Yesterday’s closing headline and most condensed recap of Powell’s press conference was simply: “data dependence continues.” Indeed it does! This morning’s economic data came out resoundingly stronger with all four reports beating forecasts–rather significantly in at least 2 cases. A slightly dovish read on the European Central Bank announcement helped bonds hold their ground with minimal losses earlier in the morning, but after Lagarde’s press conference ended, the selling snowball is rolling.
We also discussed the fact that the frontier for the rate hike outlook is far into the future these days. The market doesn’t expect much more upward pressure in terms of Fed rate hikes in the coming months. Instead, the adjustments to the outlook have been taking place in the form of lower expectations for rate cuts in 2024. Yesterday’s press conference helped restore some of that rate cut expectation with the March Fed meeting showing rates a quarter point lower than the level created by yesterday’s hike. Now this morning, the econ data has fully reversed that expectation.
During the twenty years I carried consumer debt, I made several attempts to change my habits. Every time I decided to lick the debt monster, I would follow the advice in the financial books: I’d arrange my debts in order, listing the one with the highest interest rate first. I’d pay extra on this bill for a couple of months, but then give up in frustration because I didn’t seem to be making any progress — $100 extra on a $12,000 balance doesn’t make a dent.
Eventually, I read Dave Ramsey’s The Total Money Makeover. His debt snowball method changed my life. Ramsey writes:
Personal finance is 80 percent behavior and 20 percent head knowledge. The Debt Snowball is designed the way it is because we are more concerned about modifying behavior than correct mathematics…Being a certified nerd, I always used to start with making the math work. I have learned the math does need to work, but sometimes motivation is more important than math. This is one of those times.
Humans are complex psychological creatures. We’re not adding machines. If we were adding machines, we wouldn’t accumulate consumer debt in the first place! My debt wasn’t acquired logically — it was a product of emotional and psychological responses. What I needed to get rid of it wasn’t a mathematically ideal model, but a psychological “hack” — I needed the debt snowball.
With the debt snowball, you don’t start with your highest interest rate obligations, but those with the smallest balances. You attack the debts you can eliminate most quickly. This may be counter-intuitive — in fact, it really bothers some people — but it works. (Here’s more about the debt snowball method.)
I recently discovered a clever extension of Ramsey’s snowball metaphor. Jaimie at I’ve Paid for This Twice Already practices what she calls “snowflaking”, an idea that seems to have originated at the iVillage debt support group. (This group looks like a great resource for those struggling with debt, by the way.) Jaimie writes:
What are snowballs made of? Snowflakes! Every month without fail, I pay a fixed amount to debt that is above my minimum payment due (about $800). I also try to collect little bits of money wherever I can, and to apply those to my top priority debt (my credit card).
I take surveys online, I sell possessions on craigslist and eBay, and I have yard sales. Any money I get from these endeavors goes directly to my debt. I also keep a strict accounting of all the money that comes in, and everything left over at the end of the month not earmarked for future expenses also goes directly to debt. These are my snowflakes. I have averaged over $200 extra going to my credit card debt every month due to these snowflaking efforts.
Many small snowflakes make a snowball, and no amount is too small to snowflake.
In December, Jaimie shared her five golden rules for snowflaking:
Snowflake early and often. Start now and make it a habit. If you get accustomed to this, it can become a game. Snowflaking can almost make debt reduction fun.
No amount is too small to snowflake. “I have snowflaked as little as $1.04 and as much as $1313.74 and everything inbetween,” Jaimie writes. “Any amount can be a snowflake, and any amount can make a difference”
Anything can be a snowflake. Did a friend repay $5 she borrowed last week? Did you take cans and bottles in to redeem the deposits? Did Aunt Marge send you $20 for your birthday? Was your tax refund bigger than expected? All of these can be snowflakes.
Snowflake as immediately as possible. This is key. Apply your snowflakes to debt as soon as possible, before you have a chance to spend the money. I know from experience how easily those extra dollars become books or videogames or new clothes. Snowflake when you get the money.
Keep track of your snowflakes to use as motivation. “A lot of small amounts may not seem like a whole lot if you don’t keep track of them,” Jaimie advises. “Keep a running total once a month to see how those small amounts add up.”
Though I didn’t have a name for it at the time, snowflaking is the technique I used in the final stages of my own quest for debt elimination. I enjoyed taking any extra cash I had and throwing it at my home equity loan. It made me feel good. (It even felt better than buying comic books, believe it or not.) This was how I knew my relationship with money had improved and was almost healthy.
Just as the notion of the debt snowball seems absurd to some of those who have never fought with debt, snowflaking may appear a little obsessive. But I believe both are valuable tools. As someone who struggled with debt most of his life, I’m grateful to have heeded Dave Ramsey’s advice. I’m also glad to have discovered “snowflaking”!
(Note: The debt snowball and debt snowflake concepts can also be applied to other financial goals, such as building an emergency fund, saving for retirement, or paying down your mortgage. I’m currently using these techniques to save a cash cushion so that I can completely quit my day job to blog full time.)
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You’ve picked out what you think is the perfect secured credit card. It has the deposit limit you’re looking for, the right annual fee, and it even offers rewards. Imagine your surprise when the company denies your application. Can that even happen with a secure credit card?
Unfortunately, the answer is yes. But a rejected application doesn’t mean there’s no way forward.
What to Do if You’re Denied a Secured Credit Card
First things first: Don’t get too bummed out. Credit card denials happen all the time. According to a 2022 Salary Finance survey, 33% of polled applicants were denied credit cards in the past year. But there are simple steps you can take to make sure you find a solution that works for you.
1. Determine Why the Credit Card Company Denied Your Application
If you get a denial letter, your first question is likelywhy. Credit card companies want your business, so there’s usually a clear reason. Check your initial notification for the legally required explanation. It may be near the words “adverse action” or “adverse action notice.” But if you still have questions, you can call the customer service line and speak with a representative.
While you’re less likely to face denial when applying for a secured credit card, there are still a few reasons you could get rejected.
You didn’t meet income requirements. Even with a secured credit card, you’re still required to meet a minimum income threshold. Credit card companies want to know you can pay them back, and that requires a consistent form of income.
There was an identity verification issue. If the credit card company can’t verify you’re the one applying, they can’t approve the application.
You have too much debt. If you already have high debt, credit card companies are often weary about allowing you to take on more. You can read more in our article on debt-to-income ratio.
You don’t have a good enough credit score. Yes, even some secured credit cards have a minimum credit requirement. This requirement is often low, but if you still don’t hit that number, it signifies to credit issuers that you may not be able to manage credit.
You can’t pay a deposit. Most secured credit cards require a deposit. That’s what secures your credit line rather than your credit profile. If you can’t come up with the money (often a few hundred dollars), you don’t qualify for the card.
2. Review Your Credit Report
It’s becoming more common for secured credit cards to require no credit check at all. Still, some do. If an issuer denies you due to a poor credit score or history, your first step is to get your hands on your full report.
By law, you can get full credit reports from all three agencies once per year at AnnualCreditReport.com. However, at the beginning of the COVID-19 pandemic, the three major bureaus began offering weekly credit reports, which you can still access for the time being.
Look through the report, checking for any errors, such as misreported debt amounts or incorrect debt collections bills. Verify everything in your report is 100% accurate. These errors — particularly if they relate to misreported debts — can lead to a denial.
3. Address Credit Issues or Errors
If you find any, disputing credit report errors is the next step. Submit disputes either online through Equifax, Experian, and TransUnion’s sites or by mail. The Consumer Financial Protection Bureau has dispute forms for each credit union.
If you received a denial because your credit score is too low and disputing errors doesn’t raise it, you have options.
One way to raise your credit score quickly is to pay down debt as fast as possible. That’s easier said than done, but checking off your debts one by one can help improve your credit score.
There are several strategies to help you pay off debt fast. For more information, see our article on the avalanche, snowball, and snowflake methods.
4. Consider Alternative Credit-Building Options
At the end of the day, a denial may mean a secured credit card isn’t the right option for you. Thankfully, secured cards are far from the only credit-building product on the market. There are alternatives, such as:
Credit-builder loans. Credit-builder loans are a unique product designed to help you build credit from scratch or rebuild poor credit. Unlike a traditional loan, you don’t get access to the funds until after you’ve already paid it off. In the meantime, your lender stores your money and reports your (hopefully timely) payments to credit bureaus.
Becoming an authorized user. An authorized user is someone who has access to another person’s credit card but doesn’t bear the responsibility of paying it off. If you become an authorized user on a family member’s card, your credit can benefit from their on-time payments.
Store credit cards. Some store credit cards don’t require credit checks or have few credit requirements, making it easier to get approved. Pick a store you visit frequently, such as Target or Walmart, and put your usual purchases on that credit card, making sure to pay it off regularly.
5. Reapply or Explore Other Secured Credit Cards
Despite all your research, you may not have applied for the right secured credit card. There are dozens to choose from, and approval may be a lot easier if you apply for a different one.
If it’s a credit issue, focus on secured credit cards with no credit requirements, such as the Discover it Secured Card and Capital One Platinum Secured.
If it’s providing income information you’re worried about, first consider whether a credit card is right for you and whether you can handle regular payments. That said, cards like the OpenSky Secured Visa Card have a high approval rate and very few qualification requirements.
If the card you originally applied for is the secured card of your dreams, your best bet is to improve your credit or fix the issue that caused your denial and try again later. With a few months of dedicated work on your score, you are more likely to get the approval you’re looking for.
Final Word
A credit card denial is far from the end of the world, though it might feel like it for a second. There are reasonable steps you can take, such as improving your credit, applying with a different lender, and addressing any potential errors on your credit report.
Also, think about alternative credit card options. Although a secured credit card can seem like the obvious first option when you have bad credit, there are unsecured credit cards for bad-credit customers, student credit cards for college students who want to start building credit, and even prepaid cards for those just looking for something swipeable to pay with.
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Christopher Murray is a professional personal finance and sustainability writer who enjoys writing about everything from budgeting to unique investing options like SRI and cryptocurrency. He also focuses on how sustainability is the best savings tool around. You can find his work on sites like Bankrate, Money Crashers, FinanceBuzz, Investor Junkie, and Time.
Making principal-only payments on student loans (either monthly or just occasionally) can help speed up the payback time and lower your overall borrowing costs. But just making extra payments on your loan won’t necessarily lower your loan’s principal balance. You typically need to take a few extra steps to ensure that your extra payments actually go toward principal — and not interest on the loan.
Reed on to learn exactly what a principal-only student loan payment is and how to be sure you’re doing it right.
What Is a Principal-Only Student Loan Payment?
To understand what principal-only payments are, it helps to understand how student loan repayment works.
When you take out a student loan, you need to repay the principal balance. (the amount you borrowed), interest (the cost of borrowing the principal) and, in some cases, fees (which are often paid up front).
When it’s time to start repaying your student loan, you are usually required to make at least a minimum payment each month. That payment will go towards both your principal balance and interest. In the beginning, most of your payment will go toward interest and very little towards principal. Over time, however, the balance shifts — more of your monthly payment will go toward principal and less will go towards interest.
Fortunately, student loans have no prepayment penalties. This means that If you make an extra, principal-only payment, it will lower the principal balance of your loan, and the lender will not be able to charge you a fee for paying some of your loan off early.
Unfortunately, when a lender receives a payment beyond the minimum due each month, they may simply apply it to next month’s bill rather than use that money to lower your principal. This means there are certain steps you need to take to make sure the money will only go towards principal (more on that below).
💡 Quick Tip: Pay down your student loans faster with SoFi reward points you earn along the way.
Why Making Principal-Only Payments Can Make a Difference
Since interest on a student loan is calculated daily on the principal balance at that time, the less principal you have left to pay, the lower your interest costs. As a result, paying extra on your student loan — and having that money go directly to the principal — can save you a significant amount of money. It also helps you pay off your student loans faster.
Of course, not everyone is in a position to pay more than the required amount in any given month, and that’s fine, too. You might simply choose to use an occasional windfall — such as a bonus at work or a cash gift — to make a principal-only payment on your student loans.
Recommended: 9 Smart Ways to Pay Off Student Loans
How to Make Principal-Only Payments on Student Loans
Just making an extra payment on your student loan doesn’t necessarily mean you are making a principal-only payment.
Generally, student loan servicers apply your payments first to cover any late fees you’ve incurred and then to accrued interest before they apply anything to your principal. Here are some tips that can help ensure any extra payments you make go toward your principal.
Tell Your lender Where to Direct Extra Payments
If you pay online through the servicer’s website, you might have the option to choose how the money gets applied. There may be an option that says “other amount” where you can enter an extra amount you want to pay towards your loan that month, as well as where that money should be applied, such as to the interest only, the interest and principal, or just the principal.
In some cases, you might see an option for “Do not advance the due date.” Clicking this will ensure that your lender treats your funds as an extra payment rather than applying them toward next month’s bill.
If you want to make a larger payment every month and have the extra applied to principal, you may also have the option of setting up standing instructions online, telling your servicer to send any extra money towards the principal.
If you pay by check or don’t see these options online, you’ll need to contact your loan servicer and ask how to make occasional or regular principal-only payments. You may need to send a standing order in writing.
Apply Extra Payments Strategically
If you have more than one student loan, you can typically request that your student loan servicer apply your extra payments to a specific loan (such as the loan with the highest interest rate) in order to ensure you can save money and meet your debt repayment goals.
There are two common approaches to paying down debt on multiple loans:
• The snowball method This involves paying off the smallest loan first, then moving on to the next-biggest loan. This approach can give you a sense of making progress, and motivate you to keep going.
• The avalanche method This tackles the loan with the highest interest rate first. Putting extra payments on the most expensive loan will save you the most money. However, it won’t allow you to cross a loan off your list as quickly.
Recommended: 6 Strategies to Pay off Student Loans Quickly
Keep a Close Eye on Your Statements
To make sure your principal-only payment was just that — it went to principal only — it’s a good idea to check your online account or loan statements each month to make sure any extra payments you made were correctly applied. You’ll also want to make sure the money was applied to the loan you specified.
If your lender didn’t apply your extra payment to the principal balance, you’ll want to reach out to ensure that future payments are accurately applied.
💡 Quick Tip: Federal student loans carry an origination or processing fee (1.057% for Direct Subsidized and Unsubsidized loans first disbursed from Oct. 1, 2020, through Oct. 1, 2024). The fee is subtracted from your loan amount, which is why the amount disbursed is less than the amount you borrowed. That said, some private student loan lenders don’t charge an origination fee.
Consider Refinancing Student Loans for Better rates
Making principal only payments isn’t the only way to lower your interest costs and/or pay off your loan early. You might also be able to do this by refinancing your student loans with a private lender, such a bank, credit union, or online lender.
With a student loan refinance, you exchange one or more of your old loans for a new one, ideally with a lower rate or better terms. This process can be helpful if you have a solid credit score (or have a cosigner who does), since it might qualify you for a lower interest rate. In addition, you could choose a shorter repayment term to get out of debt faster.
You can refinance both federal and private student loans. Keep in mind, however, that refinancing federal student loans can result in a loss of certain borrower protections, such as income-driven repayment and student loan forgiveness. Because of this, you’ll want to consider the potential downsides of refinancing before making changes to your debt.
The Takeaway
The thought of finding extra money — beyond your required monthly payment — to pay down student debt may be daunting. But the benefits could make it worth the effort and sacrifice. Making principal-only payments will help reduce the interest you pay over the life of your student loan. And, the more often you pay down your principal balance, the faster you’ll pay off your student loans.
If you choose to make principal-only payments, you’ll want to communicate with your lender to make sure that those additional payments are applied only to your loan’s outstanding principal.
If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. Repayment plans are flexible, so you can find an option that works for your financial plan and budget.
Cover up to 100% of school-certified costs including tuition, books, supplies, room and board, and transportation with a private student loan from SoFi.
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.
SoFi Private Student Loans Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.
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.
If you are young, you may not think you need to invest or open a retirement account. You probably think it is easier to worry about it five years from now — or ten. You’re wrong. Time is on your side now, especially when it comes to compound interest.
No matter what your age,now is the time to begin saving for retirement. In The Automatic Millionaire, David Bach writes, “The single biggest investment mistake you can make [is] not using your [retirement] plan and not maxing it out.”
Saving is the Key to Wealth
The only way to attain the wealth you desire is to spend less than you earn and to save the difference. The rich are not rich because they earn a lot of money; the rich are rich because they saved a lot of money.
You may be skeptical. I was once skeptical too. But many books I have read on the subject of wealth-building have convinced me — books like Stanley and Danko’s The Millionaire Next Door make it abundantly clear that it isnot a high income that leads to wealth — though, obviously, a high income does not hurt — but saving.
Those who become wealthy do so by spending less than they earn. There is no other source of saving, and, by extension, of building wealth.
If saving is the key to wealth, then time is the hand that turns the key to unlock the door. There is no reliable method to quick riches. There are, however, proven methods to get rich slowly. If you are patient, and if you are disciplined, you can produce a golden nest egg that will hatch later in life. It might appear that the pittance you save now could not possibly make a difference, but that is because you haven’t considered the extraordinary power of compound interest.
The Power of Compound Interest
The best way to ensure your future financial success is to start saving today, even if all you have seems like a paltry sum. “The amount of capital you start with is not nearly as important as getting started early,” writes Burton Malkiel in The Random Walk Guide to Investing. “Procrastination is the natural assassin of opportunity. Every year you put off investing makes your ultimate retirement goals more difficult to achieve.”
The miracle of compound interest is the secret to getting rich slowly. Even modest returns can generate real wealth given enough time and dedication … mainly time.
On its surface, compounding is innocuous, even boring. “So what if my money earns less than 3 percent in a savings account?” you may ask. “What does it matter if it averages 8 percent annual growth in a mutual fund? Why is it important to start investing now?”
In the short-term, it doesn’t make a huge difference — but don’t let that fool you. On the slow, sure path to wealth, we need to keep focused on long-term goals. Short-term results are not as important as what will happen over the course of 20 or 30 years.
Related >> Find the best high-yield savings account for you.
Growth of a Single $5,000 Contribution
For example, if 20-year-old Britney makes a one-time $5,000 contribution to her Roth IRA and earns an average 8 percent annual return, and if she never touches the money, that $5,000 will grow to just under $180,000 by the time she retires at age 65, as you can see from this chart:
You can see how the money earned dwarfs the initial investment more and more as time goes by.
If she waits until she is, say, 40 to make her single investment, that $5,000 would only grow to less than $40,000. (On the chart, the red dotted line shows you the total value after 25 years is still less than $40,000.) Waiting 20 years will cost her more than $130,000 in “free” money. Time is the primary ingredient to the magic that is compounding.
Growth of Annual $5,000 Contributions with Compound Interest
Compounding can be made even more powerful through regular investments. It is great that a single $5,000 IRA contribution can grow to more than $170,000 in 45 years, but it is even more exciting to see what can happen when Britney makes saving a habit. If she were to contribute $5,000 annually to her Roth IRA for 45 years, and if she left the money to earn an average 8 percent return, her retirement savings would grow to more than $2 million, as you can see from this chart:
A golden nest egg indeed! She will have more than eight times the amount she contributed. Again, the dark green portion of the chart dwarfs the light green, which is the money she put in.
This is the extraordinary power of compound interest.
Related >> See a guide for Roth IRA rules and requirements.
The cost of waiting one year
It’s human nature to procrastinate. “I can start saving next year,” you tell yourself. “I don’t have time to open a Roth IRA — I’ll do it later.” But the costs of delaying your investment are enormous. Even one year makes a difference. Every year that Britney in the example above waits, she loses one year at the end of the chart. In the first example representing a single investment, waiting one year will cost her almost $14,000 (the column highlighted in red).
Like many people, she may be tempted to think she is only losing the first year’s return, i.e., around $400, but that isn’t the case. She is actually losing the last year’s return ($14,000), not the first. That is a steep price to pay for a single year of procrastination.
The difference is even more dramatic when you look at what Britney loses by waiting a year even though she contributes regularly to her savings. If Britney makes annual contributions of $5,000 to her Roth IRA as shown in the second example, waiting just one year will cost her more than $150,000! That is probably more than her annual income.
There is another way to look at the cost of procrastination. If she still wanted to have a $2 million nest egg at age 65 but she waits five years to get started, her annual contributions would have to increase to nearly $9,500 — that’s almost double! And if she were to wait until age 40, she’d have to contribute nearly $55,000 a year!
How to Get Rich Slowly
You can make compounding work for you by doing a few simple things:
1. Start early. The younger you start, the more time compounding has to work in your favor and the wealthier you can become. The next best thing to starting early is starting now.
2. Make regular investments. Don’t be haphazard. Remain disciplined, and make saving for retirement a priority. Do whatever it takes to maximize your contributions.
3. Be patient. Do not touch the money. Compounding only works if you allow your investment to grow. The results will seem slow at first, but continue on. Persevere! Most of the magic of compounding returns comes at the very end. Compounding creates a snowball of money. At first, your returns seem small; but if you are patient, they will become enormous.
The GRS Introduction to Roth IRAs Series
Understanding how important it is to get started saving for retirement, check out the rest of our Roth IRA series to learn about how to start your Roth IRA, which investments are best, and other general questions about these great accounts.
Part 1: The extraordinary power of compound interest Part 2: What is a Roth IRA and why should you care? Part 3: How to open a Roth IRA (and where to do it) Part 4: Which investments are best for a Roth IRA? Part 5: Questions and answers about Roth IRAs
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.
Credit hacks like challenging errors on your credit, lowering credit use, increasing available credit, and becoming an authorized user may help increase your credit score.
Preparing for a mortgage application, looking to upgrade your credit card or simply wanting to improve your credit ASAP? While creditworthiness is a long-term investment and your score will need to be cultivated over time, these credit hacks may help you improve or repair your credit relatively fast. However, there are no guarantees when it comes to credit, so know that results will vary based on the specifics of your situation.
Below, we’ll break down our top 12 credit tactics into three broad categories: credit score hacks for quick gains, credit repair hacks for efficiently rebuilding damaged credit, and credit card hacks to help you improve your standing by effectively managing credit card debt.
Top 12 credit hacks
Challenge inaccuracies on your credit report
Consider paying off installment loans
Lower your credit usage
Increase your available credit
Write a goodwill letter
Become an authorized user
Open a secured credit card
Apply for a credit builder loan
Work with a credit repair company
Consolidate debt from multiple credit cards
Use the snowball method to pay off credit cards
Use the avalanche method to pay off credit cards
Credit score hacks
Determined by factors including debt repayment history, overall credit utilization, and the age of your credit lines, your credit score can affect many vital aspects of your financial life. Everything from credit card interest rates to whether you qualify for an apartment could depend on that number.
If you could use a credit boost for any reason, these actions could help you get a higher score in a short period of time.
1. Challenge inaccuracies on your credit report
In some cases, your credit score may be lower than it should be due to a reporting error. Here’s how to identify and remove inaccuracies like mistaken late payments from your report:
Step 1: Request a copy of your credit reports from AnnualCreditReport.com.
Step 2: Read your credit report carefully, specifically looking for any errors in personal information, listed accounts, late payments, or duplicates.
Step 3: If you discover anything you believe is inaccurate, write a dispute letter (with return service requested) to the bureau’s address explaining the inaccuracy.
Step 4: Wait 30 to 45 days for a response.
2. Consider paying off installment loans
Installment loans like mortgages, student loans, or personal loans are essentially lump-sum amounts that you borrow and then repay over time. Paying these off may have a positive impact on your credit score in some situations.
Loans and credit lines factor into your debt-to-income ratio (DTI), or the percentage of your income that goes toward repaying debts every month. Although your DTI doesn’t factor into your credit score, it does matter for many housing situations, as lenders prefer to see this number stay lower than 36 to 43 percent for homeowners and below 15 to 20 percent for renters.
If your DTI ratio is above that range and you have installment loans, you may want to consider paying off one or more to bring the ratio down. This could be especially helpful if you have one or more loans with a high interest rate.
3. Lower your credit usage
One of the most important credit scoring factors is how much of your available credit you use. It’s recommended to keep this ratio below 30 percent. Cutting a high credit utilization ratio to below that threshold could give you a relatively quick credit boost compared to longer-term strategies.
Let’s say you have one credit card with a $500 limit and charge $200 every month on it. In this example, your utilization rate is 40 percent. To keep your utilization rate below 30 percent, you’ll want to cut your charges to less than $150 per month.
4. Increase your available credit
If it’s not feasible to lower your credit usage, you may want to consider increasing your available credit. In the example above, if you add a second credit card with a $500 limit on top of your current $500-limit card, you would double your total available credit to $1,000. The same $200 charge each month would drop from 40 percent to 20 percent of your available credit.
Be aware, however, that applying for a new credit card comes with a hard inquiry, which will temporarily hurt your credit score. Also consider that you may be tempted to use more credit if it’s available, so this option may only be effective if it doesn’t otherwise affect your spending habits.
5. Write a goodwill letter
If a late or missed payment is dragging down your credit, a goodwill letter could get the negative mark removed from your credit report. This letter is essentially a request to a specific lender to have that item struck from your report based on an otherwise strong payment history.
Lenders are by no means required to follow through on these requests—hence the name. But since this tactic is free and carries virtually no negative consequences, it’s worth a shot. If you choose to try this, your letter should include:
Your account number
A description and the date of the negative mark
Details about your history with the lender
An explanation of why this was a one-off event that hasn’t happened since and won’t happen again
A specific request to have the item removed from your credit report for all three bureaus
Credit repair hacks
Whether you’re working to correct past late payments, get out of a cycle of debt or fix past financial mistakes, credit repair can take time. But if you need to know how to quickly build credit after it’s been damaged, these four tactics may be able to help you restore your standing as soon as possible.
6. Become an authorized user
By becoming an authorized user on someone else’s account, you can benefit from their on-time payments. An authorized user is essentially a secondary person who is authorized to use a credit line without being responsible for repaying it. This allows that authorized user to potentially improve their credit without making other significant changes to their own spending or accounts.
However, this does come with risk for the account holder and has some limitations on who is eligible. If the authorized user racks up debt the account holder can’t afford to pay off, this could backfire. Due to this liability, this is only a good option if you have someone in your life who shares an immense amount of mutual trust with you, such as a family member or significant other.
7. Open a secured credit card
Secured credit cards can be great credit-building options for those who have trouble qualifying for standard credit cards. These cards require an up-front deposit, which typically becomes the card’s credit limit.
By making on-time payments, you may be able to build your credit up enough to qualify for a standard credit card with a higher limit, which would also increase your total available credit and potentially lower your credit utilization rate.
8. Apply for a credit builder loan
Designed to help people with low or no credit improve their scores, credit builder loans work like regular loans—but in reverse. Rather than getting money up front that you pay back over time, you pay into a savings account for a set period of time and then receive the loan amount afterward.
Here are some tips for taking advantage of a credit builder loan:
Ensure you can afford to dedicate enough funds every month to building up the full loan amount.
Consider getting a smaller loan amount than you may need to keep your monthly payments manageable.
Make each payment on time to help improve your credit.
Have a plan for the funds you receive from the loan, such as paying off other debts, contributing to a savings account, or making a down payment.
9. Work with a credit repair company
For some people, fixing credit may be best left to professionals. Credit repair companies are capable of reviewing credit reports, sending challenges, sending requests, and making individualized long-term credit plans. For a monthly fee, their teams can help you address issues on your credit report to ensure the information on your report is fair, accurate, and substantiated.
Credit card hacks
Navigating credit cards can be tricky. If you aren’t careful, high interest rates and long repayment terms can lead to a cycle of debt that can be hard to escape—and even harder to recover from. These credit card hacks could improve your credit score by helping you gain control of your debts, manage your repayments or pay off your balances efficiently.
10. Consolidate debt from multiple credit cards
If you’re having trouble managing repayments for multiple credit cards with balances that carry over from month to month, consider consolidating them with a personal loan or balance transfer.
Consolidating credit card debt with a personal loan
With typically high interest rates, credit cards come with expensive debt when their balances are repaid gradually. If you’re balancing debt from multiple credit cards but you have relatively strong credit, consider applying for a debt consolidation loan from a bank.
The personal loan you choose should be big enough to pay off all or most of your current credit card balances at once. The resulting loan should have considerably lower interest rates and offer the added benefit of reducing multiple monthly due dates to just one.
Consolidating credit card debt with a balance transfer
A balance transfer is basically a way to move debt from one account to another. This is particularly beneficial if you’re able to transfer a balance from a high-interest credit card to one featuring a promotional period with low or no interest. This window of time gives you an opportunity to pay off the debt from one credit card gradually without incurring interest charges.
11. Use the snowball method to pay off credit cards
For this approach to managing debt across multiple credit cards, you’ll focus on paying off the card with the lowest balance first. This strategy allows you to take an organized approach to debt reduction over time. Here’s what that process looks like.
Step 1: Set a monthly budget for the amount of money you can afford to allocate to credit card debt.
Step 2: Make only the minimum payments on every card except the one with the lowest balance.
Step 3: Spend the rest of your monthly credit card budget on paying down the card with the lowest total balance.
Step 4: Once you’ve paid that card’s balance in full, repeat the process for the card with the next-highest balance.
12. Use the avalanche method to pay off credit cards
Another way to manage multiple credit card payments is to target the card with the highest interest rate. The benefit of this approach is that it saves you money in the long term by reducing the amount of money you have to put toward interest payments. The process is otherwise the same as the snowball method.
Step 1: Decide on a budget for paying off credit card debt each month.
Step 2: Each month, pay the minimum amount due on every credit card except for the one with the highest interest rate.
Step 3: Dedicate your remaining credit card budget to over-paying the minimum on the card with the highest interest rate.
Step 4: When you’ve paid this card off, do the same for the card with the next-highest interest rate.
Can credit hacking help you reach your credit goals?
At the end of the day, there’s no substitute for executing a long-term credit plan and sticking to it.
There’s no shortcut to consistently using credit responsibly, managing your credit utilization ratio, and making on-time payments. However, these credit hacks could set you on your way toward repairing your credit quickly or growing your credit score sustainably. In the meantime, you may want to see if using a credit repair service may be beneficial for your unique situation. You can get a free credit snapshot today to see where you stand and how credit repair can help you work to reach your credit goals.
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
Paola Bergauer
Associate Attorney
Paola Bergauer was born in San Jose, California then moved with her family to Hawaii and later Arizona.
In 2012 she earned a Bachelor’s degree in both Psychology and Political Science. In 2014 she graduated from Arizona Summit Law School earning her Juris Doctor. During law school, she had the opportunity to participate in externships where she was able to assist in the representation of clients who were pleading asylum in front of Immigration Court. Paola was also a senior staff editor in her law school’s Law Review. Prior to joining Lexington Law, Paola has worked in Immigration, Criminal Defense, and Personal Injury. Paola is licensed to practice in Arizona and is an Associate Attorney in the Phoenix office.
Vertex42, a site devoted to Microsoft Excel templates, spreadsheets, and calendars, has posted a free debt snowball calculatorthat will help you create a debt snowball spreadsheet. From the description:
This spreadsheet allows you to choose different debt reduction strategies, including the debt snowball effect (paying the lowest balance first) and highest interest first. Just choose the strategy from a dropdown box after you enter your creditor information into the worksheet.
What Do You Get?
This file contains two worksheets:
A debt reduction calculator, which allows you to list your debts, their balances, interest rates, and monthly payments.
A payment schedule telling you which bills to pay when.
The brilliant thing about this spreadsheet — other than the fact it does all the math for you — is that it allows you to choose from a variety of snowball methods. You can use the Dave Ramsey-esque “low balance first” debt snowball, the mathematically superior “high interest first” method, opt for no snowball at all, or — and this is the best part — enter your own payoff order. Got a loan from your brother-in-law that drives you nuts? Prioritize it and this spreadsheet will make sure it’s finished first.
I wish I had access to a tool like this when I was first starting to dig out of debt…
This is a guest post from Sierra Black, a long-time GRS reader and the author of ChildWild, a blog where she writes about frugality, sustainable living, and getting her kids to eat kale. Previously at Get Rich Slowly, Black told us about sweating the big stuff and the pitfalls of buying in bulk.
My mother’s family is Catholic. They’re working class people from Buffalo: nurses, drugstore clerks, steel mill workers. Even though they never had a lot of dollars, they always gave 10% of what they had to the church. Like taxes, that 10% was just something they paid out before spending a dime on themselves.
As an adult I became the first college graduate in my family and adopted the position most of my educated, liberal peers seemed to hold toward charity: give a little, when you can, and feel guilty about not doing it most of the year.
For most of my 20s, I was living beyond my means. With every dollar being spent before it was earned, giving even a few dollars felt like a huge pinch in my messy budget. I was haphazard and frankly not very generous with my giving.
Overall, liberals tend to give less to charity than conservatives. Religious people like the ones I grew up with give more than my secular humanist friends. The working poor are, as a class, the most generous group in America, reliably giving away 4.5% of their income. The middle class are the least generous, giving just 2.5% on average.
In addition to making me and my friends look bad in the conservative press, statistics like that are, as George Will put it, “hostile witnesses” to the idea that “bleeding-heart liberals” actually care more about the poor and disadvantaged than our conservative counterparts.
According to the American Enterprise Institute, the single biggest predictor of a person’s charitable giving is religion. People who go to church every week give more money, more consistently.
I think it’s time to make secular tithing a middle-class trend. Those of us who don’t go to church every Sunday may not have the easy, deeply ingrained tradition of giving my great-grandmother had when she put her little envelope in the offering plate each week. That’s no excuse for not giving our share. It’s not right for the affluent and secure to let responsibility for maintaining the social safety net rest on the backs of those most likely to need it.
Last year, when I got serious about straightening out my spending habits, I wanted to make charitable giving, like saving, a key part of my financial future.
I adopted something akin to the “balanced money formula”. Instead of allocating 30% to wants, though, I drew up my formula like this: 50% for needs, 10% for charity, 20% for savings and 20% for wants.
My money is not balanced. I’m working hard to repay a pile of credit card debt and continuing to fine tune a frugal lifestyle. My needs and debts suck up most of our income. Because all the “extra” money goes into savings and debt repayment, I’m still living as if we were on the edge financially. Giving hurts. I do it anyway. Every week.
I’m not tithing yet, but I am moving towards it. Here’s how:
As our income increases, I spend the new money in a “balanced” way. A year ago, my husband and I were living on one salary — his. As I’ve added income to our household with my freelance work, I’ve allocated 10% of those dollars toward charitable giving, 20% to savings, 20% wants and 50% to needs.
As our debts decrease, I’m beginning to split our debt snowball. Snowballing debts is great. I’ve seen some people argue for splitting the money that’s freed up when a debt is paid off between paying down the next debt and adding to an emergency fund. I’m doing this with giving too. This month, I pay off a credit card that had a $35/month payment. I’ll put $3.50 into my charity fund, $7 into savings and the rest toward the next debt I’m attacking. I do this with frugal changes too: split the saved money between charity, savings and debt reduction.
I make the giving automatic. Remembering to do stuff is not my strong suit. To stay consistent with my giving, I’ve signed up for recurring automatic withdrawals from my bank account. There are organizations, like Just Give, that will help you coordinate automated or one time gifts to many different organizations.
I’m teaching my kids to give. My kids use jars to split their allowance into categories for giving, saving and spending. They’re too young to tell yet what lasting impact that might have, but I’m hoping it will get them into the habit of giving some of their money away every time they get paid. A habit it took me 30 years to grow into.
Giving small counts big. Charities can use their membership rolls and total numbers of donors to solicit large grants from individuals and foundations, and to earn matching grants. Because of this, the difference between giving $10 to a charity and giving them nothing is a lot bigger than the difference between $10 and $20. I make a lot of small donations to different organizations I like, to spread out my impact.
There are many good organizations doing vital work in the world that depend on charitable gifts to run their operations. These range from the Red Cross to the World Food Program to local groups.
The end of the year is often a time charities need dollars most. To encourage holiday season giving, many have created fun holiday gift programs. My favorite is Heifer International’s famous gift catalog, which lets you “give” a cow or a beehive or another livestock animal to a family in the developing world. In reality, of course, what you give them is the money to run their organization, which then distributes livestock to needy families at a local level. It’s fun to read their catalog though, and Heifer has one of the lowest overhead ratios of all the large charities.
In closing, a note: Expressing concern about what a charity is going to do with your money is a terrible excuse for not giving. Very few charities are outright frauds, and even the inefficient ones will put more of your dollars toward a good cause than your bank will. If you want to be sure you’re getting the most bang for your charitable buck, though, you can investigate organizations at a charity watchdog site before giving.
Note: Get Rich Slowly does not take a stand on religious or political issues. Respectful discussion of these topics is fine; please keep the comments up to their usual high-quality standards.
Credit card debt is a national issue in the United States. In fact, according to the Federal Reserve Bank Of New York, Americans’ total credit card balance was $986 billion in the first quarter of 2023 — $145 billion higher than it was in the first quarter of 2022.
If you’re one of the many people struggling with credit card debt, you know that getting out from under it isn’t easy. The good news, however, is that you do have options. What follows are some smart, simple credit card debt elimination plans that can help you make a dent in your debt — without giving up everything in your life that brings you joy.
How Do You Determine Debt Level?
First things first: In order to pay off debt, it can be helpful to know actual numbers. One way to help get concrete numbers is to gather monthly credit card statements and start to add up total debts. While sitting down and adding up those numbers might seem scary, getting all the information can be a great first step to tackling credit card debt once and for all.
When adding up the amount of debt owed, it might also be helpful to take interest into account — thanks to high interest rates, some debts may actually now be higher than the initial amount owed, even after making payments. A credit card interest calculator can help determine the cost of debt once interest is factored in.
Accounting for Living Expenses
We all know that credit card payments aren’t the only expense in life, which means part of tackling credit card debt may require assessing the other expenses life brings.
To understand exactly where your money is going each month, you may want to take stock of your current income and expenses. This simply involves going through your last three or so months of bank and credit card statements, adding up what is coming in each month on average (income) as well as what is going out each month on average.
You may also want to break down your spending into categories, then divide those categories into two buckets — essential expenses and nonessential expenses. To free up funds for debt repayment, you may need to cut back on some nonessential spending, such as dining out, streaming services, and clothing.
Recommended: Budgeting for Basic Living Expenses
Creating a Budget
After taking stock of financials like your monthly expenses, hunkering down and making a budget is the next logical step. Making a budget doesn’t have to be highly restrictive or complicated. The idea behind budgeting is simply that, rather than spend money willy nilly as expenses come up, you make sure your spending actually lines up with your priorities.
There are many different types of budgets but one simple approach you might consider is the 50-30-20 rule, which recommends putting 50% of your money toward needs (including minimum debt payments), 30% toward wants, and 20% toward savings and paying more than the minimum on debt payments.
Establishing a Plan To Tackle Debt
Once you have an idea of how much you can spend beyond the minimum on credit card repayment, you’ll want to come up with a strategy to pay off your debt. There is no one-size-fits-all plan for credit card debt elimination, so it is important to consider what type of payoff plan will work best for your specific circumstances.
One popular debt elimination plan is called the snowball method. It’s called this because much like building a snowball, you start with your smallest debt, and then roll on to the next highest debt, and so on.
So for example, if a borrower has three separate credit cards with balances of $1,000, $5,000, and $10,000, the snowball method would call for paying off the card with the $1,000 balance first by putting extra money towards that debt while paying on only the minimum balance on the cards with $5,000 and $10,000 balances.
Once the $1,000 debt is paid off, the borrower would then use the newly freed up money from the $1,000 debt payment to start making higher payments on the $5,000 debt and so on. This method is popular because paying off a small debt can help you gather momentum to keep paying off larger debts.
Another popular pay-off plan is the avalanche method. This involves paying off the balance of the credit card with the higher interest rate first. In this scenario, a borrower who has three separate credit cards with interest rates of 17%, 20%, and 22% would focus on paying down the credit card with the 22% interest rate first.
Why focus on the credit card with the highest interest rate? Cards with higher interest rates generally cost you the most over time. Thus, paying off the card with the highest interest rate first could help you save money instead of allowing it to accrue more interest while you pay off other credit cards.
Considering Consolidation
If the snowball or avalanche method doesn’t seem right for you, you may want to consider credit card consolidation. Consolidating your credit card debt involves either transferring your debt to a new credit card with, ideally, a lower interest rate, or taking out a personal loan, ideally with a lower interest rate, to pay off existing credit card debt.
Why replace one type of debt with another type of debt? Some borrowers may qualify for a lower interest rate on a personal loan than the rate they are paying on their credit card debt, which can help you save money. Consolidation also simplifies the debt repayment process. Instead of paying multiple credit card bills each month, you only have to make one payment — on the personal loan.
A personal loan also typically comes with a fixed interest rate and established repayment term. This means that the interest rate agreed to at the start of the loan stays the same throughout the length of the loan.
And unlike the revolving debt of credit cards, personal loans are known as installment loans because you pay them back in equal installments over a predetermined loan term. This means that you won’t accrue interest for an indeterminate time, as is possible with a credit card.
The Takeaway
Having a credit card elimination plan in place is key to getting rid of high-interest debt. To get started, you’ll want to assess where you currently stand, find ways to free up funds to put towards debt repayment, and choose a debt payoff method, such as the avalanche or snowball approach.
Another option is to get a debt consolidation loan. This can help simplify repayment and also help you save money on interest. If you’re curious about your options, SoFi could help. With a lower fixed interest rate on loan amounts from $5K to $100K, a SoFi debt consolidation loan could substantially lower how much you pay each month. Checking your rate won’t affect your credit score, and it takes just one minute.
See if a personal loan from SoFi is right for you.
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Bonds Crushed by Data, But Technically Still in The Range
By:
Matthew Graham
Thu, Jun 29 2023, 4:33 PM
Bonds Crushed by Data, But Technically Still in The Range
At many points in the past week, we’ve lamented the narrow, boring nature of the prevailing trading range. The thesis has been constant: it will take data to prompt a more meaningful move as the market trades on technicals in the meantime. Today’s data did it’s best to prompt a meaningful move with GDP revised up 0.6% and Jobless Claims falling most of the way back down to earth. Bonds reacted with their largest sell-off in several weeks. Ironically, because the starting point was the bottom of the range, the sell-off was only able to get yields up to the ceiling of the range.
Jobless Claims
239k vs 265k f’cast, 264k prev
Q1 GDP
2.0 vs 1.4 f’cast
GDP Final Sales
4.2 vs 3.5 f’cast, 1.1 prev
Pending Home Sales
-2.7 vs -0.5 f’cast, -0.4 prev
09:07 AM
Weaker overnight with additional selling after econ data. MBS down 5/8ths and 10yr up 11bps at 3.823.
11:45 AM
Snowball selling into the 10am hour and leveling off after that. 10yr up 13.2bps at 3.846 and MBS down 5/8ths.
02:42 PM
Still sideways at weaker levels, 10yr up 13.6bps at 3.85. MBS down 3/4ths.
04:16 PM
Off the weakest levels, but still generally flat. 10yr up 12.4bps at 3.838. MBS down just under 3/4ths.
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