-help book from the library that walks you through the steps to financial recovery.

Manage the stress

If your stress continues, try to figure out what else is behind it and how to control it. For instance, do you take on more than you can handle? Are you a worrier or perfectionist who gets trapped by your fears?

Learning to cope with stress, regardless of the cause, can protect you from its negative effects. Talking with a professional counselor, spiritual advisor or friend might help. Exercise, meditation, deep breathing and focusing on other tasks are all good ways to refocus your attention away from your source of stress.

By Anne Wright

©2000-2021 Carelon Behavioral Health

Summary

How can I decrease the risk that my credit card will be used without my authorization?

Anyone with a credit card can become a victim of credit card fraud or be saddled with a negative credit report because of fraud. There are numerous ways for thieves to obtain your credit card number and make thousands of dollars’ worth of purchases without your knowledge. Fortunately, laws limit the credit cardholder’s liability to $50. If $1,000 is charged to a credit card account without authorization, the cardholder pays only $50 to the credit card company.

Federal law does not place a duty upon the cardholder to report the theft or fraudulent charge within any amount of time.

Tip: The $50 maximum liability amount is for each card. If seven credit cards are stolen and used, the cardholder’s liability would be $450 total.

How can I decrease the risk that my credit card will be used without my authorization?

You can do several things to prevent card theft as well as someone obtaining the credit card number.

• Carry your credit cards only when you will be using them so that if your wallet or purse is lost or stolen the credit cards will not be stolen as well.
  Tip: Instead of signing your name on a credit card, write “photo ID required” so that the store clerk asks for ID.
• Sign your credit cards so that your signature can be compared.
• Call your credit card company and ask them to put a computer notification on the card that requires picture identification whenever a purchase is attempted.
• Never sign a blank charge receipt. If you do, mark through all the blanks and keep your copy.
• Have bills sent to your office if possible to avoid residential mail thefts.
• Immediately review your credit card statement when it arrives.
• Never give your credit card number to anyone over the phone.
• Do not respond to e-mails that ask for credit card information.
• Buy items over the Internet on secure sites only (symbolized by a lock icon on the bottom toolbar of the page).

What is a fraud alert?

It is a special notice placed on your credit report so that any company asked to give you credit will know your information has been stolen. A thief who is attempting to obtain additional credit cards in your name will not be able to get credit if a fraud alert is in place. Companies must personally authorize credit with you over the telephone.

Tip: You must notify the three credit bureaus that your credit cards have been stolen to obtain a fraud alert.

EQUIFAX
(800) 525-6285
or write to:
P.O. Box 740250
Atlanta, GA 30374

EXPERIAN

(888) EXPERIAN

or (888) 397-3742

fax to (800) 301-7196

or write to:

P.O. Box 1017

Allen, TX 75013

 

TRANSUNION

(800) 680-7289

or write to:

P.O. Box 6790

Fullerton, CA 92634

 

If I believe my credit cards have been stolen, should I file a police report?

Yes. The report will be useful in proving to the credit card company that you did not authorize any charges after the card was stolen.

©2016-2019 CLC Incorporated

Summary

• Make payments promptly.
• Look out for errors and unauthorized charges.
• Keep security in mind.

Credit, charge or debit? Each lets you pay for products and services. Each also has unique characteristics. And if you’re shopping for a credit card, it’s important to compare fees, interest rates, finance charges and benefits.

Plastic 101

Credit card

You can use a credit card to buy things and pay for them over time. But remember, buying with credit is a loan—you have to pay the money back. And some issuers charge an annual fee for their cards. Some credit card issuers also provide “courtesy” checks to their customers. You can use these checks in place of your card, but they’re not a gift—they’re also a loan that you must pay back. And if you don’t pay your bill on time or in full when it’s due, you will owe a finance charge—the dollar amount you pay to use credit. The finance charge depends in part on your outstanding balance and the annual percentage rate (APR).

Charge card

If you use a charge card, you must pay the balance in full each time you get your statement.

Debit card

This card allows you to make purchases in real-time by accessing the money in your checking or savings account electronically.

The fine print

When applying for credit cards, it’s important to shop around. Fees, interest rates, finance charges and benefits can vary greatly. And, in some cases, credit cards might seem like great deals until you read the fine print and disclosures. When you’re trying to find the credit card that’s right for you, look at the:

Annual percentage rate (APR)—The APR is a measure of the cost of credit, expressed as a yearly interest rate. It must be disclosed before your account can be activated, and it must appear on your account statements. The card issuer also must disclose the “periodic rate”—the rate applied to your outstanding balance to figure the finance charge for each billing period.

Some credit card plans allow the issuer to change your APR when interest rates or other economic indicators—called indexes—change. Because the rate change is linked to the index’s performance, these plans are called “variable rate” programs. Rate changes raise or lower the finance charge on your account. If you’re considering a variable rate card, the issuer also must tell you that the rate may change and how the rate is determined.

Before you become obligated on the account, you also must receive information about any limits on how much and how often your rate may change.

Grace period—The grace period is the number of days you have to pay your bill in full without triggering a finance charge. For example, the credit card company may say that you have 25 days from the statement date, provided you paid your previous balance in full by the due date. The statement date is on the bill.

The grace period usually applies only to new purchases. Most credit cards do not give a grace period for cash advances and balance transfers. Instead, interest charges start right away. If your card includes a grace period, the issuer must mail your bill at least 14 days before the due date so you’ll have enough time to pay.

Annual fees—Many issuers charge annual membership or participation fees. Some card issuers assess the fee in monthly installments.

Transaction fees and other charges—Some issuers charge a fee if you use the card to get a cash advance, make a late payment or exceed your credit limit. Some charge a monthly fee if you use the card—or if you don’t.

Customer service—Customer service is something most people don’t consider, or appreciate, until there’s a problem. Look for a 24-hour toll-free telephone number.

Unauthorized charges—If your card is used without your permission, you can be held responsible for up to $50 per card. If you report the loss before the card is used, you can’t be held responsible for any unauthorized charges. To minimize your liability, report the loss as soon as possible. Some issuers have 24-hour toll-free telephone numbers to accept emergency information. It’s a good idea to follow-up with a letter to the issuer. Include your account number, the date you noticed your card missing, and the date you reported the loss.

Keep a record—in a safe place separate from your cards—of your account numbers, expiration dates, and the telephone numbers of each card issuer so you can report a loss quickly.

Source: The Federal Trade Commission, http://www.consumer.ftc.gov/articles/0332-credit-debit-and-charge-cards

Summary

Contact creditors immediately if you find you’re having trouble paying bills.

You’re far from alone if you have trouble with debt. And there are plenty of people out there who say they’re willing to help you—with credit counseling, debt consolidation and other fixes. But what if you want to stay in control of your finances and your credit as much as possible, and try to solve your problems on your own by dealing with your creditors directly?

Timing

People with debt have a good chance of working out mutually agreeable payment plans with creditors—but only by acting early. Timing is critical. You should contact creditors immediately if you find you’re having trouble paying bills. The longer you wait, the worse the problem will become and the shorter the time for dealing with it. Once your accounts have been turned over to a collection agency, it’s too late.

Communication

The other factor in the problem-solving equation is communication. It’s better to let creditors know up front about your problem before it becomes obvious to them through your failure to pay. They will want to know if the problem is temporary, like a break in business revenue or personal income likely to last three to six months.

They may be inclined to give you a chance. If you work out a deal and still slip up on payments, the problem is clearly no longer temporary. So it’s up to you to debt follow through. Second chances may not be so easy to come by.

Where do you start?

Faced with a break in income, such as a job loss, a person with debt may suddenly face a frightening array of loans to deal with, from home and auto loans to credit card and store accounts. Where do you start?

You need to find out who your creditors are before you can contact them. And in doing that,  you may learn you have fewer creditors than you thought. You might have several credit cards with the same lender.

You may also have some accounts with small balances—like $100 or less—that creditors might be willing to close out for some fraction of the balance rather than going through the time and effort of collecting.

Tips for talking with collection departments

When you call, tell them you want them to understand your situation—and stay calm. If the first person you talk to balks at negotiating, move up the line to a supervisor and explain, politely, that you’re serious about working out a solution. And whatever you offer, be sure you’re able to follow through.

The point to remember is that creditors and people with debt both want the same thing: For as much of the debt to be repaid as possible. The alternatives, from repossession to bankruptcy to the cutting of services like water and power, are all worse from the creditors’ point of view.

Problems can be worked out, but not if people with debt wait for the problems to solve themselves.

By Tom Gray

©2003-2021 Carelon Behavioral Health

Source: Federal Trade Commission; Jamshed Gandi CPA, partner, Bertorelli, Gandi, Won & Behty, San Francisco, CA; Neil Dabagian CPA, partner, HJ Financial Group, Plymouth Meeting, PA.

Summary

Debt repayment plans only work in the long run if they change your behavior. Be careful to keep your spending in check, especially if you still have credit cards available.

Can new debt really solve your debt problem? If you’re strapped for cash and maxed out on credit cards, the idea of rolling over all those bills into a fresh, low-interest loan can look mighty tempting. And plenty of lenders and mortgage brokers seem more than willing to help you borrow your way out of trouble.

Their typical offer is this: You can get rid of high-interest rates, cut your payments and buy time by consolidating your high-interest debt in a lower-interest loan, with the equity in your home as collateral.

Other services advertised under the “debt consolidation” label are actually debt repayment plans, in which an agent works out easier terms with your creditors allowing you to pay down the debts in a program of monthly payments.

Either of these strategies might work, say debt management experts, but only if you have the discipline to cut back on spending and start saving.

Your success depends a lot on how your trouble started in the first place. Borrowing on the equity in your home to pay down debts can make sense for someone who has managed money well but is suddenly hit with a big, unforeseen expense, like medical bills from a serious illness in the family. Even then, you have to be careful to keep your spending in check, especially if you still have the credit cards available.

Your home at stake

Borrowing against home equity to pay off credit cards can indeed lower your monthly payments, as advertised, but you’re asking for trouble if you don’t have a plan to retire your debt. The problem with these loans can be the tendency to spend up to the higher debt level until payments are just as high as before.

Home equity debt also carries a risk that unsecured debt, such as credit cards, does not: You could lose your house if you don’t make the payments. With unsecured debt (not backed by any collateral), it’s far more difficult for lenders to get their money back if you default; that risk is the reason for the much higher interest rates.

With those cautions in mind, the math of debt consolidation loans can be appealing. For instance, if you have $30,000 in credit card debt with an interest rate of 14 percent, you typically would have a minimum payment of $900 a month (or three percent of the principal). If you pay that amount faithfully and don’t borrow another cent, it would take you about 22 years to pay off the debt.

Rolling this debt over into a home equity loan at eight percent with a term of 10 years would cut the monthly payments to just over $360. The loan would take slightly longer to pay off, but the interest can be tax deductible if you itemize deductions and your loan qualifies under IRS rules. You might also be able to do a “cash out” refinance by increasing the principal of your existing mortgage. 

Home equity credit isn’t a free lunch. Not only is your home at stake, but the balance due on the loan is lopped off the value of your home if you sell it. Vinyard says home-equity borrowing isn’t a good idea if you move (and sell homes) frequently, especially if you’ve borrowed so much that you may owe more on a home than a buyer is willing to pay for it.

Also, the best rates are only available to borrowers with excellent credit scores. These are people who have no trouble handling their debts and who don’t need to tap home equity to pay off credit cards. You also need to have plenty of equity in your home. If interest rates based on your credit score are high, it would make more sense to pay down the credit cards through a repayment plan.  

Debt repayment plans

In signing up with an organization that promises to work out a payoff plan and lower your monthly payments, you need to watch out for unscrupulous firms that make a profit by taking your money up front.  Seek out nonprofit credit counseling agencies that don’t charge fees as a condition of helping you (a true nonprofit relies strictly on donations). And debt repayment plans only work in the long run if they change your behavior. The only solution that lasts is to learn how to spend less than you earn, and to make saving a lifelong habit.

By Tom Gray

©2002-2019 Carelon Behavioral Health

Source: John Waskin, executive director, American Credit Counselors Corp.; Debby Vinyard, CFP, Vinyard & Associates Financial Planning; Federal Trade Commission; Federal Reserve Board; Consumer Bankers Association.

When you have financial problems, prioritizing which bills to pay first can be an important step. Paying bills that maintain shelter, such as the mortgage or rent, are most important, as well as continuing crucial services such as the power and water. Contact your creditors and let them know that you are experiencing financial hardship. They may be willing to make special arrangements for you for a period of time. Many states also have programs to assist consumers with their utility bills if they qualify.

Once you have contacted your creditors and determined which bills must be paid, identify possible money sources you may already have. If you do not have money in a savings account, consider options such as borrowing from home equity, borrowing from a retirement plan like a 401(k), borrowing from friends or family members, or taking out personal loans. If necessary, consider selling items to generate some cash.

If you cannot make the payments to maintain your household, seek assistance. Fortunately, there are many places to turn when your finances hit tough times. Knowing where to go can be one of the largest challenges in getting help.

Job loss

If your financial difficulties are due to a family member’s job loss, find out if there are public benefits available for that person. Determine whether there are unemployment benefits through your state.

In general, federal and state unemployment insurance programs provide unemployment benefits to eligible workers who are unemployed through no fault of their own (as determined under state law), and meet other eligibility requirements of state law. Check in the state government pages of your phone book and contact your local office for more information. You can also get contact information for the unemployment office in your state by going to servicelocator.org/OWSLinks.asp.

Disability

If struggling financially due to a disability, determine whether there is disability coverage either through the employer’s coverage, private coverage, or through your state. Although qualifying can be difficult, Social Security pays disability benefits under two programs: the Social Security disability insurance program and the Supplemental Security Income (SSI) program. If you are eligible for any programs, process the paperwork to collect the benefits as soon as you are able to do so.

If it looks like you may qualify for Social Security benefits, you can apply online at ssa.gov or call 1-800-772-1213.

Community resources

United Way

Find out what types of help may be available in your area by contacting United Way/AIRS (Alliance of Information and Referral Services). In some parts of the country, just dial 2-1-1 or visit 211.org. If the 2-1-1 system is not yet available in your area, look in your phone book for the local United Way, or visit their website to search for their local phone number at unitedway.org. They may be able to direct you to the following resources in your area:

• Basic human needs resources: food banks, clothing closets, shelters, rent assistance, utility assistance.
• Physical and mental health resources: health insurance programs, Medicaid and Medicare, maternal health, Children’s Health Insurance Program, medical information lines, crisis intervention services, support groups, counseling, drug and alcohol intervention and rehabilitation.
• Employment supports: financial assistance, job training, transportation assistance, and education programs.
• Support for older Americans and persons with disabilities: adult day care, congregate meals, Meals on Wheels, respite care, home health care, transportation, and homemaker services.
• Support for children, youth, and families: child care, after school programs, family resource centers, summer camps and recreation programs, mentoring, tutoring, protective services and Head Start. The Head Start program is a federal program that is funded directly to local grantees. For information regarding Head Start visit acf.hhs.gov/programs/ohs. To find your local office, search under the program locator: eclkc.ohs.acf.hhs.gov/hslc/HeadStartOffices

United Way and the 2-1-1 network are good places to start, but also try these additional resources for help:

Housing

For housing counseling, including advice for eviction or foreclosure, and rental help in your state, contact Housing and Urban Development at 1-800-569-4287 or online at hud.gov.

Religious organizations, charities, and national relief groups

Local churches and religious organizations often operate assistance programs. Even if you are not a member of a particular organization, you may still be able to receive assistance in your community. National relief groups may be able to help meet short-term immediate needs.

Search for local numbers by using Yahoo Yellow Pages: local.yahoo.com/browse_state.php

Catholic Charities

Check catholiccharitiesusa.org for an Internet search of resources in your area, or look in your phone book for a local number.

Goodwill Industries

Check goodwill.org for an Internet search of resources in your area, or look in your phone book for a local number.

Salvation Army

Check Salvation Army, salvationarmyusa.org, for an Internet search of resources in your area, or look in your phone book for a local number.

Government assistance

Although getting assistance from the government can take some time, it may be worth the wait. City, county, and state governments vary in the types of assistance available. Contact your local Department of Health and Human Services, sometimes called County Social Services to see if you qualify for public assistance programs, including food stamps or emergency financial funds, or Medicaid. Look in your phone book in the government pages.

1-800-541-9701
clchomeoffice.com
To reach the State Human Service Agency Info and Links for your State: aphsa.org/content/APHSA/en/resources/LINKS/STATE_CONTACTS.html

U.S. Conference of Mayors

Another gateway of information to local resources may be found at the U.S. Conference of Mayors website at usmayors.org. To search for your local mayor’s office, go to find a mayor and type in your city to access possible local sources of assistance.

Help with home heating and/or cooling bills

You or someone you know may be eligible for help with home heating and/or cooling bills through the Low Income Home Energy Assistance Program (LIHEAP). LIHEAP is a federally funded program that helps low-income households with their home energy bills.

LIHEAP can help you stay warm in the winter and cool in the summer. By doing so, you can reduce the risk of health and safety problems (such as illness, fire, or eviction).

The federal government does not provide energy assistance directly to the public. Instead, LIHEAP operates in the 50 States, the District of Columbia, Indian tribes or tribal organizations, and the U.S. territories.

The LIHEAP program in your community determines if your household’s income qualifies for the program. The LIHEAP program may also require households to meet additional eligibility criteria to receive LIHEAP assistance. NOTE: The availability of LIHEAP assistance is not guaranteed. Often most of the Federal LIHEAP funds are spent during the winter.

Your LIHEAP program may be able to offer you one or more of the following types of assistance:

• Utility bill payment assistance
• Energy crisis assistance
• Weatherization and energy-related home repairs

To apply you may need the following:

• Recent copies of your utility bills
• A recent payroll stub or other proof that shows your current gross income
• Documentation showing income from Social Security, unemployment insurance, pension funds, disability, etc.
• Final utility termination notice (if you’ve received a shut-off notice from your energy company)
• Proof of present address (e.g. rent receipt, lease or deed, property tax bill)
• Proof of total members living in your household (e.g. birth certificates, school records, etc.)
• Social Security cards (or numbers) for all persons living in your household
• Proof of U.S. citizenship or permanent residence

For more information about LIHEAP and where to apply, call the National Energy Assistance Referral (NEAR) project. NEAR is a free service providing information on where you can apply for LIHEAP. You can speak to someone at NEAR, Monday through Friday, from 6 a.m. – 6 p.m. (MST). Call the toll-free phone number at 1-866-674-6327. You can also send an email to liheapch.acf.hhs.gov/referral.htm, or you can find your state’s LIHEAP office through the website, www.liheapch.acf.hhs.gov/profiles/energyhelp.htm.

Benefits Check Up

Another online resource is called Benefits Check Up, which can be found at benefitscheckup.org. Once you have completed the online questionnaire, the site quickly gives you a personal report of public programs and benefits that you may qualify for. Benefits Check Up is designed primarily for older adults, ages 55 and over. Although the service may also be helpful for younger people, it may not include every program for which you might qualify.

Government benefits

If you are seeking benefits information for someone younger than age 55, check out benefits.gov. This is a government resource for federal benefits for people of all ages. You may also call 1-800-FED-INFO (or 1-800-333-4636).

Social Security

In addition, visit the Social Security website, ssa.gov, and use the Benefit Eligibility Screening Tool (BEST) to find out if you could be eligible for benefits from any of the program’s Social Security administers:

• Medicare
• Social Security Disability
• Social Security Retirement
• Social Security Survivors
• Special Veterans
• Supplemental Security Income (SSI)

If it looks like you may qualify for Social Security benefits, you can apply online or call 1-800-772-1213.

Loans

Consider taking out a personal loan if you do not qualify for any financial assistance, and you have already considered other options such as borrowing from home equity, borrowing from a retirement plan such as a 401(k), borrowing from friends or from family members.

Do a search for rates of local lenders for personal loans. Try the Bankrate website at bankrate.com and click on the “Personal Finance” icon, or try:

• One Main Financial: 1-877-550-6246, onemainfinancial.com
• Spring Leaf Financial: 1-800-961-5577, springleaf.com
• Lending Tree: 1-800-813-4620, lendingtree.com

Keep in mind that financial institutions submit their best rates to their websites, so if you have negative items or a poor credit score appearing on your credit report, you may not qualify for the best rates available. The other problem with trying to quali fy for a personal loan is that the creditor considers your debt-to-income ratio, and if your income has recently been decreased,it may be more difficult to qualify.

Lastly, keep a positive attitude and make as many people aware of your situation as possible. Remember that any help you receive gets you one step closer to getting your financial life back on track.

Tax tip

It is a good idea to check to see if you may qualify for the Earned Income Tax Credit (EITC). Sometimes called the Earned Income Credit (EIC), it is a refundable federal income tax credit for low-income, working individuals and families. Congress approved the tax credit legislation in 1975. When the EITC exceeds the amount of taxes owed, it results in a tax refund to those who claim and qualify for the credit.

To qualify, taxpayers must meet certain requirements and file a tax return, even if they did not earn enough money to be obligated to file a tax return. The EITC has no effect on certain welfare benefits. In most cases, EITC payments will not be used to determine eligibility for Medicaid, Supplemental Security Income (SSI), food stamps, low-income housing or most Temporary Assistance for Needy Families (TANF) payments. For more information, check the Internal Revenue Service (IRS) website at  irs.gov/individuals/article/0,,id=96406,00.html. You can also check with a tax advisor who can help you determine if you qualify for the tax credit and assist you with completing the proper forms to file.

©2017-2019 CLC Incorporated

Summary

Learn more about:

• Interest
• Credit
• Cash advances

It’s easy, probably too easy, to get credit. You may be getting credit card offers in the mail. You can get loans to tide you over until your next check arrives. Even if you have nothing saved and barely get enough money to meet your basic costs, there always seem to be ways you can borrow.

If you don’t know better, you’d think this money was free. It’s not, of course. Knowing how credit works can keep you from making very costly mistakes.

First and foremost, you need to remember that lending is a business. People intend to make a profit when you borrow from them. That’s not a bad thing in itself, but it tells you that loans have costs. There are ways to get free money for a short time, but you need to be very careful not to fall into expensive traps.

The most obvious cost is interest. This is an amount charged to you based on a percentage of the amount you owe. To figure out your monthly interest charge, divide the annual rate by 12 and multiply your balance by that. If you have a balance of $500 on a credit card and 15% interest, your monthly interest charge alone would be $6.25, or $75 a year.

Some credit, such as auto loans and home loans, is amortized. Payments include both principal (the amount borrowed) and interest. As the principal is paid down, the interest payments fall. But the total payment remains the same, so each month you’re paying a little more principal and a little less interest.

But interest is not the only cost of credit. Credit cards can charge annual fees, whether or not you use them. Also, stores that take credit cards pay fees to the card companies (such as Visa). These usually are included in prices of items you buy. But merchants have the right (under a federal law) to give you a discount if you pay in cash.

What about those “zero interest” credit cards or “no payments for six months” installment plans for appliances and other big-ticket items? Both can be free, but only up to a point. For the credit cards, the zero interest rate is almost always just for a short time. After that, the usual high rates kick in. Also, “zero interest” cards can still carry an annual fee. And “nullifiers” can force you to pay interest if you violate certain terms in the fine print. You should always read the fine print.

As for the “no payment” plans, you really can get a free loan for six months, but you need to pay the principal in full before then. If you don’t, you can be charged interest at a high rate on the unpaid balance. That’s not all. The interest will be charged from the date of your purchase, not from the six-month deadline. If your purchase was $2,000 and you have $1,000 left to pay at the deadline, you owe six months of interest on the $1,000. At 20%, that’s $100.

Again, read the fine print. If you don’t understand it, have a trusted friend, counselor or family member go over it with you.

As you already may have noticed, there is a smart way to use credit: Only charge as much as you can pay off each month. Credit cards offer a “grace period,” which means that no interest is charged on purchases paid off at the next due date. But there’s an important exception. Interest usually is charged from day one on cash advances. You may get checks in the mail now and then from your credit card company. These are for cash advances. Each time you write one, you’re taking out a loan with no grace period, usually at a high interest rate.

What is a credit score and why is it so important? The score is a rating of your credit record that lenders use to decide if you are a good risk. A high score means you’ve been careful to pay your debts, so you’re likely to pay them back on time. A low score means just the opposite. If you have a low score, you won’t be able to get loans at the best interest rates if you want to buy a car or a house. You may not get a loan at all.

To earn high scores, you need to have some credit history. So you should not avoid credit cards entirely. But you then have to be smart about using the cards. Pay off the balance each month. Don’t pay just the minimum payment on your bill.

What about other types of credit you may see around you, like payday loans? Beware of these, because they can have very high rates of interest. If you need to borrow to make it to your next benefit check or paycheck, a loan won’t solve your problem. You have a more basic issue—spending more than your income. You need to deal with that first. 

By Tom Gray

©2010-2021 Carelon Behavioral Health

 

Summary

• Understand your current debt load.
• Make a plan of attack.
• Investigate ways to save.

If you’re stressed about your debt or the possibility of debt, get relief by making smart decisions: understand your current debt, make a plan of attack, and investigate ways to save.

Understand your current debt load

The first step in getting a handle on debt is to actually know how much debt you’re dealing with. Add up all your debts (e.g., car and house payments, student loans, and credit card debt). Also note how much you put towards debt each month. Whether you’re feeling the heat from rising debt, or your load is currently manageable, make a plan so debt doesn’t get the better of you.

Make a plan of attack

Now that you know how much debt you’re really dealing with, you can make an action plan for eliminating that debt.

Are you only paying the minimum on every debt payment? That does mean you are taking action…. Unfortunately, only paying the minimum also means you are increasing the amount of time it takes to pay off the loan, and you’re increasing the amount you will pay over the life of the loan due to interest. For instance, say you have to pay off $1,000.00 with an interest rate of 15 percent, and you only pay the minimum of 2.5 percent of the balance. If you don’t make any other purchases, it will take 23 years to pay off, and you will have paid $9,637.00 in interest. That means your $10,000.00 purchase actually cost $19,637.00!

Don’t worry—there are plenty of other methods for chiseling away at debt. Take debt stacking for example: this is where you pay the minimum on all your debt payments except one. For that one debt, you put as much as you can towards the monthly payment. Once you pay off that debt, you take the money you were contributing each month and roll it over to another debt payment. Repeat until you’ve cleared your debts.

Investigate ways to save

Stay out of debt by spending below your means and building savings. If you spend below your means, than you decrease your chances of going into debt. Another way to avoid debt is by saving for emergencies, so if a problem arises, you aren’t tempted to rely on credit cards, but rather, you have the funds available to get you through the challenge.

You can also ask about lower interest rates. Remember, those pesky rates add to the amount you pay, so lowering them could give you a huge break and allow you to pay off debt sooner. If you’re having difficulty meeting your debt payments, call the creditor and ask if they can lower your interest rate.

Find ways to save in other areas of spending so you can put more towards debt. This requires looking at your expenses and seeing where you can cut back, such as limiting the number of times you eat out in a week. Creating a spending plan for how much you spend for different events, activities, et cetera, can help you take charge of your money and put more towards debt.

©2014-2019 CLC Incorporated

Summary

• Eliminates need to write checks
• Safer alternative to carrying around large sums of cash
• Risky for problem spender
• Best used for small, cash-and-carry purchases

Is a debit card right for you? The answer depends on how well you handle your money. The good news and bad news about debit cards is that they make it easier to spend money. That’s fine if you can keep your spending under control. But if you have a spending problem, debit cards may only make it worse.

Convenience

For consumers, debit cards offer several levels of convenience. They eliminate the need to write checks and enter them in a check register. They’re also a safer, though not risk-free, alternative to carrying around large sums of cash. And with their rapid-fire recording of purchases—no long waits for checks to clear—they make it easy to find out what you have available in your checking account. A monthly statement shows all of your spending. If you use online banking, you can get an up-to-date statement as often as you wish.

Temptation

But debit cards aren’t the ideal solution for everyone, especially those who have trouble staying within their budgets. Plastic in the wallet for a problem spender is like a box of chocolates sitting in plain view in the house of a would-be dieter. It’s a lot easier to say “no” to temptation when it’s not sitting right in front of you.

Other issues to consider

Security concerns: Debit cards look just like MasterCard or Visa credit cards, and they offer somewhat similar protection in case they’re lost or stolen. Under federal law, your loss is limited to $50 if you report the loss or theft within two business days, or $500 if you report the loss after two days, but prior to 60 days after your bank statement is mailed to you. You risk unlimited loss if you fail to report an unauthorized transfer within 60 days after your bank statement containing unauthorized use is mailed to you. Visa and MasterCard have zero-liability policies, but these do not cover all types of purchases.

Keep in mind that a debit card is like a turbo-charged checkbook. A thief can use it to drain money quickly from your bank account. So don’t be careless with it, and always make sure you know where it is.

Disputed purchases: Debit and credit cards are different in a crucial way. When you buy something with a debit card, the merchant gets your money, directly from your checking account. When you use a credit card, it’s the bank that pays the merchant. You pay the bank later when you get your monthly statement. This fact can be an important advantage when you wish to dispute a purchase because of an overcharge, defective merchandise or some other reason. Debit cards don’t give you any leverage. The merchant has your money and you have to get it back. Credit cards, on the other hand, put the bankers in your corner (whether they like it or not). For a certain period of time, you can refuse to pay the bank for a disputed purchase. If the bank wants its money back, it can get it only from the merchant.

Financial experts say debit cards are best used for small, cash-and-carry purchases where little money is at stake. For more substantial purposes or for online and mail-order buying, credit cards have the edge.

Money management: As a paperless alternative to checkbooks, debit cards may not be for all tastes. If you like having the instant feedback of a check register—seeing your new balance with every check you write—you may not like having to wait a month for your debit card statement or going online to see your account. A paper check register also reminds you if your balance is running low and if you need to rein in your spending. With debit cards, this information isn’t written down right in front of you, so you have to keep more of it in your head.

The experts weigh in

For reasons such as these, financial planners have varying opinions on the value of debit cards. Mari Adam, a planner based in Boca Raton, Florida, advises clients against using the debit-card option that comes with many bank accounts. She says the cards don’t help people who have trouble managing their balances. And for those who handle their money well, Adam says credit cards are a better deal (this assumes that they pay off their balances in full each month to avoid the steep interest charges).

Not only are credit cards just as likely as debit cards to pay dividends such as frequent-flier miles or cash rebates, but she says they also give consumers more bargaining power in merchant disputes. “I find credit works really well for the people who pay off their bills, and for people who have trouble managing their bills neither [credit nor debit] works well.”

Matthew Reading, an Austin, Texas-based financial planner, uses a debit card and likes it. He says he goes online to check his balance about once a week, after which “I have a number in my head for how much I want to blow on entertainment.” As with any powerful tool, though, he says a debit card can lead to trouble if misused. “I liken it to driving a five-speed as opposed to an automatic. One has far more flexibility with a five-speed. However, it’s much easier to mess up the shifting.”

By Tom Gray

©2002-2019 Carelon Behavioral Health

Source: Mari Adam, CFP, president, Adam Financial Associates Inc., Boca Raton, Fla.; Matthew Reading, CFP, chief investment officer, Austin Asset Management, Austin, Texas; Federal Deposit Insurance Corporation; National Consumers League; Nolo Press

Summary

The report includes payment history on credit cards, loans, bankruptcies, foreclosures, tax problems, lawsuits, and debts referred to a collection agency.

Remember taking home your report card at the end of the school year? Even if it has been years since you last sharpened a No. 2 pencil, you still are being graded—by the consumer reporting agencies (CRAs) that compile credit histories. When bankers, credit card companies, landlords or even potential employers want to learn about your financial past, they can order a copy of your credit report.

What kind of information is on this report?

The report includes payment history on credit cards, loans, bankruptcies, foreclosures, tax problems, lawsuits, and debts referred to a collection agency. If you have never seen a copy, order one and make sure that the information is accurate. A credit report is your financial report card, so prepare for your future by reviewing your past!

Where can I get a copy?

Many reporting agencies collect credit histories, but the three largest national companies are Equifax (www.equifax.com), Experian (www.experian.com), and TransUnion (www.transunion.com). The Fair Credit Reporting Act (FCRA) entitles you to a free copy of your credit report from each of the major credit reporting agencies once a year.

What does a credit report look like?

Reports from different agencies may look slightly different, but the information is largely the same. Expect to see biographical details, such as your name, age, Social Security number, address, marital status, and birth date. Check carefully and make sure that this information is correct! The report also will include a list of your creditors and often a series of letters and numbers indicating the status of the different accounts. The code should be clearly explained, but you also can call the credit bureau’s toll-free number with any questions.

What if the credit report is incorrect?

If you discover that your credit history is inaccurate or incomplete, notify the consumer reporting agency in writing immediately. State the facts clearly, explain the discrepancy, and include copies of any relevant documents. The FCRA requires these agencies to make appropriate corrections, and you probably will receive a response within 30 days.

What about negative information?

If there are skeletons in your financial closet, expect to wait about seven years before the negative information is removed from your credit report. Bankruptcy, however, can be reported for up to 10 years and information about a lawsuit can be reported until the statute of limitations runs out.

Do not be in the dark about your credit history. All kinds of companies rely on the information contained in this report, so make sure that it conveys an accurate image of your financial past.

By Lauren Greenwood

©2000-2019 Carelon Behavioral Health

Source: The Federal Trade Commission, www.ftc.gov; Experian, www.experian.com; Creditalk

Summary

There’s a lot more to a loan, be it for a home, a car or home improvement, beyond basics such as the interest rate.

You’ve found just the house you want, and you’ve found a loan that looks right. But do you really know what you’re getting into? Probably not unless you know something about loan terms and costs. There’s a lot more to a loan, be it for a home, a car or home improvement, beyond basics such as the interest rate. And interest itself can get rather complicated, as well as costly for the unwary.

Here’s a look at loan features that can make a difference to your pocketbook:

Points. A feature of home loans, points are interest paid up front. One point is one percent of the loan principal. The benefit of points to the borrower is twofold. First, you get a reduction in your interest rate going forward, which becomes more valuable the longer you stay in the home. Second, you can deduct points from your taxes in the year you pay them, as long as you pay them as part of your cash down payment. Points and interest tend to balance out, so that in a competitive loan market the lending costs are similar once you factor out the points. 

Fees. These are also tacked on to the up-front costs, but they don’t necessarily pay off for the borrower. The biggest are usually the origination fees, typically paid to mortgage brokers. These are not tax-deductible as points are. They do get added to the cost basis of the home and so reduce future capital gains, but current law shields most homeowners from having to pay capital gains on their primary residence. The origination fee may be worth paying if they get you a good overall package. 

Smaller “junk fees,” as financial advisors call them, are less defensible. These are charges for things like document delivery (when you’ve picked up the papers yourself) or notary services when a lender or broker has a full-time notary public on staff. A lender or broker who values your business should be willing to waive these.

Annual percentage rate. The APR is one way to measure the cost of all those points and fees. It includes these with your monthly payments to calculate an interest rate that reflects what you actually pay in a given year. The higher the fees and points, the more the APR will exceed the nominal loan rate.

ARM (adjustable-rate mortgage) formulas. Borrowers have a wide range of loan choices these days beyond the traditional 30-year fixed-rate mortgage. The question of which to choose—fixed-rate or adjustable-rate—is complex, but you should know how ARMs work if you’re considering them at all. Their potential costs are not always as obvious as those of fixed-rate loans.

All ARMs share some basic features. They use an index, such as Treasury bill rates or a “cost of funds” indicator of what lenders are currently paying depositors in interest. This is adjusted periodically—every year or six months, usually. A margin, such as 2.5 percent, is added to the index to determine the rate that the borrower pays. The margin never changes.

The index can change a lot, but you get some protection from extreme swings through another ARM feature, the rate cap. There are two types. One is an absolute upper limit for the interest rate. No matter how high the index goes, you’ll never pay more than this cap. Another is a limit on how much the loan can change in each readjustment.

Most ARMs have a 30-year term, with a low fixed rate for the first three, five, seven or 10 years. After that, the index and margin are used to set the rate on the remaining principal. Those short-term rates can be tempting because they are always lower than the rate for a 30-year fixed-rate loan. But if you plan to stay in your home past the date when the loan adjusts, remember that interest rates and the related index might be a lot higher than they are now. If you want to avoid the risk of a steep hike in your monthly payments, stick with a fixed-rate loan. And, if you want fixed rates at lower interest (along with faster payment of principal), check to see if a 15-year or even 10-year fixed-rate loan is feasible for you.

Prepayment rules. It used to be a common practice for mortgage lenders to penalize borrowers who paid off the principal ahead of schedule. These prepayment penalties are much rarer in the home-loan market now, and you should avoid them. But with other debt, such as auto loans, you can still face prepayment rules that lead to higher costs than you might expect. In all amortized loans—those paid off in equal installments—you pay most of the interest early and most of the principal late. Under the “Rule of 78s,” used by many lenders to set prepayment amounts, you may find you owe a surprisingly large chunk of principal well into the loan period. 

By Tom Gray

©2001-2021 Carelon Behavioral Health

Summary

• Decide if you have the resources.
• Know if the person is fiscally trustworthy.
• Agree on a repayment schedule.
• Consider giving a smaller amount as a gift.

What should you do when a loved one wants to borrow money? At some point, most of us have been in the difficult position of family loan officer. Even when you want to help, there are still many factors to consider before offering financial assistance. So do not write a check—or give a flat-out “no”—until you have thought about some of these important issues.

The borrower

Who are you loaning the money to? Do you consider this person fiscally responsible and trustworthy? If you feel confident about the borrower’s reliability, you may want to think about the request. If you doubt that you will ever see your money again, consider giving a smaller amount as a gift. This will prevent your future relationship from being soured by the memory of the unpaid loan, and you will have demonstrated your desire to help.

How much?

If you think the borrower is responsible and the need for the money is legitimate, consider whether you have the resources to make the loan. If you cannot afford to lose the money, you may want to say no and then offer to help raise cash in another way, such as by organizing a yard sale. You also can offer to loan a smaller amount.

Paying it back

Everyone benefits when the terms of a loan are clear. Borrower and lender should agree on a repayment schedule, and the lender needs to decide whether to charge a reasonable interest rate. Remember that if you do not charge interest on substantial loans (more than $10,000), the IRS may classify the money as a gift and tax the lender. You also can formalize the terms of the loan by drawing up a promissory note. You do not need to hire a lawyer—a promissory note is just a signed, written promise to repay a certain amount of money by a specific date.

Saying “no”

It is never easy to tell a loved one “no,” and you may feel guilty about turning down a request for money. Do not fall into this emotional trap. After all, you are rejecting the financial arrangement, not the person. If your loved one has ongoing fiscal problems, offer to set up an appointment with a debt counselor. Payment plans, scholarships and job opportunities also may alleviate pressure. Make a list of ideas and share it with your friend or family member.

Above all, do not feel obligated to make an immediate decision. Take some time to consider the request. And keep in mind there are lots of ways to help. Loaning money is just one option of many.

By Lauren Greenwood

©2000-2021 Carelon Behavioral Health