3 ways too much credit card debt can hurt your finances

Some people find themselves in credit card debt when too many surprise bills hit. Other times, credit card debt is something that slowly but steadily accumulates over time, to the point where it becomes less and less manageable.

As a rule of thumb, it’s best not to run into credit card debt at all. The more you accumulate, the more money you will lose in interest charges.

But that’s not the only problem with credit card debt. Here are some reasons why too high a balance could hurt you financially.

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1. This can leave you with a higher mortgage rate

The more credit card debt you have, the higher your credit utilization rate is likely to be. It is the ratio that measures your existing revolving debt against your total credit limit. Once this ratio exceeds the 30% threshold, it can lead to damage to the credit score. For example, if you have a total credit limit of $ 10,000 and you owe more than $ 3,000, you risk negative consequences. This, in turn, can make borrowing more expensive.

If you’re looking to buy a home, having too much credit card debt could leave you with a lower credit score – and end up with a higher mortgage rate. Plus, if you have too much debt that you monopolize too much of your income, a mortgage lender may turn you down completely.

2. It can make a personal loan more expensive

Just as you might end up with a lower interest rate on a mortgage when your debt load is huge, the same could happen with a personal loan. In fact, since personal loans are unsecured, meaning that they are not backed by a specific asset, lenders rely heavily on the credit scores of borrowers to determine rates. interest to be granted. But if a huge pile of debt lowers your score, it could mean paying a lot more to borrow.

3. It can cause you to lose lucrative credit card offers

There are many credit cards that offer attractive rewards programs and signup bonuses. These can put extra money in your pocket, but if your high level of credit card debt lowers your credit rating, you might not be eligible for these offers. If anything, you’re more likely to end up with a credit card that offers less rewards and charges a higher interest rate on new balances.

No longer have debts

If you’ve somehow climbed a huge pile of credit card debt, don’t despair. Instead, try to reduce that balance as quickly as possible.

Set a budget so that you can carefully track your spending, and cut as much spending as possible to free up money to pay off your debt. You might also consider finding a side job to raise extra money that can be used to pay off your debt.

At the same time, check to see if you qualify for a balance transfer, which will allow you to transfer your existing credit card balances to a new card with a lower interest rate. This, in turn, will make that debt easier and less expensive to eliminate. And the sooner you do it, the less your personal finances will be affected.

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Need to memorize your next year’s debit, credit, CVV card number?

Refuting reports that customers will have to remember their credit and debit card numbers, the Payments Council of India (PCI), the representative body of payment companies in the country, said the claims were false and that it was not necessary to memorize the numbers. .

The clarification comes after several news articles claimed that starting next year, people will need to memorize their 16-digit card numbers for online payments.

“Industry and PCI are working in alignment with the Reserve Bank of India (RBI) on possible secure card-to-file solutions that will ensure a nearly similar customer experience for online purchases while improving the security of information storage. ‘customer card identification,’ said a statement from the PCI reading.

In March 2020, the RBI asked payment system providers to come up with viable solutions to improve the security of storing customer card identifiers under relevant guidelines issued by it. In accordance with this, PCI shared the principles that the industry can adopt to develop such a secure card-to-file solution with RBI.

“We are working closely with RBI on developing a roadmap of possible solutions that could be adopted by the industry to secure the storage of raw card data. The solutions being developed would not require customers to manually enter their card number every time they make an online purchase, ”explains PCI. “The solutions will adhere to the security checks and controls and frameworks prescribed by RBI,” the PCI statement added.

According to reports, new guidelines proposed by the RBI prevent payment aggregators and merchants like Amazon, Flipkart, and Netflix from storing credit or debit card information used by the customer on their servers or databases. The new guidelines essentially mean that customers with debit or credit cards will now need to enter their 16-digit card number to make a payment.

Typically, the ecommerce model works on data stored by businesses that use it to market new items to customer demographics based on the information they have. Once the guidelines are implemented, it will become difficult for these sites to target their audience and reduce their reach.

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How Diversifying the Economy Can Solve the Racial Wealth Gap – Forbes Advisor

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Black voices have been suppressed in America for far too long. And the problem has become so glaring in the economics industry that an entire federal agency still struggles to diversify its workforce, even after federal law required it.

The Federal Reserve, the country’s central bank tasked with controlling the monetary system and fending off financial crises, is predominantly white. Ten years after the Dodd Frank Act forced the system to diversify its hires, a New York Times analysis found it to be still far from inclusive.

Even on a smaller scale, it can be difficult to find black voices in economics. #EconTwitter is dominated by white males. Studies show the voices of black economists were largely absent from the initial discussions on the financial impact of the Covid-19 pandemic.

In a country where systemic racism steals the promise of a flourishing financial future for black Americans, representation is important, especially when it comes to those charged with researching, proposing and implementing economic policy that can help the community thrive.

The economy lacks black voices, prospects

There is a long history of racial inequality in economics. The first black woman to earn a doctorate in economics, Sadie Alexander, was unable to practice after earning her doctorate because of racism and sexism in the industry in 1921, the same year Black Wall Street was destroyed. The incident took place in Tulsa, Oklahoma, where one of the richest territories of black-owned businesses was reduced to ashes by a mob of whites.

George Stigler, Nobel Laureate in Economics in 1982, once argued that black Americans are inferior as workers and can succeed economically with a “willingness to work hard.”

Today, there is still a glaring lack of representation of blacks in the economic industry. Alone 4% PhDs in economics in the United States went to black economists in 2018.

Few of these professionals end up in one of the country’s top economic agencies, the Federal Reserve – just 0.5% of Fed staff in Washington were black in April 2021, according to the New York Times analysis.

The Federal Reserve is one of the cornerstones of economic research in the United States, and its work has a great influence on research and policy development. The agency is responsible for implementing monetary policy that strongly affects vulnerable groups in the country, including black Americans.

When there is not an appropriate representation among its researchers and principal economists, policy choices may not be sufficient to help improve these demographics along with the rest of the economy.

“If you block out certain perspectives or voices, you are missing out on a wide range of experiences representative of culture and the population at large,” says Valerie Wilson, PhD in Economics and Director of the Economic Policy Institute. Program on Race, Ethnicity and Economy, which analyzes the impact of political decisions on the economic situation of people of color in the United States. “By doing this, you are automatically limiting your ability to resolve policy issues. “

Even though the issue of racial representation has been resolved at the Fed, there is still an alarming lack of research and discussion around racism and equality.

An analysis of the International Monetary Fund in 2020, only 0.2% of articles in the top 10 economic journals published in the past 10 years, or about 16 articles out of a total of 7,920, covered issues of race, racial inequality and racism. And when it comes to amplifying the few black voices on the ground, the world of economics is strikingly lacking. A study finds that black business authors are slightly less likely to publish in leading journals than their white counterparts.

Without additional emphasis on these topics and the voices of experts from these communities, blind spots persist throughout economic research. Little change can happen when problems are not properly identified and addressed.

William Spriggs, a doctorate in economics and a professor at Howard University and chief economist at the AFL-CIO, acknowledged these blind spots at a conference in April where he said economists were completely not to recognize everyday racism at all in their research.

Why representation is important in economics

The industry’s lack of attention to – and sometimes blatant disregard for systemic racism – can result in economic policy that neglects the financial condition of much of the country. And these political blind spots perpetuate the racial wealth gap.

The racial wealth gap is the result of institutionalized racism that has eaten away at the incomes, economies, home values, and overall wealth of Americans of color. The gap makes these communities more at risk of financial insecurity throughout their lives, including in retirement.

Read more: America’s racial wealth gap in retirement savings

Adding more black voices to the economy is becoming a way to overcome the racial wealth gap. Wilson says black economists are largely responsible for bringing the problem to the fore as “a problem worthy of serious consideration.” Their role is crucial in creating solutions.

“Your interpretation of [economic] the disparity will be largely influenced by your personal experiences, and that comes into play in thinking about how we decide to solve a problem, ”says Wilson.

But it’s not as easy as telling the federal government or research organizations to hire more black economists. There must be systems in place that promote and ensure diversity at every stage of life.

“As with any other institution in this country, the way to make it more diverse is to prioritize diversity, but unfortunately this is not happening organically in this country due to the long history of segregation,” Wilson said. “In order to make it a more diversified field, [it] must be a priority for those in positions of power and influence and who can make their voices heard.

The Biden administration has focused heavily on diversifying its core advisory roles, particularly in the offices of labor and economics. He appointed Janelle Jones, 36, chief economist for the Department of Labor, making her the first black woman to hold the post. Treasury Secretary Janet Yellen also expressed urgency to diversify those responsible for changes in economic policy, declaring that “diversity is important to ensure that research carried out in economics adequately reflects the priorities of society”.

These diverse voices will prove crucial to rebuilding communities of color as they continue to disproportionately bear the economic burden of the pandemic. At the height of the pandemic in April 2020, black or African American workers had an unemployment rate of 16.7%, compared to 14.1% for whites.

And although the economy is recovering, the black community is being left behind. The unemployment rate for black and African American workers was 9.7% in April; for white workers it was 5.3%.

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How to qualify for a mortgage as a retiree

Many people aim to pay off their mortgage when they retire. Others sell their homes on retirement and rent instead.

But what if you’re the opposite and decide to buy a new home or switch from renting to owning after your shift is over? You may be wondering how you will qualify with a mortgage lender in the absence of a job. But in fact, getting a mortgage as a retiree isn’t all that different getting one while you’re working. Here’s how to get a home loan during retirement.

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1. Have a healthy source of income

While some retirees choose to work part time, many do not work at all. So how do you show proof of income if you are not actually working? You’ll just need to show a lender that you have money coming in every month, even if it doesn’t come in the form of a typical paycheck.

Seniors are generally entitled to Social Security benefits. In addition, you can have:

  • A pension that pays you regularly
  • Investment income from a brokerage account
  • A retirement plan, such as an IRA, from which you can make regular withdrawals

All of this counts as income for mortgage approval purposes because it shows that you are able to pay off a loan.

2. Have great credit

Having a strong credit score is essential to getting approved for a mortgage, regardless of your age. The minimum credit score for a conventional mortgage is 620, but it’s best to aim higher. In fact, if you want to get the best mortgage rates available, you should aim for a score in the mid-700s or higher.

If your credit score might need a boost, the best thing you can do is pay all of your bills on time and also pay off some existing credit card debt. Plus, using the three major credit bureaus to check your credit report for errors – and correct those that are unfavorable to you – could help your score go up.

For more information, see our guide on how to create credit quickly.

3. Keep your debt to a minimum

Another factor that mortgage lenders look at when assessing loan applicants is their debt-to-income ratio. It is a measure of your outstanding debt compared to your income. It is important to keep this ratio low, because the more it increases, the more risky you become. And if you already have a lot of debt, your lender may be concerned that you might not be able to keep up with your mortgage payments on top of your existing loans. You can lower your debt ratio by paying off your existing debts or increasing your income. This may mean having to take a part-time job, even if you are doing it temporarily.

You might think that qualifying for a mortgage is more difficult as a retiree, but it won’t necessarily be the case. Just do your best to have some type of income stream, increase your credit score as much as possible, and reduce your debt load so that a lender is more likely to give you a home loan.

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I used my ‘FU money’ to quit my 6 figure job when I was not happy

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  • I was bad with money, but the FIRE movement helped me focus more on saving.
  • When I had a new boss who didn’t value me, I quit my job even though I was earning six figures.
  • Thanks to FIRE, I have enough “FU money” to last two years while continuing my freelance work.
  • Compare the rates and offers of savings accounts in your area »

In the fall of 2015, I pulled my credit report and I looked at my total debt: $ 30,000. At the time, I was living in New York City and thoughtlessly spending money under the misconception that I would face my debt at some point in the future when I made more. Then I discovered the FIRE movement (financial independence / early retirement), and it completely changed my life.

I reoriented myself to the value of saving and investing rather than spending, which got me out of that $ 30,000 in debt in 11 months. From there I started saving 60% of my income and over the next five years I was able to fund a two month trip to hike the Camino de Santiago (a 500 mile hike through the Spain), buy a house on my own, and finance my own business (the Economical Conference).

I settled into a plan to achieve financial independence at age 40, and everything was going really well. Until it doesn’t.

I decided to quit my 6-figure job

A huge asset that I had on my path to financial independence was my relationship with my employer. I saw my income more than double in nine years, got two months’ leave to go to Spain, and was allowed to work remotely before it was the norm. As for the full-time job, I felt like I hit the jackpot because I didn’t feel the kind of restriction in my time and energy that causes many people to pursue FIRE and quit. their jobs.

However, that all changed about a year ago when I got a new boss. The corporate culture and the work dynamics changed and it became very clear that I was no longer valued. The party was over for me, so I quit.

If I were only focused on achieve financial independence as quickly as possible, I would probably have kept my head down and tolerated this new environment in return for the six-figure salary that would have enabled me to achieve financial independence in the next six years. I hear this theme a lot in the FIRE movement. It goes something like this: “I hate my job, but I’m only X years old from FI so I’m going to put up with it for now.”

Instead, I decided to adopt a concept that I call “fi-lexibility”.

This concept is about recognizing that the pursuit of financial independence is more than the achievement of financial independence. While achieving financial independence is about opening up the possibility of early retirement, “fi-lexibility” is about seeing the options you have now, as you are on your way to even more options.

I have enough to work for myself

I looked at my finances and decided that even though I was not financially independent, I still had enough money to quit my job:

  1. I’ve had “FU Silver“(Or” Peace Out Money “, for the more polite of us). It’s like an emergency steroid fund: Two years of liquid, easily accessible living expenses.
  2. I was “FI coast“, which meant that I had enough money in my retirement vehicles to achieve what I would need for a traditional retirement without any additional contribution. This calculator helped me confirm my Coast FI status.
  3. My restless side as a host of the Optimal Finance Daily Podcast covered a third of my monthly expenses, which would help me stretch my “FU money” even further.

My current finances still require me to work for a living, but I no longer need to tolerate a less than optimal work environment. So for next year I am trying freelance work. Maybe I’ll find a way to cover my expenses independently on my time. Maybe I won’t and I’ll use up my savings a bit before I throw in the towel and look for another full-time job. Whatever the outcome, I have the financial bandwidth to try.

During my journey to financial independence, I came across a surprising irony: Perhaps the best part of pursuing FIRE isn’t achieving it. The ability to seize the opportunities that present themselves on the path to financial independence is where the real magic lies.

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Advantages and disadvantages of prepaying your mortgage

No one likes to be in debt, and for most homeowners, their mortgage is the biggest debt burden they will ever have. While this can be an important psychological step in paying off your mortgage, it might not be the best financial decision in the long run, especially if you are doing it instead of paying off low balance, higher interest debt. Michael Roberts, William H. Lawrence professor of finance at the Wharton School of Business at the University of Pennsylvania, explained why spending that money on other goals might be a better strategy. Our conversation has been edited for length and clarity.

Should people pay off their mortgages sooner if they can? Why or why not?

Much depends on how your mortgage and other expenses fit into the larger context of your budget and it depends on your risk tolerance and the level of risk you are willing to accept. Beyond that, there are a number of pros and cons associated with prepaying a mortgage.

It is becoming a lot less clear, especially in the very low interest rate environment we find ourselves in. Consider the pros and cons.

On the benefit side, you are going to pay future interest charges, you are going to reduce future monthly expenses. You will also increase your debt capacity in the future which is fancy language as you will be able to borrow more easily in the future as you will not carry as much weight on you. If you are in the PMI (private mortgage insurance) camp, you will get rid of it sooner. It alleviates psychological loads, because some people are stressed.

But there are a host of downsides that people don’t think about. If you prepay your mortgage, you are not economy This money. Depending on how much you will earn on your savings, you could lose a lot of money. For the past 14 years it was obvious to me not to pay off my mortgage, because I made more investing in the stock market than paying off my 4.5% mortgage, but this is the best choice, because I got lucky that the market is doing well.

The good thing is that, unlike a house, savings are liquid. If I need money, I can sell stocks, liquidate an ETF, whatever it is. Absent from selling a house, I’m gonna have to take one Home equity line of credit or a reverse mortgage or a second mortgage. The monthly payments actually impose a certain discipline on some people.

If you have other higher interest rate debt, prepaying a mortgage loan makes absolutely no sense because you have to get rid of that higher interest rate debt first. If all of your equity is tied up in your home, there is less diversification there.

What are the advantages of keeping your mortgage for the entire term?

To expand on some of the things we’ve covered, packing all of your money in your house can be really problematic when you need it. The illiquidity of your real estate assets tends not to be appreciated. Depending on your tax status, you also benefit from an interest shield. By paying off your mortgage faster, you lose this deduction.

Keep in mind that the average return on the stock market was 11%, mortgage rates have been below for 30 years, it seems obvious: if I only invest money in the stock market for 20 or 30 years, I will have a lot more money than if I had paid off my mortgage earlier. This is not the way to think. That’s more, how much can I lose if I don’t pay off my mortgage sooner? If things don’t go well, you’ll lose money on prepaying your mortgage.

You have to have that best outside investment. Yes, you are taking some risk by not paying off the mortgage and investing in something that is not a guaranteed risk-free rate of return. The question is: what risk? From what I’ve reviewed, this is a low risk for people who have extra cash they don’t need to take care of food, utilities, and other essentials. .

Why do people pay off their mortgages sooner and what are some other strategies to achieve these goals?

Much of the rationale for prepaying the mortgage itself is, the cost of the mortgage is higher than the return on any risk-free investment. Yields on AAA-rated treasury bills or municipal bonds are all well below 3, 4, or 5 percent. The other reason, I believe, is psychological: to avoid having to make this important monthly payment. I use my grandmother as an example. My grandmother grew up during the Great Depression and made it a rule never to go into debt. This decision was very heartwarming, psychological and financial, but I also think that this decision limits your financial potential.

This is where people’s tolerance for risk comes in. The most obvious thing is to say that you are just saving money and your savings increase. If you want to invest in something risky like the stock market, they can grow, but they can also contract. Over sufficiently long horizons, the probability of these contractions decreases, it is a fact, but the size of these contractions increases.

I own and these are issues that I am struggling with. What allayed my worries was that I touched wood, I enough savings to take care of a few months of my mortgage and any other expenses that may arise. At the end of the day, it’s: do you want the money in the house or the savings account? That’s it. I live in the suburbs of Philadelphia. This ain’t San Francisco, Palo Alto, LA, where my house appreciates by 8% each year. Do I want all my wealth and savings to be tied up where they are growing at a low rate and it’s really illiquid? Compared to a savings account where I can withdraw it at any time and practically at no cost. I took the risk with these riskier investments it’s a good bet.

Nothing else?

It is certainly a unique period in the mortgage market. I bought a house in 2004 and my mortgage broker, who was a good friend, told me at the time that it was the best time to buy because mortgage rates can’t go below 5% .

It’s very easy to get lost in all the pros and cons and arguments, but at the end of the day it’s just where do you want your money: in the house or in a savings account, and which one pays the most. ?

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Fintech loans are on the rise, but default rates are not that pretty

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Imagine a subprime consumer who wants to pay his credit card bills because his interest rates hover between 15% and 21%. They want to take out a personal loan with better repayment plans to pay off their existing debt.

Are people more likely to go to a bank or credit union when researching their options, or will they be more intrigued by fintech offering loans entirely online?

The latter seems to be a nicer option. And that’s what happened. Fintechs have wrested market share left and right from traditional banks and credit unions. FinTech claimed 49.4% of the unsecured personal loan market in March 2019, up from 22.4% four years earlier, according to Experian.

The level of delinquencies, however, is much higher on these non-traditional loans, with fintechs reporting a delinquency rate of 3.53% 15 months after the loans were granted, nearly double the provider rate. traditional 1.77%, according to a recent study of two companies. school teachers.

( Dig deeper: Fintech lenders will come back in force as the economy reopens )

The study – “Fintech borrowers: lax filtering or skimming– led by Marco Di Maggio of Harvard Business School and Vincent Yao of Georgia State University, was first published in 2018 and updated in late 2020. What they found is not a pretty sight. for fintech lenders.

On the one hand, the co-authors found that borrowers with high interest rates on their fintech loans are almost 40% more likely to be in delinquency, and their credit scores decline more than a bank loan. or credit union – an average decrease of 12 points instead of 0.9 points. – and their total debt increases by more than $ 8,000 after just one year.

According to Di Maggio and Yao, fintechs could target target audiences with risky credit scores and poor credit histories, as they recognize that these consumers cannot get comparable loans from a traditional banking provider. However, there is not yet enough data to support the theory that these non-bank lenders are actively marketing to at-risk consumers.

It is not exclusively an American problem. Major fintechs in India reported doubling delinquency rate between August 2019 and 2020, according to a report from TransUnion CIBIL.

“The delinquency picture is complicated and will take time to emerge due to the lagged effect of financial conditions, aid programs supported by lenders and changes in payment priorities” of Indian consumers, the report adds. of TransUnion.

Di Maggio and Yao got their data from a credit bureau that provided them with information on unsecured personal loans – a fintech favorite. The two examined a sample of over 200 million consumer credit records and rated borrowers by gender, age, marital status, and college degree, in addition to whether consumers were borrowing from a traditional provider or from a bank. a fintech.

Di Maggio says he cannot disclose which credit bureau he worked with to extract data on fintech default rates. The data – provided to Di Maggio as anonymous consumers – allowed the authors to match people with different types of loans and determine which loans came from which type of lender.

Read more:

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Data that made waves

To dig deeper into the paper, The financial brand spoke to Di Maggio who said he decided to pursue the topic when he realized a profound lack of information on fintech default rates.

“I researched academic literature, looked at it [and found] it was sort of a difficult question to deal with, ”he explains, adding that it is not common or easy to find the data to back up what he and his coauthor have speculated. It’s still a fairly new conversation and the data isn’t plentiful yet, even though fintech lending is taking up space in the lending market exponentially.

Di Maggio mainly focuses on personal fintech loans, which are mainly used for the consolidation of existing debts. He sees it as the “riskiest segment” because, although borrowers may use part of personal loans to pay their unpaid bills, not all funds always go towards the intended purpose.

The vicious circle :

People only use part of the debt consolidation loan they have taken out to pay off their debts. Instead, they use a large portion of the loan to make new purchases.

And the problem has grown dramatically, he says, because people with card debt often keep the cards after paying them off and then increase the balance again.

“The worst outcome happens because if $ 40,000 wasn’t viable before, you now end up six months later with $ 80,000,” said Di Maggio. “In addition, borrowers’ results worsen in the months following the origination of the fintech loan compared to similar people borrowing from non-fintech lenders.” This is a classic weak point of debt consolidation loans. FinTechs have just made the process a lot easier.

Di Maggio’s discoveries are still making waves in the financial sector. When he first presented his research at a conference with a fintech audience, people were angry.

“We’ve had people from LendingClub, people from TransUnion that are very upset,” he says, joking that he challenged them to find data to prove he was wrong. Two years later, he says they have yet to provide him with alternative data.

It’s not all sun and roses

Fintech loans of course have their advantages, which could explain why so many consumers are moving away from conventional providers. People can get loans more easily if they have subprime credit scores, and fintech lenders will look at other forms of personal data to meet creditworthiness requirements.

( Read more: Banks play with dumping credit scores in lending decisions )

There is also much less oversight. While banking regulators threaten to incriminate banks and credit unions for breaches of compliance, fintechs have no federal oversight, although the Consumer Financial Protection Bureau does oversee some practices.

“Some observers argue that fintech lenders might be able to operate where banks don’t find it profitable,” Di Maggio and his co-author wrote in the paper, noting that fintech lenders also have lower fixed costs. to those of traditional lenders, as non-bank institutions do not have branches.

And these advantages are not lost on the attention of traditional banking providers. Banks and credit unions, while unwilling to admit it publicly, are increasingly concerned about the growing swarm of competitors.

They could win on you:

Nearly nine in ten financial institutions are also concerned that fintech loans will exceed their own loans, according to PWC.

It can then be a relief for existing providers to know that they may not have to worry as much as they think. According to Di Maggio and Yao, fintech loans may not be all they claim to be and traditional banking providers still have an edge over challengers. They have a better track record of attracting consumers who can repay their debt. And regulations once supposed to hamper traditional banking providers may be what saves them.

“I think digital lending and banking are less of a threat than, say, what’s happening to the payment system,” maintains Di Maggio, citing Stripe and a similar digital payment specialist, which he says pose a risk. significantly higher for banks than LendingClub.

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Borrowers stranded awaiting the surrender of their public service loan

After a decade of careful monitoring of student loan payments, some borrowers about to cancel their loans have found themselves stuck in a cruel final phase: the waiting period.

Public service loan forgiveness borrowers report waiting up to six months for their forgiveness requests to be approved, often without explaining why. Although loan payments are suspended For pandemic relief, borrowers are still worried about whether their approval will be processed before payments resume in October. Plus, they face the stress of knowing that a change in their employment status could upset years of careful preparation.

Data released by the Education Department last week show a backlog of paperwork of around 147,000 forms – although the agency has not released a breakdown of the number of applications from borrowers who have made the required number of payments for discount against those still pending requests that submit annual updates. The Education Department did not respond to questions about the delay.

Public Service Loan Forgiveness, often referred to as PSLF, was created to provide loan relief to borrowers who spend at least a decade working in often low-paying government or nonprofit jobs. Borrowers must make 120 qualifying monthly payments before obtaining their canceled loans.

Amy Cocuzza hit the 120 mark in January, after years of carefully monitoring her progress. She thought hers was a straightforward case: She had worked as a lawyer for a federal agency for 10 years and had submitted annual employment certification forms in recent years that showed she had made the required number of payments.

So when she submitted her application, she had no reason to believe that it would be refused. But as the weeks turned into wordless months, his anxiety grew. She started checking her account five, six, and then seven times a day. There was, after all, a lot at stake. She had planned her entire career and financial life around that promise.

“He just disappears into the void,” she said. “There is no transparency. There is no communication. You hear nothing for months and months. And you start to think, ‘uh oh, did I miscalculate somehow?’ “

In the almost four years since the first borrowers became eligible for exemption through the PSLF, the program has gained a reputation for being a bureaucratic mess. Stories of service agents miscalculating payments or borrowers getting conflicting information about their employer’s eligibility for the program are common. Refusal rates remain high, so even those borrowers who claim to have tripled their eligibility cannot ignore lingering doubts that their loans will in fact not be canceled when they are in this final stage of waiting.

The delay can have a huge mental impact on individual borrowers who wait for months, says Seth Frotman, executive director of the Student Borrower Protection Center.

“It’s just another insult to borrowers in this system,” he says. His organization is particularly concerned if the government activates payments before the backlog of forms is processed.

In some cases, there is more to the line than just the discomfort of waiting. The program states that borrowers not only make 120 qualifying payments while working for an eligible employer, but that they are still working for an eligible employer at the time their loans are canceled.

This requirement added to the stress for Melissa Pennise of Rochester, NY as she waited. She asked for forgiveness in January. She works in public health at a nonprofit organization and, like most nonprofits, resources can change based on funding from year to year. What if his job had been cut when this year’s budget was established in April?

Fortunately, this did not happen. And she logged on last week to find her $ 104,000 balance canceled.

People who have worked for forgiveness for over a decade want to get on with their lives, she says. “But there’s nothing you can do until these loans run out. “

Over the past few years, FedLoan, the service agent hired by the government to manage the civil service loan forgiveness, has improved a lot in providing borrowers with up-to-date information on their progress towards loan forgiveness, said Pennise. But once she applied, it was much harder to get answers. (FedLoan referred questions about the pardon wait time to the federal student aid office at the Department of Education.)

Borrowers like Pennise have taken Reddit, Facebook and Twitter to share stories about what to expect in the absence of more official information.

It’s not just the people who are at the end of the road who face the delays. Borrowers who attempt to certify their employment or get an updated tally of the number of eligible payments they have made are report similar delays.

Arthur DeVore III submitted his documents to certify his employer in December. He’s still waiting. He also has private loans, so every month when he pays his private loans he calls to check the status of his PSLF employment certificate form. He works for the Equal Employment Practices Commission in New York City. This is a local government agency, so it should be a hard-hitting case.

“I’m frustrated because it shouldn’t take that long,” he says. “What kind of extreme verification process do you have that takes seven months?” “

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Under normal circumstances, according to Betsy Mayotte, founder of The Institute of Student Loan Advisors, which offers borrowers free advice on paying off student loans, under normal circumstances receiving a final loan forgiveness notice in the Part of the utility loan remission typically takes between 45 and 90 days. The timeline is definitely longer than that now, she says, likely due to the disruption caused by the pandemic.

She expects the timeline to shrink again over the next few months. And the government has created a new tool that should help speed up the job certification process if your employer is already in the system as one that has been approved for PSLF. Mayotte says that, for the record, borrowers who used the tool seem to report a much shorter deadline than people who submit their documents by hand.

A simple improvement, in the meantime, would be for borrowers to receive clearer information on the schedule when they request a rebate.

“Even if the schedule is not ideal, it at least sets expectations,” says Mayotte. Right now, instead, some borrowers are reporting that customer service reps say they aren’t allowed to give a timeline. So people repeatedly call for updates or submit multiple applications, which only further clutters the system, Mayotte says.

This corresponds to what Cocuzza went through. When she first applied and asked for a deadline, she remembers being told it could take two or three months. But on subsequent calls to FedLoan, she got inconsistent responses.

“I feel like you could probably call three times an afternoon and have three different stories about what’s going on with your application,” she says.

Despite these challenges, Cocuzza’s is a success. Last week, after 154 days, she logged on after lunch – her second check of the day – to find that her request had finally been processed. His loan balance fell from $ 227,609 to $ 0.

“When I realized the loans ran out, I just started sobbing.”

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Should Biden cancel student debt? The loan forgiveness debate, explained

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Cover letter for a mortgage: template and how to write one

Our goal is to give you the tools and the confidence you need to improve your finances. While we do receive compensation from our partner lenders, whom we will always identify, all opinions are ours. Credible Operations, Inc. NMLS # 1681276, is referred to herein as “Credible”.

After your mortgage application, the lender will assess your application and your financial documents to verify that you meet their loan approval requirements.

If the lender finds information that raises red flags, they may ask you for a letter of explanation to shed light on the issue – whether it’s an employment interruption, a derogatory note on your unusually large credit or deposit in your bank account. .

Here’s what you need to know about cover letters, including how to write one:

What is a letter of explanation for a mortgage loan?

A letter of explanation is your opportunity to explain inconsistencies in your mortgage loan application and all the aspects of your financial history that your lender needs to better understand before they can approve you for a loan.

After requesting a mortgage, your application goes through the subscription process. The underwriter examines your credit history, employment, tax returns, assets and debts in detail to ensure that the information is complete and accurate and that you have a low risk of default on the loan.

If anything arises that could disqualify your claim, the underwriter may request a letter of explanation to help better understand the specific details of the problem.

Advice: The subscriber will verify your credit scores, employment and other items shortly before finalizing the loan. Any changes since loan approval may require an explanation before the lender authorizes your loan to close. So it is best not to change your finances until you have completed the home buying process.

If you’re looking to buy a new home, Credible can help you compare prequalified rates from all of our partner lenders in just minutes. It’s simple and secure – and you don’t even have to leave our platform.

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Why you might need a letter of explanation

Just about any aspect of your loan application may require a letter of explanation, but most requests are for credit, employment, cash reserves, or fraud protection.

Here are a few things that might prompt your lender to request a letter of explanation:

Derogatory items on your credit report

Previous credit issues may prompt you to ask for a letter of explanation because they suggest that you have been having difficulty managing your debt. These problems include:

  • Late payments
  • Collectibles
  • Landfills
  • Bankruptcy
  • A short sale or foreclosure

Excessive credit requests can also be a red flag if they cause the lender to suspect that you bought credit because you had trouble getting approved.

To find: Can You Buy a Home With Bad Credit?

Unusual or inconsistent work history

You will need at least two years of stable employment, either in the same position or field, to prove that your Income Is reliable. Some circumstances that make you appear riskier in the eyes of the lender include:

  • Job losses or periods of unemployment
  • Self-employment
  • Frequent job changes
  • A new job in a different field

Buy a home away from your workplace

If your new home is more than 80 kilometers or so from your workplace, your lender might suspect that you are buying a second home or investment property rather than a primary residence.

Lending standards are stricter for non-primary residences, and interest rates are generally higher.

Lack of rental history

Lenders like to see a history of on-time rent payments for at least the past 12 months for first-time buyers. This is because inexperienced tenants may not be ready to suddenly take on a mortgage payment.

Bank deposits, withdrawals or large transfers

Lenders like money in borrowers’ checking and savings accounts to be “seasoned and sourced,” which means that the money has been there long enough and its source is apparent enough to show that it has grown. is your money versus gift money or a loan that you will have to repay.

Conversely, large withdrawals can cause the lender to think that you are in a bind.

Inconsistency in mailing address

Address discrepancies on a loan file are considered “high-level red flags” for mortgage fraud, warns Fannie Mae.

The lender will need a letter of explanation if they find any inconsistencies in your identification documents, such as a different address listed on your credit report than on your bank statements and tax returns.

Learn more: Credit Monitoring: Why You Should Get A Credit Monitoring Service

How to write a letter of explanation

It’s best to keep your cover letter short and sweet. Include as much detail as needed, but only address the specific information requested by the lender. The idea is to make it easy for the subscriber to find the information they need.

Your cover letter should be pragmatic in tone and structure. Here are some of the things mortgage experts recommend that you include in the letter:

  • The date you write the letter
  • The name, mailing address and telephone number of the lender
  • Your full legal name and loan application number
  • Your explanation, with references to any supporting documents you include
  • Your postal address and telephone number

Once you’ve gathered your information and thoughts, here’s how.

1. Be honest about your financial situation

The lender already knows, or at least suspects, a problem with the request. Now is not the time to try to convince them otherwise or to find excuses for them. Politely state the problem as a question of fact, then continue with the explanation.

2. Be brief

The underwriter wants to see all the information they need to understand the problem, but that’s all they want to see. Keep your explanation brief, to the point, and to the point.

3. Provide evidence to support your explanation

If, for example, the lender thinks you will have an excessive commute from your new home, consider getting a letter from your boss or from the human resources department explaining the situation and attach it to your letter.

Likewise, if a prolonged illness has prevented you from working, enclose your unemployment benefit statements and / or medical bills with your letter.

4. Proofread your letter for errors

An error-free letter shows that you have taken the Underwriter’s request seriously. Also, be sure to maintain a professional tone throughout the letter.

Explanation letter template

The content of your letter will of course depend on your particular situation. You can use the following template letter and replace the details in brackets with your own information and explanations:

[XYZ Bank]
[123 Broadway]
[New York, NY 20021]
[RE: Jane Smith’s mortgage loan application #123456]

Dear loan specialist:

I am writing to you in response to the underwriter’s request for information regarding [my gap in employment] of [January 15, 2020 to June 15, 2020]. The reason for my absence from work was [the premature birth of my son on January 15, 2020].

In support of my explanation, I have attached the following documentation:

  1. [An insurance statement documenting that he was hospitalized from January 15, 2020 through April 1, 2020]
  2. [Certification of Health Care Provider for Family Member’s Serious Health Condition under the Family and Medical Leave Act form]
  3. [A letter from his pediatrician restricting him from attending daycare until June 15, 2020]

If you have any further questions, please do not hesitate to contact me.


[Jane Smith]
[123 State St.]
[New York, NY 20012]

What to do if your letter of explanation is rejected

In the event that the underwriter rejects your explanation, you have a few options. First, you can submit a new letter with more specific details. Include anything you might have forgotten the first time around and some additional documentation to support your explanation.

If that is not enough to qualify for the loan, you can start from scratch and try to get a mortgage with another lender, but you might encounter the same problem.

Your best bet might be to postpone your purchase while you improve your credit and / or solve the problems which precipitated the request for explanations. At the very least, the issues will be more distant in the past the next time you apply, so they might have less of an impact on the lender’s decision.

Compare several lenders

If your letter of explanation is rejected, you may want to try turning to another lender. Credible’s streamlined process can help. We make it easy to compare multiple mortgage lenders. In just a few minutes, you can view prequalified rates and generate a streamlined pre-approval letter, all without leaving our platform.

About the Author

Daria uhlig

Daria Uhlig is a Credible associate who covers mortgages and real estate. His work has been published in publications such as The Motley Fool, USA Today, MSN Money, CNBC, and Yahoo! Finance.

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Here’s why I canceled a credit card I really liked

I’ve had my share of credit cards over the years, and usually I try not to close an account unless there’s a really good reason for it. I know that having long-standing accounts can really improve my credit score, so generally that’s reason enough to keep a card, even though I rarely use it.

But years ago I ended up canceling a credit card I had made use quite frequently. Here’s why.

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The importance of good customer service

I’m the type of person who prides himself on being financially responsible. In fact, I never had a credit card balance in all the years that I held my cards. I have always been successful in charging expenses responsibly and paying my bills in full to avoid accruing interest charges.

I also have a strong history of being on time with my invoices. But a month, I encountered a catch.

Normally, I get an email notification from each of my credit cards letting me know when my bill is due. This, in turn, prompts me to log into my account and schedule each payment.

One month, I never received this email for the card in question. To this day, I don’t know why he never came. The credit card company insists it was sent, but it never reached my inbox (I even checked my spam folder, just in case).

Now you can probably see where it’s going. In the absence of this e-mail, I forgot to schedule my payment. So I got hit with late fees, and only once I got this notification and an overdue invoice did I realize what had happened.

At that time, I had been a cardholder for several years and had never been late on a payment. Well, that didn’t happen. The rep I spoke to insisted that I should have received this email and that she could not waive the late charge. I then asked to speak to his supervisor, who was also unhelpful.

Even though I had never been overdue and it was my first violation, and the account was not horribly past due (it was between 30 and 60 days), my credit card company did refused to budge. So from that point on, I refused to remain the card holder.

Lesson learned

Most of us don’t think of customer service when looking for new cards. Instead, we tend to focus on credit cards with the best cash back opportunities and the best rewards programs. But good customer service is also an important thing to look for.

The card I canceled after my frustrating customer service experience was a good card otherwise. I liked the rewards program and used the card regularly. But I wasn’t willing to stay on a card with a company that valued my business so little that they wouldn’t waive a single late fee. If you’ve had a bad experience with your credit card company’s customer service team, you may also want to consider closing your account. And that’s especially true if the cancellation won’t seriously damage your credit score and you can find a replacement credit card that offers great rewards.

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