Baby Boomer Spending Habits in 2021 – Lexington Law

baby boomer couple working on taxes

The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

Baby boomers are regarded as hard-working individuals who value relationships and positivity above all else. There are 73.4 million baby boomers in the U.S. that are close to or already in their retirement years. Baby boomers were the largest generational group up until the era of millennials. This makes them an important generation to keep an eye on thanks to both their sheer size and buying power. 

This generation carries some high expectations for their retirement including things like exotic trips and new experiences. However, some Boomers have put these dreams on hold because of various financial issues. Some are still in the workforce while others struggle to pay crucial expenses like medical and housing bills. A few contributing factors include failed investments during the Great Recession and living longer, making retirement costly for today’s retirees.

Despite this, marketers and economists alike should pay attention to the nuances of their financial lives to know how to support one of our country’s most influential generations in 2021.

Baby Boomer Spending Power

Baby boomers hold $2.6 trillion in buying power. They’re credited as one of the wealthiest generations to date and are still economically powerful despite their old age. Boomers have had more time to build their wealth in comparison to other generations while some are still in the workforce and making more money. However, their continued accumulation of wealth is stifled by things like workplace discrimination, poor investments and debt. Below are a few things that illustrate their spending power.  

  • Baby boomers have $2.6 trillion in buying power. [Source: FONA]
  • 64 percent of boomer women are expected to participate in the workforce by 2022. [Source: Visa]
  • 29 percent of baby boomers ages 65 to 72 were working or looking for work. [Source: Pew Research Center]
  • 30 percent of baby boomers plan to leave their current job to advance their career. [Source: Olivet]
Baby boomers have $2.6 trillion in buying power.
  • 34 percent of baby boomers are worried that a millennial could take their job because of their ability to adapt more quickly. [Source: Olivet]
  • 75 percent of baby boomers would leave their current job for more money. [Source: Olivet]
  • About 4 in ten workers ages 18 to 49 think America’s aging workforce has a negative impact on their own career development. [Source: AP News]
  • Boomer gig workers make $43,600 a year on average while working 25 hours a week. [Source: AARP]
  • 32 percent of baby boomers would choose freelancing flexibility over a traditional 9-to-5. [Source: TD Ameritrade]

Baby Boomer Spending Habits

Baby boomer spending habits reflect their values and priorities at this point in their life. Their old age also influences their interest in things like healthy food options to make sure they live active lifestyles.

Online Shopping

Baby boomers are savvier than you may think when it comes to online shopping. Some experts believe that their extended time in the workforce is a contributing factor to their migration to online shopping and card-not-present (CNP) transactions. Some other reasons why baby boomers migrate to online shopping include convenience and availability. See below for more baby boomer online shopping habits.

More than half of baby boomers prefer shopping online over physical stores.
  • 47 percent of baby boomers rely on Cyber Monday for their holiday shopping. [Source: Deloitte]
  • 41 percent of baby boomers use digital coupons while they’re grocery shopping in stores. [Source: AARP]
  • 52 percent of baby boomers prefer shopping online over physical stores during the holiday season. [Source: Deloitte]
  • Baby boomer consumers say they are more likely to trust a personal recommendation as opposed to online reviews. [Source: BrightLocal]
  • Only 7 percent of baby boomers would support a business with less than a 3 star rating. [Source: BrightLocal]
  • 48 percent of baby boomers have left online reviews. [Source: BrightLocal]

Household Spending

Baby boomers value family and gleefully invest in things that benefit their households. Their interest in snack foods, on the other hand, is driven by their desire to prepare big meals when they have company. Baby boomers also love pets, especially when coping with empty nest syndrome, and are willing to foot the bill to keep their fur babies happy.

  • Baby boomers make up 37.7 percent of pet spending. [Source: Pet Business Professor]
  • Boomers are expected to spend 3.4 percent more on health-related purchases than their parents did. [Source: FONA]
  • 59 percent of baby boomers were willing to pay extra for socially compliant, sustainable products. [Source: Deloitte]
  • 49 percent of baby boomers are interested in functional foods like probiotics and vitamins. [Source: FONA]
  • 72 percent of baby boomers read food and beverage labels to know if the product is healthy. [Source: FONA]
  • 20 percent of baby boomers eat ready-to-eat snack food like fruit, candy bars and nuts. [Source: FONA]

Retirement and Healthcare Spending

Retirement planning is crucial to start well before your retirement years. Unfortunately, one-third of seniors regret not saving enough and spending too much in their younger years. These regrets are reflected in some of the issues this generation faces with retirement and all of the expenses that come with it, including healthcare.

Mid-Boomers (those born in the middle of the generation, roughly between 1952 and 1958) realize that they’re not financially prepared for retirement and scramble to see how they can fund it. Below are a few stats that illustrate their expectations and struggles.

  • 69 percent of baby boomers either expect to or are already working past age 65 or don’t plan to retire. [Source: TCRS]
  • Baby boomers were expected to take 4 to 5 leisure trips in 2020. [Source: AARP]
  • Baby boomers planned to spend $7,800 on travel in 2020. [Source: AARP]
  • Only 26 percent of baby boomers have a backup plan for retirement if they’re forced into retirement sooner than they thought. [Source: TCRS]
Baby boomers only put 9 to 10 percent of their pay towards retirement.

Baby Boomers and Debt

The housing bubble burst in the late 2000s took a major hit on baby boomers. Prior to that, Boomers were already facing issues with lack of savings and high amounts of debt. Being unprepared for retirement and having a lack of funds to pay off debts forced many in this generation to continue working. They continue in hopes of paying down debt and building up whatever they can for their retirement. 

  • Baby boomers hold an average debt level of $96,984, according to the most recent research in 2019. [Source: Experian]
  • Baby boomers’ personal loan debt is 18 percent higher than the national average. [Source: Experian] 
  • 12 percent of baby boomers have a student loan either for themselves or for someone else. [Source: AARP]
  • 33 percent of baby boomers say student loan debt has prevented them from buying a car. [Source: AARP]
  • Baby boomers had a national average student loan debt of $34,703 in Q1 of 2019. [Source: Experian]
  • The national average amount of credit card debt for baby boomers was $6,788 in Q1 of 2019. [Source: Experian]

Planning for retirement is difficult when you still have debt and other financial hardships trailing behind you. It’s even more strenuous when you become a credit score victim when things like identity theft or medical bill mishaps occur. Whether your identity was stolen or you’re simply weighed down by a poor credit score, Lexington Law can help you navigate different issues regarding your credit score and credit report to make sure everything is fairly reported.

Source: lexingtonlaw.com

Baby Boomer Spending Habits in 2021

baby boomer couple working on taxes

The information provided on this website does not, and is not intended to, act as legal, financial or credit advice. See Lexington Law’s editorial disclosure for more information.

Baby boomers are regarded as hard-working individuals who value relationships and positivity above all else. There are 73.4 million baby boomers in the U.S. that are close to or already in their retirement years. Baby boomers were the largest generational group up until the era of millennials. This makes them an important generation to keep an eye on thanks to both their sheer size and buying power. 

This generation carries some high expectations for their retirement including things like exotic trips and new experiences. However, some Boomers have put these dreams on hold because of various financial issues. Some are still in the workforce while others struggle to pay crucial expenses like medical and housing bills. A few contributing factors include failed investments during the Great Recession and living longer, making retirement costly for today’s retirees.

Despite this, marketers and economists alike should pay attention to the nuances of their financial lives to know how to support one of our country’s most influential generations in 2021.

Baby Boomer Spending Power

Baby boomers hold $2.6 trillion in buying power. They’re credited as one of the wealthiest generations to date and are still economically powerful despite their old age. Boomers have had more time to build their wealth in comparison to other generations while some are still in the workforce and making more money. However, their continued accumulation of wealth is stifled by things like workplace discrimination, poor investments and debt. Below are a few things that illustrate their spending power.  

  • Baby boomers have $2.6 trillion in buying power. [Source: FONA]
  • 64 percent of boomer women are expected to participate in the workforce by 2022. [Source: Visa]
  • 29 percent of baby boomers ages 65 to 72 were working or looking for work. [Source: Pew Research Center]
  • 30 percent of baby boomers plan to leave their current job to advance their career. [Source: Olivet]
Baby boomers have $2.6 trillion in buying power.
  • 34 percent of baby boomers are worried that a millennial could take their job because of their ability to adapt more quickly. [Source: Olivet]
  • 75 percent of baby boomers would leave their current job for more money. [Source: Olivet]
  • About 4 in ten workers ages 18 to 49 think America’s aging workforce has a negative impact on their own career development. [Source: AP News]
  • Boomer gig workers make $43,600 a year on average while working 25 hours a week. [Source: AARP]
  • 32 percent of baby boomers would choose freelancing flexibility over a traditional 9-to-5. [Source: TD Ameritrade]

Baby Boomer Spending Habits

Baby boomer spending habits reflect their values and priorities at this point in their life. Their old age also influences their interest in things like healthy food options to make sure they live active lifestyles.

Online Shopping

Baby boomers are savvier than you may think when it comes to online shopping. Some experts believe that their extended time in the workforce is a contributing factor to their migration to online shopping and card-not-present (CNP) transactions. Some other reasons why baby boomers migrate to online shopping include convenience and availability. See below for more baby boomer online shopping habits.

More than half of baby boomers prefer shopping online over physical stores.
  • 47 percent of baby boomers rely on Cyber Monday for their holiday shopping. [Source: Deloitte]
  • 41 percent of baby boomers use digital coupons while they’re grocery shopping in stores. [Source: AARP]
  • 52 percent of baby boomers prefer shopping online over physical stores during the holiday season. [Source: Deloitte]
  • Baby boomer consumers say they are more likely to trust a personal recommendation as opposed to online reviews. [Source: BrightLocal]
  • Only 7 percent of baby boomers would support a business with less than a 3 star rating. [Source: BrightLocal]
  • 48 percent of baby boomers have left online reviews. [Source: BrightLocal]

Household Spending

Baby boomers value family and gleefully invest in things that benefit their households. Their interest in snack foods, on the other hand, is driven by their desire to prepare big meals when they have company. Baby boomers also love pets, especially when coping with empty nest syndrome, and are willing to foot the bill to keep their fur babies happy.

  • Baby boomers make up 37.7 percent of pet spending. [Source: Pet Business Professor]
  • Boomers are expected to spend 3.4 percent more on health-related purchases than their parents did. [Source: FONA]
  • 59 percent of baby boomers were willing to pay extra for socially compliant, sustainable products. [Source: Deloitte]
  • 49 percent of baby boomers are interested in functional foods like probiotics and vitamins. [Source: FONA]
  • 72 percent of baby boomers read food and beverage labels to know if the product is healthy. [Source: FONA]
  • 20 percent of baby boomers eat ready-to-eat snack food like fruit, candy bars and nuts. [Source: FONA]

Retirement and Healthcare Spending

Retirement planning is crucial to start well before your retirement years. Unfortunately, one-third of seniors regret not saving enough and spending too much in their younger years. These regrets are reflected in some of the issues this generation faces with retirement and all of the expenses that come with it, including healthcare.

Mid-Boomers (those born in the middle of the generation, roughly between 1952 and 1958) realize that they’re not financially prepared for retirement and scramble to see how they can fund it. Below are a few stats that illustrate their expectations and struggles.

  • 69 percent of baby boomers either expect to or are already working past age 65 or don’t plan to retire. [Source: TCRS]
  • Baby boomers were expected to take 4 to 5 leisure trips in 2020. [Source: AARP]
  • Baby boomers planned to spend $7,800 on travel in 2020. [Source: AARP]
  • Only 26 percent of baby boomers have a backup plan for retirement if they’re forced into retirement sooner than they thought. [Source: TCRS]
Baby boomers only put 9 to 10 percent of their pay towards retirement.

Baby Boomers and Debt

The housing bubble burst in the late 2000s took a major hit on baby boomers. Prior to that, Boomers were already facing issues with lack of savings and high amounts of debt. Being unprepared for retirement and having a lack of funds to pay off debts forced many in this generation to continue working. They continue in hopes of paying down debt and building up whatever they can for their retirement. 

  • Baby boomers hold an average debt level of $96,984, according to the most recent research in 2019. [Source: Experian]
  • Baby boomers’ personal loan debt is 18 percent higher than the national average. [Source: Experian] 
  • 12 percent of baby boomers have a student loan either for themselves or for someone else. [Source: AARP]
  • 33 percent of baby boomers say student loan debt has prevented them from buying a car. [Source: AARP]
  • Baby boomers had a national average student loan debt of $34,703 in Q1 of 2019. [Source: Experian]
  • The national average amount of credit card debt for baby boomers was $6,788 in Q1 of 2019. [Source: Experian]

Planning for retirement is difficult when you still have debt and other financial hardships trailing behind you. It’s even more strenuous when you become a credit score victim when things like identity theft or medical bill mishaps occur. Whether your identity was stolen or you’re simply weighed down by a poor credit score, Lexington Law can help you navigate different issues regarding your credit score and credit report to make sure everything is fairly reported.

Source: lexingtonlaw.com

How to Pay Off These 4 Types of Debt

Wise Bread Picks

Getting and staying out of debt is tough. Many people try and fail, or they succeed only to become ensnared the vicious cycle over and over again. Eliminating debt takes lots of grit and determination, and strategically attacking your debt will save you time, energy, and money.

Before you get started, you should know that each type of debt requires a slightly different strategy. Here’s how to tackle different types of debt, and get rid of it once and for all.

Credit card debt

The best way to attack credit card debt is by using the debt snowball. With this method, you begin by attacking the smallest debt while paying the minimum on everything else. Once one debt is paid, you take all the money you were paying on the first card and apply it to the second biggest balance. Rinse and repeat.

You may be tempted to attack them based on interest rate, which is also known as the debt avalanche. And that will work. However, you must keep in mind that debt is more mental than it is logical. You probably didn’t use a ton of logic to get into debt. And logic won’t inspire you to get out of debt. The debt snowball approach allows you to get quick wins by conquering smaller debts before taking on the larger ones, which require more time and patience. Winning becomes a contagious habit that helps you build momentum.

You also may want to contact your credit card companies and request that they lower your interest rate. Some will and some won’t, but it doesn’t hurt to ask. (See also: 2-Minute Guide: How to Use Balance Transfers to Pay Off Credit Card Debt)

Car and personal loans

Auto and personal loans are a little different from credit card debt. However, they follow the same principle for repayment. First, make sure you understand the repayment terms and then contact the lender and ask them to reduce your interest rate.

In addition to using the debt snowball, a great repayment strategy for this type of debt is to call the lending agency and set up bi-weekly payments instead of paying monthly. The minimum payment doesn’t change, you just make 26 payments a year versus 12. This lowers the total amount of interest you will pay over the life of the loan. When you pay more than the minimum payment, you’ll slash months — even years — off the total repayment time.

Student loans

Despite how it may feel, paying off student loans is possible. You just need some discipline, patience, and a plan. For most folks, student loan debt is one of the most significant debts owed — second only to a mortgage.

The first thing you want to do is determine the total amount owed. You can do this by visiting the National Student Loan Data System or contacting your lender. From there, visit the Federal Student Loan Website to see if your loans can be consolidated, if your interest rate can be lowered, and if you qualify for any loan forgiveness programs. The Department of Education offers eight different repayment plans that may be able to assist you if you’re considered low income or have special circumstances. They also provide repayment calculators and a host of other information and resources that can assist you in repaying your loans quicker.

Once you know the total amount owed, and have found a repayment plan that works for you, it’s time to get busy. You want to throw ever extra dollar you have at this debt and make multiple payments a month, if possible.

Mortgage

The term “mortgage,” translated from old French, literally means “death pledge.” How fitting. There are several schools of thought on whether you should pay off your home early. For some people paying it off early makes sense, for others it doesn’t. If you do want to knock the mortgage off your debt list, there are a few things you can do to expedite repayment.

Make bi-weekly payments

By simply splitting your monthly mortgage payment into equal parts where it’s paid every two weeks, you can shave years of payments off a 30-year mortgage. If you pay more than the minimum, you expedite the process even more. You’ll have to make arrangements with the lending institution to set up a bi-weekly payment plan and ensure that the extra money is applied directly to the principal.

Making one additional mortgage payment a year

This impacts the mortgage the same way making bi-weekly payments does. It’s just done in one lump sum instead of over the course of a year. When you make the extra payment, you must specify that you would like it applied directly to the principal.

Make lump sum payments periodically

If you don’t feel you have the ability to make bi-weekly payments or make one large additional mortgage payment, you can still pay extra on the mortgage as you are able. Paying an extra hundred dollars a few times a year will drastically speed up the repayment process. Every little bit helps.

Refinance from a 30-year fixed to a 15-year fixed

This may not make sense for everyone, but it is worth considering. By the time you’re ready to begin aggressively paying off your home, you will have eliminated all other debt. You can afford to pay more. And your credit score will have gotten better and will allow you to refinance at a much lower interest rate. This strategy can cut the repayment time down by more than half.

But first, create an emergency fund

The quickest way to derail your debt repayment efforts is to have an unexpected expense. And you will have plenty. Establishing an emergency fund before you begin paying down debt is one of the keys to success. Having a few thousand dollars set aside just for emergencies will keep you on track, keep you from incurring new debt and do wonders for your psyche.

If you do have an emergency and have to use some of the money, you simply pause your debt repayment plan to replace what you spent. Use the extra funds you were applying to your debt to replenish your emergency fund. Once it’s restocked, you go back to attacking the debt. (See also: Where to Find Emergency Funds When You Don’t Have an Emergency Fund)

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Do you have credit card debt? Car or Personal loans? Student loans? A mortgage? Want to know how to pay off your debt? We’ve got the best tips and advice to help you pay off your debt quickly and you can save money in the long run! | #debtadvice #financetips #personalfinance #moneymatters

Source: feeds.killeraces.com

5 Surefire Solutions to Help You Stick With Your Budget

How to Stick to Your budget

This post is the first post in a three-part underwritten series of posts I’ll be writing on behalf of the Visa Clear Prepaid program and the Walmart MoneyCard.

Struggling to follow through with that budget you’ve set? Here are 5 tried and true tips, tricks, and tools to help you actually stick with your budget:

1. Create Motivational Goals

Want to have more momentum when it comes to saving more and spending less? Set some realistic but inspirational goals.

Goals give you purpose, passion, and drive. They make short-term sacrifices more worth it, because you know you have long-term benefits in mind.

Wishing you could pay cash for Christmas, pay down your credit card debt, save for a piece of furniture, or even pay off your mortgage faster? Sit down and look at your current budget. See if there are areas you could streamline or cut back in.

Do the math on how much you could save or put toward your debt if you were to cut back $10 or $30 or even $50 every week. Knowing that these cuts are going to propel you toward your end game more quickly will inspire you to follow through with them over the long haul.

5 Surefire Solutions to Help You Stick With Your Budget

2. Focus on the Bite-Sized Chunks

If you want to discourage yourself, look at your savings goal or debt left to pay off as a whole. It probably looks mammoth and insurmountable. And you’ll want to quit saving or paying down debt immediately because it feels so overwhelming.

This is why I’m a big fan of breaking your big goals down into small pieces. If you want to save up $500 to pay cash for Christmas this year, don’t think about the $500 amount as a whole. Cut it down into the amount you’d need to save each month (about $42) and then the amount you’d need to save each week (about $10.50).

When you look at the weekly amount, it feels much more doable. And you can start to get creative to come up with simple and outside-the-box ways to shave that $10.50/week off your current budget.

In addition, you’ll be much more apt to stick with your budget if you feel encouraged from the get-go and like pulling off your goal is actually a reality, not some far-fetched, pie-in-the-sky dream idea.

5 Surefire Solutions to Help You Stick With Your Budget

3. Pay With Cash or a Prepaid Card

You all well know that I’m a big advocate of using cash. The beauty of cash is that it gives you instant self-discipline: when the money’s gone, the money’s gone.

You can’t go over-budget when you only use cash. Well, I mean, you can, but you’ll be robbing another budget category to do so.

You also can’t spend more money than you actually have when you only use cash. It’s a very visual way to be able to track how much money you have to spend.

However, I know that cash is not always practical in every situation. It’s impossible to pay with cash online and some people find that it burns a big hole in their pocket — causing them to spend more money than they would if they swipe a card.5 Surefire Tricks to Help You Stick With Your Budget

That’s why an alternative to cash you could consider would be using a prepaid card like the Walmart MoneyCard® Reloadable Prepaid Visa® Card, part of the Visa Clear Prepaid program. It works very similarly to cash in that you can’t overspend with it — once the money is gone off the card, you are done being able to swipe it (unless you refill it). So it gives you instant self-discipline, too.

Using a prepaid card is especially a great option if you’re wanting to stick with a specific budget in a specific budget category. For instance, if you set a budget for your Christmas gifts and you want to make sure that you don’t go over it, if you designate your budget amount as the amount on the card and you don’t use anything but the card for Christmas gift purchases, you’ll be guaranteed more likely to stick with your budget. Plus, you can use the card both online and offline.

4. Use a Money-Tracking App

Money-tracking apps and websites can not only help you set up your budget, but they can help you continue to stay on track with it. There are a variety of apps and sites out there — each with their pros and cons.

These apps and websites typically take you step-by-step through the process of creating your budget and will then give you real-time reports on how much you have to spend in each budget category. As you make purchases or deposits, you can update your budget in just a few seconds.

Used well and updated daily, it’s almost like a virtual cash envelope system — without having to mess with any cash or coins at all. Plus, the pie charts and information available at your fingertips will help you better know exactly what your current financial picture looks like and encourage you to continue to stay on track with your budget.

5 Surefire Solutions to Help You Stick With Your Budget

5. Get an Accountability Partner

I cannot stress the importance of having some built-in accountability when it comes to budgeting. You need people to help you stay the course, even when the going gets tough.

Accountability can be found in many different places. It could be monthly Budget Meetings with your spouse. It could be posting your financial goals on your refrigerator in graph form and updating your progress on saving or paying down debt as you gain momentum. It could be a goal app like Commit.

It could be reading books and blogs that inspire you to practice better money management. It could be joining an online group or online community of others who are seeking to get out of debt.

For best results, choose multiple accountability sources — some that are in-person and regularly check-in with you and some that are just motivational online or offline resources that serve as reminders to stick with your budget and keep going.

You don’t have to always feel like you’re falling off the Budget Bandwagon! Implement at least a few of these tips and tools and you are bound to experience much more budgeting success!

What helps YOU stick with your budget? Tell us in the comments!

This post is underwritten by the Visa Clear Prepaid Program. With the Visa Clear Prepaid program, there’s less stress in choosing and using a prepaid card. Cards meeting the Visa Clear Prepaid standards provide you with transparency and protection, resulting in more time to do the things you love.

With a card that meets the Visa Clear Prepaid standards, it means your day-to-day activities are covered by a clearly communicated fee plan, so you’ll know when you’ll pay a fee and when you won’t. Go to Visa.com to find the prepaid card that works for you.

And stay tuned for a 30-day Grocery Spending Challenge we’ll be running in partnership with the Visa Clear Prepaid program and the Walmart MoneyCard in the upcoming weeks to encourage you to stick with your budget, spend less, and save more!

photo credit; photo credit; photo credit

Source: moneysavingmom.com

How a Credit Card Can Actually Help You Get Out of Debt

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Wise Bread Picks

If you have high-interest credit card debt, you may believe another credit card is the last thing you need. Another card would only leave you with more open credit after all, and that just means more temptation to spend and rack up even more debt.

But a certain type of credit card debt could help your situation — if you use it the right way. This type of card is a balance transfer card.

How balance transfer cards work

Each balance transfer credit card has its own unique introductory offer you can use to your advantage. Most offer 0% APR from 12 to 21 months, meaning you won’t pay interest on transferred balances during that time. However, some balance transfer cards charge a balance transfer fee that typically works out to 3% or 5% of the balance you transfer over.

To illustrate, let’s imagine for a moment that you have $10,000 in credit card debt at 19% APR and you’re currently making a payment of 5% of your balance, or $500 per month. At this rate, it would take 25 months to pay off your debt, and you would fork over $2,120 in interest over that time.

Now, let’s say you apply for a balance transfer card that gives you 0% APR for 21 months in exchange for a 5% balance transfer fee. Once you transferred your entire balance over and added in the fee, you would start repayment owing $10,500 ($10,000 plus a $500 balance transfer fee).

However, the fact that you’re not paying interest means you could continue paying $500 per month and pay off your entire balance with zero interest in 21 months. In other words, your balance transfer card could shave four months off your repayment timeline and save you $2,120 in interest. (See also: Here’s What a Balance Transfer Does to Your Credit)

Tips for a successful balance transfer

The example above shows why balance transfer cards are so popular. Sure, some of them charge balance transfer fees, but having 0% APR for anywhere from 12 to 21 months can help you get out of debt faster, and lead to thousands of dollars in savings.

According to estimates from Experian, Americans conduct $35 to $40 billion in balance transfer activity each year. This is good news for consumers who are taking advantage, but it’s also troublesome since many people get stuck in a situation where they’re transferring the same debts to new balance transfer cards every few years.

If your goal is using a balance transfer credit card to get out of debt and stay out of debt, you’ll want to set yourself up for success. Here’s how you can do that.

Compare offers

Because balance transfer cards each have their own introductory offers, you need to check out more than one. Ideally, you’ll settle on a balance transfer credit card that grants you 0% APR for as long as you need to pay down all (or most) of your debt.

Other factors to consider with balance transfer cards include any fees they charge, consumer perks and protections, and rewards programs. However, beware of signing up for balance transfer cards with rewards programs if you worry they’ll entice you to spend. The goal with a balance transfer card is paying down debt — not racking up more.

Look for cards that don’t charge a balance transfer fee

Keep your eye out for balance transfer cards that don’t charge a fee. While most charge a fee to transfer balances upfront, there are several that skip over this fee for balances transferred in the first 60 days. Avoiding this fee will normally save you 3% to 5% of your balance amount, which can help you start paying down your balances right away.

Stop using credit cards

No matter what you do, stop using credit cards once you’ve transferred your balances to a card that offers zero interest for a limited time. You won’t want to use your new balance transfer card for purchases since the goal is paying off your debt, but you should also steer clear of using other credit cards since you could easily rack up more debt and eliminate any progress you’ve made.

While you’re in debt-repayment mode, you should stick to a cash budget or use your debit card instead of credit. That way, you won’t “accidentally” rack up new credit card balances you can’t afford to repay.

Create a debt repayment plan

Finally, don’t forget to create some sort of debt payoff plan for how you’ll pay down debt during your card’s introductory offer. You should estimate how much you can afford to pay each month and figure out how much debt you’ll ultimately pay off if you stay on track. If you can manage to pay off your entire debt over your card’s 0% APR offer with a specific payment amount, you should determine if that figure is possible with your monthly income and expenses. And using a good debt repayment calculator can help a lot.

You may also want to look for ways to cut your spending and bills so you can throw more money toward your credit card’s balance each month. Start with the low-hanging fruit in your budget — things like grocery spending and dining out, entertainment spending, or regular trips to your favorite department store. Also consider uninstalling any apps on your phone that regularly cause you to spend money, whether it’s Instacart, DoorDash, or Amazon. Make spending money more difficult and you’re more likely to save over time. And those savings can be allocated toward your debts until they’re paid off.

The bottom line

Another credit card may seem like the last thing you could possibly need if you’re in debt, but a balance transfer card could help you save money with the right mindset. Consider a 0% Intro APR credit card to pay down debt faster, but don’t forget that you’ll have to change your spending if you want to get out — and stay out — of debt.

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If you have high-interest credit card debt, you may not think another credit card is a good idea. But there’s a certain type of card that can help you payoff your debt, and that’s a balance transfer card. Check out our tips and ideas on how to get rid of debt with it! | #creditcard #debtadvice #moneytips

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How Bad Credit Can Make Your Mortgage More Expensive

February 28, 2019 &• min read by Scott Sheldon Comments 4 Comments

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Borrowers who come to the table with lower credit scores can find that their mortgage loan costs more because of their bad credit scores.  This is true for first-time buyers as well as people buying second or third homes. A loan costs someone with a bad credit score more because of higher interest rates and the resulting higher monthly mortgage payments imposed on those with less-than-perfect credit.

Here’s a rundown of why and what your options might be if your credit score is less than ideal.

What Is a Conventional Mortgage Loan?

A conventional fixed-rate mortgage is a home loan originated by a bank, lender or mortgage broker and sold on the primary mortgage market to Fannie Mae and Freddie Mac. Conventional loans are not guaranteed to a government agency where some loans are, such as FHA and VA loan. And the interest rate and terms are almost always fixed for the life of the loan. The majority of home loans are conventional loans.

A conventional loan’s terms and interest rate are determined using what mortgage lenders call “risk-based pricing.” That means that the costs are based on the apparent risk of the consumer’s financial situation. It also means that different people get different terms and interest rates based on how risky their financial situation makes them to the lender as far as paying back the loan and making payments on time.

If you have a lower credit score—from bad to poor or fair—lenders see you as a higher risk and, if they’ll approve you for a conventional mortgage loan, they’ll charge you a higher interest rate that will result in higher monthly payments and a higher cost for the total loan in the end.

The Added Cost of Bad Credit for a Conventional Mortgage

With a conventional mortgage loan, your credit score is the biggest driver of your costs.

If your credit score is between 620 and 679, you can expect to see higher costs when:

  • You don’t have at least a 20% down payment (or 20% equity if you’re refinancing)
  • Your loan size is more than $417,000-or whatever your county’s conforming loan limit is
  • You’re refinancing to reduce your monthly payment

Other factors that affect the price and rate of a mortgage include occupancy, property type, loan-to-value ratio and loan program.

Let’s say your home buying scenario looks like this:

  • Primary home
  • Single family residence
  • Conventional fixed-rate loan
  • 5% down payment
  • 630 credit score
  • $417,000 loan size

Due to your lower credit score, it’s not uncommon that you’d be expected to pay an interest rate that’s 0.375% higher than the average 30-year primary mortgage rate and higher than someone with a credit score above 800. If the 30-year primary mortgage rate is 3.875%, someone with good credit would pay 4.125% in interest (.25% above the primary rate) and you’d pay 4.5%.

Your monthly payment would be $2,112.88 compared to 2,029.99—that’s 82.99 more each month and $29,876.40 more over the 30-year life of the loan. Ouch!

Also, when you have less than a 20% down payment—so you’re financing 80% or more of the home price—your lender will require that pay a mortgage insurance premium. That private mortgage insurance (PMI) premium might be 110% of the loan amount on an annualized basis.

Here again, your creditworthiness factors into the PMI amount for a conventional loan—the lower your score, the more you’ll pay in mortgage insurance. For someone with a 630 credit score, that might be $4,587 per year or $382 per month. Another ouch!

For someone with a 700 credit score, the mortgage insurance premium would be approximately $3,127 per year or $260 per month—a $122 savings compared to your rate or $1,464 annually.

The Bottom Line

It pays to have a good credit score when applying for a conventional loan. If you expect to buy a home in the next year, now’s the time to check your credit scores and credit reports and get yourself on a plan to build your credit. A lender can guide you on the best steps to take, too.

Get your free credit score and credit report card on Credit.com. Your score will be updated every 14 days, so you can track your progress. And your report card will include tips on how to improve each of the five key factors that go into your credit score—payment history, debt usage, credit age, account mix and credit inquiries.

Don’t fear though. If you need to get a home loan now, you might be able to get one with poorer credit and improve your score after the fact and then refinance to get a better interest rate and monthly payment. There are also other loan options available to those with poorer credit scores.

How to Reduce Your Mortgage Costs If You Have Bad Credit

You may be able to raise your credit score simply by paying down credit card debt. Use the credit card payoff calculator to see how long it might take to pay off your credit card debt. Paying down debt decreases your debt-to-income ratio and makes you look less risky to lenders.

Know too that your overall credit history will affect how quickly paying off debts now will affect your score. If you have a long history of late payments, it will take longer for making payments on time now to improve your score.

Generally, a good rule of financial thumb is to keep your credit card balances at no more than 30% of the credit limits per credit card—this is also known as your credit utilization ratio which accounts for a significant portion of your credit score.

In addition to paying down debts, ask your mortgage professional if they offer a complimentary credit analysis. In addition to checking your score and getting your free credit report card on Credit.com, a mortgage-specific credit analysis can help you see just what factors are affecting your mortgage interest rate. You can then focus on improving those factors first.

Most mortgage brokers and direct lenders offer a credit analysis service. By having the mortgage company run the analysis, you can see how much more your credit score could increase by taking specific actions.

You may also want to consider putting more money down when buying a home to help offset a lower credit score, if that’s possible, of course.

Or, you may want to change gears and go with a different mortgage loan program. An FHA loan is another viable route in keeping your monthly mortgage costs affordable. It may also be easier for you to qualify for an FHA loan with a lower credit score.

The Federal Housing Administration or FHA grants FHA loans. It doesn’t weigh credit scores as heavily as private lenders who give conventional loans do. There is no sliding scale based on your credit score like there is with a conventional loan.

An FHA loan does charge an upfront mortgage insurance premium of 1.75% usually financed in the loan, but the effect of the payment isn’t a lot, which can make an FHA loan a lower cost monthly alternative to a conventional loan for someone with a lower credit score.

Other FHA loan tidbits:

  • FHA loans are not limited to first-time home buyers—they’re open to everyone
  • FHA loans can be used for the purchase of a home or to refinance an existing FHA home loan.

If you’re in the market for a mortgage and are trying to purchase or refinance a home, consider working with your loan officer to qualify on as many loan programs as possible upfront. This approach gives you the opportunity to cherry-pick which loan is most suitable for you considering your payment, cash flow, loan objectives and budget.

More on Mortgages and Home Buying:

This article was last published May 27, 2015, and has since been updated by another author.


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Source: credit.com

Can I Get a Home Loan with Bad Credit?

February 25, 2019 &• 8 min read by Scott Sheldon Comments 78 Comments

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While a 20% down payment and a great credit history make buying a home easiest, there are ways to get approved for a home loan without them those golden assets. Programs, such as Federal Housing Administration or FHA loans, Veteran’s Administration or VA loans and United States Department of Agriculture or USDA loans can help those without great credit and a large down payment realize the dream of home ownership.

Why Mortgage Lenders Care About Credit Scores?

Your credit scores and credit reports are the primary information lenders use to determine whether you’re a good or bad risk for a mortgage. Assessing your creditworthiness also gives lenders an idea of the amount they can safely loan you with confidence you can pay it back and make payments on time.

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Your credit scores and credit reports show a potential mortgage lender how you’ve handled past debt and payment obligations. Do you have several late and delinquent payments? Bankruptcies or other adverse judgments? Any of those items are red flags to a lender. And, because the lender is in the business of making money and not losing it, it wants to see you are not a risk.

Sadly, even if you’ve completely changed your credit habits, the lender will look at your past to assess whether or not it wants to enter into a future with you.

Even if you have a good credit score in the 750 range, a potential lender will look at your debt usage. If your usage is high, the lender might decide not to give you a loan. High debt usage is another red flag that loaning you money might be risky and result in a business loss for the lender.

Good and Bad Credit Home Loans

For first-time homebuyers and those looking for a second home, getting a traditional home loan with bad credit or a poor credit score can be difficult. But it’s not impossible. Even credit scores traditionally thought of as “bad” won’t necessarily stop you from getting approved for a mortgage.

Credit Score and Mortgage Approval

Credit Score Typical Lenders’ View of Score Ease of Getting a Mortgage
740–850 Outstanding High
720–740 Great High
700–720 Good Good
680–700 Risky territory Medium
620–680 Quite risky territory and less than perfect, but will likely still approve a home loan Medium
550–620 Wants improvement before approving a loan, but FHA loans are possible Low
300–550 Leery to approve a home loan, but FHA loans are possible Low

Mortgage Options Less than Good Credit

If you have a score lower than 620, it’s unlikely you’ll receive approval for a traditional home loan, also known as a conventional fixed-rate mortgage. However, you can likely apply for other programs, such as FHA loans, VA loans and USDA loans.

If one of those programs isn’t an option, take some time to improve your credit by paying debts on time before you apply for a loan. While you may be approved for a mortgage loan with a credit score between 620 and 680, such a score will affect your loan program and pricing. It will also result in your paying a higher interest rate. So it’s well worth your while to improve your score first if you can.

To get help improving your score, you can sign up for your free credit score on Credit.com. Your score includes access to a free credit report card that shows where you stand in each of the five areas that go into your credit score and how you can improve each area.

Credit.com dashboard of someone with poor credit

If you have bad credit, then the primary option for you to buy a home is an FHA loan. If your credit score falls between 500 and 579 and you can make at least 10% down payment, you likely qualify for an FHA loan.

If your credit score is 580 and 620, the golden score for qualifying for a conventional loan, you will likely qualify for an FHA loan and only need a 3.5% down payment.  Additional advantages of an FHA loan for people with lower credit scores include:

  • Shorter wait times after negative credit events, such as foreclosure, short sale, bankruptcy and divorce
  • Lower interest rates than conventional loans
  • Acceptance of a higher debt-to-income ratio than conventional loans

Disadvantages of an FHA loan compared to conventional loans include longer times to get approved and the requirement of mortgage insurance, usually a 1.75% upfront premium and 0.45%–1.05% annual premium too. But, given that you can buy a home with a lower credit score, those are minor if home ownership is your dream.

Learn more about how FHA loans compare to conventional loans.

VA loans and USDA loans are also options for some borrowers.

  • VA loans are available to active military members with credit scores of 620 or higher, require no down payment, offer competitive interest rates and can be easier to qualify for than conventional loans
  • USDA loans are available in rural areas to those with certain income levels and credit scores of 620 or higher, require no down payment, offer competitive interest rates and can be easier to qualify for than conventional loans

How Bad Credit Affects Your Home Loan

Your credit score determines two major things for a mortgage lender:

  1. The loan program or mortgage type
  2. Loan pricing, especially interest rate, which, if high, results in a higher monthly payment

Loan Programs

There are various types of loan programs, including conventional, FHA, VA and USDA mentioned above.

Conventional loans are best for borrowers with good to outstanding credit. But if you can make a large down payment, you might be approved for a conventional fixed-rate mortgage even with less-than-perfect credit.

Loan Pricing

When it comes to pricing, if you have lower credit, your mortgage interest rate for a conventional loan will most likely be higher than those of someone with good or excellent credit. You may also face additional premiums and more expensive insurance.

According to myFICO.com, the interest rate paid for 30-year conventional fixed-rate mortgage varies by credit score as follows:

Credit Score APR
760+ 4.058%
620–639 4.647%

That’s a difference in monthly payment of $289. The borrower with the lower credit score, pays the higher price.

Credit History and Your Home Loan

Your credit history is another factor a lender uses when deciding whether to approve your mortgage loan. Negative items on your credit report, such as patterns of previous credit delinquencies and balances on closed accounts, negatively affect your chances of getting approved for a mortgage.

Lenders look at credit scores first to determine which home loan you’re eligible for. Next, your complete credit overview, including credit history, is used to determine what the lender looks for in the underwriting process. During underwriting, the lender tries to figure out what happened in your credit history and why, as well as the likelihood that you’ll have credit issues in the future.

How to Overcome Credit Red Flags

Negative items can cause concern for lenders, but may not be total deal breakers. Here is a list of negative red flags and how to overcome them.

  • A pattern of delinquencies. Lenders can work around a record of late payments, but they’ll likely require a larger down payment and lower debt-to-income ratio to do so.
  • Late student loan payments. A late federal student loan payment within the last 12 months will make approval less likely for an FHA loan because government financing doesn’t look kindly at delinquent federal payments.
  • Late mortgage and other loan payments. Lenders usually overlook one late payment in the past 12 months, so long as you can explain and provide necessary documentation.
  • After a foreclosure, it takes 36 months to be eligible for a 3.5% down FHA loan and 48 months for a no-money-down VA loan. However, it takes seven years to qualify for conventional loan approval, no matter the size of the down payment.
  • Short sale. Mortgage eligibility after a short sale is 36 months for a 3.5% down FHA loan and 24 months for a no-money-down VA loan or a 20% down conventional loan.
  • With normal Chapter 7 bankruptcy, you have 24 months until you’re eligible for a 3.5% down FHA loan and 48 months for a VA loan or conventional loan.

To determine which red flags to overlook, lenders use mortgage overlays.  Overlays are explained by The Washington Post as “the mortgage approval standards that lenders and their investors place above the guidelines set by Fannie Mae, Freddie Mac, the Federal Housing Administration and the Department of Veterans Affairs.” In other words, overlays are the guidelines mortgage brokers and lenders follow to prevent potential mortgage losses.

Overlays vary from lender to lender, so while one lender might not approve your loan because of poor credit and a minimal down payment, another may. The key is to find a lender with minimal overlays who is willing to work with your situation. One way to shortcut the path to finding a lender who will work with you is to go through a mortgage broker who can do the legwork for you.

Ways to Qualify for a Home Loan with Bad Credit

Even with bad credit, there are things you can do as a potential homebuyer to help improve your chances of loan approval.

Larger Down Payment

If you can’t quality or for a non-conventional loan, try saving money for a larger down payment. Lenders view borrowers with a combination of bad credit and no money down as riskier than either factor in isolation. Typically, lenders like to see at least a 20% down payment.

Lower Your Debt Usage

It’s also important if you have bad credit and are trying to secure a home loan, to lower your overall debt-to-income ratio. The debt-to-income ratio is a way a lender calculates how much you can afford.

Use Your Rental History

Most credit reports don’t contain information regarding past rental payments. However, if you can, prove you made on time payments consistently over the last 12 to 24 months. A few alternative credit reporting tools can help, like Rent Reporters, Rental Kharma and RentTrack.

Before choosing any tool, research the fees and monthly charges. Also, ask if your personal data will be protected and what you have to do if you choose to cancel the service. Some of these tools only report to one of the major credit bureaus. But some report to all three, which will help more than just one.

Explain Your Credit History and Circumstances

It may be helpful to write a letter explaining your situation. Break down the negative items currently on your credit report and give the reason as to why the lender should trust that it won’t happen again. Provide any proof you have that you’re taking care of the situation, paying down debt or receiving benefits because of an unexpected layoff and loss of employment, for example.

When you talk to a lender, gather documentation to explain your credit challenges. If you can explain derogatory items in your credit history to a lender, you’re more likely to receive a mortgage.

Be specific when speaking to a potential lender or broker. Don’t be afraid to share details of your needs and concerns. You’ll save yourself a lot of headaches later by finding out up-front if they have any mortgage overlays that might prevent them from lending to you.

Conclusion

You don’t have to have perfect credit to buy a home. Just be prepared and search carefully for the lender or broker who can make your dream home a reality.

Not sure where to start looking for a mortgage? Start right here at Credit.com with a list of mortgage rates from lenders in your area.

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This article was last published July 17, 2018, and has since been updated by another author.


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Source: credit.com