The Pros & Cons of Offering Owner Financing (When You Sell Your Home)

Sometimes, home sellers find a buyer eager to purchase but unable to finance the property with traditional mortgage financing. Sellers then have a choice: lose the buyer, or lend the mortgage to the buyer themselves.

If you want to sell a property you own free and clear, with no mortgage, you can theoretically finance a buyer’s full first mortgage. Alternatively, you could offer just a second mortgage, to bridge the gap between what the buyer can borrow from a conventional lender and the cash they can put down.

Should you ever consider offering financing? What’s in it for you? And most importantly, how do you protect yourself against losses?

Before taking the plunge to offer seller financing, make sure you understand all the pros, cons, and options available to you as “the bank” when lending money to a buyer.

Advantages to Offering Seller Financing

Although most sellers never even consider offering financing, a few find themselves forced to contemplate it.

For some sellers, it could be that their home lies in a cool market with little demand. Others own unique properties that appeal only to a specific type of buyer or that conventional mortgage lenders are wary to touch. Or the house may need repairs in order to meet habitability requirements for conventional loans.

Sometimes the buyer may simply be unable to qualify for a conventional loan, but you might know they’re good for the money if you have an existing relationship with them.

There are plenty of perks in it for the seller to offer financing. Consider these pros as you weigh the decision to extend seller financing.

1. Attract & Convert More Buyers

The simplest advantage is the one already outlined: You can settle on your home even when conventional mortgage lenders decline the buyer.

Beyond salvaging a lost deal, sellers can also potentially attract more buyers. “Seller Financing Available” can make an effective marketing bullet in your property listing.

If you want to sell your home in 30 days, offering seller financing can draw in more showings and offers.

Bear in mind that seller financing doesn’t only appeal to buyers with shoddy credit. Many buyers simply prefer the flexibility of negotiating a custom loan with the seller rather than trying to fit into the square peg of a loan program.

2. Earn Ongoing Income

As a lender, you get the benefit of ongoing monthly interest payments, just like a bank.

It’s a source of passive income, rather than a one-time payout. In one fell swoop, you not only sell your home but also invest the proceeds for a return.

Best of all, it’s a return you get to determine yourself.

3. You Set the Interest Rate

It’s your loan, which means you get to call the shots on what you charge. You may decide seller financing is only worth your while at 6% interest, or 8%, or 10%.

Of course, the buyer will likely try to negotiate the interest rate. After all, nearly everything in life is negotiable, and the terms of seller financing are no exception.

4. You Can Charge Upfront Fees

Mortgage lenders earn more than just interest on their loans. They charge a slew of one-time, upfront fees as well.

Those fees start with the origination fee, better known as “points.” One point is equal to 1% of the mortgage loan, so they add up fast. Two points on a $250,000 mortgage comes to $5,000, for example.

But lenders don’t stop at points. They also slap a laundry list of fixed fees on top, often surpassing $1,000 in total. These include fees such as a “processing fee,” “underwriting fee,” “document preparation fee,” “wire transfer fee,” and whatever other fees they can plausibly charge.

When you’re acting as the bank, you can charge these fees too. Be fair and transparent about fees, but keep in mind that you can charge comparable fees to your “competition.”

5. Simple Interest Amortization Front-Loads the Interest

Most loans, from mortgage loans to auto loans and beyond, calculate interest based on something called “simple interest amortization.” There’s nothing simple about it, and it very much favors the lender.

In short, it front-loads the interest on the loan, so the borrower pays most of the interest in the beginning of the loan and most of the principal at the end of the loan.

For example, if you borrow $300,000 at 8% interest, your mortgage payment for a 30-year loan would be $2,201.29. But the breakdown of principal versus interest changes dramatically over those 30 years.

  • Your first monthly payment would divide as $2,000 going toward interest, with only $201.29 going toward paying down your principal balance.
  • At the end of the loan, the final monthly payment divides as $14.58 going toward interest and $2,186.72 going toward principal.

It’s why mortgage lenders are so keen to keep refinancing your loan. They earn most of their money at the beginning of the loan term.

The same benefit applies to you, as you earn a disproportionate amount of interest in the first few years of the loan. You can also structure these lucrative early years to be the only years of the loan.

6. You Can Set a Time Limit

Not many sellers want to hold a mortgage loan for the next 30 years. So they don’t.

Instead, they structure the loan as a balloon mortgage. While the monthly payment is calculated as if the loan is amortized over the full 15 or 30 years, the loan must be paid in full within a certain time limit.

That means the buyer must either sell the property within that time limit or refinance the mortgage to pay off your loan.

Say you sign a $300,000 mortgage, amortized over 30 years but with a three-year balloon. The monthly payment would still be $2,201.29, but the buyer must pay you back the full remaining balance within three years of buying the property from you.

You get to earn interest on your money, and you still get your full payment within three years.

7. No Appraisal

Lenders require a home appraisal to determine the property’s value and condition.

If the property fails to appraise for the contract sales price, the lender either declines the loan or bases the loan on the appraised value rather than the sales price — which usually drives the borrower to either reduce or withdraw their offer.

As the seller offering financing, you don’t need an appraisal. You know the condition of the home, and you want to sell the home for as much as possible, regardless of what an appraiser thinks.

Foregoing the appraisal saves the buyer money and saves everyone time.

8. No Habitability Requirement

When mortgage lenders order an appraisal, the appraiser must declare the house to be either habitable or not.

If the house isn’t habitable, conventional and FHA lenders require the seller to make repairs to put it in habitable condition. Otherwise, they decline the loan, and the buyer must take out a renovation loan (such as an FHA 203k loan) instead.

That makes it difficult to sell fixer-uppers, and it puts downward pressure on the price. But if you want to sell your house as-is, without making any repairs, you can do so by offering to finance it yourself.

For certain buyers, such as handy buyers who plan to gradually make repairs themselves, seller financing can be a perfect solution.

9. Tax Implications

When you sell your primary residence, the IRS offers an exemption for the first $250,000 of capital gains if you’re single, or $500,000 if you’re married.

However, if you earn more than that exemption, or if you sell an investment property, you still have to pay capital gains tax. One way to reduce your capital gains tax is to spread your gains over time through seller financing.

It’s typically considered an installment sale for tax purposes, helping you spread the gains across multiple tax years. Speak with an accountant or other financial advisor about exactly how to structure your loan for the greatest tax benefits.

Drawbacks to Seller Financing

Seller financing comes with plenty of risks. Most of the risks center around the buyer-borrower defaulting, they don’t end there.

Make sure you understand each of these downsides in detail before you agree to and negotiate seller financing. You could potentially be risking hundreds of thousands of dollars in a single transaction.

1. Labor & Headaches to Arrange

Selling a home takes plenty of work on its own. But when you agree to provide the financing as well, you accept a whole new level of labor.

After negotiating the terms of financing on top of the price and other terms of sale, you then need to collect a loan application with all of the buyer’s information and screen their application carefully.

That includes collecting documentation like several years’ tax returns, several months’ pay stubs, bank statements, and more. You need to pull a credit report and pick through the buyer’s credit history with a proverbial fine-toothed comb.

You must also collect the buyer’s new homeowner insurance information, which must include you as the mortgagee.

You need to coordinate with a title company to handle the title search and settlement. They prepare the deed and transfer documents, but they still need direction from you as the lender.

Be sure to familiarize yourself with the home closing process, and remember you need to play two roles as both the seller and the lender.

Then there’s all the legal loan paperwork. Conventional lenders sometimes require hundreds of pages of it, all of which must be prepared and signed. Although you probably won’t go to the same extremes, somebody still needs to prepare it all.

2. Potential Legal Fees

Unless you have experience in the mortgage industry, you probably need to hire an attorney to prepare the legal documents such as the note and promise to pay. This means paying the legal fees.

Granted, you can pass those fees on to the borrower. But that limits what you can charge for your upfront loan fees.

Even hiring the attorney involves some work on your part. Keep this in mind before moving forward.

3. Loan Servicing Labor

Your responsibilities don’t end when the borrower signs on the dotted line.

You need to make sure the borrower pays on time every month, from now until either the balloon deadline or they repay the loan in full. If they fail to pay on time, you need to send late notices, charge them late fees, and track their balance.

You also have to confirm that they pay the property taxes on time and keep the homeowners insurance current. If they fail to do so, you then have to send demand letters and have a system in place to pay these bills on their behalf and charge them for it.

Every year, you also need to send the borrower 1098 tax statements for their mortgage interest paid.

In short, servicing a mortgage is work. It isn’t as simple as cashing a check each month.

4. Foreclosure

If the borrower fails to pay their mortgage, you have only one way to forcibly collect your loan: foreclosure.

The process is longer and more expensive than eviction and requires hiring an attorney. That costs money, and while you can legally add that cost to the borrower’s loan balance, you need to cough up the cash yourself to cover it initially.

And there’s no guarantee you’ll ever be able to collect that money from the defaulting borrower.

Foreclosure is an ugly experience all around, and one that takes months or even years to complete.

5. The Buyer Can Declare Bankruptcy on You

Say the borrower stops paying, you file a foreclosure, and eight months later, you finally get an auction date. Then the morning of the auction, the borrower declares bankruptcy to stop the foreclosure.

The auction is canceled, and the borrower works out a payment plan with the bankruptcy court judge, which they may or may not actually pay.

Should they fail to pay on their bankruptcy payment plan, you have to go through the process all over again, and all the while the borrowers are living in your old home without paying you a cent.

6. Risk of Losses

If the property goes to foreclosure auction, there’s no guarantee anyone will bid enough to cover the borrower’s loan debt.

You may have lent $300,000 and shelled out another $20,000 in legal fees. But the bidding at the foreclosure auction might only reach $220,000, leaving you with a $100,000 shortfall.

Unfortunately, you have nothing but bad options at that point. You can take the $100,000 loss, or you can take ownership of the property yourself.

Choosing the latter means more months of legal proceedings and filing eviction to remove the nonpaying buyer from the property. And if you choose to evict them, you may not like what you find when you remove them.

7. Risk of Property Damage

After the defaulting borrower makes you jump through all the hoops of foreclosing, holding an auction, taking the property back, and filing for eviction, don’t delude yourself that they’ll scrub and clean the property and leave it in sparkling condition for you.

Expect to walk into a disaster. At the very least, they probably haven’t performed any maintenance or upkeep on the property. In my experience, most evicted tenants leave massive amounts of trash behind and leave the property filthy.

In truly terrible scenarios, they intentionally sabotage the property. I’ve seen disgruntled tenants pour concrete down drains, systematically punch holes in every cabinet, and destroy every part of the property they can.

8. Collection Headaches & Risks

In all of the scenarios above where you come out behind, you can pursue the defaulting borrower for a deficiency judgment. But that means filing suit in court, winning it, and then actually collecting the judgment.

Collecting is not easy to do. There’s a reason why collection accounts sell for pennies on the dollar — most never get collected.

You can hire a collection agency to try collecting for you by garnishing the defaulted borrower’s wages or putting a lien against their car. But expect the collection agency to charge you 40% to 50% of all collected funds.

You might get lucky and see some of the judgment or you might never see a penny of it.

Options to Protect Yourself When Offering Seller Financing

Fortunately, you have a handful of options at your disposal to minimize the risks of seller financing.

Consider these steps carefully as you navigate the unfamiliar waters of seller financing, and try to speak with other sellers who have offered it to gain the benefit of their experience.

1. Offer a Second Mortgage Only

Instead of lending the borrower the primary mortgage loan for hundreds of thousands of dollars, another option is simply lending them a portion of the down payment.

Imagine you sell your house for $330,000 to a buyer who has $30,000 to put toward a down payment. You could lend the buyer $300,000 as the primary mortgage, with them putting down 10%.

Or you could let them get a loan for $270,000 from a conventional mortgage lender, and you could lend them another $30,000 to help them bridge the gap between what they have in cash and what the primary lender offers.

This strategy still leaves you with most of the purchase price at settlement and lets you risk less of your own money on a loan. But as a second mortgage holder, you accept second lien position

That means in the event of foreclosure, the first mortgagee gets paid first, and you only receive money after the first mortgage is paid in full.

2. Take Additional Collateral

Another way to protect yourself is to require more collateral from the buyer. That collateral could come in many forms. For example, you could put a lien against their car or another piece of real estate if they own one.

The benefits of this are twofold. First, in the event of default, you can take more than just the house itself to cover your losses. Second, the borrower knows they’ve put more on the line, so it serves as a stronger deterrent for defaults.

3. Screen Borrowers Thoroughly

There’s a reason why mortgage lenders are such sticklers for detail when underwriting loans. In a literal sense, as a lender, you are handing someone hundreds of thousands of dollars and saying, “Pay me back, pretty please.”

Only lend to borrowers with a long history of outstanding credit. If they have shoddy credit — or any red flags in their credit history — let them borrow from someone else. Be just as careful of borrowers with little in the way of credit history.

The only exception you should consider is accepting a cosigner with strong, established credit to reinforce a borrower with bad or no credit. For example, you might find a recent college graduate with minimal credit who wants to buy, and you could accept their parents as cosigners.

You also could require additional collateral from the cosigner, such as a lien against their home.

Also review the borrower’s income carefully, and calculate their debt-to-income ratios. The front-end ratio is the percentage of their monthly income required to cover all housing costs: principal and interest, property taxes, homeowner’s insurance, and any condominium or homeowners association fees.

For reference, conventional mortgage lenders allow a maximum front-end ratio of 28%.

The back-end ratio includes not just housing costs, but also overall debt obligations. That includes student loans, auto loans, credit card payments, and all other mandatory monthly debt payments.

Conventional mortgage loans typically allow 36% at most. Any more than that and the buyer probably can’t afford your home.

4. Charge Fees for Your Trouble

Mortgage lenders charge points and fees. If you’re serving as the lender, you should do the same.

It’s more work for you to put together all the loan paperwork. And you will almost certainly have to pay an attorney to help you, so make sure you pass those costs along to the borrower.

Beyond your own labor and costs, you also need to make sure you’re being compensated for your risk. This loan is an investment for you, so the rewards must justify the risk.

5. Set a Balloon

You don’t want to be holding this mortgage note 30 years from now. Or, for that matter, to force your heirs to sort out this mortgage on your behalf after you shuffle off this mortal coil.

Set a balloon date for the mortgage between three and five years from now. You get to collect mostly interest in the meantime, and then get the rest of your money once the buyer refinances or sells.

Besides, the shorter the loan term, the less opportunity there is for the buyer to face some financial crisis of their own and stop paying you.

6. Be Listed as the Mortgagee on the Insurance

Insurance companies issue a declarations page (or “dec page”) listing the mortgagee. In the event of damage to the property and an insurance claim, the mortgagee gets notified and has some rights and protections against losses.

Review the insurance policy carefully before greenlighting the settlement. Make sure your loan documents include a requirement that the borrower send you updated insurance documents every year and consequences if they fail to do so.

7. Hire a Loan Servicing Company

You may multitalented and an expert in several areas. But servicing mortgage loans probably isn’t one of them.

Consider outsourcing the loan servicing to a company that specializes in it. They send monthly statements, late notices, 1098 forms, and escrow statements (if you escrow for insurance and taxes), and verify that taxes and insurance are current each year. If the borrower defaults, they can hire a foreclosure attorney to handle the legal proceedings.

Examples of loan servicing companies include LoanCare and Note Servicing Center, both of whom accept seller-financing notes.

8. Offer Lease-to-Own Instead

The foreclosure process is significantly longer and more expensive than the eviction process.

In the case of seller financing, you sell the property to the buyer and only hold the mortgage note. But if you sign a lease-to-own agreement, you maintain ownership of the property and the buyer is actually a tenant who simply has a legal right to buy in the future.

They can work on improving their credit over the next year or two, and you can collect rent. When they’re ready, they can buy from you — financed with a conventional mortgage and paying you in full.

If the worst happens and they default, you can evict them and either rent or sell the property to someone else.

9. Explore a Wrap Mortgage

If you have an existing mortgage on the property, you may be able to leave it in place and keep paying it, even after selling the property and offering seller financing.

Wrap mortgages, or wraparound mortgages, are a bit trickier and come with some legal complications. But when executed right, they can be a win-win for both you and the buyer.

Say you have a 30-year mortgage for $250,000 at 3.5% interest. You sell the property for $330,000, and you offer seller financing of $300,000 for 6% interest. The buyer pays you $30,000 as a down payment.

Ordinarily, you would pay off your existing mortgage for $250,000 upon selling it. Most mortgages include a “due-on-sale” clause, requiring the loan to be paid in full upon selling the property.

But in some circumstances and some states, you may be able to avoid triggering the due-on-sale clause and leave the loan in place.

You keep paying your mortgage payment of $1,122.61, even as the borrower pays you $1,798.65 per month. In a couple of years when they refinance, they pay off your previous mortgage in full, plus the additional balance they owe you.

Of course, you still run the risk that the borrower stops paying you. Then you’re saddled with making your monthly mortgage payment on the property, even as you slog through the foreclosure process to try and recover your losses.

Final Word

Offering seller financing comes with risks. But those risks may be worth taking, especially for hard-to-sell properties.

Only you can decide what risk-reward ratio you can live with, and negotiate loan terms to ensure you come out on the right side of the ratio. For unique or other difficult-to-finance properties, seller financing may be the only way to sell for what the property’s worth.

Before you write off the returns as low, remember that your APR will be far higher than the interest rate charged.

Beyond the upfront fees you can charge, you’ll also benefit from simple interest amortization, which front-loads the interest so that nearly all of the monthly payment goes toward interest in the first few years — the only years you need to finance if you structure the loan as a balloon mortgage.

Just be sure to screen all borrowers extremely carefully, and to take as many precautions as you can. If the borrower can’t qualify for a conventional mortgage, consider that a glaring red flag. Seller financing involves risking many thousands of dollars in a single transaction, so take your time and get it right.


Cosigning a Loan – Understanding the Reasons & Risks

Having a high credit score makes a greater difference in your life than you might think.

It allows you to take out mortgage loans, auto loans, credit cards, small-business loans, and other types of loans with little hassle, opening far more doors to you. Good credit also qualifies you for a much lower interest rate, which means lower monthly payments — sometimes hundreds of dollars lower.

Although loan officers compete for your business, they aren’t the only ones who take notice of your solid credit. If you’re the financially responsible one among your family or circle of friends, there’s a chance someone will ask you to cosign a loan.

Cosigning is a common practice in the lending world, and it gives you an opportunity to help your friend or family member by opening those same doors to them.

But before casually agreeing to cosign a loan, seriously consider the risks and benefits. It’s no small favor, and you may be surprised when you learn what’s at stake for you.

What Is a Cosigner?

A cosigner is a person who agrees to pay a borrower’s debt if they default on the loan. The person asked to cosign a loan usually has a good credit score, lengthy credit history, and strong income, all of which greatly improve the primary borrower’s odds of approval.

Cosigners play a valuable role in the lending world; without cosigners, many people would have difficulty building their initial credit history. But despite the usefulness of this provision, cosigners tread in dangerous waters.

As a cosigner, you put yourself on the line as a borrower alongside the primary borrower. You take full legal and financial responsibility for the debt.

Reasons to Cosign a Loan

Although cosigners take a great risk, millions of people agree to cosign loans and leases every year. Why do they do it? Quite simply, to help someone they love.

Cosigning a loan for your friend or family member helps them in two ways and can create opportunities for them that they otherwise couldn’t access.

1. You Help an Applicant Obtain Financing

When enrolling in higher education or buying a starter home or car, it’s common for people to take out a loan. Take away the availability of loans, and their options shrink dramatically.

The same goes for applying to rent a first apartment. Many landlords are wary of applicants with no established credit history.

Credit and loan rejections are simply a reality for people with poor or no credit history. But sometimes lenders and landlords consider applications they’d otherwise decline if the borrower brings a cosigner.

Taking a chance and cosigning for a close friend or family member can give them the opportunity to obtain reliable transportation, attend school, or move into a safer community. As someone with good credit and income, you’re in a unique position to help your loved ones get off the ground.

2. It Helps an Applicant Build Credit

It takes credit to build credit. This raises a fundamental question: How do you get your first credit accounts with no established credit history?

The reality is that people without a credit history have a hard time qualifying for new accounts. As a cosigner on a loan, you have a hand in helping another person establish or build a better credit score and credit history.

After the first account or two, your friend or family member should have sufficient history to start qualifying for credit on their own — if they pay their bills on time, that is.

Pro tip: If you’re looking for other ways to build your credit, consider signing up for Experian Boost. Once you sign up for a free account, you can get an instant boost in your credit score.

Reasons Not to Cosign a Loan

The benefit to you as the cosigner is intangible: You feel good about helping someone you care about.

Unfortunately, the risks of cosigning a loan are extremely tangible. Before agreeing to cosign, you need to understand the dangers and exactly what you’re getting yourself into.

1. You’re 100% Liable

When you cosign a loan or lease, you take on 100% liability for it. Not partial responsibility, not half, but the entire thing.

Imagine you cosign a $150,000 mortgage for your son to help him buy his first home. He stops paying the mortgage, and the lender files to foreclose.

You’re legally liable for making those monthly payments, just as much as he is. You now have a choice. You can either make the monthly payments for him — potentially for the next 30 years — or you can let the loan go to foreclosure.

If it goes to foreclosure auction and sells for less than you and your son owe, you’re on the hook for the difference. Keep in mind that the balance will include thousands of dollars in back payments, late fees, attorney fees, and marketing fees for the auction.

The lender can sue you personally for the outstanding deficiency judgment. And this says nothing of the damage to your credit.

2. You Could Ruin Your Credit

There is a reason why your friend or family member can’t qualify for a loan on their own.

Granted, that reason may be that they haven’t established any prior credit history. But if the person requesting a cosign has a history of defaulting on loans or paying bills late, proceed with caution. History may repeat itself, in which case your credit will suffer a similar fate.

Remember, this loan appears on your credit report. Any late or skipped payments are noted on your report. Seriously consider whether cosigning is worth the financial and credit risk.

Keep in mind that your credit has further to fall than your friend or family member’s. They already have a bad credit score, so they have less to lose by making late payments than you do.

3. Your Monthly Budget Is Also on the Line

If the primary borrower fails to make payments, you’re on the hook for them. Are you really prepared to pay your son’s $1,200 mortgage payment or rent every month indefinitely?

Make no mistake: Your monthly budget is at risk. By cosigning, you’re agreeing to make those monthly payments just as much as your beneficiary is. That means you need to actually budget for the monthly payments, to add them as a line item in your monthly expenses.

Hopefully, your friend or family member makes their payments on time. But “hopefully” isn’t good enough when you’re talking about a legal obligation to pay hundreds or thousands of dollars each month.

Having to step in and start making payments can ruin your retirement planning or other major financial goals. Think long and hard about where the monthly payment would come from if you had to make it and what you’d be sacrificing.

4. It Increases Your Debt-to-Income Ratio

Your debt-to-income ratio (DTI) is the percentage of your debt payments in relation to your income. To calculate your DTI, divide your monthly debt payments by your monthly income.

For example, someone who earns $6,000 per month and has debt payments of $1,500 has a debt-to-income ratio of 25%.

Unfortunately, many people fail to realize how cosigning impacts their own DTI. Being a cosigner isn’t a verbal agreement that lenders forget once a primary applicant acquires the loan. As a cosigner, you’re attached to the loan. You’re required to attend the loan closing and sign the loan documents.

The loan appears on your credit report, and the monthly loan payment factors into your DTI — regardless of whether the primary applicant makes the payment each month. Because you’re liable for this balance in the event of default, being a cosigner can decrease your ability to get new credit.

But this isn’t the only consequence of a higher DTI. Cosigning a loan can also lower your credit score because the total amount you owe makes up 30% of your FICO score.

Thus, the more debt you have, the lower your credit score. Ideally, your debt-to-income ratio should be no higher than 36%, and your credit score will drop as your debt approaches or exceeds this percentage.

The bottom line: By cosigning for someone else, you jeopardize your own ability to borrow money in the future, whether to buy a new house, buy a car, or invest in your small business.

5. You Can’t Remove Yourself as Cosigner

Cosigning isn’t something you consent to for only a few months. Once you accept this responsibility and sign the loan documents, you’re tied to the debt for as long as it’s owed — which in some cases could be as long as 30 years. You can’t renege or beg the lender to take your name off the loan.

In some cases, however, the lender may include a cosigner release clause in the loan agreement, which removes you as cosigner once the primary applicant demonstrates a history of timeliness. These clauses are common with student loans, but you can request this provision from any lender.

Otherwise, the only way to remove your name as cosigner is for the primary applicant to refinance the loan and requalify on their own.

6. You Have to Track Payments

When you take on the responsibility of cosigning a loan, you add one more bill to keep track of every month.

You need to know if the primary borrower makes their payment or not, every single month, for the rest of the loan term. That means the added hassle of having to check up on the loan payments each month. It’s one more headache you probably don’t need in your life.

7. The Risk to Your Relationships

When you say no to a request to cosign a loan, you create friction once and for a short period of time. Your friend or family member will be disappointed, but hopefully, they’ll understand.

But when you agree to cosign a loan, you set the stage for constant conflict and friction. What do you think you’ll do when you check up on the monthly payment and discover your loved one hasn’t paid it yet, but it’s due today?

You’ll call them and demand they pay it, of course. They’ll view it as nagging, as you seethe over having to remind them to pay their own bills.

As the months go by, and you nag and they perhaps make a few payments late, the trust between the two of you erodes bit by bit. You stop trusting them to make their payments on time, and they know it.

All of this creates a recipe for resentment, anger, distrust, and disintegrating personal relationships. And if the primary borrower defaults on the loan completely, your relationship may be not salvageable at all.

8. Your Only Legal Recourse Is a Lawsuit

Imagine the worst happens, and your friend or family member defaults on the loan.

You can step in and start making the monthly payments to bail them out. You did sign a legal obligation to do so, after all, just like they did. Otherwise, the loan goes into collections or foreclosure, and the lender sues you personally for the money. Your credit takes an enormous hit in the process.

Either way, you suffer significant financial losses. And under the law, you only have one course of action: suing the primary borrower for your losses.

Of course, winning the lawsuit is only half the battle. Even if you win a judgment against them, you then have to collect it. That’s no easy feat. It usually involves paycheck garnishments, liens, and other expensive debt-collection tactics.

Do you really want to put yourself in a position where you have to pay your friend or family member’s debts, and the only way to recover your money is to sue them?

9. Potential Tax Consequences

Say the borrower defaults, and you call up the lender to negotiate the debt. Of the $20,000 auto loan, the lender agrees to accept $12,000.

You pay them $12,000 — a financial blow in itself. Then you get hit again by Uncle Sam, who requires you to pay income taxes on the $8,000 of forgiven debt. It’s called “debt forgiveness income,” and it’s treated just like any other income.

Plus, your credit still takes a hit. The debt would appear as “settled” rather than “paid as agreed,” and it would hurt your credit score.

When Does Cosigning Make Sense?

Although there’s no good financial reason to cosign a loan, cosigning is ultimately a personal decision.

In some situations, it’s a means to a greater end, and your personal reasons for cosigning may outweigh the financial risks for you. For example, you might cosign a credit card application or apartment lease for your child to help them become independent faster.

If your child needs a cosigner to take out student loans and needs student loans to attend college, then the benefit of helping them get an education may outweigh the financial risks to you.

Alternatively, you may face a choice between cosigning for an adult child or letting them move in with you. Suddenly cosigning might look a lot more appealing.

Cosigning is less risky if you don’t plan on financing anything for yourself in the near future. Because this loan raises your debt-to-income ratio, you may have difficulty qualifying for a mortgage or auto loan of your own until the debt is paid. That matters less if you don’t expect to finance any large purchases any time soon.

In any case, for cosigning to make sense, honestly examine your financial situation to see if you can afford the payments in the event of default. If you can’t, don’t take the risk.

If You Cosign: How to Protect Yourself

If you’re willing to take the risk to cosign for your friend or family member, you do have a few options to help protect yourself.

None offer ironclad protection, but take these steps to maximize your odds of surviving the cosigned loan with your budget and credit intact.

Get Online Access to the Accounts

You need your own login to access the loan account online. With a few clicks, you can check on the loan’s payment history and make sure the borrower has been fulfilling their debt obligations.

It’s part of the hassle inherent in checking up on the borrower, but it’s easier than having to call up the lender each month. Just remember that if you log in and find the borrower hasn’t paid as agreed, you’re now forced into the position of nagging them.

Ensure You’re Copied on All Correspondence

Whether the lender sends statements and notices by email or snail mail, make sure you receive them too.

If the primary borrower doesn’t pay, you need to know about it. Before agreeing to cosign the loan, talk to the lender directly to ensure they can copy you on all correspondence.

Beef Up Your Emergency Fund

As outlined above, you need to budget for the loan payments. You signed a legal obligation to pay them.

For the first 6 to 12 months of the loan, make the loan payments each month — to your emergency fund. It helps make the obligation real to you and ensures you can actually afford to make the monthly payments.

Just as importantly, it means you have plenty of money within easy reach to help cover the debt if the worst happens and your friend or family member defaults.

Plan an Exit Strategy With a Firm Deadline

You don’t want to sign a 30-year loan commitment.

Instead, form a clear exit strategy with your friend or family member. Plan out exactly when and how the loan will be repaid in full, so you’re not left with their debt obligation for years or even decades to come.

For example, if cosigning a mortgage, insist that the borrower take out a balloon mortgage that ends in three or five years, rather than a 30-year fixed mortgage. The borrower can then either refinance or sell the property, thus relieving you of your obligation.

Alternatively, if you’re cosigning a lease agreement, insist that the landlord include a termination clause after one year.

That way, your friend or family member has to sign a completely new lease agreement in their own name if they want to stay, rather than the existing lease automatically rolling over to a month-to-month contract.

If You Don’t Cosign: Alternatives to Cosigning

Just because you turn down your friend or family member for cosigning their loan doesn’t mean you can’t help them otherwise.

As you mull over the decision, consider a few alternative ways you might help them get on their feet financially without exposing yourself to so much credit risk.

Help Them Create a Budget

Public schools don’t teach personal finance, budgeting, or investing. If your friend is in the position of having to ask for a cosigner, chances are they never learned these skills — especially how to create a budget.

They could try to figure it out on their own. Or you can vastly improve their odds of success by helping them clean up their finances and budget.

As they increase their savings rate, several stars begin aligning in their favor.

First, it helps them pay down any existing debts, which may be hindering their ability to take out a loan on their own. Second, it helps them save money faster that they can use toward a down payment on a loan.

And the larger their down payment or cash reserves, the more likely lenders are to offer them credit, regardless of the type of loan.

Help Them Build Their Credit

Help your friend or family member automate their debt repayments, setting up recurring payments on each payday. Offer to physically take their credit cards and store them somewhere safe. Explain that their credit score will rise if they can get all balances below 30% of the accounts’ credit limits.

Serve as an accountability partner, having them report back to you about whether they paid every single one of their bills on time each month. Review their credit report with them, and help them dispute any errors you find. Have them establish good credit safely with a secured credit card.

In short, keep working on their credit with them until they become creditworthy in their own right.

Just Give Them Cash

Another option is simply giving a loved one cash toward their down payment. It poses far less risk to you: less risk to your credit, less legal liability, and less money on the line.

It could be a straightforward gift, something to help them qualify for the loan with a larger down payment. Or you could attach a few strings, as you see fit.

What you can’t do is lend someone the money for a down payment on a home. Mortgage lenders don’t allow any part of the down payment to be borrowed. As soon as they see a large deposit in your friend or family member’s bank account, they’ll demand an explanation, then require a signed letter from you declaring the money is a gift that doesn’t need to be repaid.

A gift to a friend or family member with no strings attached offers fewer complications for your relationship. Alternatively, you could ask them to pay you back in other ways, such as mowing your lawn, babysitting for you, or dropping off precooked meals.

Offer Collateral Instead of Cosigning

This option still puts you at risk, but at least it limits that risk to one specific asset.

If your friend or family member wants a car loan, offer to put up your car as additional collateral. If they’re applying for a mortgage, offer a lien against your home as extra collateral. This will reduce the risk to a lender enough that they may be willing to give a loan to your loved one without requiring a cosigner.

Granted, if your friend or family member defaults on their loan with your property as collateral, you’d lose your car or home. So you still have to monitor their loan payments and potentially nag them or step in to make payments on their behalf, but at least you don’t risk your credit or any other assets.

Open Your Doors to Them

If your friend or family member is recovering from a divorce or other major financial catastrophe, you can always let them come stay with you for a little while rather than cosigning a loan or lease for them. If they need a car, perhaps offer them use of yours rather than cosigning a car loan.

The inconvenience may not be fun, but it’s often better than cosigning for them.

Lend Them the Full Amount Yourself

Finally, you could offer to lend them the money yourself.

No one says you can’t give them a car loan, or a home mortgage, or a business loan. Just make sure you attach a lien against the collateral and prepare yourself for the possibility that you might have to foreclose or repossess the collateral through legal action if they default on the loan.

At least you don’t risk your credit or legal liability. And perhaps you can even earn a return on the interest for your trouble.

Final Word

Someone in need of a cosigner may beg and plead for your help. And if you respectfully decline the enormous favor they’re asking, they might try to make you feel guilty.

Ultimately, though, it’s your credit on the line. You’ve spent years building an excellent credit history, and it only takes a few missed payments to undo your hard work and reduce your ability to qualify for low rates — or get any financing at all.

Never casually agree to cosign a loan or lease. If someone asks for your help, tell them you need a few days to mull it over. Evaluate the decision carefully, and recognize the very real risks that come along with the borrower defaulting and leaving you holding the loan.

If you have even the slightest doubt about your friend or family member’s ability to make all payments on time, consider the alternatives above. Or simply tell them that as much as you love them, it’s a favor you simply can’t grant right now.

They may be upset momentarily, but it’s better to endure a one-time flare of anger than years of resentment, mistrust, and nagging.


Too Much Online Shopping? These Apps Can Earn You More Than $2,000 Back.

A free app called Fetch Rewards will reward you with gift cards just for buying toilet paper and more than 250 other items at the grocery store.
Wouldn’t it be nice if you got an alert when you’re shopping online at Target and are about to overpay?
If you buy online 25 times a month — including each item in your Amazon cart and your restaurant delivery — you could save an estimated ,825 each year. The extension will estimate your savings at different levels. At five monthly purchases, you could still save 5 annually, and at 10 purchases, you could save 0.

1. Find Out If You’re Overpaying and Save $1,825/Year

Here’s how it works: After you’ve downloaded the app, just take a picture of your receipt showing you purchased an item from one of the brands listed in Fetch. For your efforts, you’ll earn gift cards to places like Amazon or Walmart.
Do you remember going to the mall? The thrill of walking from store to store, adding more bags to your arms, paying cash (!) for your splurges — it was a whole experience, and it might have helped you stay in budget, too.
Just add it to your browser for free, and before you check out, it’ll check other websites, including Walmart, eBay and others to see if your item is available for cheaper. Plus, you can get coupon codes, set up price-drop alerts and even see the item’s price history.
Have eight Amazon boxes headed to your porch? Bam. Even more extra cash.
You were going to buy these things anyway — why not get this extra money in the process?
But not online shopping. The ease of finding everything you need — and plenty of things you don’t — makes it way too easy to *click* *click* *buy now* and deal with the credit card bill later.
Filling up the tank? Extra cash.

2. Get Paid Every Time You Buy Toilet Paper

Enter your email address here, and link your bank account to see how much extra cash you can get with your free Aspiration account. And don’t worry. Your money is FDIC insured and under a military-grade encryption. That’s nerd talk for “this is totally safe.”
That’s exactly what this free service does.
Capital One Shopping compensates us when you get the extension using the links provided.
Yup. That could be 0 back in your pocket just for taking a few minutes to look at your options.

3. Knock $489/Year From Your Car Insurance in Minutes

Ready to stop worrying about money?
You can get started in just a few clicks to see if you’re overpaying online.
Yep. A debit card called Aspiration gives you up to a 5% back every time you swipe or buy online.
OK, OK, we know buying car insurance isn’t nearly as fun as winning a bid on eBay, but it’s still an online purchase! When was the last time you even checked car insurance prices?
You can download the free Fetch Rewards app here to start getting free gift cards. Over a million people already have, so they must be onto something…

4. See if You Can Get More Money From This Company

Let’s be real. Online shopping is here to stay, but overspending doesn’t need to be. Here are some of the best tricks to save you money and earn you cash back.

Privacy Policy
A website called makes it super easy to compare car insurance prices. All you have to do is enter your ZIP code and your age, and it’ll show you your options.
Get the Penny Hoarder Daily
Let’s say you’re shopping for a new TV, and you assume you’ve found the best price. Here’s when you’ll get a pop up letting you know if that exact TV is available elsewhere for cheaper. If there are any available coupon codes, they’ll also automatically be applied to your order.
Grocery shopping was never exactly pleasant. But these days, it’s a downright struggle. Fighting crowds; keeping six feet of space — just buying toilet paper is a feat. Shouldn’t you have something to show for it?

You should shop your options every six months or so — it could save you some serious money. Let’s be real, though. It’s probably not the first thing you think about when you wake up. But it doesn’t have to be.

6 Ways to Save on an Engagement Ring – Cheap Diamond Alternatives

An engagement ring for your partner is one of the biggest purchases you’ll ever make — and definitely one of the most stressful. Although the love of your life probably isn’t going to reject your proposal just because of the ring, you still want them to be overjoyed with the ring the moment you open that little velvet box.

To make sure that happens, learn about your partner’s ring preferences before popping the question — either by asking openly or by strolling casually past jewelers’ windows and discussing their contents. If your partner’s tastes fall more or less in line with what you can afford, you can simply pick out something that fits both their desire and your budget. However, if it turns out the ring you can afford falls a bit short of what your partner wants, it only turns up the stress level.

How to Save With an Affordable Engagement Ring

Fortunately, when it comes to ring shopping, there are several ways to reconcile big dreams with a tight budget. You can always consider delaying your proposal until you can afford the real dream ring. But thinking outside the box about what type of ring to buy and where to buy it can make a splashy ring more affordable.

1. Consider Alternatives to Natural Diamond

Before assuming their dream ring is out of your financial reach, make sure you and your partner have considered all the possible choices. For instance, an engagement ring doesn’t necessarily have to be a natural diamond, and you don’t have to purchase it new. There’s a whole array of less expensive alternatives for an engagement ring you hadn’t considered.

Lab-Grown Diamonds

Diamonds don’t have to come from a mine. With modern science, it’s possible to create genuine diamonds in a lab. They’re visually, physically, and chemically identical to natural stones and are considerably cheaper than the natural kind. According to Brilliant Earth, lab-grown diamonds are typically about 30% less expensive than natural diamonds of the same size and quality.

As an added perk, these lab-grown diamonds don’t have the ethical problems associated with natural stones. Aside from the environmental issues caused by mining, sales of diamonds often finance wars and human rights abuses. It’s possible to buy natural conflict-free-certified diamonds, but they typically cost extra, while lab-grown diamonds cost less.

Faux Diamonds

Imitation diamonds like cubic zirconia (CZ) are not the same as lab-grown diamonds. They aren’t as hard as genuine diamonds, which means they can be scratched or chipped. They can also grow cloudy over time.

A trained jeweler can quickly tell the difference between a real diamond and a CZ. However, they look identical to the untrained eye, and they’re much cheaper. According to Everything Wedding Rings, a 1-carat diamond with “passable” color and clarity costs around $1,500, while a comparable CZ sells for only $20. And the larger the stone, the more significant the difference in value.

So if your sweetheart wants a big, sparkly stone and doesn’t care about its dollar value, a CZ ring is an affordable way to make that dream come true.

Other Gemstones

Colorless stones like white sapphire or moissanite can give the look of a diamond at a lower cost. According to the jewelry site Do Amore, white sapphire has a Mohs hardness rating of 9 (of 10, the highest hardness). But it costs less than 25% as much as a comparably sized diamond (which the Capetown Diamond Museum puts at a Mohs rating of 10). Moissanite is an even better value, scoring 9.25 on the Mohs scale — harder than sapphire and significantly harder than CZ — and costing around 15% as much as a diamond, according to Do Amore.

Alternatively, you could choose a colored stone that’s meaningful to your partner, such as their birthstone. When a friend of mine got engaged, his fiancee told him in no uncertain terms that she wanted a blue sapphire ring, not a diamond — and she was delighted with the vintage ring he chose.

Rings Without Stones

Who says an engagement ring needs to contain gemstones at all? If your betrothed has a unique style, a unique metal ring with an ornate design can be a better way to express it than a shiny rock. Options include an Irish Claddagh ring, a lovers’ knot, or a ring sculpted with the shape of your partner’s favorite animal.

Secondhand Rings

Even if a diamond ring is your partner’s preference, it doesn’t have to be brand-new. You can find jewelry for considerably less by shopping secondhand at places like:

The biggest downside of shopping at places like these is that the selection is limited. You might not find what you want, but if you do, it’ll probably be quite a bit cheaper than a ring from the jeweler.

Family Rings

The most meaningful ring of all could be one that’s been in your family for generations. Even if it’s not large or ornate, an heirloom ring shows you’re truly welcoming your partner into your family. It’s the ideal symbol of a lifelong commitment.

2. Shop Online

According to The Knot, you can find a much better price for your ring shopping online than you would at a local jeweler. Shannon Delaney, director of communications for online diamond retailer James Allen, tells The Knot an identical ring can cost you anywhere from 30% to 50% less online.

Shopping online also has other perks, including:

  • A Wide Selection. Local jewelers only have so much room in their display cases. Online jewelers, by contrast, can show you a vast selection of stones and settings. You can browse all the options and make sure you’re getting exactly what you want.
  • Easy Customization. If you don’t see the ring of your dreams online, it’s often possible to create it yourself. Many online jewelers allow you to build your ring from scratch, selecting the gem size, cut, color, ring metal, and design.
  • No Pressure. When you go into a jewelry store to buy an engagement ring, you often feel pressured to pick something out. Rather than taking the time to shop around or order a ring to your specifications, you’re likely to limit yourself to what happens to be in the display case. Shopping online lets you take your time, consider all the options, and go for a custom ring if that’s what you want.

However, you need to take some precautions when buying a ring online. You can’t see it in person, so you need to examine the pictures from every possible angle and make sure it’s exactly what you want before ordering. Also, take the time to research the company’s payment and shipping methods and return policy. The Knot also recommends requesting certification for your diamond to make sure it’s genuine and ethically sourced.

There are many places to shop for an engagement ring online. According to The Knot, the three most popular choices are James Allen, Blue Nile, and Brilliant Earth. Reviewers at CreditDonkey particularly recommend James Allen for its great online displays and “endless customization options.” Blue Nile also earns high marks for its huge selection and exclusive offerings. Both retailers offer price-match guarantees as well.

3. Size It Down

Another tip Delaney offers for saving on a diamond is to choose a stone that’s a tiny bit smaller. Due to a quirk in diamond pricing, a stone that measures a whole carat or half a carat costs significantly more than one that’s 0.97 or 0.48 carats, even though they look identical to the naked eye. According to The Street, sizing down your ring from a full carat to 0.95 carats can reduce its price by as much as 25%.

Alternatively, you can choose a ring with multiple small diamonds instead of a solitaire. According to The Knot, a cluster of small diamonds typically costs much less than a single large stone. One popular option right now is the halo ring, which has one central gemstone surrounded by a ring of smaller stones. This arrangement makes a small center stone look as large as a much heftier diamond for a fraction of the price.

4. Choose the Right Cut

When it comes to buying a diamond, knowledge is power. The more you know about the “four C’s” of diamonds — color, clarity, cut, and carat — and how they affect the cost, the better you’ll understand how much it’s reasonable to pay for any given stone.

However, the four C’s are not all equally important. According to Long’s Jewelers, for instance, small differences in clarity aren’t that noticeable to the naked eye. Cut plays a far more significant role in bringing out a diamond’s sparkle.

The right cut can also make a small diamond look larger than it really is. A diamond with a shallower cut has a larger diameter than one the same carat size with a deeper cut. That’s the main reason round diamonds tend to look bigger than other shapes, according to Greg Kwiat, partner at Kwiat Diamonds and CEO of Fred Leighton, tells Brides. However, oval and oblong shapes can also make a diamond look bigger because they take up more space on the finger.

5. Save Up for It

Suppose you’ve tried every trick you can think of — shopping around, experimenting with different options, tweaking the diamond size — and the ring you truly want to give your partner simply isn’t in your price range right now. In that case, you have two options. You can settle for a more modest ring, or you can delay your proposal while you save up for the ring of your dreams.

Saving for an engagement ring is like saving for any other financial goal. Simply take the price of the ring and divide it by the number of months until you plan to propose, and you get the number of dollars you need to set aside each month to reach your goal. For instance, if your dream ring costs $3,000 and you want to propose in six months, you must save $500 per month.

If you can’t manage to squeeze that amount of money out of your personal budget, try looking for strategies to boost your savings. For instance, you could temporarily cancel your cable or ditch your gym membership and put that money toward your ring fund. Or you could try to bring in extra income with a side gig or refinance some existing debts to reduce your payments. By combining these strategies, you could save an additional $1,000 in just one month.

Remember, though, that any money you’re setting aside for the ring can’t go toward your other financial goals, such as paying off student loans or saving for retirement. Think carefully about whether it makes more sense to put your savings toward a ring for your partner or toward a debt-free future. Ultimately, you might decide it makes more sense to scale down your ring plans so you can invest your savings into putting your future marriage on a sound financial footing.

6. Get a Starter Ring

The biggest problem with saving up to buy a ring is that it means putting off your marriage. As Harry says in the movie “When Harry Met Sally,” once you’ve decided to spend the rest of your life with someone, you want the rest of your life to start as soon as possible. Not only does delaying your engagement mean waiting to begin your life together, but it also means you won’t get to enjoy the financial benefits of marriage as soon.

However, you can have your cake and eat it too. You can pick out a modest engagement ring to present when you propose and promise to upgrade to a bigger ring down the road. You can think of this smaller ring like a starter home — a stepping stone to the “forever” ring.

You can also use any of the strategies you can use for buying a forever ring to find an affordable starter ring. For instance, you can shop online, shop secondhand, choose a smaller diamond, choose a lab-created diamond, or get a ring without a diamond at all. At the same time, you can start saving your money to present your partner with a bigger diamond later. You can make it a gift for a milestone anniversary, a significant birthday, or a special occasion, such as your first child’s birth.

Zales suggests several ways to upgrade your ring when the time comes. You can keep the setting from your old ring but replace the stone with a larger one or add more stones to it. Alternatively, you can keep the existing stone and replace the band with a fancier one that contains additional diamonds. Or if your spouse wants to keep the original engagement ring for sentimental reasons, you can simply buy a new ring and move the old one to a different finger.

Final Word

Don’t let anyone tell you you’re cheap if you can’t — or won’t — spend thousands of dollars on an engagement ring for your partner. What really matters about the ring is that it’s a symbol of your love and commitment, and that’s not something you can set a dollar value on.

Moreover, the purchase of this ring marks the start of your life together. It’s the first of many things you must spend money on in your new life together, such as your wedding, a home, and possibly children. By saving money on the ring, you’re leaving yourself with more for these other expenses down the road, which will probably go further toward creating a happy life for the two of you.

Which of these options do you consider reasonable ways to save on an engagement ring? Would you be comfortable giving or receiving a ring that wasn’t a brand-new natural diamond?


9 Best Credit Cards for Bad Credit – Reviews & Comparison

Advertiser Disclosure: This post includes references to offers from our partners. We receive compensation when you click on links to those products. However, the opinions expressed here are ours alone and at no time has the editorial content been provided, reviewed, or approved by any issuer.

According to Experian’s 2019 State of Credit study, the average U.S. consumer’s FICO score – a popular consumer credit score – hit a record high of 703 in 2019, measured on a scale of 300 to 850. Fewer than 100 points separate the cities with the country’s highest and lowest average FICO scores, indicating that many consumers’ scores cluster tightly around the national mean.

You shouldn’t feel discouraged or ashamed by a credit score that’s significantly below the national average due to high credit utilization or late payments in the past, nor a credit report that reflects past financial difficulties. However, fair or poor credit often has real-world consequences.

If you don’t take steps to build your credit over time and boost your credit score, you could find yourself face to face with some of the negative consequences of bad credit.

Fortunately, credit card issuers are willing to lend to people with less-than-perfect credit or thin credit histories. If your credit is fair or poor, you shouldn’t expect a gilt-edged credit card with an astronomical spending limit, lavish rewards, and VIP benefits. But you certainly could qualify for a credit card designed to help you build credit and raise your credit score.

Best Credit Cards for Bad Credit

The credit card offers on this list are all designed to build credit history and improve credit overall. Many are secured credit cards that require an initial deposit, often equal to the card’s credit limit, before first use.

Others are unsecured cards that come with high APRs (interest rates) and low credit limits (available credit). Some boast student-friendly card perks, such as cash-back rewards for good grades.

In general, cards for people with bad credit don’t offer amazing rewards or high spending limits. What they do offer is a manageable means to improve credit over time.

In fact, most of the cards on this list report monthly payments to all three major consumer credit bureaus, and many automatically consider customers for credit line increases after several consecutive on-time, in-full payments.

When used responsibly and paid on time, these cards serve as stepping stones to credit cards with higher spending limits, lower APRs, and better cash back, travel rewards, or hotel rewards. Other lenders are sure to take notice of your improved credit performance too.

1. Capital One® QuicksilverOne® Cash Rewards Credit Card

Unlimited 1.5% Cash Back on All Eligible Purchases

capital one quicksilver one credit card

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The Capital One QuicksilverOne® Cash Rewards Credit Card is the only unsecured credit card on this list. It’s intended to be a “bridge” card that may open you up to other cards with greater rewards – two very attractive features that are worth seeking out.

It’s also one of the only cash-back rewards credit cards featured here. It earns an unlimited 1.5% cash back on all purchases, all the time, and allows you to redeem for statement credits or bank account deposits once you accumulate $25 in cash-back rewards.

This card is for users with average, fair, or limited credit, so applicants who’ve recently declared bankruptcy or have very low credit scores aren’t likely to qualify.

Also, if this is your first unsecured credit card, you probably won’t qualify for a high credit limit right out of the gate. Expect your limit to start at or near the card’s minimum of $300.

If you make on-time payments for five consecutive months, Capital One automatically approves you for a higher credit line. Capital One doesn’t disclose QuicksilverOne’s maximum credit limit, but it’s reasonable to expect a limit of $1,500 or more after two to three years of responsible card use and on-time payments.

  • Rewards and Redemption: All eligible purchases earn unlimited 1.5% cash back, with no caps or restrictions on how much you can earn. You can redeem for statement credits and other cash equivalents in any amount or schedule recurring redemptions starting at $25.
  • Key Fees: There’s a $39 annual fee, but no foreign transaction fees. You can’t make balance transfers with this card.
  • Intro APR: None.
  • Other Perks: Get free monthly access to your FICO score via Capital One’s Credit Tracker feature.

Read our Capital One Quicksilver One Cash Rewards Credit Card review for more information. Learn more about this card and find out how to apply here.

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2. Capital One® Secured Mastercard®

Minimal Fees; Possibility of Credit Limit Greater Than Initial Deposit; Credit Limit Increases Without Additional Deposits

capital one secured mastercard

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Before you can start using the Capital One® Secured Mastercard®, you need to make a refundable security deposit of $49, $99, or $200, depending on your credit profile.

Your initial credit limit ranges from $200 to $3,000, depending on your creditworthiness, and may be raised after several months of timely payments at Capital One’s sole discretion.

If you want to get a higher credit limit without waiting this long, you can make additional deposits in $20 increments, up to the $1,000 maximum. Regardless of whether you pay on time or not, Capital One reports all payments (or lack thereof) to the three major credit reporting bureaus.

The Capital One Secured Mastercard is attractive to borrowers with bad credit because it’s one of the few secured cards that offer credit limits greater than the initial deposits.

Also, cardholders in good standing can eventually graduate to unsecured status, recouping their security deposits in full and continuing to use the card without depositing additional funds.

This card’s fees are also lower than many other secured cards, and its nonexistent annual fee is a rarity in the space.

  • Rewards and Redemption: None.
  • Key Fees: There’s no annual fee. Balance transfers aren’t allowed.
  • Introductory APR: None.
  • Other Perks: Get free unlimited access to your FICO score and credit-building help via Capital One Credit Tracker.

Read our Capital One® Secured Mastercard® review for more information. Learn more about this card and find out how to apply here.

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3. OpenSky® Secured Visa® Card

No Credit Check Necessary With Application; Low APR and Reasonable Fees

Opensky Secured Visa Card

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The OpenSky Secured Visa Credit Card requires an upfront refundable deposit of at least $200 and as much as $3,000. Your credit limit is always equal to your deposited amount. Like most other secured card issuers, OpenSky reports your payment patterns to all three major credit reporting bureaus.

Importantly, this card doesn’t require a credit check with your application, which makes it a strong choice for people with poor or nonexistent credit. However, you do need to watch out for the relatively low maximum credit limit.

Unlike some other secured cards designed for rebuilding credit, the OpenSky Secured Visa doesn’t have an unsecured version. If you want to get your security deposit back, you need to request to cancel the card and pay any outstanding balance.

  • Rewards and Redemption: None.
  • Key Fees: There’s a $35 annual fee. Foreign transactions cost 3% of the total transaction amount.
  • Introductory APR: Enjoy 0% APR on purchases for three months from account opening. After that, variable regular APR applies.
  • Other Perks: OpenSky has lots of credit education material for inexperienced credit users. If you need a home loan or consumer bank account, you can apply through Capital Bank, OpenSky’s parent company.

Check out our OpenSky Secured Visa Credit Card review for more information.

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4. Citi® Secured Mastercard®

Reasonable APR; No Annual Fee

Citi Secured Mastercard 12 4 19

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The Citi® Secured Mastercard® requires an opening deposit of little as $200 or as much as $2,500, the card’s maximum credit limit. Your funds are held for at least 18 months, though you can make additional deposits to raise your credit limit at any time. Your credit limit is always equal to the amount on deposit.

If you make timely payments for the entire 18-month hold period, Citi may return your deposit and let you continue using your card in unsecured form.

Unlike some more lenient card issuers, Citi automatically denies applicants who’ve filed for bankruptcy within 24 months of applying. However, Citi does report your payment patterns to all three credit reporting bureaus.

  • Rewards and Redemption: None.
  • Key Fees: There is no annual fee. Foreign transactions cost 3%.
  • Introductory APR: None.
  • Other Perks: You get zero-liability fraud protection for unauthorized purchases and complimentary identity theft protection in the event that your personal data is compromised.

Check out our Citi® Secured Mastercard® review for more information. Learn more about this card and find out how to apply here.

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5. DCU Visa® Platinum Secured Credit Card

Minimal Fees & Low APR; Intro Balance Transfer Promotion

The DCU Visa Platinum Secured Credit Card, offered by Digital Federal Credit Union, has a low APR and minimal fees relative to most secured credit cards.

To qualify, you need to open a savings account with Digital Federal Credit Union and deposit at least $5, in addition to whatever you deposit to secure your Platinum card’s credit line. DCU membership is open to U.S. residents, with no special restrictions or limitations.

The DCU Visa Platinum Secured Credit Card’s minimum credit line is $500, meaning that you have to deposit at least $500 on top of the $5 savings deposit to get started.

DCU doesn’t specify the maximum credit line, but you can request an increase at any time and make a corresponding deposit if approved. Your deposit is held in an interest-bearing savings account (current yield: 0.05%).

Though there’s no unsecured analog to this card, you can keep your account open as long as you’d like and apply for a DCU Platinum Rewards Card – the credit union’s most popular unsecured card – at any time.

In the meantime, enjoy one of the lowest regular APRs on any secured credit card: just 11.50% APR as of May 2020.

  • Rewards and Redemption: None.
  • Key Fees: There are no annual, balance transfer, or cash advance fees. The foreign transaction fee ranges from 0.80% to 2%, depending on how the transaction is denominated.
  • Introductory APR: None.
  • Other Perks: You get up to $500,000 in complimentary trip protection coverage (a form of travel insurance) when you charge the entirety of an airfare, hotel, car rental, vacation package, or other travel purchase to your DCU Visa Platinum card. Other perks include optional overdraft protection, extended warranty protection for most purchases, and complimentary rental car insurance when you pay for the rental in full with your card.

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6. Navy Federal Credit Union nRewards® Secured Credit Card

Low APR; 1% Cash-Back Rewards

If you’re a current or former member of the U.S. military, closely related to someone who is, work for the U.S. Department of Defense, or contribute to a qualifying nonprofit organization, you likely qualify for the Navy Federal Credit Union nRewards Secured Credit Card.

This popular no-annual-fee card has a relatively low APR and fees relative to other secured cards, plus a nice rewards program for those serious about building credit.

The Navy Federal Credit Union nRewards Secured Credit Card earns the equivalent of 1% cash back on all eligible purchases – 1 point per $1 spent, with no caps or restrictions. This is a rare perk for a secured credit card.

You can redeem your rewards for general merchandise purchases at Navy Federal’s Member Mall or gift cards from major merchants such as Best Buy and Macy’s.

To get started, you need to open a Navy Federal Credit Union savings account with an opening deposit of at least $5. Once your card application is approved, you must make a deposit of at least $500 and as much as $5,000 into your account.

This second deposit is equal to your credit line. You can request a credit line increase at any time, provided you make a corresponding deposit upon approval.

If you demonstrate responsible credit use and timely payment patterns over time, NFCU may approve you for an unsecured card, such as the cashRewards card.

  • Rewards and Redemption: Earn 1 point per $1 spent on all eligible purchases. Redeem your rewards for general merchandise purchases or gift cards from participating merchants.
  • Key Fees: There is no annual fee, balance transfer fee, or foreign transaction fees. Cash advance fees range up to $1 per transaction, depending on how it’s executed.
  • Introductory APR: None.
  • Other Perks: This card comes with a complimentary collision damage waiver on all car rentals of 15 days or less.

Check out our Navy Federal Credit Union nRewards Secured Credit Card review for more information.

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7. BankAmericard® Secured Credit Card

Low Regular APR; High Maximum Credit Limit

bankamericard secured card

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The BankAmericard® Secured Credit Card requires a minimum refundable deposit between $300 and $4,900. Your credit limit is always equal to your deposit, and you can make additional deposits at any time to raise your limit.

If you make timely, in-full payments for 12 months, you’re eligible for an automatic upgrade to an unsecured version of this card, along with a full refund of your security deposit.

For the duration of your tenure as a cardholder, Bank of America shares your payment information with credit reporting bureaus.

  • Rewards and Redemption: None.
  • Key Fees: The annual fee is $39, while foreign transactions cost 3% of the total amount.
  • Introductory APR: None.
  • Other Perks: This card comes with overdraft protection for all Bank of America deposit account holders. When you overdraft your checking account, you can automatically draw on this card to cover the cost. Each overdraft cash advance is made for the exact amount of the overdraft and costs $12. You’re also entitled to a free FICO score each month.

Check out our BankAmericard® Secured Credit Card review for more information.

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8. U.S. Bank Secured Visa® Card

Relatively High Credit Limit; Lax Underwriting Requirements; Earn Interest on Your Deposit

The U.S. Bank Secured Visa® Card requires a refundable deposit of anywhere from $300 to $5,000, depending on your creditworthiness. Your credit limit is always equal to your deposit amount.

Unlike many secured card issuers, U.S. Bank holds your deposit is held in an FDIC-insured, interest-bearing savings account, not an interest-free escrow account.

U.S. Bank has fairly relaxed underwriting standards, making this a solid card for people who’ve recently suffered major hits to their credit. After paying on time for at least 12 months, during which U.S. Bank reports payment patterns to all three major credit bureaus, many cardholders qualify for unsecured credit cards from U.S. Bank.

If you successfully make this transition, you receive your deposit back in full, with interest.

  • Rewards and Redemption: None.
  • Key Fees: This card has no annual fee. Foreign transaction fees are 2% to 3% of the transaction amount, depending on how they’re denominated.
  • Introductory APR: None.
  • Other Perks: You’ll enjoy complimentary auto insurance when you charge any car rental purchase in full to your card and get a complimentary TransUnion credit score with email alerts about significant credit score changes.

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9. Merrick Bank Secured Visa® Card

Relatively Low APR; Lax Underwriting Requirements

merrick bank secured visa card

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The Merrick Bank Secured Visa® Card requires an upfront refundable deposit of $200 to $3,000, depending on how high you want your credit limit to be. Your limit is always equal to your deposit.

Notably, Merrick Bank doesn’t run a credit check when you apply for your card. As such, its Secured Visa is a great option if you recently experienced a major hit to your credit, even if you’ve been denied by other secured card issuers.

As long as you don’t have a pending bankruptcy and can meet some other fairly basic requirements, your application is likely to be approved. The trade-off for these lax underwriting requirements is a moderately high fee schedule.

Like most other secured card issuers, Merrick Bank reports your payment patterns to the credit reporting bureaus. However, it doesn’t offer an automatic upgrade to an unsecured version of the Secured Visa Card.

When you’re ready to graduate to an unsecured card, you need to apply for an unsecured card, either with Merrick Bank or another issue. To get your deposit back, you then need to close your Secured Visa Card account.

  • Rewards and Redemption: None.
  • Key Fees: The annual fee is $36 for the first year and $3 per month after the first year after that. Foreign transactions cost 2% of the total transaction amount.
  • Introductory APR: None.
  • Other Perks: You can look up your FICO score for free every month your account is active. Merrick Bank also offers RV loans, which aren’t available everywhere.

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Final Word

These credit cards are useful for building your credit history and improving credit over time, but they’re not cure-alls.

If you already have a large debt load and are struggling to pay your bills each month, adding another line of credit to your balance sheet likely isn’t a smart move. Credit counseling or debt management may be a better fit for your situation.

Likewise, if you’ve recently declared bankruptcy or have a truly abysmal credit score, you’re unlikely to be approved for any of the cards on this list. It’s better to focus on making timely payments on your current obligations, such as utility bills and monthly rent, and reducing your credit utilization ratio.

Ultimately, you want your credit report to reflect a longer period of good credit habits. Once you prove to future creditors that you’re capable of responsible borrowing, these credit cards await.

Editorial Note: The editorial content on this page is not provided by any bank, credit card issuer, airline, or hotel chain, and has not been reviewed, approved, or otherwise endorsed by any of these entities. Opinions expressed here are the author’s alone, not those of the bank, credit card issuer, airline, or hotel chain, and have not been reviewed, approved, or otherwise endorsed by any of these entities.


How to Become a Paid Caregiver for a Family Member

To keep clients living at home longer — even once they need some assistance — all 50 states and the District of Columbia offer some kind of program through Medicaid that lets clients choose a family caregiver who is paid with Medicaid funds. In many states they can choose a friend or family member, often an adult child or spouse, to be their designated caregiver.
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The American Council on Aging strongly recommends finding a Medicaid planner to help with applying for caregiver roles and other benefits.
Medicaid wants its elderly clients to be safe, but prefers they be safe in a financially efficient way. With that in mind, it benefits the government agency to keep aging clients living in their home instead of a long-term care facility.

How to Become a Paid Caregiver for a Family Member

State-specific eligibility can be found here. If a senior is already enrolled in Medicaid, the next step is contacting their state’s Medicaid office.
“The vast majority of older adults want to stay in their homes as they age, and allowing them to pay a friend or family member to help with their daily needs can make that possible,” said Susan Reinhard, senior vice president of AARP’s Public Policy Institute. “The pandemic provided a push for states to expand this option, and we hope many of them will make their policy changes permanent.

  • Home and Community Based Services Waivers are offered by the majority of states. But many have a limited number of these waivers, so there may be a waiting list. This waiver allows the Medicaid participant to hire a friend or relative as a personal care assistant. This is also referred to as the 1915 C waiver.
  • The Self-Directed Personal Assistance Services State Plan Option allows a Medicaid participant to hire, train and pay the personal care assistant they choose. Based on the budget Medicaid offers, the participant decides what the assistant is paid. One unique part of this option is the participant pays employment taxes on the assistant. An intermediary helps with this financial aspect of the process.
  • Community First Choice, also called the 1915 state plan option, actually applies to Medicaid recipients who are in nursing homes but need personal care services. Instead of paying extra for a staff member at the facility to provide that care, this option allows friends or family to help with bathing, grooming, light housekeeping and transportation. According to the American Council on Aging, the following nine states offer this option: Alaska, California, Connecticut, Maryland, Montana, New York, Oregon, Texas, and Washington.
  • With the Caretaker Child Exception, Medicaid doesn’t pay the adult child a wage to care for their parent but allows the parent’s house to be transferred to the adult child as a form of payment. This comes into play when an elderly Medicaid participant is moving into a nursing home but wouldn’t qualify for Medicaid because they own their home.

Learn More About Medicaid 

Katherine Snow Smith is a staff writer for The Penny Hoarder.
Ready to stop worrying about money?
“Paying family caregivers is a solution that saves states money and meets the growing need for long-term care.”
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Medicaid eligibility in general, not just for these programs and waivers, is not consistent across the country. A general rule of thumb as of 2021 is senior applicants can’t have more than ,382 in income and ,000 in assets.

What Is a 403(b) Retirement Plan – Contributions, Withdrawals & Taxes

If you work for a public school or nonprofit organization, you might have the option to participate in a 403(b) plan. What is this lesser-known retirement plan, and should you sign up?

Before you make your decision, understand how a 403(b) works and how it can affect your finances and your retirement.

What Is a 403(b) Retirement Plan?

A 403(b) retirement plan, also known as a tax-sheltered annuity (TSA) plan, is an employer-sponsored retirement savings account for employees of public schools and nonprofit organizations.

The account is similar to a 401(k) retirement plan in that employees sign up through an employer with a potential match, and the IRS establishes the account’s contribution limits, tax implications, and withdrawal rules.

Nonprofit employees and educators can contribute to a 403(b) through automatic paycheck deferrals. The money is invested in annuities and mutual funds, so it can grow over time (but, as an investment, returns aren’t guaranteed).

Contributions to a traditional 403(b) are pretax, so they don’t count toward your taxable income. Instead, you’ll pay taxes on the income when you withdraw from the account. You may also be eligible to claim the Saver’s Credit on your taxes for your contributions.

Like any retirement plan, a 403(b) facilitates long-term savings.

It comes with tax advantages to encourage workers to save for retirement, and withdrawal comes with a penalty to discourage savers from using the money early without a pressing need. You have to start contributing early and keep funds in the account long-term to get the greatest benefit, because the investment is meant to grow over time with compound interest.

Who Should Open a 403(b) Retirement Account?

Only these workers are eligible to participate in a 403(b) retirement plan:

  • Employees of 501(c)(3) Nonprofit Organizations. These are tax-exempt nonprofits. Employees of other nonprofit organizations (such as advocacy, fundraising, or political organizations) are not eligible.
  • Public School Employees. This includes both faculty and staff. The IRS notes employees must be involved in the day-to-day operations of a school.
  • Ministers. Eligible ministers must be employed by a 501(c)(3) nonprofit, self-employed, or employed as a minister or chaplain in an organization not designated as 501(c)(3), such as state-run prisons or the U.S. Armed Forces.
  • Others. Employees of hospital co-ops, tribal public schools, and civilian employees of the Uniformed Services University of the Health Sciences are also eligible.

You must be employed by a company to open a 403(b), except for self-employed ministers.

401(k) vs. 403(b)

The major differences between a 403(b) and a 401(k) plan are:

  • Eligibility. Only public schools and nonprofit organizations can offer a 403(b) plan, while any other employer can offer a 401(k).
  • Cost. A 403(b) plan is generally simpler and less expensive to administer than a 401(k), although costs vary depending on investment funds and management firms.
  • Investment Options. In the past, 403(b) investments were limited to annuities, but those rules changed years ago to open 403(b) investments to mutual funds as well.

You won’t get to choose which plan you participate in. You only have the option to participate in the plan your employer offers. Most eligible employers opt for a 403(b) plan because it costs less to administer than a 401(k), and it provides an almost identical benefit to employees.

Pension vs. 403(b)

Also a type of retirement savings, a pension is typically a defined-benefit plan, which means you are guaranteed a set amount of income in retirement. Employers assume the long-term risk — they have to pay out the agreed amount regardless of what happens to investments over time.

In contrast, most other retirement accounts, including 401(k)s, 403(b)s, and IRAs, are defined-contribution plans, which means you put in a set amount but aren’t guaranteed a balance upon retirement. Employees assume the risk in this case — your investments could lose money over time, and your savings aren’t guaranteed to be there when you retire.

Some public schools and government organizations still offer employee pensions, but they’re less common and have become almost obsolete among private companies.

Whether you save for retirement through a 403(b) or a pension depends on which plan your employer offers.

What Is a Roth 403(b)?

A Roth 403(b) — like a Roth 401(k) and Roth IRA — lets you contribute to retirement savings with after-tax dollars, which means you won’t deduct contributions from your taxable income. In return, you won’t pay taxes on the income when you withdraw from a Roth account.

The benefit to a Roth account versus a traditional retirement account is that you’ll pay taxes on your contributions now, on an amount that’s likely to be less than what you withdraw in the future because of returns on your investment.

The drawback to a Roth account is missing out on a tax break now, when your tax rate might be higher than it will be in retirement because you’re earning a higher income.

A financial planner or investment adviser can help you determine whether traditional or Roth contributions make the most sense throughout your career. You can split your contributions among both accounts, but the total limit is the same.

Pros & Cons of a 403(b) Plan

Are 403(b) plans good for educators and nonprofit employees?

Consider the advantages and disadvantages to determine whether you should contribute to an employer-sponsored 403(b) plan, or whether your organization should offer the plan as a benefit to employees.

403(b) Advantages

  • Cheaper to Administer Than a 401(k). 403(b) plans often cost less to administer than a 401(k), which reduces the burden for public and nonprofit organizations.
  • Potential for an Employer Match. Employers might offer to match what you contribute to a 403(b) account up to a percentage limit. Opting not to contribute at least that percentage of your paycheck means you forfeit that benefit.
  • Employee-Controlled Investments. Many employees opt to leave their retirement accounts on autopilot, letting the management firm choose the best balance. But you can adjust your 403(b) investments if you want, unlike with a pension.
  • Higher Contribution Limit Than an IRA. If you don’t want to contribute to an employer-sponsored 403(b), your other main retirement savings option is an individual retirement account, which limits contributions to $6,000 per year in 2020, compared to the 403(b) limit of $19,500.
  • Special Catch-Up Provision. Each tax-advantaged retirement plan includes a catch-up provision that increases your annual contribution limit after you turn 50. A 403(b) plan includes that increase, plus a years-of-service catch-up that boosts your limit if you’ve been with your employer for at least 15 years.

403(b) Disadvantages

  • Limited Eligibility. Only public schools, nonprofits, and select religious and government organizations can offer a 403(b) plan to employees.
  • Employer Chooses Investment Management Firm. Although you have control over your funds, your employer chooses who manages its 403(b) plan investments. A firm might come with fees, policies, or customer service you don’t like. By contrast, you control where to open an IRA and can move your account anytime.
  • No Guaranteed Benefit. Unlike a pension or savings account, a 403(b) plan leaves your retirement savings at risk of stock market volatility.

403(b) Contributions

Contributions to a 403(b) account come directly out of your paycheck, so you’ll designate the amount with your employer.

403(b) Contribution Limits in 2020

How much you can contribute to a 403(b) each year depends on your age and how you’re adding the money to the account.

For workers under age 50, 403(b) limits include:

  • Elective Deferrals (Your Payroll Deductions). The annual limit on your 403(b) contributions via payroll in 2020 is $19,500.
  • Annual Additions. The total annual limit on contributions to your 403(b) — including your contributions, your employer’s match, and additional after-tax contributions — is $57,000 for 2020.

Once you turn 50, you’re allowed to contribute more each year, what’s called “catch-up” contributions. Workers age 50 or older can contribute an additional $6,500 to a 403(b) for 2020.

Uniquely, 403(b) accounts also include a years-of-service catch-up provision. If you’ve worked with your employer for at least 15 years and you’re 50 or older, you can add another $3,000 in catch-up contributions per year, up to $15,000 over several years.

So, total 403(b) 2020 contribution limits are:

  • Workers 49 and Younger: $19,500
  • Workers 50 and Older: $26,000
  • Workers 50 and Older with at Least 15 Years of Service: $29,000

Want to save more for retirement each year? You can open to an IRA in addition to your 403(b). You can contribute up to $6,000 in 2020 to an IRA or $7,000 if you’re 50 or older.

Where Are 403(b) Contributions Invested?

Employers typically contract with a financial services firm, such as TIAA-CREF or Fidelity, to administer the company’s 403(b) plan and manage investments.

Your investment options vary depending on what’s available through that firm, but generally you can choose from a variety of mutual funds and annuity products.

When you sign up, you’ll probably have the option to go with a default portfolio that lets the investment firm invest your money as it determines is best for your situation. If you want to be involved, you can choose which funds or annuities you invest in. However, you can’t invest directly in individual stocks through a 403(b) the way you can with an IRA.

403(b) Rollover

If you leave your job, you can take your retirement account with you.

You can roll over your 403(b) into:

  • A new 403(b) if your new employer offers one
  • A 401(k) if your new employer offers one
  • An IRA if your new employer doesn’t offer a retirement account, you prefer to invest independently, or you don’t start a new job

You cannot roll a Roth account into a traditional account. You can roll a traditional account into a Roth account, but you’ll have to include the rollover amount in your taxable income for that year.

After a rollover, you’re subject to the tax implications, withdrawal rules, and contribution limits of your new account.

How to Start a 403(b) Rollover

You initiate a retirement account rollover with the investment firm that manages your old company’s plan. Your old employer should give you that information before you leave, but ask for it if you don’t know it.

In most cases, you can start a rollover online by logging into your account with the investment firm. Call the firm if that’s not an option. Some firms charge a fee of about $50 to initiate a rollover.

After you request the rollover, the firm will tell you how you’ll receive the funds, either as a paper check in the mail or deposited directly into your new retirement account. If you receive a check, you have a limited amount of time to send it to the new investment firm before you have to claim it as income and pay taxes on it, so read all instructions carefully.

403(b) Withdrawal Rules

As a retirement savings plan, a 403(b) account restricts your ability to pull funds throughout your life. The money is yours, so you always have access to it, but to incentivize long-term savings and justify the tax breaks, early withdrawals come with financial penalties.

When Can You Withdraw from a 403(b)?

In general, you can’t receive distributions from your 403(b) account until:

  • You’re 59 1/2 years old
  • You’re 55 years old and retired
  • You die (survivors or beneficiaries receive distributions)

If you take early distributions, you’ll have to pay a 10% penalty on top of normal taxes for the income. That fee is included with your tax return for the year.

Hardship Withdrawal

A hardship withdrawal is any early distribution you receive from your 403(b) while you’re still working. Most financial firms allow hardship withdrawals in emergency circumstances, including:

  • Medical Expenses. These are large, unreimbursed expenses for you, your spouse, or dependents.
  • Home Down Payment. This is permitted for a primary residence, not investment properties.
  • Tuition and Fees. You must use the funds for higher education due in the next 12 months.
  • Eviction or Foreclosure. This can cover rent or mortgage payments if you have no other income or assets to cover costs.

Hardship withdrawals are subject to regular taxes and the 10% early distribution penalty.

403(b) Loans

As long as the firm that holds your account allows it, you can borrow from your 403(b) up to $50,000 or half of the account’s value, whichever is less.

The firm sets an interest rate based on market rates. It also treats a loan as an early distribution, so you have to pay the 10% penalty in taxes for the year you receive the loan.

You have to repay a 403(b) loan within five years, and you face serious tax consequences if you default.

Taxes on 403(b) Distributions

You’ll pay taxes on 403(b) distributions like ordinary income, except for those from a Roth account. Your tax rate depends on how much you receive, including any other income you earned for the year.

You’ll pay those same taxes on an early withdrawal, plus an extra 10% penalty.

If you expect to withdraw quite a bit, either in retirement or early as a hardship withdrawal or loan, consider paying estimated taxes each quarter to avoid a huge tax bill and an underpayment penalty in April.

Required Distributions

Once you’re eligible, you can withdraw as much or as little as you want from your 403(b) account until you’re 70 1/2 ears old. After that, you have to withdraw at least a minimum amount each year or face a tax penalty.

The minimum required distribution amount depends on the total account balance and your age. The IRS provides worksheets to help you determine your required minimum distributions (RMDs). Based on life expectancy, the calculated RMD is intended to draw down all of your retirement savings within your lifetime.

Final Word

A 403(b) retirement savings plan is a tax-advantaged way for public school and nonprofit employees to save for retirement. If your employer offers one, especially with a contribution match, it can be a financially sound long-term savings option.

To maximize savings in your 403(b), invest in mutual funds that match your risk tolerance and personal situation. For example, young investors tend to have tolerance for more aggressive (and risky) portfolios, and investors become more conservative as they near retirement.

However you invest, a tax-advantaged, employer-sponsored account is one of the simplest and smartest ways to save for retirement. The earlier you start saving, the more benefit you can get out of investment returns because of compound interest.

Don’t be intimidated by the details. Someone in your company’s human resources department should be able to guide you through setting up a 403(b) account. Contributions come directly out of your paycheck, setting your savings on autopilot. And you can always roll over the balance into an IRA or another retirement account if you leave your job, so you can always keep your savings with you.

Are you considering opening a 403(b) account? What’s stopping you?


7 Apps for Improving Your Credit Score is owned by Progrexion Holdings Inc. John C Heath, Attorney at Law, PC, d/b/a Lexington Law Firm is an independent law firm that uses Progrexion as a provider of business and administrative services.

It’s difficult to stay on top of your credit score even during the best of times, and it only gets harder during times of financial crisis. While you may be able to regain ground on your credit card debt or mortgage loan after a missed payment, your credit score will take a hit. Even after you’ve gotten control of your finances again, the damage to your credit score will take quite a while to recover from. 

It’s important that you not only track your budget, but also closely monitor your credit score and take advantage of any opportunity to build credit. To assist you, we’ve researched different credit score management apps that can support your credit in a variety of ways. Some provide credit monitoring, opportunities for improving your credit score, credit protection and support for credit repair. 

Here’s our list of the most secure, easy-to-use and beneficial apps for managing your credit score.

Extra Credit is a brand new offering from just launched to the public, but we are excited about its features. Those features include “Reward It,” which awards you funds when you are approved by a qualified lender through Extra Credit. 

Additionally, when you sign up for Extra Credit, you get access to the 28 most commonly used FICO® scores as well as your credit reports from all three bureaus and recommendations for credit cards based on your credit profile. Finally, Extra Credit provides you $1,000,000 in ID theft insurance, dark web monitoring and access to a third party service that reports your monthly rent and utility payments to the bureaus.

Unlike many of the apps on this list, however, Extra Credit is not a free service.

Experian allows you to monitor your Experian credit report and your FICO credit score, manage disputes with Experian and be aware of any new credit activity. Experian’s mobile app also comes with the Experian Boost feature, which allows you to report payments to the credit bureaus that would not usually be reported—such as cell phone bills and utilities—and potentially improve your score. 

Experian’s app provides services that you can use to improve, monitor and repair your credit. Keep in mind that these services are specific to your credit history as managed by Experian, one of the three credit bureaus that track your credit history. Although Experian allows you to look at your FICO score—the credit score that most lenders use—it doesn’t allow you to manage the credit reports compiled by TransUnion or Equifax.

The FICO credit scoring method is the most popular method among lenders for calculating credit scores. MyFICO allows you to see and manage the score that your lender will most likely consider when you apply for a mortgage or an auto loan. 

MyFICO also allows you to view your updated credit reports from all three bureaus—Experian, Equifax and TransUnion. Additional features included are a credit score simulator, which allows you to see how possible actions could affect your score, credit monitoring, and credit education resources. 

MyFICO is a good choice for users looking for a credit monitoring service, but it does not provide as many resources as other apps to assist with credit score improvement or repair.

Mint predominantly focuses on budget management, but it also offers tools for monitoring your credit score and weighing it as a factor in your financial decisions. You can view your VantageScore credit score and TransUnion credit report in the app. Additionally, you can personalize alerts to stay up to date with any changes to your credit score or potential fraud or identity risks.

Mint offers more resources for setting financial goals, managing your budget, and keeping track of bills than it does for directly managing your credit score. It can be used as a credit monitoring tool, but bear in mind that you will only be able to see your TransUnion credit history.

The TransUnion app works in tandem with your TransUnion Credit Monitoring Account. It allows you to monitor your credit score and TransUnion credit report, both of which are updated daily. The TransUnion app also offers Credit Lock Plus, which allows you to “lock” and “unlock” your TransUnion and Equifax credit reports. In addition, TransUnion provides identity theft insurance.

The app will only allow you to see your TransUnion credit report and manage the credit score based on your TransUnion credit history. It will not give you a complete picture of your credit history.

Lock & Alert is good for protecting your credit activity through Equifax. It allows you to easily “lock” and “unlock” your credit report—a much easier process than requesting a freeze be placed on your account, or lifting a freeze. 

The Lexington Law app works in tandem with your online account, allowing you to stay up to date with recent developments on your case while on the go. Lexington Law has one of the few credit management apps that allows you to view your credit history from all three credit bureaus, giving you the most complete snapshot of your credit. You can track any credit disputes currently in progress, see your most up-to-date FICO credit score and set up personalized alerts. Lexington Law also provides identity theft insurance and identity theft alerts. 

Although the Lexington Law app is free to download, you will need to pay to set up an account in order to use it.

Apps to Improve Your Credit Health

As you can see up above, different apps have different strengths. Your financial situation is unique, and the app that you choose will depend on your circumstances. However, each of the apps we have listed above will allow you to be more engaged in managing your credit score. Your credit is not beyond your control—there are resources available to you that can help you protect, build and repair your credit. 

If you’re trying to be more engaged in managing your credit or need help knowing where to start, contact our experienced credit consultants.

This article was reviewed by Daniel Woolston, an Assistant Managing Attorney at Lexington Law Firm. This article was written by Lexington Law.

Daniel Woolston is the Assistant Managing Attorney in the Arizona office. Mr. Woolston was born in Houston, Texas and raised in Sugar Land, Texas. He received his B.S. in Political Science at Brigham Young University and his Juris Doctorate at Arizona State University. After graduation, Mr. Woolston worked as a misdemeanor and felony prosecutor in Arizona. He has conducted numerous jury trials and hundreds of other court hearings. While at Lexington Law Firm, Mr. Woolston dedicates his time to training paralegals and attorneys in credit repair, problem solving, and ethical and legal compliance. Daniel is licensed to practice law in Arizona, Oklahoma, and Nevada. He is located in the Phoenix office.

Note: Articles have only been reviewed by the indicated attorney, not written by them. The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, reviewers, contributors, contributing firms, or their respective agents or employers.


Does Checking Your Credit Lower Score Lower It?

Your credit score is an important financial metric that can have a significant impact on your life. Good credit makes it easier to qualify for loans and makes borrowing money cheaper by reducing the interest you pay. If you have poor credit, you’ll have to pay higher interest rates when you get a loan or might have trouble borrowing money at all.

Checking your credit report regularly can help you have an idea of the loans and credit cards you can qualify for, as well as what you need to do to boost your score. It’s also a good way to monitor for identity theft or to notice incorrect information on your credit report.

When a lender checks your credit, it usually reduces your credit score by a few points. However, checking your score on your own is typically safe. Let’s explore why.

What Is a Credit Inquiry?

Your credit report contains a history of your interaction with credit and debt. That includes information about your history of making on-time versus late payments, the amount of debt you have, how many loans and credit cards you have open, and recent applications for credit.

When you apply for a credit card or a loan, the lender usually reaches out to one of the three major credit bureaus — Experian, Equifax, and Transunion — to ask for a copy of your credit report. The lender uses the information in that report to make its lending decision and to set the interest rate if it decides to offer a loan.

The credit bureau that supplied your credit report makes a note of that application on your credit report. Other lenders who request a copy of your credit report from that credit bureau can see your recent application for a loan through that note.

Hard Inquiries vs. Soft Inquiries

When a lender asks a credit bureau for a copy of your credit report to make a lending decision, that’s called a hard inquiry. Hard inquiries show up on your credit report, and other lenders that check your credit can see hard inquiries in your credit history.

Lenders don’t check your credit only when you apply for a new loan. Lenders can check their customers’ credit at any time and often do so when the borrower asks for an increased credit limit or as part of regular risk assessments of their borrowers.

Individuals can also check their own credit reports using the many free credit tracking apps and websites on the market. These apps need to reach out to the credit bureaus to request copies of customers’ credit reports, but aren’t using those reports to make lending decisions.

In general, when you ask a credit bureau for a copy of your own credit report, it’s counted as a soft inquiry. Occasions when a lender checks someone’s credit to pre-approve them for an offer or as part of regular risk assessments — rather than as part of an application for a new loan or credit card — also count as soft inquiries.

Soft inquiries do not appear on credit reports, which means they don’t affect credit scores. This means that you can safely check their own credit reports without having to worry about damaging your credit.

How Credit Inquiries Affect Your Credit

Each hard inquiry on your credit report drops your score by a few points, usually between five and 10 points. One hard inquiry won’t have a large impact on your score, but they can quickly add up, so having lots of inquiries on your report can really damage your score.

This is because frequent applications for loans are a red flag for lenders. Someone who needs to borrow money repeatedly is likely to be having financial difficulties, meaning they’ll struggle to repay their loans.

The impact of each credit inquiry decreases over time. After a few months, an inquiry’s impact is relatively small and is usually offset by other positive factors on the credit report.

Credit inquiries stay on a credit report for two years, after which they fall off the report. That means that each inquiry only affects a person’s credit score for a maximum of two years.

Reducing the Impact of Credit Inquiries

People who are applying for large loans, like mortgages or auto loans, often want to shop around and get offers from multiple lenders so they can find the best deal. Even a small difference in the interest rate on a large loan can save thousands of dollars over the life of a mortgage, so shopping around is more than worth the effort.

Credit bureaus and FICO, the company behind the most popular credit scoring models, understand the importance of rate shopping, so most scoring models account for it when generating your credit score.

Depending on the model used, all credit inquiries for loans like mortgages, auto loans, or student loans that happen within a 14- to 45-day period are combined when calculating credit scores. If someone applies for four mortgages in a week, it will only count as a single hard inquiry.

That means you don’t have to worry about tanking your credit by shopping for the best interest rates when applying for a large loan.

Does Checking Your Credit Lower Your Credit Score?

The majority of credit monitoring apps, websites, and services use soft inquiries to check your credit report and provide that information to you. That means it’s safe to check your credit using one of these services.

Credit bureaus only take note of hard inquiries into your credit by lenders making lending decisions. Soft inquiries do not impact your credit score or appear on your credit report.

Final Word

Healthy credit is an essential part of healthy finances. Your credit impacts your ability to borrow money and how much interest you have to pay.

If you want to keep track of your credit score, there are many services you can use to help, all without impacting your credit. One way to keep your score high is to only apply for loans and credit cards that you need, which reduces the number of inquiries that show up on your credit report.


Someone Took Out a Loan in Your Name. Now What?

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Identity theft wears many different faces. From credit cards to student loans, thieves can open different forms of credit in your name and just like that, destroy your credit history and financial standing.

If this happens to you, getting the situation fixed can be difficult and time-consuming. But you can set things right.

If someone took out a loan in your name, it’s important to take action right away to prevent further damage to your credit. Follow these steps to protect yourself and get rid of the fraudulent accounts.

1. File a police report

The first thing you should do is file a police report with your local police department. You might be able to do this online. In many cases, you will be required to submit a police report documenting the theft in order for lenders to remove the fraudulent loans from your account. (See also: 9 Signs Your Identity Was Stolen)

2. Contact the lender

If someone took out a loan or opened a credit card in your name, contact the lender or credit card company directly to notify them of the fraudulent account and to have it removed from your credit report. For credit cards and even personal loans, the problem can usually be resolved quickly.

When it comes to student loans, identity theft can have huge consequences for the victim. Failure to pay a student loan can result in wage garnishment, a suspended license, or the government seizing your tax refund — so it’s critical that you cut any fraudulent activity off at the pass and get the loans discharged quickly.

In general, you’ll need to contact the lender who issued the student loan and provide them with a police report. The lender will also ask you to complete an identity theft report. While your application for discharge is under review, you aren’t held responsible for payments.

If you have private student loans, the process is similar. Each lender has their own process for handling student loan identity theft. However, you typically will be asked to submit a police report as proof, and the lender will do an investigation.

3. Notify the school, if necessary

If someone took out student loans in your name, contact the school the thief used to take out the loans. Call their financial aid or registrar’s office and explain that a student there took out loans under your name. They can flag the account in their system and prevent someone from taking out any more loans with your information. (See also: How to Protect Your Child From Identity Theft)

4. Dispute the errors with the credit bureaus

When you find evidence of fraudulent activity, you need to dispute the errors with each of the three credit reporting agencies: Experian, Equifax, and TransUnion. You should contact each one and submit evidence, such as your police report or a letter from the lender acknowledging the occurrence of identity theft. Once the credit reporting bureau has that information, they can remove the accounts from your credit history.

If your credit score took a hit due to thieves defaulting on your loans, getting them removed can help improve your score. It can take weeks or even months for your score to fully recover, but it will eventually be restored to its previous level. (See also: Don’t Panic: Do This If Your Identity Gets Stolen)

5. Place a fraud alert or freeze on your credit report

As soon as you find out you’re the victim of a fraudulent loan, place a fraud alert on your credit report with one of the three credit reporting agencies. You can do so online:

When you place a fraud alert on your account, potential creditors or lenders will receive a notification when they run your credit. The alert prompts them to take additional steps to verify your identity before issuing a loan or form of credit in your name. (See also: How to Get a Free Fraud Alert on Your Credit Report)

In some cases, it might be a good idea to freeze your credit. With a credit freeze, creditors cannot view your credit report or issue you new credit unless you remove the freeze.

6. Check your credit report regularly

Finally, check your credit report regularly to ensure no new accounts are opened in your name. You can request a free report from each of the three credit reporting agencies once a year at You can stagger the reports so you take out one every four months, helping you keep a close eye on account activity throughout the year. (See also: How to Read a Credit Report)

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Someone Took Out a Loan in Your Name. Now What?