When It's A Good Idea To Refinance Your Mortgage

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Homeowners who are considering refinancing their mortgages have one advantage to count on – interest rates remain low.

Refinancing from a 30-year or adjustable rate mortgage (ARM) to a lower rate can help consumers save money each month and cut the total amount that goes towards interest payments.

Here’s how to determine whether you will benefit by refinancing your mortgage. 

Here are the two major types of refinances:

1. Rate-and-term refinancing to save money. The majority of homeowners refinance the rest of the balance on their mortgage for a lower interest rate and an affordable loan term. (The loan term is the number of years it will take to repay the loan such as 15 or 30 years.)

2. Cash-out refinancing where you obtain a new mortgage for more than what you owe. The difference is often used to pay for renovations or to retire credit card debt.

Other reasons consumers refinance include to replace an adjustable-rate mortgage with a fixed-rate loan, eliminate FHA mortgage insurance or to settle a divorce.

Some consumers refinance to lower their monthly payment and have more money each month for bills, groceries or an auto loan.

“If a borrower is refinancing strictly to lower monthly mortgage payments and closing costs are $2,400, the borrower should expect to save at least this amount in interest payments for the duration they plan to have the loan,” says Richard Liu, a mortgage consultant for C2 Financial Corp., a San Diego-based mortgage brokerage.

Check today’s low rates on a mortgage refinance.

Determine how long it will take to break even

Mortgage closing costs add up to thousands of dollars. To decide whether a refinance makes sense, calculate the break-even point, which is the time it will take for the cost of the mortgage refinance to pay for itself.

“If you can shave one-half to three-quarters of a percentage point off your mortgage loan by refinancing, you should look into it,” says Greg McBride, CFA, chief financial analyst for Bankrate. “Just be sure the cumulative savings on monthly payments is enough to offset the costs of refinancing. If you’re planning on moving in the next year or two, it might not.”

Break-even point example

Break-even point = Total closing costs ÷ monthly savings

Example:

30 months to break even = $3,000 in closing costs ÷ $100 a month in savings

If you plan to keep the house for less than the break-even time, you probably should stay in your current mortgage.

Mind the term in rate-and-term

The formula above doesn’t measure your total savings over the life of the new mortgage. A refinance can cost more money in the long run if you start your new loan with a 30-year term.

Example:

Kris has been paying $998 a month for 10 years. If Kris doesn’t refinance, the payments will total $239,520 over the next 20 years.

With a refinance, Kris could pay $697 a month to repay the new loan in 30 years, or $885 a month to pay it off in 20 years.

$697 x 360 months = $250,920

$885 x 240 months = $212,400

In the example above, Kris borrowed $186,000 at 5 percent. 10 years later, Kris had a remaining balance of $146,000, and refinanced at 4 percent.

Use Bankrate’s mortgage calculator to compare your own loan scenarios:

• See what happens when you input different mortgage terms (in years or months).
• Reveal the amortization schedule to see how much total interest you would pay.

Good credit can save you lots of money on your mortgage. Check your credit score for free at myBankrate.

Pros and cons of cash-out refinances

Cash-out refinances often are used to pay down debt. They have pros and cons.

Imagine that you use a cash-out refinance to pay off credit card debt. On the pro side, you’re reducing the interest rate on the credit card debt. On the con side, you may pay thousands more in interest because you’re taking up to 30 years to pay off the balance you transferred from your credit cards to your mortgage.

But the biggest risk in this scenario is in converting an unsecured debt into a secured debt. Miss your credit card payments, and you get nasty calls from debt collectors and a lower credit score.

Miss mortgage payments, and you can lose your home to foreclosure. Home equity debt that’s added to the refinanced mortgage always was secured debt.

How to create a passive income stream

If you’re worried your salary is not enough to help you save a deposit for your first property or prepare you for retirement, building wealth through passive income is a strategy that might appeal to you.

What is passive income?

Passive income is a source of revenue that continues even after the work is complete, for example, royalties from a book or film.

We’re not suggesting you go out and write a book (not very passive) or make a blockbuster movie (not very savvy), but some of the below options do require a little effort in the beginning to then pay you in the long-term without you needing to lift another finger.

What we’ve tried to highlight here is how to make your money (that you’ve already earned) make more money (without you having to do much), so they do rely on you having some initial capital already behind you.

Some of these strategies involve an element of risk. If you are not fully comfortable with that, it might be more advisable to go down the slightly more labour intensive route of selling your stuff on eBay, setting up a side business or writing that bestseller after all.

What ways can I earn a passive income?

Here are eight strategies for creating a passive income stream:

1. 1. Switch your bank account
   2. Earn interest on savings
   3. Use a cashback or rewards credit card
   4. Buy via cashback websites
   5. Try out robo-investing
   6. Rent out a room (or parking space)
   7. Invest with peer-to-peer lending
   8. Purchase dividend-yielding stocks

1. Switch your bank account

Loyalty to your bank is a thing of the past, and banks know it. That’s why so many offer cash switching incentives (the current highest is £200 from HSBC) for current accounts, many of which link with savings accounts, some with interest as high as 5%.

Not all banks are part of the switching scheme, but those that are guarantee all direct debits and standing orders are transferred to your new account within seven days.

If they fail to do this and you wind up with a late payment charge from your old account, your new bank should cover it.

Most bank accounts have a minimum pay-in and a two direct debits requirement – make sure you meet them to reap the full benefits of the switching rewards.

Some charge a monthly fee, so watch out for that when you switch over as you do not want to pay out more than you earn.

2. Earn interest on savings

In today’s low interest climate, the best rates on savings are often reserved for fixed-rate accounts or bonds. These are savings accounts that lock away your money for a set period of time. Generally speaking, the longer it’s locked away, the higher the rate.

Only use these if you are comfortable with not having access to your money. If you suddenly realise you need it before the bond is up, you will most likely have to pay an early withdrawal fee.

One way to avoid this is to get a current account with a high interest rate as we mentioned above.

Today, the best returns on savings are from Lifetime and Help to Buy ISAs where the government pays you a 25% bonus on your funds. The Help to Buy ISA pays this on withdrawal, whereas the Lifetime ISA pays in the bonus annually.

3. Use a cashback or rewards credit card

If you are going to spend on a credit card anyway (which you may need to do to build up your credit history), you might as well get one that gives you cash bonuses to do so.

There are a few cards out there that offer cashback or that operate reward schemes that could give you discounts in certain stores or earn you air miles.

However, always approach credit cards with caution – they are a debt product after all. If you do not think you will be able to pay it back in full every month, your interest repayments will very quickly outpace any cashback or rewards.

4. Buy via cashback websites

Cashback websites are essentially third party portals that you visit before clicking through to a website from which you were already going to buy something.

Using the cashback site’s link rewards them with money, some of which they pass on to you. How much you could get is usually shown as a percentage of the total amount you spend, but you are not always guaranteed to get that amount.

Like with a cashback credit card, only use a cashback site if you were planning to spend that money anyway – that way, you really could be getting something for nothing.

5. Try out robo-investing

Robo-investing is one of the slightly riskier ways to make a passive income, especially as you cannot specify where your funds get invested.

Unlike with traditional savings accounts where your money just sits there earning (or not earning much) interest, here it gets invested so you could reap bigger financial rewards. Remember, you could also experience a loss, so proceed with caution.

Robo-investing, open banking apps like Moneybox round up your spending and invest the difference.

For example, if you bought something costing £2.80, Moneybox rounds it up to £3 and invests the spare 20p. You can pick from three levels of risk: cautious, balanced, or adventurous.

The idea is, the amounts are so nominal you do not notice them not being there – it’s like putting your spare change in a piggy bank rather than having it jangle around in your pocket.

However, if you are someone who likes to keep an eye on every penny, this may not be the best way for you to earn a passive income.

6. Rent out a room (or parking space)

Buying and then renting out an entire property is a good way to earn a passive income, but it’s an expensive one and requires a lot of work.

For starters, you’ll have to pay an extra 3% in stamp duty (if it’s your second home, otherwise you pay the normal stamp duty rates), need a 25% deposit and – if you’ve already exceeded the tax-free income threshold (£12,500 in 2019/2020) – you’ll have to pay income tax on any earnings.

However, if you have a spare room in your current property or have an empty parking space in an area where parking is an absolute premium, you can rent it out.

Again, this is something you will need to report to the tax man, but if you are not using the space, it could be a great way to earn passive income.

7. Invest with peer-to-peer lending

Peer-to-peer (P2P) lending consists of a personal loan made between you and a borrower, facilitated through a third-party intermediary such as Zopa or Funding Circle.

As a lender, you earn income via interest payments made on the loans. But because the loan is unsecured, you face the risk of the borrower defaulting on payments.

To minimise that risk, you should do two things:

• Diversify your lending portfolio by investing smaller amounts over multiple loans
• Analyse the historical data on the borrowers to make informed picks

It takes time to master the metrics of P2P lending, so it’s not entirely passive and because you’re investing in multiple loans, you’ll need to pay close attention to payments received.

Whatever you make in interest should be reinvested if you want to build income.

8. Purchase dividend-yielding stocks

A dividend is a sum of money paid to shareholders out of a company’s profits. Shareholders in companies with dividend-yielding stocks receive payments at regular intervals from the company.

Since the income from the stocks is not related to any activity other than the initial financial investment, owning dividend-yielding stocks can be one of the most passive forms of making money.

The tricky part is choosing the right stocks. To try and minimise loss, thoroughly investigate the company you’re thinking of investing in. Do not rush into anything!

If you are unsure of what to do, it might be worth speaking to a financial advisor. They will explain the risks meaning you can make an informed decision about the best course of action.

Did you find this useful?

Last updated: 18 April, 2019

How to Pay for Relocation

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Moving is one of the most stressful life events you can endure — especially if you aren’t confident you can afford it. Whether you’re moving for a new job or personal reasons, there are a variety of factors that affect the cost and timeline of your move.

As a result of tax reform, Americans can no longer deduct moving expenses. So depending on how much help you get from your family, friends, or your new employer, the entire cost of the move might rest on your shoulder. Thankfully, there are a few quick, effective options to help ease the financial burden of embarking on a new adventure.

The repeal of the moving expense deduction

Under the previous law, taxpayers were allowed to deduct some of the costs of moving their goods and effects, plus certain travel expenses. But as of 2018, exclusion for qualified moving expense reimbursements and deductions are both suspended until 2025. The one exception is members of the military on active duty who move due to a military order.

The cost of moving

Consider this: The American Moving and Storage Association says that the average cost of an interstate household move costs about $4,300. That’s no small expense. Even moving within the state costs an average of $2,300.

Every move is unique, but here are six common expenses to help estimate what your move might cost:

• Movers.

  Hiring movers is one of the most important expenses you’ll make — you get what you pay for.

  HomeAdvisor

  found that the average move costs around $800, but that can vary widely based on the location, travel, and amount of goods and personal items you need to transport.

• Travel.

  Gas, lodging, and food can add up quickly. And if you’re flying, it’s easy for a small family to rack up over $1,000 for a one-way domestic flight. Travel to your new home the potential to be the biggest expense of all.

• Boxes.

  Boxes can generally be obtained for free from grocery or department stores. If you need containers for transporting fragile items, remember that durable plastic tubs can cost more than $20 each depending on the size.

• Storage.

  If your move takes longer than expected because a house closing is delayed, for example, you might have to put some of your belongings in storage. The cost of a self-storage unit varies widely and depends on the location. CostHelper.com says a self-storage unit that’s 10 feet by 20 feet typically ranges from $95 to $155 a month, and $170 to $180 if the unit is climate-controlled.

• Replacements.

  Odds are, at least a few things will be broken during your move. Remember to set aside some money to cover replacements.

• Deposits and fees.

  It’s possible that you may have to pay early termination fees for services like cable or utilities. You might even have to put down a deposit for services at your new place prior to your 

Instate vs out of state long distance moving costs

According to Homeadvisor, here are the average costs for local and interstate moves. Local moving is any move under 100 miles within the same state and interstate or long distance moving across the country or over state lines. 

Type of mover Average Charge Extra charges Local/Intrastate $80-$100 per hour +25-$50 extra per additional mover Interstate/Cross Country $2000-$5000 per load $0.50 per pound

Costs of moving based on house size

These are average costs for moving based on house size, according to HomeAdvisor. The chart is based on average hourly rates charged by local moving companies.  

Size of house Estimated time of move Average price range

1 bedroom apartment

3-5 hrs $200-$500 2 bedroom apartment 5-7 hrs $400-$700 3 bedroom house 7-10 hrs $560-$1,000 4 bedroom house 10+ hrs $800-$2,000+

How to pay for your relocation

Personal loans

It’s ideal to pay for your move upfront, but that’s not always possible. If you need to finance some or all of your move, applying for a personal loan is one of the best options to consider. Personal loans are either secured or unsecured loans that are paid off in equal installments (what’s known as installment debt), usually over two- to five-year terms. The monthly payments include both principal and interest.

The main benefit for using a personal loan for your move is the interest rate. Borrowers with excellent credit can score rates around 10 percent. Those with good credit fall in the 13 – 15 percent range. With a credit card, good credit could get you a rate around the lower 20s. Over the lifetime of a loan, just a few points can make a big difference in the amount of interest you’ll pay.

Personal loans can be obtained from banks, credit unions, and online lenders. The application process is usually easiest with online lenders, but overall they’re much quicker than other loans. Sometimes the approval process might just take a few days.

 Credit cards

A credit card (sometimes multiple cards) might seem like a good way to pay for your move quickly. You might even be thinking about the potential to earn rewards in the process. But it’s not always the best idea.

Credit cards offer revolving debt, which means that, unlike personal loans, you don’t have to re-apply for credit when you need more money. The downside to that, however, is a higher interest rate. A good credit score will get you a credit card with an APR around 18 percent to 20 percent, while a personal loan can be closer to 10 percent.

Personal loan

Monthly payment Details Term Interest Paid $98.22 11% APR 36 months $535.78

Credit card loan

Monthly payment Details Term Interest Paid $120

12-month 0% intro APR, then 21%

36 months $979.92

Credit card loan

Monthly payment Details Term Interest Paid $300

12-month 0% intro APR, then 21%

10 months $0

Let’s say you’ve crunched the numbers, and you expect your total expense to be $3,000. (That’s pretty conservative, even for an intrastate move.) And the largest monthly payment you can afford is around $100. A personal loan with an 11 percent APR and 3-year term will get you a monthly payment of $98.22. Over the life of the loan, you’ll pay around $536 in interest.

Most zero percent introductory credit card offers run from 12 to 18 months. So if you could afford to pay around $300 toward your balance every month, you could benefit from a credit card because you wouldn’t incur any interest. If not, a personal loan offers a lower payment and saves more than $400 over the life of your loan. Plus, you can’t be tempted to swipe a personal loan at the department store and add to your debt.

Here’s the bottom line: You should only use a credit card with a zero percent introductory interest rate offer for larger expenses, like relocation, when you can afford to pay several hundred dollars on your balance every month. (Ideally, you should pay it off completely before the 0% intro period ends.)

Don’t forget to ask about relocation assistance

If you’re relocating for work, don’t forget to ask about relocation assistance. It can be difficult to ask for help for fear of sounding demanding or greedy, but remember, the worst your employer can say is no.

 

Weighing the costs: Should you transfer a car loan to credit card?

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It makes financial sense to seek the lowest interest rate possible when borrowing money, right? You might be tempted to transfer a car loan to a credit card if you get a zero percent introductory APR for a top rewards credit card.

If you qualify, you’ll get a lower interest rate, plus rewards you can redeem for a dream vacation, cash back, or even a statement credit.

But is transferring a car loan to a credit card a smart choice? The answer depends on several factors – starting with how you initiate the transfer.

How to transfer a car loan to a credit card

If you can transfer your car loan to a credit card and then pay in full, you’ll get the intro APR without any balance transfer fees.

But some loan issuers only permit payments via check, cash, ACH direct transfer or money order. In that case, you can use the balance transfer checks that came with your new credit card.

You can also do a balance transfer direct from your car loan company to your credit card issuer. You’ll need to provide your issuer with your loan account number, the address where you’d mail payments and the name of the loan company. If you’re used to making online payments, it’s a good idea to call your loan provider to confirm this information.

When you use a balance transfer check or initiate the transfer through your credit card issuer, you could pay balance transfer fees.

Before you make the transfer, get answers to these questions:

• Will the creditor that holds your car loan permit you to use a credit card to pay the loan balance?
• If you can’t use your credit card, can you use a balance transfer check to pay the balance?
• Are there any penalties for paying the car loan early?
• How much will you pay in balance transfer fees?
• How long does the intro APR last?

How to calculate the credit card interest rate

Before you decide to transfer your car loan to a credit card, calculate how much your new payments will be.

To calculate your monthly payments at zero percent interest, just divide the amount left on your loan with the terms of your intro APR offer. If you have to pay a balance transfer fee, add that to the loan amount.

If you owe $5,000 on your car, with a three percent balance transfer fee, add $150 to the $5,000. Then divide $5,150 by 18 months, for example, if those are the terms of your intro APR. You’d pay $287 per month, which is most likely lower than any car loan that doesn’t carry a zero percent APR.

If you intend to own your car for several years, extending your loan by nine months to free up working capital to pay down higher interest debt, put in a high interest savings account, or even pay for emergency expenses can be a wise choice.

The impact on your credit score

Your credit score could suffer if you exchange a secure installment loan for unsecured, revolving credit. If you don’t have other installment loans in your profile, you are reducing your credit diversity. And if putting the balance of your vehicle loan on your card brings you closer to your credit limit, you will also reduce your credit score due to high credit utilization.

These are significant factors that make up your credit score, so if you are looking to secure a mortgage or another car loan within the next year, transferring your car loan may not be a wise financial choice.

If you already have another installment loan in your credit profile and the balance transfer doesn’t approach 30 percent of the available credit on your card, the effect on your credit score will be minimal and you can move ahead with the transfer.

Otherwise, you may consider other options, such as refinancing your car loan.

Getting an auto loan vs. getting a credit card

If you have poor-to-average credit, it’s easier to get an auto loan than a credit card. Car dealers will often make deals with banks to extend credit to customers with credit scores of 640 and below. Even if you have declared bankruptcy, you can find a car loan – but the interest rates will be high.

Similarly, you can get a secured credit card with a low credit score. But the best zero percent interest APR rewards credit card offers are typically extended to those with a credit score of 720 and above.

If your credit score was below 720 at the time you purchased your vehicle, but you’ve since qualified for a zero percent APR credit card, your payments will be less than your car loan for the duration of the zero percent offer. You’ll save on interest charges, too.

Pros and cons of transferring a high interest car loan to a low interest credit card

Pros

• You could save hundreds of dollars in interest over the life of the loan.

• You may reduce your monthly payments.

• You can earn credit card rewards with the new charge or balance transfer.

• The loan company will release the lien on your car and sign the title over to you.

Cons

• Your credit score may drop due to taking on more revolving debt and increasing your credit utilization ratio.

• If you miss a payment on the credit card, your APR could skyrocket.

• If you can’t pay off the balance transfer or new charge during the introductory period, your interest rate may be higher than it was on your vehicle loan.

Bottom line

If you do choose to transfer your car loan to a credit card with a low introductory interest rate, be sure to have a good understanding of your credit card company’s policy for doing so, as well as the requirements to get the introductory rate with no penalties.

Best Student Credit Cards of 2019

Editorial disclosure: All reviews are prepared by Bankrate.com staff. Opinions expressed therein are solely those of the reviewer and have not been reviewed or approved by any advertiser. The information, including card rates and fees, presented in the review is accurate as of the date of the review. Check the data at the top of this page and the bank’s website for the most current information.

Author: Bankrate Staff

Have questions for our credit cards editors? Feel free to send us an email, find us on Facebook, or Tweet us @Bankrate.

What you need to know about student credit cards

It’s easy to dismiss student credit cards as having limited benefits, because they are reserved for people who are new to credit. In reality, they’re just as valuable as general rewards cards – but with some functionality specifically tailored to students’ credit-building interests. Here’s a deeper dive into our top picks for 2019 and insight on how you should be approaching credit as a student.

Table of contents:

How we chose the best student cards

There are a bunch of factors that power our proprietary Bankrate Score, but some credit card features are weighted more than others. The best student cards make it easy to build credit: They have no annual fee or penalty APR. Here’s a list of the top factors we used to evaluate and score student cards, in order of importance:

• APR rates: Variable APR and penalty APR (the interest you pay if you miss a payment) can be high and compound quickly.
• 0% Intro APR offer term length: A long period at 0% APR means that you can charge a large expense (such as a new laptop) to your credit card and pay it off over time without incurring interest.
• Intro bonus and card perks: Great student cards should offer useful perks, like cash back on certain categories like gas and groceries.

Recap of our top picks for the best student cards for 2019 spring semester

Card Name Best for Discover it® Student chrome Gas, dining & large purchases Journey® Student Rewards from Capital One® Flat-rate cash back and studying abroad Discover it® Student Cash Back Rotating cash back bonus categories Citi Rewards+℠ Student Card For everyday spending Deserve® Edu Mastercard for Students Best for Amazon Prime membership Self Lender — Credit Builder Account Best for credit building

Deeper details on each of the best student credit cards

Discover it® Student Cash Back

This student card can produce an extremely lucrative first year of cash back for savvy spenders. Earn 5% cash back in rotating categories each quarter, such as gas stations, grocery stores and restaurants, up to the quarterly maximum each time you activate. Earn 1% unlimited cash back on all other purchases. Any student can benefit, since there’s no annual fee and a $20 reward for each year you maintain a 3.0 GPA up to the next 5 years. But those who don’t mind putting in a little strategy can really earn big. Maxing out the quarterly bonuses before the rewards rate drops from 5% to 1% will result in $75 in rewards each quarter.

Why recommend this card to other students?

This card is essentially the same as the Discover it® Cash Back. But students don’t have to worry about having a credit history to be approved. And Cashback Match, where Discover will automatically match all of your cash back earnings from your first year, is a great bonus.

Journey® Student Rewards from Capital One®

The Journey card has no annual fee and offers 1% cash back on all purchases, but you can boost that to 1.25% if you pay your bill off on time. That’s a pretty sweet deal for those who spend on school supplies and gas, while also being fairly new to building credit. On top of that, enjoy Eno®, your Capital One® assistant, to manage your account via text, receive alerts, and shop safer online.

Why recommend this card to other students?

Paying no foreign transaction fees on this card really sets it apart for student value. Take it abroad, pay your bill in full every month—your credit limit may even increase after 5 months of on time payments.

Discover it® Student chrome

Discover’s chrome card for students earns 2% cash back on up to $1,000 in purchases at gas stations and restaurants per quarter. For everything else, you’ll earn 1%. Although that may not seem like a huge rewards rate, keep in mind that if you’re a student looking to build credit, the roughly $20 in rewards you earn every quarter will be a pleasant surprise you can count on for as long as you’re using the card (and reaching the spend cap of $1,000 per quarter).

Why recommend this card to other students?

Similar to the Discover it Student Cash Back, this card is essentially identical to the Discover it® chrome, only you receive a good grades reward that stretches over 5 years. And your cash back earnings will automatically be matched at the end of your first year with the card.

Citi Rewards+℠ Student Card

With the Citi Rewards+ Student Card, you’ll receive 2 ThankYou® Points per dollar at supermarkets and gas stations (for the first $6,000 spent each year, then 1 point) and 1 ThankYou® Point per dollar on everything else. Enjoy paying zero percent APR for 7 months on new purchases (then 16.74% – 26.74% variable).

Why recommend this card to other students?

While this card does call for good/excellent credit, you get a 10-point round up on every purchase you make (meaning your $2 coffee can earn you 10 points rather than 1). One of the coolest perks of the card is its 10% Points Back feature – you’ll get 10% of your ThankYou® Points back on the first 100,000 points redeemed each year.

Other notable options for students looking to build credit:

Deserve® Edu Mastercard for Students

Students earn an unlimited 1% cash back on every purchase made with this card. Although that’s a modest rewards rate, it’s a nice benefit in the context of every other perk this card offers. Cardholders are eligible for up to $49 (lifetime total) for Amazon Prime Student, as well as ID theft protection, price protection, and other Mastercard Platinum benefits. It’s also another card without foreign transaction fees, so take it abroad with you.

Self Lender — Credit Builder Account

Self Lender’s Credit Builder Account is a unique offering in the student credit category. It doesn’t offer cash back or perks on category purchases, but instead offers help in securing a small loan to deposit in a Certificate of Deposit (CD) bank account. For college students in their second or third year especially, this is a huge asset when it comes to unlocking a nice fund upon graduation. Your loan will sit in the CD account for 12 or 24 months, and after that, you will be able to withdraw more than you initially put in.

What are student credit cards and how do they work?

It’s common for young people, especially college students with mounting loan debt, to be apprehensive about applying for credit cards. In fact, 47% of college students age 18-24 don’t have a credit card simply because they want to avoid debt as much as possible, according to research from Sallie Mae and Ipsos. With a better understanding of credit and how a student credit card can benefit you in the long run, you’ll see that if you are a good candidate, applying for a student credit card is a wise first step in long-term financial wellness.

Student credit cards provide you with a line of credit, usually $1,000 or less. When you use the card, money isn’t directly drawn from your bank account. Instead, the issuer (Capital One, Discover, etc.) pays for the expense and records the amount you charged. The total amount you owe to the issuer is called a balance.

If you pay off the balance in full and on time every month, you’ll never owe more than what you spent. Though, credit card issuers allow you to make small “minimum payments” and carry the rest of the balance month-to-month. When you carry a balance, you’ll have to pay interest on the total amount. Your interest rate is also known as the Annual Percentage Rate or APR. APRs vary across all credit cards, but with a student card, you can expect your rate to be 14-25%.

Why get a student credit card?

Some people start out using their parent’s cards as an authorized user, in order to ease into the credit world and kickstart a credit history. However, that’s not an option for everyone. Getting your own student credit card allows you to take a step toward financial independence. The best part is you don’t have to be a big spender. You can start by paying your rent or internet bill – or even buy next semester’s books.

Here are some good use-cases for your student card:

Build good habits

Using your credit card to buy a meal or your morning coffee throughout the week will get you in the habit of using your credit card regularly, paying your bill on time and accruing rewards.

Grab perks for making larger purchases

Charging larger expenses to your credit card, such as flights for a spring break vacation, can be a great way to earn travel rewards and benefit from some of the perks (such as rental car collision insurance and lost luggage insurance). These benefits are great, so long as you have the income to pay your bill. Incurring interest will vastly negate the travel rewards or cash back you would earn by using your card.

Cushion for emergencies

A credit card can be a great resource in your wallet in the case of emergencies. It’s good to establish clear boundaries for what constitutes an emergency and what doesn’t. (No, the late night pizza craving isn’t an emergency.) If your car breaks down, you need a hotel room after your flight gets canceled or you need to pay a medical bill after a trip to the ER – your student card can be a much needed cushion. Just make sure to pay your bill before you begin incurring interest.

Credit card terms students should know

• Annual Percentage Rate (APR): Interest rate paid on balances carried from one billing period (month) to the next.
• Penalty APR: The highest APR that will be applied to your account. Penalty APR is usually applied after you miss consecutive payments. To return to your original APR, you’ll need to make 6 consecutive on-time payments.
• Credit Utilization Ratio: This ratio is a measurement of how much of your available credit you are using. If you have a $5,000 credit limit and usually stick to a $500 per month budget, your ratio is at 10%. The lower your ratio is, the better. If you use up a large chunk (or all) of your available credit every month, your credit score may decrease.
• Annual fees: Some credit cards have annual fees of $50 or more, though most student cards do not. Be sure to check for fees before applying for any card.
• Credit bureau: Research entities that compile all of your credit history reporting to generate your credit score. In the US, there are 3 major bureaus—Equifax, Experian, and TransUnion.
• FICO: The entity that creates the scoring model used to create credit scores. FICO credit scores range from 300 to 850, with 850 being the best. Credit scores are one factor in determining your creditworthiness.

How students can avoid getting into credit card debt

If you’re spending time gathering information on credit cards for college students, you’re already using the first good strategy for avoiding credit card debt:

• • 1. Do your research. Credit cards have a lot of terms and conditions. It’s wise to understand exactly what kind of card you need and find a card that best meets those needs. If you don’t own a car and you rarely dine out, it’s probably not in your best interest to apply for a rewards card that offers cash back on gas and dining purchases.
    2. Pay off your balance in full every month. It may seem obvious, but the only way to avoid paying more than you have to is by paying in full every month. Some credit cards will let you choose your own due date, others will establish one for you. Make sure you note when your credit card bill is due and stick to your payment schedule.
    3. Exercise caution when paying tuition with your credit card. It’s best to not use your credit card to pay for tuition, but some schools will allow you to do so. However, be aware that you’ll be charged a convenience fee of about 3% that’s added to your bill. You risk getting into credit card debt when these extra charges affect your everyday spending and eventually dismantle your budget.
    4. Look for introductory offers. If you absolutely need to make a larger purchase, and you carry a balance, look for a student card with a 0% introductory APR. Some cards have zero percent APR for the first several months. During that time, you can make one large purchase and gradually pay it off without any interest.
    5. Use your card for everyday convenience. Don’t just focus on the big purchases. Use your card to pay for food, utility bills, movie tickets, and other small purchases. Having a credit card is incredibly convenient and a positive thing when you use it properly.

Expenses for college students obviously go far beyond tuition. The College Board reports that the average on-campus student at a public, four-year, in-state university spent $1,250 on books and supplies in 2017-18. With the aid of a student credit card, the burden of those secondary expenses can be lessened and fit within a budget and schedule that works for you.

Steps to applying for a student credit card

The first thing to consider before applying for a student credit card is your credit history. Start by answering the following questions:

• • • Have you ever had a credit card?
    • Have you ever taken out a loan?
    • Do you have a steady work/income history?

If you have never had a credit card and you currently have no loans or steady income, your best option for getting your own credit card account is to become an authorized user on a pre-existing account. An authorized user is in a good position to benefit from the cardholder’s (usually parents) habits, while not having to carry the responsibilities of paying the card balance.

If you already have a credit history, it’s important to know what your score is. Determining your credit score will let you know which cards you are likely to be approved for. Every time you apply for a credit card, your score will briefly drop by about 5 points, so it’s best to do it as few times as possible. Applying for cards you are declined for will still negatively affect your score.

First, request copies of your credit report, which you can do for free once a year from each of the three credit bureaus. You can also get a free credit report and credit score here.

Also, consider the following:

• • • Credit cards usually have foreign transaction fees. If you plan on studying abroad, take a look at foreign transaction fees, which can vary from 2-4%.
    • You should only apply for one card. Applying for several cards at once indicates risk and tells credit card issuers that you are desperate for credit. Do your research and stick to one application. If you’re denied, take steps to improve your credit (pay down other cards, loans, etc.) and apply for another card in a few months.

Once you have pulled your credit report, checked your credit score, and narrowed your search to one perfect card, you’re ready to apply.

Additional reviews and research

Need to do more reading before you make a decision? No worries, choosing the right credit card as a college student is a big deal. We’ve reviewed pretty much every major student credit card on the market today, with all the latest offer information and in-depth analysis. Check out all of our latest reviews below.

How To Use Home Equity To Consolidate Your Debt

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If you feel like you’re struggling with debt, you’re not alone.

The average amount of non-mortgage household debt in the U.S. reached $24,706 in 2017, according to Experian’s State of Credit Report. The good news is that home equity interest rates are still near historic lows. Assuming you have enough equity in your home, this avenue of debt consolidation could be a better and cheaper alternative to carrying high-interest debt.

“It’s generally a good option to pay down credit card debts or personal loans, assuming it’s done responsibly,” says Andrew Weinberg, principal at Silver Fin Capital Mortgage in Great Neck, New York. “It can save a lot of money.”

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There are two ways to access home equity – a home equity loan or a home equity line of credit, or HELOC. A home equity loan offers a one-time lump sum payment of funds taken as a second mortgage on your home. A home equity line of credit is a revolving line of credit that enables you to withdraw money over time as you need it and pay back the loan as you can.

Your home’s equity is its current value minus the loan balance you still owe. Tapping too much of your equity is risky, and you could wind up underwater in your mortgage if market conditions turn. This means you might owe more on the house than it’s worth, making it difficult for you to move without putting up cash to make up the difference.

“The value of a house goes up and can go down. As a general rule, I would never recommend anyone borrow more than 80 percent of their home’s value,” says Mike Zovistoski, managing director at UHY Advisors.

Pros of using home equity to consolidate debt

Whether you use a home equity loan or HELOC, tapping your home equity to consolidate debt can offer several advantages:

1. You’ll have just one payment

If you’re juggling car loans, a personal loan, medical bills and credit card debt, you already know how challenging it can be to keep track of due dates. By consolidating your debt, you may be able to combine it all to one single payment per month, simplifying your bills and reducing the chance of missed payments.

2. You’ll know when your debt will be paid off

Assuming you don’t keep using your cards, using a home equity loan or HELOC to consolidate debt streamlines the process of paying those accounts off. With a home equity loan product, you’ll have set repayment terms and know the exact date when the loan will be repaid.

3. You can get a lower interest rate

Because the debt is secured against your property, home equity loans and HELOCs have significantly lower interest rates than credit cards. The average variable credit card interest rate was 17.87 percent as of late April, according to Bankrate data. Meanwhile, the average rate of a home equity loan was 5.9 percent and 6.75 percent on a $30,000 HELOC.

A home equity loan also enables you to lock in an interest rate, unlike a credit card that can increase at any time. Additionally, with a home equity loan, more of your monthly payment goes toward the principal rather than the interest.

“It’s almost always going to be a better deal than the rates you’ll pay on credit cards,” Weinberg says of home equity products.

4. You can save money

The ability to lock in a lower rate not only saves money in the long term, but can also equate to a lower monthly payment and help you pay down the debt faster.

For example, if you had $10,000 in credit card debt at a 16 percent interest rate, you’d pay $243 per month and more than $4,591 in interest by the time you pay it off. Consolidating that debt with a five-year home equity loan would not only allow you to pay off the debt faster, but also reduce your monthly payments to $193 and save $3,391 in interest.

“If the borrower is able to continue making the same monthly payment amounts that were originally scheduled on the high-cost debt, they would be able to repay the debt over a shorter period of time and save money,” Zovistoski says.

Use a home equity debt consolidation calculator to find out how much you could save.

Cons of using home equity to consolidate debt

While a home equity loan or HELOC can be a good way to consolidate and better manage debt, it comes with several risks and downsides:

1. It takes time

Unlike opening a credit card or filling out an application for a personal loan, applying for a home equity loan or HELOC is a more in-depth process. The bank will typically want an appraisal of your home along with two years of tax returns, W-2s and bank statements. It can typically take up to 30 days or more to close on a home equity loan or HELOC and get access to the money.

2. Your house is the collateral

HELOCs and home equity loans are forms of secured debt that use your home as collateral. This enables lenders to offer much lower interest rates and more favorable terms than credit card companies, but it presents a greater risk: losing your home if you fail to repay the loan.

While credit card companies and personal lenders can’t come after your home, a bank could foreclose on your home if you default on a HELOC or home equity loan. In other words, don’t take out a HELOC or home equity loan unless you can comfortably afford the payments, in addition to your normal monthly mortgage payment, Zovistoski says.

3. Lender fees and closing costs

Depending on the lender you choose, you’ll likely face some charges such as closing costs and appraisal fees, all of which can add to the cost of the loan. When shopping for a lender, make sure you understand the closing costs that each lender charges and how it will affect overall borrowing costs. Some may claim to offer no fees, then add them back in later as penalties if you close the account before the term ends, Weinberg says.

4. You may fall back into debt

One of the greatest risks is that you may use home equity to pay off your credit card debts only to run those same cards up again. People who have a history of debt problems can be susceptible to falling into the hole again. It’s not an uncommon scenario, Weinberg says.

“They may come back in a couple of years and be back where they were with more credit card debt,” Weinberg says. “You can only do it so many times before you run out of equity.”

5. Tax deductibility is restricted

Under previous tax laws you could deduct the interest you paid on a home equity loan or HELOC, regardless of its use. The new tax law now restricts the mortgage interest deduction on home equity loans or HELOCs to use the money to buy, build or renovate the home you’re borrowing against. Even so, the significant savings in interest rates on home equity products compared to credit card rates still make home equity borrowing a worthwhile option.

Other alternatives for consolidating debt

Tapping home equity may not be the best option for people with serious debt and credit problems. If that’s the case, or if you don’t have enough equity in your home, debt relief programs may be a better option.

One avenue is to work with a certified, non-profit credit counseling agency on a debt management plan. It won’t hurt your credit score but will require you to close all your accounts included in the plan. You’ll have to make monthly payments to the agency which in turn then makes the payments to your creditors. If you have debts with multiple credit cards or lenders, you’ll be saved the hassle of tracking multiple bills and due dates.

Another option is a debt settlement plan. While you’ll be able to reduce the balance by agreeing to settle with one or more creditors for less than what you owe, your credit score will suffer significantly. You’ll also have to pay fees and income taxes on the amount forgiven, a consideration that could make debt management less attractive.

Get pre-qualified

Answer a few questions to see which personal loans you pre-qualify for. The process is quick and easy, and it will not impact your credit score.

Get Started

Bottom line

It’s a smart idea to shop around with several different home equity lenders to ensure you get the best rates and terms. Having a plan for how you’ll attack high-interest debt — and how you’ll repay your home equity loan or HELOC — can set up your finances for a more secure future.

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