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.
A goodwill letter is a written correspondence that asks creditors to remove negative remarks from your credit reports.
Key points:
A goodwill letter is more likely to work on smaller negative items, such as late or missed payments.
The creditor has no obligation to honor or even respond to a goodwill letter.
Write a goodwill letter as you would for any business-related correspondence—keep it professional, clear and concise.
Take the necessary steps to avoid incurring negative items in the future.
Negative items, such as late or missed payments, can have a considerable effect on your credit score and make it harder for you to secure loans in the future. Luckily, if your late payments are a one-time thing and you have an overall positive relationship with your lender, you may be able to send a goodwill letter to have these negative items removed.
Read on to learn more about goodwill letters and how you can use them when taking control of your credit.
What is a goodwill letter?
A goodwill letter is a request to creditors to remove negative remarks from your credit reports. As the name “goodwill” suggests, this request puts it on the creditor to make a good-faith effort to cooperate and work with a client or customer, and to establish a good business reputation with its clients. A creditor might be willing to take such action if you have good history with the individual creditor and have demonstrated effort on your part to handle credit and finances more responsibly.
Creditors are never obligated to remove accurate negative items simply because you ask. And in some cases, creditors may not be able to remove the items due to internal policies or agreements with the credit bureaus. Nevertheless, making the request only takes a bit of your time, so it might be worth a try.
When should you use a goodwill letter?
It’s best to send a goodwill letter when you have a logical reason for missing a payment. Potential reasons for sending a goodwill letter include:
You experienced an unforeseen financial hardship that temporarily prevented you from paying your bills.
You or a loved one had a medical emergency.
You recently changed banks and forgot a payment during the switch.
You moved locations, but they didn’t send the bill to your new address.
You were under the impression that you set up automatic payments, but there was a technical difficulty.
Whatever your reason for missing the payment, be sure to communicate to the creditor that you’re committed to getting your credit back on track.
What can goodwill letters remove?
Goodwill letters are more likely to work for smaller negative items, such as late or missed payments. That’s because many creditors have agreements with credit bureaus that they will not negotiate with individuals to have repossessions, collection accounts or charge-offs removed in exchange for payment.
While you’re free to send a goodwill letter any time, they are—generally—most effective when you want to get a mark related to a one-time negative issue removed.
How long will it take to get a response?
A goodwill letter is an unofficial letter sent to a creditor. As such, there’s no timeline requirement or even an obligation on the creditor to respond to the letter. How long the letter takes to generate a response—or whether any response is generated—varies.
A goodwill letter is not an official credit dispute letter. When someone finds an inaccurate item on their credit report, they can send a credit dispute or verification letter to the credit bureau. This prompts the credit bureau to launch an investigation, which comes with specific timelines that must be followed by the credit bureau and any creditor that is asked to provide documentation for the negative item.
Do goodwill letters work?
While there is never any guarantee that a goodwill letter will be successful, they have the best chance of working when the borrower and the lender have a good relationship. If you’re already in collections or have a long history of making late payments, you might not have good enough standing to successfully make the request.
How to write a goodwill letter
Write a goodwill letter as you would any business-related correspondence. Type and print it, and keep it professional, clear and concise.
While you can provide details about the reasons for a lapse in payment or another negative factor, a goodwill letter should not focus on the emotional aspects. The goal should be to show the creditor that the issue was not indicative of how you normally handle credit. You may also draft the letter in a way that shows that you have substantially improved how you handle credit.
This helps the creditor see you as a more valuable client, which can encourage them to do a goodwill favor for you. The goal of such a letter should not be to make the creditor feel sorry for you.
When writing your letter, include details that can help the creditor identify your account and the negative item in question. Then, provide a short description of why you think the creditor should remove the negative mark. You should include:
Your account number
The date and type of issue that occurred
Information that identifies the negative mark
Information about how long you have had a relationship with the creditor
Information that shows this is not habitual behavior for you
Sincere regret that this occurred
A specific call to action that explains what you are asking of the creditor
Example of a goodwill letter
If you’re unsure how to write a goodwill letter, check out this example to get started.
Re: Account No. [Account number]
Sally Joe
1199 La Playa Street
San Diego, CA 91932
To Whom It May Concern:
I’m writing this letter to express my gratitude as a longtime customer of California Bank and to discuss a concern regarding my account. Specifically, I would like to discuss an item posted to my credit report regarding this account and request that it be revised.
My account with California Bank began on 2/10/2013. Since that time, I have enjoyed excellent customer service and benefits and have been happy with California Bank. I have also been a customer in good standing, paying my account in a timely manner while qualifying for loyalty programs.
However, in January, I was in a major car accident and spent a week in the hospital. This led to a temporary decrease in my income and an influx of medical bills. While I was able to bounce back financially and now am continuing to pay all my debts as owed and in a timely manner, the first month after my injury was financially difficult, and this is when I missed that single payment.
I wish I could have continued with normal payments during that time, and I regret that I wasn’t able to do so. Following that personal emergency, I’m working hard to repair any damage done to my credit and personal financial life, and I’m reaching out to you for support in that effort.
I’m asking that California Bank give me a second chance at a fully positive credit history with your organization by removing the late payment mark from my credit report with all three credit bureaus. Please let me know if there is anything else I can provide to support you as you consider my request. Thank you.
Sincerely,
Sally Joe
Goodwill letter sample + template
How to avoid incurring negative items in the future
As mentioned above, goodwill letters are most likely to work for one-off occurrences. So, if your goodwill letter is successful and a creditor agrees to remove a negative remark from your credit report, it’s important that you take the following precautions to avoid incurring negative items in the future:
Stay organized. Organizing your finances can help you remember to pay them on time.
Pay your bills automatically. If you frequently forget to make payments, set up automatic transfers to stay on top of your bills.
Update your contact information. If any personal information changes, like your address, be sure to update it on your statement.
Have an emergency fund. Building an emergency fund will hopefully allow you to keep making payments, even in the event of an unplanned expense.
If you’re looking to improve your credit, Lexington Law Firm may be able to help you. Lexington Law Firm’s credit repair services can help you address questionable negative items on your credit reports and to ensure that what is reported on your credit reports are accurate and substantiated pursuant to applicable laws.
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.
Reviewed By
Candace Begody
Associate Attorney
Candace Begody was an Associate Attorney at Lexington Law.
Ms. Begody was born and raised in Arizona. She earned her juris doctor from Arizona State University’s Sandra Day O’Connor College of Law and her master’s in business from the W.P. Carey School of Business, also at ASU. Ms. Begody joined Lexington Law in 2022. Prior to that, she worked in transactional and business law in the Phoenix area. Ms. Begody is licensed to practice law in Arizona and was located in the Phoenix office.
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.
There isn’t a specific debt threshold you must meet to file for Chapter 7 bankruptcy, but you must meet certain criteria to qualify for it under the means test, which may consider income from the last six months and compares to the median income in your county for your family size.
The world of personal finances can be difficult to navigate, and unexpected events occasionally result in stressful debt. Sometimes people consider declaring Chapter 7 bankruptcy as a way to get some relief from their debts. Chapter 7 is a legal process that can provide a fresh start by discharging certain debts, but it’s essential to understand the requirements and implications.
How much do you have to be in debt to file Chapter 7? Since everyone’s financial history and situation varies, there is no absolute amount required to file Chapter 7—but there are criteria.
In this guide, we’ll cover the factors that determine eligibility for Chapter 7 bankruptcy as well as the benefits of filing, things to consider before you file, alternatives to filing and tips to help you avoid bankruptcy.
Table of contents:
Signs that filing for bankruptcy could be an option
How to know if you’re eligible for Chapter 7
Benefits of Chapter 7
Things to consider before filing Chapter 7
Chapter 7 alternatives
7 tips to avoid Chapter 7
Signs that filing for bankruptcy could be an option
Filing for bankruptcy is a significant and complex decision that you should base on careful consideration of your financial situation and options. Here are signs that you may be eligible for Chapter 7:
You’re dealing with an overwhelming amount of debt.
Bill and loan payments are being missed consistently.
Creditors are threatening to take legal action, wage garnishment, foreclosure or repossession of your assets.
You’re facing lawsuits due to unpaid debts.
Emergency funds and savings have been depleted.
You’re at risk of losing essential items such as your home or car.
How to know if you’re eligible for Chapter 7
Even though there’s no debt threshold for filing for Chapter 7, there are still other criteria that need to be met to determine if you’re eligible. Here are some key qualifications you likely need to meet:
You are filing as a person, a partnership, a corporation or other business entity.
You haven’t been discharged from bankruptcy in the previous eight years.
You have received credit counseling through the court within the last six months.
You’ve taken and passed the means test, or you have an exemption from the test.
Learn more about the Chapter 7 means test below.
Chapter 7 means test
During the Chapter 7 means test, your average monthly income over the previous six months is compared to the median income in your county. This test is a crucial factor in determining your eligibility—the court will essentially compare your financial situation to other similar-sized households in your area.
Typically, someone can qualify for Chapter 7 if their income is lower than the state median. If your income is above the median in your state, there are further calculations to determine whether or not you have enough money to pay off your bills under a Chapter 13 repayment plan.
Note: You’ll want to work with an experienced bankruptcy attorney to ensure accurate calculations and proper application of the test to your specific financial situation.
Benefits of Chapter 7
Chapter 7 offers several benefits to individuals overwhelmed by debt and seeking a fresh financial start. Here are some of the key benefits of Chapter 7 bankruptcy:
Potential debt discharge
The primary advantage of Chapter 7 is the potential bankruptcy discharge of most unsecured debts, such as:
Debt from your credit cards
Bills from medical-related expenses
Personal loans
Now that the bankruptcy process is complete, the debtor is no longer legally obligated to repay those discharged debts.
Avoid a lengthy process
In general, the Chapter 7 bankruptcy process is faster than the Chapter 13 bankruptcy process. Filing time for Chapter 7 usually takes around four to five months from the filing of the bankruptcy petition to the discharge of eligible debts.
Obtain automatic stay
An automatic stay is put into place after someone files for Chapter 7 bankruptcy. This action immediately puts a stop to all creditor collection actions, including:
Foreclosure
Wage garnishment
Repossession
Creditor harassment
Get a fresh start
Chapter 7 bankruptcy provides a clean slate for individuals that are having a hard time keeping up with payments. Once eligible debts are discharged, debtors can work on rebuilding their finances without the burden of old debts.
Relief from unmanageable debt
Chapter 7 bankruptcy is ideal for individuals with little or no disposable income to make regular payments under a Chapter 13 repayment plan. It’s designed to provide relief for those facing severe financial hardship.
Receive financial education
Those filing for Chapter 7 must attend credit counseling before they file and a financial management course before receiving a discharge. These courses can provide valuable financial education and help debtors make more informed decisions in the future.
Things to consider before filing Chapter 7
Filing for Chapter 7 bankruptcy is a big financial decision that could have long-term implications. Explore everything you should consider before filing Chapter 7 below.
Financial and employment situation
Evaluate the severity of your financial distress and employment situation. The best candidates for Chapter 7 bankruptcy are often those with excessive unsecured debt and little disposable income to make payments.
Having a hard time keeping up with payments due to unemployment can make you more eligible for Chapter 7 bankruptcy. However, if you’re still struggling to pay your bills while employed, filing for Chapter 7 may help you keep your assets, such as your house and car, by eliminating or decreasing payments on:
Credit cards
Medical bills
Unsecured debts
Court costs
It’s important to factor in the costs to file for bankruptcy, including attorney fees and court filing fees. A court filing fee for a new petition costs around $338. While it might seem like an additional expense, an experienced attorney can help you navigate the process effectively.
Credit impact
Be aware that filing for Chapter 7 bankruptcy could impact your credit negatively. There’s a chance it will stay on your credit report for up to ten years. However, if your credit is already damaged due to missed payments, the impact might not be as drastic.
Legal guidance
Consult with a qualified bankruptcy attorney to discuss your specific financial situation. An attorney can help you consider your options, navigate through the process and make the most informed decision possible. Plus, you could get valuable information about your case that you wouldn’t have thought of otherwise.
Chapter 7 alternatives
Consider investigating other possibilities to resolve your financial troubles before filing for Chapter 7 bankruptcy. Here are several alternatives to Chapter 7 bankruptcy:
Chapter 13 bankruptcy
Chapter 13 is an option for individuals with regular income to restructure their debts. It entails developing a repayment strategy that can last up to five years to progressively repay creditors.
This provides protection from creditor actions like foreclosure and repossession. It allows debtors to catch up on missed payments while keeping their assets. Compared to Chapter 7, Chapter 13 may be a better option if you’re employed and still able to pay down debt but need an extra boost to pay it down.
Debt negotiation and settlement
You might be able to negotiate a lower settlement price for your debts by speaking with your creditors directly or with the assistance of a debt settlement firm. This can lead to reduced payments but could also lead to negative consequences for your credit.
Debt consolidation loan
Taking out a debt consolidation loan to pay off multiple debts can simplify payments and potentially lower interest rates. However, it’s important to be cautious about converting unsecured debt into secured debt (like a home equity loan) that could put your assets at risk.
7 tips to avoid Chapter 7
Avoiding Chapter 7 bankruptcy requires proactive financial management and strategic decision-making. Here are some tips that might help you steer clear of the need to file for bankruptcy:
Create a budget: Prioritize making a budget for your finances to help lower your risk of debt. Tracking your expenses can be a great way to see areas where you can cut back and use the extra money to pay back debts.
Pay off debt first: Paying down your debt amount should be the first priority. Consider using the debt avalanche method to speed up the debt repayment process.
Negotiate with your creditors: If you’re having trouble making payments, contact your creditor to see if you can work out a better deal. They might be open to lowering interest rates, cutting monthly payments or establishing a repayment schedule.
Start an emergency fund: An emergency fund helps provide padding for you if you are stuck with surprise expenses, which can help you avoid using credit cards or loans.
Start selling: Sell items you no longer need for extra cash to pay down your debt. Plus, you can clear out clutter in the process.
Get a side hustle: Consider finding another source of income, like a side hustle or a second job.
Ask for help: Connect with a financial advisor or credit counselor—they can provide personalized guidance and create a plan tailored to your circumstances.
If you think you may be facing bankruptcy, you may also want to start taking a look at your credit. In this case, consider working with the credit repair team at Lexington Law Firm. They can work with you to address inaccurate items listed on your credit reports, so you can focus on building healthy money habits in the long run. You can also get a credit snapshot that gives you your credit score, credit report summary and repair recommendations for free.
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.
Reviewed By
Vince R. Mayr
Supervising Attorney of Bankruptcies
Vince has considerable expertise in the field of bankruptcy law.
He has represented clients in more than 3,000 bankruptcy matters under chapters 7, 11, 12, and 13 of the U.S. Bankruptcy Code. Vince earned his Bachelor of Science Degree in Government from the University of Maryland. His Masters of Public Administration degree was earned from Golden Gate University School of Public Administration. His Juris Doctor was earned at Golden Gate University School of Law, San Francisco, California. Vince is licensed to practice law in Arizona, Nevada, and Colorado. He is located in the Phoenix office.
Life is expensive and paying for rent can take up a significant chunk of your paycheck. In an ideal world, 30 percent of your income should go towards rent and housing costs. But life happens and you may come up short on rent due to loss of income or other unexpected expenses, leaving you wondering if you should take out a loan to pay rent. Coming up short on your rent payment is an extremely stressful situation and you’ll be looking for ways to make your rental payment and avoid eviction.
If you find yourself in this situation, what do you do? There are several options to weigh and taking out a loan to pay rent is one of them. Let’s walk through the pros and cons of rent loans and discuss several options you can consider if you’re behind on rent payments.
Is it possible to take out a loan to pay for rent?
If you get behind on rent payments, you’re not alone. In fact, more than 7 million renter-occupied households are behind on just last month’s rent alone. So, what are your options and is it possible to take out a loan to pay for rent? The short answer is yes, you can.
Using a loan to pay rent is an option. You can obtain a personal loan to pay rent and for some people, it’s a good idea. However, before you take out rent loans, you need to consider if it’s the right choice for you.
Pros of using a personal loan for rent
If you’re strapped for cash and need to pay for rent, there are some plus sides to taking out a personal loan for rent.
Pro #1: Provides a window of time for re-assessing your finances
By taking out a personal loan to cover your rent, you buy yourself some time to get your budget back on track. With a personal loan, you can pay for rent (either what you owe from missed payments or for future rent payments). Once you pay your rent, you’ll find yourself less stressed and you’ll think more clearly so you can get your budget back in a place where you can pay your loan back and have enough money for future rent payments.
Pro #2: Gives you flexibility
Personal loans allow you to use the loan money for anything you need. So, taking out a personal loan gives you the flexibility to use the money for rent or any other expense you need to cover. This flexibility is enticing for renters who need some financial help as the loan doesn’t specify what you can and cannot use the money for.
Pro #3: You can shop loan ranges and rates
Before taking out a personal loan, you’ll be able to shop around for loan ranges and rates. Make sure to compare your findings before you make a decision. You can take out a loan for as little as $1,000 or as much as $60,000 if needed. You can also compare interest rates.
It is important to try and find a loan with a low interest rate so you don’t accrue more debt than is absolutely necessary.
Pro #4: Can build a credit score
This is both a pro and con of personal loans, depending on how diligent you are with repayment. If you make your loan repayments in full and on time every single time, you’ll pay the loan off within the limits and build your credit score. If your credit score took a hit or is low, this is one way to rebuild your credit history.
However, it’s essential that you meet the terms of the loan for this to benefit you.
Cons of using a personal loan for rent
As with everything, when there are pros there are cons. Before taking out a loan to pay rent, consider the negative impacts of rent loans.
Con #1: You’ll pay interest
With any type of loan, you’ll pay interest on the amount you borrow. So, if you take out a personal loan toward rent, not only will you pay the rent money, you’ll also be paying money toward the interest.
If you have no other options, then taking out a loan for rent allows you to make your payment, stay in your apartment and come up with a new financial plan. Keep in mind that you’ll pay more with this option because of interest.
Con #2: Adds to debt
When you take out a personal loan to pay rent, you’re adding to the overall amount of debt you have. This may compound your stress and overall debt, causing more problems down the road. Also, when you rent, you aren’t putting money toward eventually owning an asset as with a mortgage toward a house. So, you’re compiling debt without working toward an eventual purchase.
Con #3: Could harm your credit score
If you fail to make your monthly loan payment, you could seriously damage your credit score putting you at risk for further financial hardship.
How to find a personal loan to pay back your rent?
If you’ve come to the conclusion that a personal loan is right for you, then you’ll need to know where to look and find one. Most financial institutions will offer loans and you can shop around for the loan that is right for you. Here are some places you can go to find a personal loan to pay back your rent:
Bank
Credit union
Online banks
Loan comparison websites
Because different places offer different rates on your loan, it’s smart to get several recommendations before taking out a loan.
Other options to pay back your rent
Unsure that a personal loan is right for you? We also have provided several other options to consider when you need money to pay back your rent. Before taking out a loan, you could consider:
1. Talking to your landlord
When you first realize that you may not have the money to pay your rent or if you’ve missed the due date, you’ll want to talk to your landlord immediately. Getting in front of the issue and addressing it openly is always a wise move.
Ask your landlord if he/she is willing to defer rent, offer a payment plan or waive late fees. You never know unless you ask!
2. Borrowing from a friend or family member
Do you have a trusted friend or family member that could loan you money for rent payback? If so, this is a less expensive option compared to getting a personal loan. Sometimes, close family or friends will loan you the money, interest-free, which is always a better option.
3. Call 211
You can the 211 community phone line to get referrals for services, like financial resources. If you’re in a bind, try calling this number and get in touch with local resources that can help with rent relief.
4. Consider a roommate
Imagine your rent payment being cut in half. Would that free up some of your budget? The answer is most likely yes. If you have space, you may consider getting a roommate who can share the cost of rental expenses and save you money, too.
5. Get a side gig
Nowadays, there are several side hustles that you can do from home, after work or at your convenience that pays well and would help your income. If you can get a side hustle that’ll cover the additional money you need for rent, this is a great option because it puts you in control of your money and you don’t need a loan to cover the extra expense of rent paybacks.
6. Reallocate your budget
Sometimes, we spend money on things like coffee, eating out or shopping and don’t realize how much of our budget it’s taking up.
Before you take out a personal loan, take a hard look at your expenses and budget to see where you can trim the fat. If there are areas to cut back on and reallocate expenses to rent payback, do this before taking out a personal loan.
Know your financial options
Now that you understand the pros and cons of loans to pay rent, you can make an informed decision if this is right for you. As always, you may want to consult a financial advisor before making a big decision like this to get professional guidance on what is best for you and your situation.
The information contained in this article is for educational purposes only and does not, and is not intended to, constitute legal or financial advice. Readers are encouraged to seek professional legal or financial advice as they may deem it necessary.
Sage Singleton is a freelance writer with a passion for literature and words. She enjoys writing articles that will inspire, educate and influence readers. She loves that words have the power to create change and make a positive impact in the world. Some of her work has been featured on LendingTree, Venture Beat, Architectural Digest, Porch.com and Homes.com. In her free time, she loves traveling, reading and learning French.
Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations.
A financial hardship letter explains an unforeseen circumstance that has made you unable to make regular payments on a loan and requests a modification to help you get back on track.
No matter how well you prepare, many Americans will encounter times of financial hardship due to circumstances outside of their control. Events such as company layoffs, natural disasters, and divorce can throw a wrench in our finances, making us unable to pay our financial obligations.
Instead of falling behind on payments during difficult times, take a proactive approach to your finances. Sending a financial hardship letter to your creditor can help you salvage your credit score while you get back on your feet.
Read on to discover what these letters are, situations that warrant them, and how to write your own.
Table of Contents:
What Is a Hardship Letter?
A financial hardship letter is a correspondence you send to a creditor that explains why your current financial situation prevents you from making debt payments. After providing details about your hardship, such as the cause and timeline, request that the creditor provide a mutually beneficial solution.
Depending on your specific circumstances, you could suggest to your lender that they assist you by:
Suspending your monthly payments for the time being
Decreasing your payment amount
Lowering your interest rate
Pardoning overdue payments
Waiving penalties for late payments
Adjusting the terms of your loan
Resolving your debt for an amount less than you owe
For example, if you were recently injured due to an accident, you could ask the creditor to temporarily pause your payments until you recover.
What Is Considered Financial Hardship?
Since everyone’s situation is different, you may be wondering what qualifies as financial hardship. A financial hardship is any scenario beyond your control that makes you unable to pay for your living expenses.
Examples of financial hardships include, but are not limited to, the following:
Employment layoff
Pay cut
Home foreclosure
Decreased number of working hours
Job relocation
Natural disaster
Emergency event
Divorce or separation
Military deployment or transfer
Death of a spouse or family member
Incarceration
Serious injury or illness
As you can see, the examples above are out of your control. On the other hand, circumstances that creditors are not likely to deem as a financial hardship include:
Poor money management or overspending
Routine expenses
Voluntary employment shift
Purchase of a home
Decrease in property value
Payment of college tuition
Investment losses
How to Write a Hardship Letter
When writing your financial hardship letter, address it to the loss mitigation department of your lender. Include your contact information and loan number so they can identify your account. Write your letter clearly and concisely, following the instructions provided below.
1. Explain Your Hardship
Be honest with your creditor about the circumstances surrounding your hardship, but keep your explanation concise. Aim to keep your explanation under one page.
While you should include relevant details such as what caused the hardship and when it started, don’t include unnecessary information. For example, you might inform the creditor that you’re going through a divorce and the legal fees are causing financial strain, but you don’t need to go into the cause of the divorce.
Remember to be truthful—don’t exaggerate your circumstances or include inaccurate information.
2. Provide Documentation to Back Up Your Claim
Provide up-to-date and relevant documentation as evidence for the statements you make in the letter to bolster your claim. Documents the lender may want to review include:
Bank statements
Pay stubs
Tax returns
Medical bills
Employee termination letter
Divorce certificate
Military orders
Proof of incarceration
3. List Steps You’ve Taken to Alleviate Your Financial Burden
Let the creditor know the actions you’ve already taken to help improve your financial situation and pay your debt. Steps you might take include limiting expenses, selling personal items, or working a side gig to make extra income. This provides the lender with additional context and shows that you’re taking personal responsibility for your financial situation.
4. Clearly State Your Request
The purpose of writing a hardship letter is to request help from the creditor during your difficult time. Make sure to clearly state exactly the action they can take to assist you and how it will help you. Provide your proposed solution or a couple of suggestions the lender might consider.
5. State Your Commitment to Paying Your Debt
Conclude your letter with a statement expressing to the lender that you’re committed to paying your debt and finding a solution that works for both of you. Sign your name to the end to formally close the letter.
Financial Hardship Letter Template + Sample
Below is a hardship letter sample and template to help you get started. When using the template, make sure to enter your own information where there is bolded text.
Harry Jones, Loss Mitigation Department of Georgia Bank
444 Peach Lane
Atlanta, GA 30033
Re: Account #10122467894231
DearHarry Jones:
I am writing this letter to request assistance with my personal loan during a time of financial hardship.
Approximately two weeks ago, I was let go from my job due to company-wide layoffs. As a result, I have been unable to continue making regular payments on my loan. I have included my termination letterthat proves the validity of my hardship.
While I have taken steps to increase my income during this time, such as babysitting and selling old clothes, I am still not able to make full payments.
I fully intend to pay off my loan and am requesting your help to get me back on track. I would like to discuss possible solutions such as temporarily pausing payments, lowering my interest rate, or any other option that might be available to me. I expect my hardship to be resolved in approximately three to six months, after which I can resume my regular payments.
I want to reiterate my intention to fulfill my financial obligation. If you have any questions or would like to discuss a solution, please contact me at (912) 333-3333oremail me at [email protected].
Thank you for taking the time to review my request, and I hope we can come to a mutually beneficial agreement. Your support during this time of financial hardship is greatly appreciated.
Sincerely,
Mary Smith
How to Get Through Financial Hardship
In addition to writing a hardship letter, here are some other tips to help you get through times difficult times and continue to reach your financial goals:
Create a budget: Use a monthly budget template to write down your monthly income, expenses, and debt to paint a full picture of your current financial situation.
Consider debt consolidation: If you have many different debts, debt consolidation can simplify your finances and help you pay your balance quicker and at a lower interest rate.
Limit unnecessary expenses: During difficult times, it’s important to only spend money on the essentials. Consider canceling subscriptions, reducing electricity use, and eating at home to save money.
Start a side hustle: Having multiple income streams can help mitigate financial burdens. Examples of side hustles include pet sitting, driving for a ride-share company, online tutoring, and joining a focus group.
Build an emergency fund: Aim to save three to six months’ worth of expenses as a cushion in case of a personal emergency or unexpected expense.
Writing a financial hardship letter can help you maintain a good credit score during a crisis. While navigating your situation, it’s important to continue monitoring your credit. To make this easier during times of stress, check your free credit report card to see what’s happening with your credit at a glance.
The Department of Veterans Affairs announced that it is pausing foreclosures on VA-backed loans and extending pandemic protections for veterans facing difficulties paying their mortgages.
Officials said Friday that the department will contact mortgage services to pause VA foreclosures and extend the COVID-19 Refund Modification program through May 31, 2024, to ensure that veterans are able to stay in their homes.
The move follows a report Nov. 11 by National Public Radio that found veterans who used the mortgage forbearance program authorized by Congress early in the pandemic were at risk of losing their homes after the VA ended a Partial Claim Payment program that would have allowed them to defer their missed payments to the back of their loan period.
Read Next: US Military Says National Security Depends on ‘Forever Chemicals’
Instead, when the program ended, they received bills from their mortgage companies for the total payments missed, meaning they faced paying large sums to keep their existing low-interest mortgages or refinancing under today’s rates, which are double what they were in January 2022.
According to the NPR report, roughly 6,000 VA homeowners are in the foreclosure process. Another 34,000 are delinquent.
The VA has called for mortgage services to pause foreclosures and will “work with servicers on workable home retention solutions for veterans,” according to a department statement.
The extension of the COVID-19 Refund Modification program will allow veterans to obtain zero-interest, deferred-payment loans from the VA to cover missed payments and modify their existing VA-guaranteed loans to create an affordable monthly payment structure.
VA officials said they are establishing a VA Servicing Purchase program that will allow the department to purchase defaulted VA loans from mortgage companies, modify them, and then put them in the VA’s direct loan portfolio.
“This will empower us to work with veterans experiencing severe financial hardship to adjust their loans — and their monthly payments — so they can keep their homes,” VA officials said in the statement.
The majority of loans described as “VA home loans” are actually VA-backed loans, in which the department guarantees a portion of the loan, ensuring that if a veteran homeowner goes into foreclosure, the lender will recoup some or all of its losses.
The benefits for veterans include better loan terms, such as a more favorable interest rate or smaller to no down payment. According to the department, nearly 90% of all VA-backed home loans are made without a down payment.
Following the NPR report, Senate Democrats Sherrod Brown of Ohio, Tim Kaine of Virginia, Jack Reed of Rhode Island, and Jon Tester of Montana wrote to VA Secretary Denis McDonough calling for a pause and urging him to extend the COVID-era refund program.
“With each additional day that passes, risks mount for borrowers who are facing foreclosure while they wait for a solution from VA. Without this pause, thousands of veterans and service members could needlessly lose their homes,” the senators wrote. “This was never the intent of Congress.”
Tester, who serves as chairman of the Senate Veterans Affairs Committee, released a statement Monday praising the VA for its fast response.
“I’m encouraged to see VA answering my call to quickly address this crisis facing our men and women who risked their lives serving this country and were facing foreclosure through no fault of their own,” Tester wrote in a statement. “This pause will help ensure our veterans, service members, and their families can remain in their homes and get their payments back on track while VA works on a long-term solution.”
VA officials said any veteran struggling with making their mortgage payments should check out the department’s housing assistance website or call 877-827-3702.
The Department of Veterans Affairs (VA) is pausing foreclosures on homes financed with VA loans for six months to help military borrowers in danger of losing their homes, a department spokesperson said in a statement to HousingWire on Monday.
The Veterans Assistance Partial Claim Payment program — which began July 2021 — allowed military borrowers to skip six or 12 mortgage payments during the COVID-19 pandemic if they had a financial hardship. VA borrowers would resume making the regular payments when they were back on their feet and the missed payments would be moved to the end of the loan term.
The VA, however, ended the program in October 2022 despite the mortgage industry urging the department to delay its expiration, forcing borrowers to pay back payments quickly or refinance at higher interest rates.
The department said it will push all mortgage servicers to pause foreclosures of VA-guaranteed loans through May 31, 2024, according to the statement.
The VA’s decision to reverse course comes on the heels of an investigative NPR article reporting that thousands of VA loan borrowers risk losing their homes after the VA ended the assistance program.
About 6,000 borrowers with VA loans who had COVID-19-related forbearances are in the foreclosure process and 34,000 more are delinquent, according to NPR’s article citing data from ICE Mortgage Technology.
The COVID-19 Refund Modification program – intended for borrowers who have not been able to financially recover from the pandemic back to their previous income level – was set to expire at the end of 2023, but is now extended through May 31.
The modification program allows military borrowers to obtain a zero-interest, deferred-payment loan from the VA to cover missed payments and modify their existing VA loan to achieve affordable monthly payments for the duration of the extension, the statement said.
The department plans to launch a new VA Servicing Purchase (VASP) program to allow the VA to purchase defaulted VA loans from mortgage servicers. This will allow federal officials to modify the loans and place them in the VA-owned portfolio as direct loans.
The National Consumer Law Center applauded the VA’s decision saying the foreclosure pause will give VA borrowers a much-needed opportunity to access the VASP program.
“The foreclosure pause is badly needed as veteran borrowers have had no meaningful alternatives to foreclosure for over a year,” said Steve Sharpe, senior attorney at the National Consumer Law Center.
Last week, a group of Democrat U.S. Senators – Sherrod Brown of Ohio, Jon Tester of Montana, Jack Reed of Rhode Island and Tim Kaine of Virginia – wrote a letter urging VA Secretary Denis McDonough to protect military borrowers from foreclosure.
“VA previously offered solutions to help borrowers exit forbearance and get back on track with their payments. But for more than a year, veterans have not had a viable option to bring their mortgages current, leaving them vulnerable to losing their homes,” the letter read.
“In the meantime, tens of thousands of veterans and service members are left with no viable options to get back on track with payments and save their homes. Stories from across the country show that this is already having severe consequences for veterans and their families.”
Over the past year, the department said it helped more than 145,000 military borrowers and their families keep their homes and avoid foreclosure.
Inside: Are you struggling to make ends meet on a low income? This guide will teach you how to budget money effectively on a low income, so you can live a comfortable life without having to skimp on important expenses.
Let’s face it… Navigating through the budgeting on a low income can often feel overwhelming.
The fear of insurmountable bills, the anxiety associated with rising living costs, and the overall foreboding nature of budgeting often make for a persistently stressful experience.
However, it is crucial to understand that you are not alone in this journey. I have been in your spot as well as many Money Bliss readers.
Regardless of how daunting the budgeting task may appear, we truly believe that with the right guidance and adherence to solid financial principles, you are capable of achieving financial peace of mind.
This process will simply require patience, persistence, and strategic planning. This guide aims not only to shine a light on the struggles of budgeting with a low income but also to offer a beacon of hope.
This post may contain affiliate links, which helps us to continue providing relevant content and we receive a small commission at no cost to you. As an Amazon Associate, I earn from qualifying purchases. Please read the full disclosure here.
How to Budget Money on a Low Income
While it’s true that budgeting with a low income can be tough, proper money management can make it doable.
When you have less disposable income, it leaves you with less leeway in your budget. That’s why you have to be accountable and meticulously plan your spending to ensure financial stability.
So, let’s dig in and you can find success.
Step #1 – Figure out Your Monthly Income
Developing an effective budget starts with understanding your monthly income.
Here’s a step-by-step guide:
List out all income sources: This includes all your regular paychecks, part-time jobs, side hustles, social security, child support, or any other form of income you have. If your income is irregular, say from commissions or seasonal work, it’s advisable to base your budget on your lowest monthly income.
Account for taxes and deductions: To get an accurate picture of your disposable income, you need to factor in taxes and deductions from your earnings. You need to make sure you understand the difference between gross pay and net pay.
Include irregular income: If you occasionally get money from gifts, or sporadically earn from passive income sources like investments, be sure to include these too. As these are inconsistent, it is best to fund discretionary spending with this money.
Personally, I recommend using your net income with budgeting. This will give you an accurate budget that you can truly follow.
This knowledge is powerful when it comes to effective budgeting.
Step #2 – Define your bills and Expenses
Knowing how much you spend and what you spend your money on is another crucial step in budget planning.
The key is to define ALL your bills and expenses. Here are the personal budget categories that cover almost everything you can think of.
Now, you must do the following:
Identify your fixed costs: These are basics that you have to pay monthly and remain fairly constant, such as rent, car payments, and student loans.
Consider flexible costs: These expenses vary from month to month. Examples include groceries, transportation, electricity, water, and gas bills.
Remember periodic costs: Some costs only appear annually or semi-annually. For instance, insurance premiums, car registrations, and property taxes. It’s important to set aside money each month to cover these expenses when they arise. A sinking fund is great for these expenses.
Account for daily spending: Beyond fixed and flexible bills, consider your day-to-day expenses like shopping, subscriptions, and entertainment. Be honest about the little expenses. It’s often the small, frequent purchases that can derail a budget.
Prepare for unplanned costs: Finally, remember to budget for unexpected expenditures such as car repairs or medical bills.
By defining and categorizing your bills and expenses, you can see where your money is going and better manage your spending.
Step #3 – Reach a Zero Budget
A zero-based budget is a strategy that requires you to assign every dollar you earn to a specific expense or savings category, with the goal of having your income minus your expenses equal zero by the end of the month.
Write down your income: From the step before, you already know your total monthly income.
Subtract your expenses: Subtract the total of your monthly expenses (including savings) from your total monthly income. If you’ve correctly accounted for your income and expenses, the result should be zero. This is what it means to have a “zero-based budget”.
Balance the budget: If your income and expenditure don’t balance, adjust your variable expenses and other discretionary spending until they do. This can involve cutting back on nonessential overspending, like takeout meals or unnecessary purchases.
Allocate every dollar: With your budget balanced, each dollar should now have a purpose, whether it’s paying bills, going into savings, or providing for your daily needs.
Many people struggle to hit a zero based budget on the first try. It is common for your expenses to be higher than your income. Thus, a no spend challenge may help you identify what is important to actually spend your money.
Reaching a zero-based budget equips you with a clear picture of your financial status.
Thus, it allows you to use your money purposefully and prevents unnecessary spending. This way, even with a low income, you can still meet all your needs and work towards your financial goals.
What do you do if your budget shows your expenses are more than your income?
When your monthly spending exceeds your monthly income, immediate attention is needed to prevent worsening financial issues. Before panic sets in, consider taking the following steps:
Analyze your budget: Reevaluate and scrutinize your budget. There might be necessary adjustments overlooked or expenses incorrectly categorized. This will give you a clearer understanding of where your money is going.
Prioritize essential expenses: Allocate money to necessities like housing, food, utilities, and debt repayments first. Other less necessary expenditures, like entertainment and dining out, can be reduced or eliminated.
Reduce expenses: After prioritizing, identify areas where cuts can be made. Impulse buys, unnecessary subscriptions, or expensive habits might need to go.
Increase your income: Consider part-time jobs, side hustles, selling unused items, or picking up freelance work to bring in more money.
Seek advice if debt is weighing you down: As a last resort, you may look at ways to lower your interest rate on your debt. These strategies like debt consolidation or restructuring could help make your situation more manageable.
Remember, this situation, while stressful, is not permanent. With careful planning and disciplined execution, you can turn this around and regain financial stability.
Taking Control of Your Budget When Income Doesn’t Cover Your Expenses
Now, this is where you need to learn to manage your money wisely. You are in control of where you spend your money.
Many truly believe with a higher income all of their financial problems go away. From my research, most people end up with bigger money problems, the same spending habits, and still living paycheck to paycheck even with a higher income.
So, let’s reign in what you can do today to make your budget feasible.
1. Prioritize Essential Bills and Expenses. The key is to identify which expenses are truly essential to your livelihood. All remaining expenses, like entertainment or eating out, should be considered secondary and only met after the primary expenses have been satisfied.
2. Participate in a No Spend Challenge. A No Spend Challenge not only helps you save money rapidly but also makes you cognizant of your spending habits, helps identify non-essential expenses, and guides you towards a minimalist, sustainable lifestyle. Start with a no spend month.
3. Reduce your Housing Expenses. Housing costs can be one of the most significant expenses. Look at ways to downsize, negotiate rent, refinance your mortgage, or get roommates. Or even housesit permanently.
4. Be Cognizant of Bad Spending Habits. Some examples include impulse purchases, expensive convenience, not comparison shopping, or paying too much. By becoming aware of your spending habits and making conscious choices, you can break the cycle of unnecessary spending and start saving money with the penny challenge.
5. Skip the Expensive Coffee Shop. Choosing to forgo your daily coffee shop run can result in surprisingly significant savings. Implementing just this one change could save you over $600 a year!
6. Use Public Transportation to Save Money. The costs of owning a car – gas, maintenance, parking, and insurance – can quickly add up. So, look for public transportation as an alternative or even cycling, carpooling, or walking.
7. Take Advantage of Free or Cheap Entertainment. When living with a low income, entertainment expenses can quickly eat into your budget. Good news for you! There are plenty of things to do that don’t cost money.
8. Cut Back on Grocery Spending. By implementing simple strategies such as meal planning, cooking at home, cutting down on processed food and reducing waste, you can maintain a healthy diet while significantly reducing your grocery bills. Don’t forget to use those discounts and coupons!
9. Stick to Your Shopping List. Preplan your purchases before stepping into a store. This is a powerful tool in curbing those impulse purchases which can inflate your expenses substantially.
10. Start Meal Planning. Meal planning is a practical and economical way to manage your food budget. By planning your meals for the week, you can control your grocery spending and eliminate waste.
11. Stockpile Goods That Will Stay Stocked Up Long Term. Remember, the goal of stockpiling is to save money, not to transform your home into a supermarket. Purchase enough to last a few months and focus on items that you’re certain to utilize. Here are the best foods to buy when broke.
12. Pack Your Own Lunch and Skip Eating Out. With an average meal out costing around $10, you could easily save $200 a month by packing lunch from home. Over a year, that’s $2,400 in savings!
13. Drink Water and Avoid Processed Foods. Shifting dietary habits can be a significant change, but your commitment to a healthier lifestyle can reap both health and financial dividends. It’s an investment in a life of wellness and economic sustainability.
14. Take Advantage of Discounts when Shopping. Remember, the goal of shopping with discounts is to spend less on what you need, not to buy more than you need. So, make sure to use coupons wisely, shop sales, buy off season, and use Cashback apps like Rakuten and BeFrugal.
15. Avoid Impulse Purchases. By avoiding impulse purchases, you give your budget room to breathe and create an opportunity for savings. This makes a significant difference over time, especially when money is tight.
16. Apply for Discounts on Utilities and Services. Many utility companies provide low-income home energy assistance programs. The same is true for internet service. Contact your service providers to check your eligibility.
17. Get Free or Discounted Goods Through Charities. Charities, faith, professional, and local organizations often offer grants for people experiencing financial hardship. Utilizing them can be a lifetime as they help you stretch your budget further and provide necessary support in times of financial struggle. Don’t be afraid or too proud to ask for help when you need it.
18. Get Outside. Reconnecting with nature can provide you with cost-free entertainment and a sense of tranquility that’s hard to find elsewhere.
19. Avoid Unnecessary Expenditure. While each person’s definition of “unnecessary” may differ, the key to budget management is curbing expenditures that don’t add substantial value to your life. A common culprit could be brand-name goods or late fees.
20. Start the Practice of Saving with a Mini Savings Challenge. The Mini-Savings Challenge can pave the way to a habit of saving regularly, even on a tight budget. Essentially, this challenge consists of setting aside a small amount of money each day or week, gradually increasing the amount over time.
21. Show Gratitude. While it may seem less directly related to finance, practicing gratitude is indeed integral to efficient budgeting and financial wellness. Remember, financial success isn’t just about making more money. It’s also about appreciating what you have and recognizing the steps you’re taking towards your goals.
Inciting Additional Income Avenues
Okay, this section is how you take a low income and increase your money. While cutting back spending is helpful, creating more money will help you to reach money success faster. This will take the strain off.
1. Look for Ways to Earn Extra Income
Boosting your income, no matter how minimal the increase, can help cover necessary costs and elevate your financial standing.
Here are some ideas using your current job:
Work Overtime: If possible, consider getting more extra hours at your current job. Earnings from overtime or extra shifts can be significant.
Negotiate a Raise: If you’ve been with a company for a while and demonstrated your worth, it might be time to discuss a raise. Prepare well for this conversation with evidence of your productivity and value.
Every extra dollar earned can be put towards savings, paying down debt, and creating better financial stability.
2. Leverage Side Hustles for Extra Money
Side hustles have become an increasingly popular way to earn extra money online in your spare time. They allow for flexibility and can be a great supplement to your current income.
Start a Side Hustle: These can be a great way to make use of spare time to earn extra cash. This could be anything from driving for a rideshare company, offering freelance services, tutoring, delivering food or groceries to selling homemade goods online.
Sell Unused Items: You probably have items in your home that you no longer need. Selling anything from clothes to electronics or furniture can be a good source of income.
Passive Income: From writing an eBook to renting out a room in your house or investing in stocks, creating passive income streams can provide extra money over time.
Remember to choose a side gig that fits your schedule, interests, and skill set. Not only could it bring in extra money, but it could also turn into a passion project, making the work feel less like a chore.
3. House Sit for Extra Income
House sitting can be a viable option for those looking to generate extra income, especially if you’re flexible with your time and location. It typically involves looking after someone’s home (and sometimes their pets) while they’re away.
Not only is house-sitting a way to earn money, but it can also offer a free place to stay. Hello – you just lowered the biggest expense in your budget. However, remember that taking care of someone else’s home is a huge responsibility, so only take on tasks you’re confident you can handle.
Get started by building your profile on Trusted Housesitters.
4. Items You Don’t Need Anymore
Selling items you no longer need or use can both declutter your home and add to your income. It doesn’t just have to be big-ticket items; even small routine household items can yield returns.
While this may be difficult to do, look for items in good condition that you and your family no longer need or use. If you have extra baby stuff, you can rent it on BabyQuip for extra money.
Remember, while selling items won’t provide a consistent income, it can be a great one-time source of extra cash especially if you have these highly popular flipping items in your house.
Baby Equipment Rentals with BabyQuip
Have you heard about BabyQuip? They are the #1 baby equipment rental service offering clean, safe, and insured baby gear.
Whether you are traveling or just don’t want to purchase, this is a great idea to check out.
Learn More
5. Pick up a Part-time Job
When you’re on a limited income, picking up a part-time job can be a reliable way to supplement your earnings. You are trading your time for money.
Many of these jobs that pay weekly offer valuable experiences, skills, and possibly even room for growth and advancement. Remember to save and plan for any taxes due as a result of your increased earnings.
Smart Use of Technology in Budgeting
Taking advantage of personal budgeting tools can make managing your finances easier. They can help track expenses, create a budget, and set saving goals. Here are some popular options:
You Need a Budget (YNAB): YNAB helps you create a budget and live within your means, educating you on effective money management along the way.
Simplifi by Quicken: This app crunches the numbers to show how much money you have for day-to-day spending after accounting for bills, goals, and savings.
Empower: This free tool offers a comprehensive financial dashboard that includes budgeting features and investment tracking.
Tiller Money: If you want a more manual approach, you can use Google Sheets or Excel to create a customizable budget spreadsheet.
Remember, the best tool is the one you use consistently. Try a few options to see which one best meets your needs and preferences. Every tool has its pros and cons, but all aim to help you control your finances effectively.
Empower Personal Wealth, LLC (“EPW”) compensates Money Bliss for new leads. Money Bliss is not an investment client of Personal Capital Advisors Corporation or Empower Advisory Group, LLC.
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Access Paychecks Early with Digital Banking Apps
With the rise of digital banking, access to innovative financial tools like early direct deposit has become more accessible, even for those with low incomes. These services can be crucial lifelines between paychecks or in case of emergencies.
Here are a few platforms that offer such services:
Chime: Once you set up direct deposit with Chime, you may get your paycheck up to two days earlier than at a traditional bank.
Current: Current, a mobile bank account, provides users with paychecks up to two days in advance.
Varo: Varo also offers early direct deposit for its users, helping you gain access to your money more quickly.
Clair: Clair’s on-demand pay solution lets you advance a portion of your paycheck before payday. This can be particularly helpful when navigating financial crunches.
It’s important to note that while accessing your paycheck early doesn’t give you extra money, it does provide more flexibility in managing your finances and can help avoid overdraft fees or high-interest loan options in times of need. As with any financial tool, it’s essential to use early paycheck access wisely and not rely on it for regular spending.
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FAQs
Saving money on a low income can seem challenging, but a few strategic changes and smart habits can make it achievable.
Engaging in a money-saving challenge can be a motivating way to encourage disciplined saving, helping you to creatively manage your finances and significantly boost your savings plan over time.
Remember, the key to saving on a low income is to stay consistent, patient, and adaptable in your approach.
Surviving on a low income budget can be challenging, but strategic planning and careful spending can help you manage your finances effectively.
The focus as Dave Ramsey likes to say is on your four walls – food, utilities, shelter, and transportation.
Remember that it’s okay to adjust your budget as you go. Circumstances change, and so should your budget. Review your budget regularly to ensure it’s still working for you and adjust as needed.
Budgeting when you’re broke might seem like an uphill battle.
The key is to make sure you stick to your budget and track your spending consistently. Don’t hesitate to reach out to local charities, government programs, and non-profit organizations for assistance.
Remember, being broke is often a temporary situation, and even small steps towards better budgeting can compound into big changes over time. Try to stay positive and focused on your financial goals.
Now, How do you Survive on a Low Budget?
Surviving on a low income involves careful planning, budgeting, and making the most of available resources. While it may seem challenging, it is indeed possible.
Every small step you take towards frugal living, such as sticking to a budget, reducing unnecessary expenses, or earning extra cash, can lead to considerable savings in the long run.
Remember, it’s also important to invest in yourself – whether that’s asking for a raise at work, learning a new skill, or starting a side hustle.
The journey of living on a low income can be tough, but it also offers an opportunity for creativity and gratitude for the essential things in life. With a positive mindset, some patience, and careful budgeting, you can not only survive but thrive, even on a low income.
The goal isn’t to just get by but to build a financially stable future.
Know someone else that needs this, too? Then, please share!!
Did the post resonate with you?
More importantly, did I answer the questions you have about this topic? Let me know in the comments if I can help in some other way!
Your comments are not just welcomed; they’re an integral part of our community. Let’s continue the conversation and explore how these ideas align with your journey towards Money Bliss.
FHFA revises current single-family mortgages backed by Fannie Mae, Freddie Mac (iStock)
The Federal Housing Finance Agency (FHFA) will revise the treatment of active single-family mortgages backed by government-sponsored enterprises Fannie Mae and Freddie Mac for which borrowers elected a COVID-19 forbearance under the Enterprises’ representations and warranties framework, according to its newest media release.
“Under the updated rep and warrant policies, loans for which borrowers elected a COVID-19 forbearance will be treated similarly to loans for which borrowers obtained forbearance due to a natural disaster,” the FHFA said. “As a result, loans with a COVID-19 forbearance will remain eligible for certain rep and warrant relief based on the borrower’s payment history over the first 36 months following origination.”
FHFA Director Sandra L. Thompson argued that homeowners, who needed more time to keep up with housing costs during the pandemic, benefited from a mortgage forbearance plan that would reduce or suspend mortgage payments.
“Forbearance was an invaluable tool for borrowers experiencing financial hardship due to the COVID-19 pandemic,” Thompson said. “Servicers went to great lengths to implement forbearance quickly amid a national emergency, and the loans they service should not be subject to greater repurchase risk simply because a borrower was impacted by the pandemic.”
The Enterprises’ existing rep and warrant policies with respect to natural disasters allow the time the borrower is in forbearance to be included when demonstrating a satisfactory payment history in the first 36 months following origination, the FHFA noted. These policies will now expand to loans for which borrowers elected a COVID-19 forbearance.
Thompson stressed the importance of helping current and prospective homeowners manage present housing conditions at the Mortgage Bankers Association Annual Convention last week. “In a housing market like this one, it is all the more important that both our policies and the industry’s efforts align to support existing and aspiring homeowners,” Thompson said. “That is why I believe a model based on partnership and mutual feedback is necessary for us to achieve our shared goal of promoting affordable and sustainable housing opportunities.”
If you’re considering becoming a homeowner, it could help to shop around to find the best mortgage rate. Visit Credible to compare options from different lenders and choose the one with the best rate for you.
MORTGAGE RATES KEEP CLIMBING, BUT BUYERS CAN FIND THE BEST DEALS BY DOING THESE TWO THINGS: FREDDIE MAC
Mortgage rates affecting affordability, buyers advised to build up down payments
Mortgage rates are continuing their ascent. The average 30-year fixed-rate mortgage rose to 7.63% for the week ending Oct. 19, according to the Freddie Mac’s latest Primary Mortgage Market Survey. This time in 2022, the 30-year fixed-rate was below 7%.
Buyers may do well for themselves by browsing for the best home loans and making a considerable down payment. Freddie Mac’s Chief Economist Sam Khater said “in this environment, it’s important that borrowers shop around with multiple lenders for the best mortgage rate.”
Freddie Mac announced last week the launch of DPA One®, a new tool that strives to help mortgage lenders quickly find and match borrowers to down payment assistance programs nationwide.
“DPA One delivers a one-stop shop at no cost that brings lenders and their borrowers greater detail and visibility into these programs, while seamlessly connecting the right assistance program with the lender, housing counselors and borrowers who need this assistance the most,” Sonu Mittal, Freddie Mac’s senior vice president of and head of single-family acquisitions, explained.
“With research showing down payment is the single largest barrier to first-time homebuyers attaining homeownership, borrowers should also ask their lender about down payment assistance,” Khater said.
If you’re looking to buy a home, you could still find the best mortgage rates by shopping around. Visit Credible to compare your options without affecting your credit score.
MANY AMERICANS PREPARING FOR A RECESSION DESPITE SIGNS THAT SAY OTHERWISE: SURVEY
Housing market showing lackluster activity
By end of 2023, there is likely to have been around 4.1 million existing home sales in the U.S., which would mark the weakest year of home sales since the Great Recession of 2008, according to a Redfin report.
Redfin’s Economic Research Lead Chen Zhao said current conditions have led to buyer and seller hesitancy across the board.
“Buyers have been in a bind all year,” Zhao said. “High mortgage rates and still-high prices are making it harder than ever to afford a home, shutting many young people out of homeownership and causing homeowners to reevaluate whether 2023 is the right time to move. Mortgage rates are staying high longer than anticipated, keeping away everyone except those who need to move and pushing our sales projection for the year down to a 15-year low.
“The last time home sales were this low was during the Great Recession,” Zhao continued.
Redfin agents suggest that buyers invest in newly built properties which are performing more strongly than existing-home sales. Newly constructed homes saw sales increase 1.5% year-over-year in September as prices dropped about 4%, according to Redfin’s data.
Based on the findings from a National Association of Realtors (NAR) report, the total amount of home sales decreased by 2% from August to September and have dropped 15.4% since September 2022.
Looking to reduce your home buying costs? It may benefit you to compare your options to find the best mortgage rate. Visit Credible to speak with a home loan expert and get your questions answered.
AFFORDABILITY KEEPING YOU FROM OWNING A HOME? HERE’S HOW YOU CAN GET READY
Have a finance-related question, but don’t know who to ask? Email The Credible Money Expert at [email protected] and your question might be answered by Credible in our Money Expert column.
Due to the financial challenges created by the COVID-19 pandemic, federal student loan payments were automatically paused from March 2020 to September 2023. During that time, interest didn’t accrue and collections activities were also paused. But now that payments are due again, many borrowers are looking for ways to make their loans more manageable, especially those who are facing ongoing financial hardships.
One option is student loan deferment, which allows you to temporarily pause your student loan payments. As with most financial decisions, there are pros and cons to deferring your student loans. Here’s more information about student loan deferment and what it could mean for your financial future.
What Is Student Loan Deferment?
Deferment is a program that allows you to temporarily stop making payments on your federal student loans or to temporarily reduce your monthly payments for a specified time period.
This is similar to another option known as forbearance. However, unlike forbearance, you may not be charged interest while your loan is in deferment. According to the Department of Education, if you hold one of the following types of loans, you will not be responsible for paying interest on your loan while it is in deferment:
• Direct Subsidized Loan
• Subsidized Federal Stafford Loan
• Federal Perkins Loan
• The subsidized portion of a Direct Consolidation Loan
• The subsidized portion of a Federal Family Education Loan (FFEL) Consolidation Loan
If you have one of the following types of loans, you will be responsible for paying the accrued interest on your loan while it is in deferment:
• Direct Unsubsidized Loan
• Unsubsidized Federal Stafford Loan
• Direct PLUS Loan
• FFEL PLUS Loan
• The unsubsidized portion of a Direct Consolidation Loan
• The unsubsidized portion of a FFEL Consolidation Loan
If you are responsible for paying interest on your student loans while they are in grad school deferment, you have two options: 1) you can make interest-only payments on the loans while they are in deferment; 2) if you choose not to make these interest-only payments, the accrued interest will capitalize (be added to the loan principal) when the deferment period is over. 💡 Quick Tip: Ready to refinance your student loan? With SoFi’s no-fee loans, you could save thousands.
How Do You Qualify for Student Loan Deferment?
In order to qualify for student loan deferment, you must meet one of the following requirements:
• You’re enrolled at least part-time at a qualifying university
• You’re unemployed or unable to find employment (for up to three years)
• You’re experiencing an economic hardship
• You’re currently volunteering in the Peace Corps
• You’re on active-duty military service (or are in the 13 months following that service)
• You’re in an approved graduate fellowship program
• You’re in an approved rehabilitation program (for disabled students)
Requesting a Deferment
If you’re interested in deferring student loans to go back to school, you’ll need to apply for an in-school deferment. Most likely, you will request the deferment directly through your loan servicer—there is usually a form for you to fill out. When you request a deferment, you’ll also need to provide some sort of documentation to prove that you qualify for a deferment.
If you are enrolled in an eligible college or career school at least half-time, may be placed in deferment automatically . If it is, your loan servicer will notify you that deferment has been granted. If you enroll at least half-time and do not automatically receive a deferment, you will need to contact the school in which you are enrolled. The school will then send the appropriate paperwork to your loan servicer, so that your loan can be placed in deferment.
Pros and Cons of Student Loan Deferment
The biggest benefit of student loan deferment is the ability to temporarily postpone student loan repayment. As of the first quarter of 2023, 2.8 million loans were in deferment.
If you are deferring for extreme financial hardship, deferment allows you to free up money to pay off bills that require immediate attention like rent or electricity.
For students who have qualified for deferment through community service, like a stint in the Peace Corps, deferment gives them the opportunity to serve their community without any added stress from student loan payments.
While temporarily pausing loan repayment may seem like a blessing, it can come at a cost, especially if your student loans are not subsidized by the government. When in deferment, interest continues to accrue on your loan. And at the end of your deferment period, that interest will be capitalized on the loan. (This means that the accrued interest will be added to the principal balance of the loan. So ultimately, you’ll be paying interest on top of interest.)
This can mean you end up paying even more money over the life of the loan. To see how much deferring your student loans could cost, you can use an online calculator to get an estimate of how much interest will accrue while the loan is in deferment.
The Pros and Cons to Student Loan Refinancing
If you have private loans that aren’t eligible for federal student loan deferment, refinancing your student loans is another option to consider. You may also want to think about refinancing when you’re done with your graduate degree to pay off your loans at a potentially lower interest rate.
When you refinance, your existing student loans are paid off with a new loan from a private lender. If you are refinancing private loans before going back to graduate school, you may be after a lower monthly payment, which you could potentially qualify for when refinancing your loans and extending the loan term. (You may pay more interest over the life of the loan if you refinance with an extended term.)
Alternatively, if you’re looking to refinance after graduate school, you could potentially qualify for a lower interest rate, which could reduce the amount of money you spend over the life of the loan. The lender will use your credit score and earning potential to determine what interest rate you’ll qualify for. And thanks to your new graduate degree, you could have significantly increased your earnings.
Another big benefit of student loan refinancing? You’re able to combine all of your student loan payments – for both federal and private loans – into one easy-to-manage payment.
If you hold only federal student loans, however, you could look into a Direct Consolidation Loan , which allows you to consolidate federal loans into one loan with a single monthly payment. The new interest rate will be the weighted average of your current interest rates (rounded to the nearest one-eighth of 1%), so unlike refinancing, when you consolidate your student loans, you won’t necessarily qualify for a lower interest rate.
If you are taking advantage of your federal loans’ flexible repayment plans or student loan forgiveness programs (or if you are planning to do so), refinancing might not be the best option for you. A major con of student loan refinancing is that you’ll lose access to federal loan benefits when refinancing with a private lender—including deferment and income-driven repayment plans.
Refinancing Your Loans with SoFi
Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.
With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.
Student Loan Refinancing If you are a federal student loan borrower you should take time now to prepare for your payments to restart, including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. (You may pay more interest over the life of the loan if you refinance with an extended term.) Please note that once you refinance federal student loans, you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans, such as the SAVE Plan, or extended repayment plans.
SoFi Loan Products SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Buying a house is a dream for many Americans, but it can feel very out of reach for some people. To qualify for a mortgage, you’ll need an adequate credit score and down payment, which many people just don’t have.
That is where the Neighborhood Assistance Corporation of America (NACA) comes in. The NACA has helped hundreds of thousands of people find affordable housing with no money down and no minimum credit score. NACA also provides financial assistance for approved homeowners that encounter financial difficulties.
If you’ve been struggling to figure out how you’ll afford to purchase a home, then the NACA program could help. This article will explain how the NACA mortgage process works and how the organization could help you find your next home.
What is the NACA mortgage program?
The Neighborhood Assistance Corporation of America (NACA), a non-profit organization established in 1988, is dedicated to providing affordable housing options to Americans. Its mission is to combat discriminatory and unjust lending practices. With 45 branches across the United States, NACA assists borrowers with low credit scores in securing affordable mortgages.
NACA offers various solutions such as property improvement and foreclosure avoidance to help achieve this goal. Additionally, the organization helps homeowners reorganize their existing mortgages, preventing them from losing their homes to foreclosure. Nevertheless, NACA’s signature mortgage program remains the most sought-after offering among its services.
How does the NACA program work?
The NACA is known for its purchase program, which it calls the Best in America Mortgage Program. This program is designed to make homeownership more affordable for everyone.
If you applied for a mortgage through a bank or credit union, you would undergo an extensive credit check. But the NACA makes it possible to buy a home with:
No down payment requirement
No closing costs
No requirement for perfect credit
No limits on your income
No fees – The lender pays the appraisal costs, attorney fees, title insurance, transfer tax, settlement agent fees, and buyer closing costs.
All of this is available at a below-market interest rate. Currently, the NACA is offering a 30-year fixed-rate mortgage of 2.125% APR and a 15-year fixed-rate mortgage of 1.75% APR. You’d be hard-pressed to find a better deal anywhere else.
Bank of America stands as NACA’s largest and most significant partner, providing a major portion of the funding for the loans.
NACA Requirements and Qualifications
Before you assume the NACA mortgage program is too good to be true, there are certain requirements you’re going to have to meet to qualify. Unlike traditional lending practices, NACA evaluates creditworthiness based on character, rather than solely relying on credit scores.
For instance, NACA members won’t be penalized for financial hardship caused by an injury or illness. But you must demonstrate that you can afford to pay your monthly housing expenses.
These expenses include your mortgage payments, property taxes, homeowners insurance, and HOA dues. And your income can’t fluctuate from month to month.
While there are no income restrictions in the NACA purchase program, earning higher than the median income could limit your home buying options to specific regions. It’s also worth noting that owning another property while closing on a NACA mortgage is strictly prohibited.
Furthermore, as a NACA mortgage recipient, you are expected to engage in a minimum of five membership activities annually. These activities include volunteering at NACA offices, participating in protests, or offering support to other members during the home buying process.
Eligible States
Unfortunately, the NACA mortgage program still isn’t available everywhere, though the organization is working hard to expand across the U.S. It’s currently available in the following states:
Alabama
Arkansas
Arizona
California
Colorado
Connecticut
District of Columbia
Florida
Georgia
Hawaii
Illinois
Louisiana
Massachusetts
Maryland
Michigan
Minnesota
Missouri
Mississippi
North Carolina
New Jersey
Nevada
New York
Ohio
Pennsylvania
South Carolina
Tennessee
Texas
Virginia
Wisconsin
NACA Program Pros and Cons
Here are some of the biggest advantages and disadvantages of taking out a mortgage through the NACA.
Pros
Buying a home with no down payment or standard closing costs
Snag a below-market interest rate on a 15-year or 30-year mortgage
No credit requirements or income limits to apply
Receive extensive borrower education and training
Cons
Time-consuming application process
Program isn’t available in all 50 states
There are limits to how much you can borrow
You’ll have to pay for property taxes and homeowners insurance
NACA Loan Limits
The NACA home buying program has loan limits that cap your mortgage amount. The purchase price of a home cannot exceed the conforming loan limit, which is $647,200 for a single-unit property in most states. The conforming loan limit for a single-unit home in Alaska and Hawaii is $970,800.
Who qualifies for the NACA program?
The NACA mortgage program is very generous, but there are several steps you’ll need to take before you can close on your home. Here are the seven steps you’ll take to complete the NACA loan qualification process.
1. Attend a free homebuyer workshop
If you’re considering applying for a NACA mortgage, you’ll first have to attend a homebuyer workshop. During this free workshop, you’ll learn more about homeownership and how to qualify for the NACA mortgage program. Then, you can register on the company’s website to reserve your spot.
2. Meet with your housing counselor
Once you’ve completed the homebuyer workshop, the NACA will assign you a housing counselor to guide you through this process. Your housing counselor will help you determine an affordable monthly mortgage payment and help you come up with a reasonable monthly budget. You’ll continue to meet with your counselor until you’ve qualified for the NACA housing program.
3. Attend a NACA purchase workshop
Once you’ve qualified for the mortgage program, you must attend a purchased workshop at the NACA office. During this workshop, you’ll review the home purchase process and work with a real estate agent to help you find the right home.
4. Receive a property qualification letter
Once you’ve chosen the home you plan to buy, you’ll have to get in touch with your housing counselor again. They will help you secure your qualification letter.
This letter states that you are qualified to purchase the home you’re interested in. Your NACA counselor and real estate agent can also help you draft an offer on the home.
5. Get your home inspected
Before you can purchase a home, it must pass a NACA home inspection and pest inspection. If the inspection reveals any problems with the home, you must resolve those issues before you can close on the home.
6. Meet with your mortgage consultant
Throughout this entire mortgage process, you should be saving money, maintaining your income level, and paying your bills on time. At this point, you’re going to meet with your mortgage consultant to prove that you’ve met the required guidelines and are ready to move forward with the mortgage application.
7. Close on your mortgage
Now it’s time to close on your home! There are no closing costs for a NACA mortgage. Additionally, NACA members do not pay private mortgage insurance (PMI).
Instead, your NACA membership provides you with a post-purchase assistance program through NACA’s Membership Assistance Program (MAP). But this is the final step that allows you to close on your new home and finalize the process.
Alternatives to the NACA program
The NACA program may not be suitable for everyone, or you may not qualify. If this is the case, consider other mortgage programs that may be available to you.
FHA Loans
For low-to-moderate income borrowers who may not meet the stringent requirements of conventional loans, the Federal Housing Administration offers the FHA loan program. With lower down payment needs and more lenient credit score standards, these loans provide a viable option for those looking to finance their first home.
USDA Loans
The U.S. Department of Agriculture extends its support to those seeking to purchase a home in rural or suburban areas through its USDA loan program. These loans offer attractive terms such as low or no down payment options and competitive interest rates, with the aim of fostering home ownership in less densely populated regions.
VA Loans
As a way to show appreciation for the sacrifices made by military service members, veterans, and their surviving spouses, the Department of Veterans Affairs provides VA loans.
These loans, exclusive to eligible individuals, boast features such as no down payment requirement, no private mortgage insurance, and interest rates that are often more favorable than those of traditional loans.
First-Time Homebuyer Programs
For those entering the housing market for the first time, many states and local governments offer programs tailored to their needs. First-time homebuyer programs often provide financial assistance in the form of lower interest rates and down payment assistance, as well as other incentives, making homeownership a reality for those who may not have the funds for a down payment otherwise.
Down Payment Assistance
To help alleviate the burden of the upfront costs of buying a home, down payment assistance (DPA) programs are available from government agencies, non-profit organizations, and private lenders.
These programs provide homebuyers with the necessary funds to cover their down payment, allowing them to get one step closer to affordable homeownership.
National Homebuyers Fund
As a non-profit organization, the National Homebuyers Fund offers down payment assistance to low-and moderate-income homebuyers in the form of grants that do not need to be repaid. Their mission is to provide a helping hand to those who may not have the resources to make a down payment on their own.
Chenoa Fund
The CBC Mortgage Agency’s Chenoa Fund is a down payment assistance program that provides low-and moderate-income homebuyers with up to 3.5% of the home’s purchase price. This support is provided through either forgivable or repayable second mortgage loan options.
Bottom Line
If you’re concerned that you don’t have the down payment or credit requirements necessary to apply for a traditional mortgage, a NACA mortgage may be a suitable option. Borrowers that qualify could receive low-interest mortgages with no down payment, closing costs, or fees. The application process is tedious, but the benefits can help you achieve the dream of homeownership.
Frequently Asked Questions
Is there a minimum credit score requirement for the NACA program?
No, NACA does not consider credit scores for mortgage approval. Instead, they look at your payment history and ability to make future mortgage payments.
Is there an income limit to qualify for the NACA program?
There is no strict income limit to qualify for the NACA program. The program is designed primarily to assist low- to moderate-income individuals and families, but it does not set an upper limit on income. The focus is more on your ability to afford the mortgage payments, and whether you meet other program criteria.
How long does the NACA mortgage process take?
The time frame can vary depending on individual circumstances, but generally, it takes several months from attending the initial workshop to closing on a home. The more promptly you can provide the required documentation and fulfill program requirements, the quicker the process will likely be.
How does the NACA mortgage differ from a traditional mortgage?
NACA mortgages typically offer more favorable terms compared to traditional mortgages. They come with no down payment, no closing costs, and no requirement for private mortgage insurance (PMI). The interest rates are often below market rate as well.
Can I use a NACA mortgage to refinance my existing loan?
No, NACA mortgages are designed for the purchase of a primary residence only. They cannot be used for refinancing existing loans or for investment properties.