MONEY Debt

4 of the Weirdest Reasons People Have Gone Into Debt

Girl surrounded by stuffed animals
Maarten Wouters—Getty Images

These cautionary tales show how NOT to handle your finances.

For more than a decade, I’ve worked in the field of debt resolution, helping thousands of people overcome their debt issues. Most clients come to me in debt due to what I would call “typical” reasons for falling into debt. This includes loss of income or unexpected medical issues in the family, which become difficult to manage when there are bills to pay. However, sometimes we see some unusual situations that led to debt, which I call “doozies.” Here are some doozies that top the list.

1. The Child Spoiler Client

A few years ago, I had a client with a large amount of credit card debt. So as we usually do with clients, we discussed the reasons for the debt. He put his chin down, looked away and said, “Really, this is because of my child, she’s my only child and I just can’t say no.” These expenses included private school at 5 years old, and horseback riding lessons at almost $2,000 a month. The compulsiveness – or, really, obsession – with his only child had put him into debt. He was spending more money on her every month than his mortgage and car payments combined.

My Advice: Stop the horses! Overspending will put you in debt, whether for you or others. Learning to say no, instilling good spending habits and limits will keep you off that pony ride.

2. The Dream Wedding Client

A couple came to me shortly after their wedding. They said they had a lot of credit card debt, and had expected to be able to pay it off after the wedding. When they told me they had $75,000 of debt, I asked how the amount got to be so high. They said they felt that their wedding was important to them and they never budgeted the expenses and just assumed they would rely on gifts to pay off those expenses from the wedding. They told me that they didn’t expect some of their relatives to be so “cheap” with gifts and as a result they received less money than they expected. They then fell short on paying the bills.

Furthermore, falling behind on your payments will also hurt your credit score, which causes a number of issues, including making the cost of debt more expensive for you over time. (You can see how your debt is affecting your credit scores for free on Credit.com.)

My Advice: Take a tier off of the cake! Make a budget and stick to it. Never rely on future money to pay off bills.

3. The “Don’t Tell My Spouse I Have Debt” Client

I was a bit surprised when one client came to me and said, “My husband doesn’t know about this debt so you cannot call my house or send any paperwork there.” This scenario really isn’t that uncommon. One partner has debt and the other has no idea about the debt or if they do know, they don’t know how much is really owed. These clients have even given me lists of times we can call and alternate addresses to send paperwork to. For these clients, the trend to keep secret debt often starts early on in the relationship where one has a credit card outside the relationship and begins to spend and not tell the other. This infidelity continues until the one partner simply doesn’t have the funds anymore to pay the bills and they are forced to come to us to resolve it for them secretly.

My Advice: Avoid financial infidelity at all costs. Communication is a key element in any good relationship, and talking to your partner openly and honestly about finances is no exception and can actually keep you out of debt.

4. The House Flipper Client

A few years ago I had a steady stream of clients who came to me after they lost money in attempts to flip houses in places like Florida and Vegas. They told me that their friends made money doing this so they thought they’d try it, too. My flippers believed that they could purchase a cheap house in a short sale and invest in improvements and then sell the property for a profit. While this is a great idea if you’ve budgeted for time post-construction if the house doesn’t sell, it can jam you financially if you don’t have the money to pay the bills until the house is sold. Which is exactly what happened to them when the market fell out. They couldn’t sell the house in a short time and they were left with a house they couldn’t afford and mounting debt.

My Advice: There are lots of good ideas to make money, but before making any attempts, make sure you’ve done your homework and are prepared to handle the worst-case scenario.

Remember, maintaining good financial health can come down to good old-fashioned common sense. So many of these “doozies” could have been avoided had many of these people simply taken the time to stop, think about what they were doing, and focus on the reality of spending and budgeting.

More from Credit.com

This article originally appeared on Credit.com.

MONEY best of 2014

7 Ways Tech Made Your Life Better in 2014

A new reason to ditch your cellphone contract, safer credit cards, and five more bright ideas that can help you save money in the year ahead.

Every year, there are innovators who come up with fresh solutions to nagging problems. Companies roll out new products or services, or improve on old ones. Researchers propose better theories to explain the world. Or stuff that’s been flying under the radar finally captivates a wide audience. For MONEY’s annual Best New Ideas list, our writers searched the world of money for the most compelling products, strategies, and insights of 2014. To make the list, these ideas—which cover the world of investing, retirement, health care, college, and more—have to be more than novel. They have to help you save money, make money, or improve the way you spend it, like these seven tech innovations.

  • Best Side Effect of the Hacking Mess

    Chip and Pin credit card transformed into a lock
    Image Source—Alamy

    Safer Credit Cards…Finally

    Chip-and-PIN credit cards include a special chip that makes them harder for hackers to replicate. Though you’re legally protected from having to pay most charges when a card number is stolen, more-secure plastic can save you a lot of hassle. Card companies had been slow to roll out chip-and-PIN—until millions of credit card numbers were stolen from major retailers such as Target and Home Depot. “The frequency and size of the breaches absolutely are driving more rapid adoption of the technology,” says Paul Kleinschnitz of First Data, a payment technology firm. Here are two more things to know about the new cards:

    They don’t eliminate all your risk. Chip-and-PIN makes it harder to create fake plastic but doesn’t stop numbers from being used at online stores. So you should still check your statement regularly for weird charges. Chip-and-PIN is already common in Europe; the new cards work in automated machines there that don’t accept old-fashioned plastic.

  • Best Smartphone Savings

    No-Contract Plans

    Old way: Commit to a contract and pay $200 for a smartphone that really costs $650. Of course, you still pay for the phone as part of your monthly bill.

    New way: Wireless companies are making it easier to separate the cost of the phone and the price of service.

    You can shop for a new plan with your old phone. Low-cost players and now the big carriers offer no-contract plans, which may be $100 cheaper per month for a family. Check with carriers for phone compatibility; look up network quality in your area at rootmetrics.com.

    Or get a new phone. You can buy a phone outright or on installment, and combine that with a no-contract plan. Sometimes, but not always, the total price beats the comparable contract option, so run the numbers. If you do go contract, mark your calendar: After 24 months, switch to no-contract if you don’t care to upgrade.

  • Best Reason to Rent, Not Own, Your eBooks

    Amazon Kindle

    All-You-Can Read Subscriptions

    As with music, books are moving toward an all-you-can read subscription model.

    The Services: The service you pick will hinge on the device you prefer to read with. Scribd ($8.99 per month) lets you read an unlimited number of books, and it quintupled its library this year to 500,000, with 30,000 audiobooks. The service now includes many titles from the big publishers Simon & Schuster and HarperCollins. Works on: iOS, Android, Kindle Fire (but not e-ink readers), Nook tablets.

    Though Scribd is the better service overall, it doesn’t work on Kindle e-ink readers. If you’re devoted to that device, Amazon has its own options. With an Amazon Prime subscription, you can choose from thousands of titles to read for no extra charge (one per month). Kindle Unlimited ($9.99) is like Scribd, but customers and reviewers say it’s hard to find books from the “Big Five” publishers. Works on: iOS, Android, Kindle Fire, and Kindle readers.

    The Gadget: Phone and tablet apps are fine for many readers, but e-ink devices provide a more booklike experience. The new Kindle Voyage has a screen that’s 39% brighter than its predecessor.

  • Best Reason to Rent, Not Buy, Your Music

    Streaming Services

    Why buy songs that you’re rarely going to listen to in a few months? What if you could listen to just about anything—except for a few famous holdouts, like Taylor Swift and the Beatles—for less than the price of one CD per month? (Remember those?) A smart new pricing plan could make 2015 the year you make the switch from buying music to legally streaming it.

    The Service: Spotify lets you listen to any song you want in its vast catalogue. A free version, with ads, works on desktops or allows you to play artists or albums on Shuffle on your phone. Paying up for Spotify Premium ($9.99 a month) gets you no ads and total control on any device. Spotify has rolled out a family plan that lets you add new users for $4.99 each; that way two people in your family can play their own tunes at the same time. Works On: iOs, Android, desktop

    The Gadgets to Listen On: Docking stations are easy to use, with no setup or wires required. The $130 iHome iDL48 works with most iPads and iPhones. A portable speaker lets you get your music off your little earbuds and carry it to any room. The reliable Jawbone Mini Jambox ($130) connects to smartphones, tablets, and most computers through Bluetooth. If your existing stereo has an auxiliary input, an easy fix (in you’re not a hi-fi purist) is to run a cable from the headphone or line-out jack on phone, tablet or PC. Cords are $5 to $10 at Monoprice or Amazon.

  • Best Retro Tech

    2015 Ford Focus
    2015 Ford Focus

    Dashboard Knobs are Back!

    For years cars have become more tech-laden, with systems to let you make phone calls, find local pizza joints, or answer email. Which is nice, unless you prefer to keep your focus on driving. Interiors became a maze of numeric keypads and other control points. Ford says its research shows drivers don’t use or want all that tech. Now it’s retro time. For the 2015 model year Ford Focus, the automaker has eliminated many buttons, and added old-fashioned knobs to systems such as heat and A/C. In the next Fusion, the company is even getting rid of touch screens. — Bill Saporito, Time assistant managing editor, car reviewer at Money.com

  • Best Online Security Fix

    Two-Factor Verification

    Worrying about bank and brokerage hacks is understandable. But money can be replaced—and you have legal protections. What you should worry about is a hacker mining your more vulnerable iCloud photos, Facebook page, or email account and impersonating you. Two-factor verification, a login protocol, makes it vastly harder for hackers to steal your digital life. Here’s what you need to do to set it up:

    Select “login approval” or “two-factor verification” under settings at sites you want to protect. The first time you visit that site on a new computer, you will have to enter a code that’s texted to your phone. (You only need to enter this code the first time you log in from a new computer.) In case you lose your phone, you can print out backup codes, which work once. Once you’ve done this, a hacker would need to guess your password and have physical access to your computer in order to steal your data.

  • Best Apps to Get Before You Travel

    Chi Birmingham

    Taxi Apps

    It’s not always easy to scare up a cab in an unfamiliar city. (Where are the best streets to try to hail one? Should I find a taxi stand? Call ahead?) But smartphones are making it much easier to get around. The Uber app can summon a for-hire private car in numerous cities in 45 countries (though the service has recently come under fire in a few cities). In some big towns, like New York, it will also hail a traditional taxi. Curb and Flywheel also grab regular cabs—check first if they work in the town you are visiting. Want help navigating subways and metros? Hopstop has stop-by-stop directions and travel times, as do the transit directions on the Google Maps app.

MONEY Credit

FICO vs. FAKO: What’s Your Real Credit Score?

fingerprints in cement and hand trying to fit them
Glow Images—Getty Images

Your "fake" credit score might still be important.

There are a lot of different credit scores out there, and this has naturally led some consumers to ask: Which scores should I pay attention to, and what’s my real credit score? People gravitate to the well-known FICO score, by all accounts the market leader in credit scores (meaning more banks use FICO scores than other scores). In fact, many refer to non-FICO scores as “FAKO” scores, but is that moniker accurate? Let’s take a step back and look at the credit score landscape.

First things first: The fact that consumers know anything at all about credit scores is impressive given that they were not intended for popular consumption when originally developed. They were really just meant to be a risk shorthand for lenders — a quick and clear way for a lender to determine whether to issue a loan to a consumer, and at what interest rate. Beyond that, credit scores are an important part of the securitization process. Banks bundle loans and sell them off to investors. Credit scores help determine the value of those investments. But there’s no one credit score used to make these determinations.

Each of us has dozens of credit scores used by financial institutions to judge our creditworthiness. FICO alone offers more than 50 different FICO scores to financial institutions and in some cases, directly to consumers. In addition to FICO, the company VantageScore offers credit scores, each of the three major credit bureaus – Experian, Equifax and TransUnion – offer their own credit scores, and a number of other companies have credit scores, too. There are also a number of “educational” credit scores that banks do not use, but instead are intended for regular people to use to get a better sense of their creditworthiness. Because these scores are not intended for use in lender decisions, they are often thought of as “FAKO” scores.

But what exactly is in a credit score, and what makes one score different from another? The vast majority of credit scores are configured using the information in your credit report. Specifically, the scores are based on payment history, debt usage, the age of your credit accounts, the different types of credit accounts on your credit report and credit inquiries. These scoring models are essentially formulas that weight this information in different proportions. One model, for example, may weigh credit age a little bit more than another model. Beyond that, different scoring models can use data from different credit bureaus. For example, one lender may use a credit scoring model with data from your Experian credit report, while another lender may use the same scoring model with data provided by TransUnion, and another from Equifax. So even if the models are exactly the same, the scores will be different if the credit reports don’t exactly match (which is not unusual).

Furthermore, different financial institutions use different scoring models for different reasons. One bank may use one credit score for their mortgage business and another for their auto loan business. A different bank could use entirely different scores.

So Which Credit Score Matters Right Now?

When people ask which credit score they should really be paying attention to, it’s important to consider the reason for the question. If you want to know your credit score so you can see the same score a lender will see when you apply for credit, that’s a very tall order. While FICO does control (by some estimates) 90% of the credit scoring market, it’s far from certain that the FICO score you get from one institution will be used by another. Even if you buy a FICO score directly from MyFico.com, it’s far from certain that the score you’ve purchased will be exactly the same as the one a prospective lender is pulling. In that case, for all practical purposes, a “real” FICO score may be no better than an educational “FAKO” score.

On the other hand, if you want access to a particular score that you know has at some point been used by a lender (even if it’s not your lender) specifically because it has been market-tested, then the FICO vs. FAKO dichotomy makes more sense. It’s important to remember, however, that in this case the distinction is more about peace of mind than any practical advantage. In this scenario, “real” credit scores cannot simply be limited to FICO scores. While VantageScore controls 5-10% of the credit scoring market, these scores are used by some lenders, and therefore, by this formulation, are just as useful as a FICO score.

These questions are naturally bubbling up these days because so many people are getting credit scores from so many sources. People see credit scores when they are buying a house. At the urging of the Consumer Financial Protection Bureau, more banks are providing people with access to credit scores as a part of their credit card account. Some student lenders are now providing access to credit scores. And, of course, there are plenty of free and paid websites that provide people with credit scores. Credit.com, for example, provides consumers access to two free scores — a VantageScore 3.0 and an Experian National Equivalency Score — along with an explanation of how your credit history is impacting the scores.

The problem is that often when people get their credit scores — particularly when they are getting them from banks — they don’t know which scoring model and bureau data are being used to generate the score. Further, some people don’t realize they have more than one score, and just assume that the score they are seeing is THE score. That can be particularly confusing if you’re getting multiple scores each month from different providers. People often assume that one or more of the scores is wrong.

The reality is that for the foreseeable future, for many Americans, confusion is effectively built into the system. However, the good news is that people in general are becoming more aware that credit scores exist and why they are important, and over time many more people will begin to understand the nuances of the credit scoring landscape and how to use it as a tool for their financial future.

This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its partners.

More from Credit.com

This article originally appeared on Credit.com.

MONEY Debt

How One Couple Paid Off $147k of Debt (Even While Unemployed)

two birds escaping cage
iStock

Feeling overwhelmed by your debt? Look for inspiration on how to break free from this couple.

Jackie Beck and her husband once “owned” a six figure debt. They’d borrowed for their mortgage, credit cards, education, autos, and home improvement projects. Like most of us do, they’d borrowed over time, barely noticing as their balances grew and interest accrued.

Beck is not alone. The average American borrower owes $225,238 in consumer debt, including $15,263 for credit cards, $147,591 in mortgage debt, $31,646 for student loans, and $30,738 for auto financing.

What set Beck and her partner apart, however, is that they set out to pay off that debt, and after a 10-year journey, they succeeded. Today neither holds a traditional job, they maintain collective annual expenses of less than $12,000, and they’re free to pursue their passions. “Anyone can do it, too,” says Beck. “You don’t have to have debt. Life is a lot easier without it.” (See also: How One Inspiring Saver Found True Love, Shook Off Debt Denial, and Paid Off $123,000)

Getting Started

The Beck’s get-out-of-debt journey began when they decided to tackle their credit card balances. “We were just really sick of being in debt and feeling like all our money went toward the credit cards and interest,” says Beck. Paying off the balance on their cards took a full three years and Beck was unemployed for a lot of that time. “In the beginning, it took us a long time to pay things off,” says Beck. “Then we figured things out and we had more money because we had paid more off. You get better at it and it gets faster.”

She’d been deferring her student loan payments but, once the credit card bills were paid, that freed up some extra cash. “I’d been living for many years on very little money. I never would have been able to start paying on my student loans if I’d still had those credit card payments,” she says.

Beck viewed her student debt as a burden and she couldn’t wait to get rid of it. When finally she landed a job, she was able to speed her repayment schedule. “I continued to live on nothing. I put all my money toward my student loans,” she says. “Then it went super fast.” (See also: How One College Graduate Paid Off $28,000 in Three Years on a $30k Salary)

Maintaining Momentum

Beck’s husband was inspired by her student loan success and together they worked to amp up their efforts. They started paying for most of their purchases in cash, foregoing credit cards altogether. Then they decided to tackle their car loan. “After he saw what I did with my student loan,” says Beck, “he thought it would be nice to live without the car payment.”

Even with successful milestones along the way, the Becks repaid their debt at a measured pace. “We spent a lot of time getting out of the debt we had gotten into,” says Beck. “You don’t have to live like a monk the whole time. We had more money coming in and it didn’t all go toward our debt. We spent some.”

The Becks increased spending somewhat over time but even so, they began to view their mission as preparation for an emergency. In the previous years they’d taken turns being unemployed, had undergone surgeries, paid expensive veterinarian bills for their pets, and even totaled a car. They’d taken out a $10,000 home improvement loan around this time, but even though the loan came with a 0% introductory rate for the first 12 months, they realized their attitude toward borrowing had shifted. They were no longer comfortable taking on new debt. “Gradually we realized that debt is dangerous and that something could go wrong,” says Beck.

Ultimately, the Beck’s took the remaining balance from their savings account and paid off the loan. “Life doesn’t work out perfectly and, when you don’t have debt, it really changes what you’re able to do,” she says.

By the time they were able to start tackling their mortgage, their journey had become about more than just safety. They started to view it a road to freedom. According to Beck, “The fewer expenses you have, the longer you can go without a job.” (See also: The Freedom of a Debt-Free Life)

Rewarding Yourself

For the Becks, freedom was defined by the rewards they chose for themselves after they paid off their mortgage. Beck had wanted to travel to Antarctica since she was eight years old and her husband had his eye on a new car. “After the house was paid off, we spent another year saving up for those things,” says Beck, “and then we went and did them.”

Beck also started developing other streams of income and eventually left her day job. “I created the app Pay Off Debt after I paid off my student loan,” she says. “I thought other people might want to obsess about debt as much as I do.” She also started to blog about her journey at TheDebtMyth.com, and even bought a couple of rental properties, paying for them in cash.

As a couple, they’d also learned to keep their collective expenses low.

“We can live on $12,000 a year if we need to,” says Beck. “We basically have no required bills and we’re not eating ramen,” she laughs. “My husband got laid off a week after I quit my job. Neither of us has a [traditional] job now. People who owe a lot of money don’t do things like that,” says Beck, “because they can’t.”

The Beck’s get-out-of-debt journey has changed the way they think about money altogether. Now it’s common practice for them to make their purchases — even big ones — in cash. They don’t carry debt and they can live their lives freely, without the burden of owing money to anyone. Beck is even thinking about a second trip to her dream destination, Antarctica. “I’m totally going back,” she says.

Because she can.

Read more articles from Wise Bread:

How One College Graduate Paid Off $28,000 in Three Years on a $30K Salary
How One Young Entrepreneur Paid Off $40,000 in Student Debt By Age 24
Our Worst Financial Mistakes and What You Can Learn From Them

TIME White House

Obama Signs Order to Secure Government Credit Cards From Data Breaches

US-POLITICS-OBAMA-CFPB
President Barack Obama signs an Executive Order to implement enhanced security measures on consumers' financial security following remarks at the Consumer Financial Protection Bureau (CFPB) in Washington, DC, October 17, 2014. SAUL LOEB—AFP/Getty Images

"Identify theft is now America's fastest growing crime," said Obama.

President Obama signed an executive order Friday to improve security measures for government credit and debit cards, equipping them with microchips in place of the standard magnetic strips and PINs. Obama discussed the new order during remarks at the Consumer Financial Protection Bureau Friday.

“Last year . . . more than 100 million Americans had information that was compromised in data breaches in some of our largest companies,” said Obama, referring to high-profile security breaches at Target and Home Depot. “Identify theft is now America’s fastest growing crime. These crimes don’t just cost companies and consumers billions of dollars every year, they also threaten the economic security of middle class Americans who worked really hard for a lifetime to build some sort of security.”

“The idea that somebody halfway around the world could run up thousands of dollars in charges in your name just because they stole your number or because you swiped your card at the wrong place at the wrong time—that’s infuriating,” said Obama. “For victims it’s heartbreaking. And as a country we’ve got to do more to stop it.”

Obama highlighted the efforts of Home Depot and Target to secure their systems after being hit by breaches this year. They will join Walmart and Walgreens in installing chip and PIN technology in all their stores, most by the beginning of next year. Obama also noted that the Federal Trade Commission will develop IdentityTheft.gov for victims to aide the reporting and remediation process with credit bureaus.

“Identity theft has been American consumers’ number one complaint for more than a decade, and it affects people in every community across the nation,” said Federal Trade Commission Chairwoman Edith Ramirez. “I welcome the opportunity for the Federal Trade Commission to participate in this new initiative advancing efforts to address this insidious problem on behalf of consumers.”

The White House also called on Congress to pass data breach and cybersecurity legislation. “The current patchwork of laws governing a company’s obligations in the event of a data breach is unsustainable, and helps no one,” wrote the White House in a statement.

With reporting from Sam Frizell

 

 

 

MONEY College

This “Smart” Way to Pay for College Could End Up Costing You an Extra 3%

A senior at Western Kentucky University walks past flowering cherry trees on WKU's campus on his way home from class.
Western Kentucky University has one of the highest credit card surcharges. Alex Slitz—AP

A new study from CreditCards.com finds that colleges are increasingly adding surcharges for charging tuition. And these fees typically exceed any potential miles or cash back earned from your card.

It’s getting harder to turn junior’s college tuition bills into free vacations for Mom and Dad.

Wealthy parents have long tried to lessen the pain of paying their kids’ tuition bills by charging the costs to a credit card that pays rewards, with the hope of getting a bit of cash back or a roundtrip flight to Rome out of the deal.

But colleges are now making this strategy less profitable by adding fees for charging tuition, according to a study released Tuesday by Creditcards.com.

The survey of the largest public, private, and community colleges found that 90% of the 100 biggest public universities that accept credit cards charge convenience fees, and almost 70% of the 100 biggest private colleges. (Only 12% of the largest community colleges add credit card surcharges, but community colleges tuition tends to be quite low.)

In most cases, the fees now exceed the value of frequent flier miles or cash back that the parents can earn on a rewards card.

The average reward mile or point is worth less than 2¢, says Matt Schulz, senior industry analyst for CreditCards.com. Meanwhile, the average big college now charges 2.62% for processing tuition through a credit card, according to the survey.

And some schools charge much more. According to the CreditCards.com survey, the big colleges charging the highest fees are:

School State Type Convenience fee rate
Western Kentucky University KY Public 2.99%
Saint Joseph’s University PA Private 2.99%
Roger Williams University RI Private 2.99%
Kansas State University KS Public 2.90%
Ohio University-Main Campus OH Public 2.90%
Kent State University at Kent OH Public 2.90%
University of Akron Main Campus OH Public 2.90%
Bowling Green State University-Main Campus OH Public 2.90%

The Impetus for the Fees

Such fees have become increasingly common in the last decade. A separate survey last year by the National Association of College and University Business Officers had found that 44% of colleges charged a fee for using a credit card, up from 14% in 2003.

Colleges have been adding surcharges in part because they have come under pressure to pare expenses. And credit card companies charge all vendors—including colleges—for processing payments. In 2013, for example, MasterCard’s fees ran from 1.05% to 3.16%.

In addition, schools that do charge fees appear to be encouraging their competitors to follow suit.

“I get a lot of complaints from other schools” that charge fees, says Michael Reynolds, executive director of student financial services at Auburn University, which doesn’t add a surcharge. Reynolds says Auburn absorbs the surcharge—which he estimates at between 1% and 2% of the amount charged—as a cost of doing business.

He estimates that about half Auburn’s tuition bills are put on credit cards. In most cases, he says, it’s just a matter of convenience for the parent or student. But he added that some families do seem to be trying to build up rewards.

The Better Alternative for Most

The fees are just one of many reasons financial experts warn parents away from charging tuition.

Credit card interest rates are usually so high that parents who don’t have enough ready cash to pay off the bill immediately could end up paying thousands of dollars in extra interest, says Kevin Yuann, director of credit cards for NerdWallet.

Anyone who can’t pay cash up front for tuition would really be better off with federal student or parent loans.

Compared to the 15.66% average annual percentage rate on credit cards, federal student loans charge just 4.9% this year, after fees are added in. Parent PLUS loans have a total APR, including fees, of 8.1%.

The federal loans also have much more flexible repayment options, allowing borrowers to stretch out payments for up to 25 years or adjust the payments downwards if their incomes fall. Students working in public service jobs can also get some of their federal loans forgiven.

The Best Reward for the Rest

Absolutely sure you can pay off the big credit card balance quickly? Contact your school to find out whether there’s a fee for swiping.

While the majority have one, there are still several schools that do not charge students or parents extra. For example:

School State Type
Auburn University AL Public
DePaul University IL Private
St John’s University-New York NY Private
The University of Alabama AL Public
University of Nevada-Las Vegas NV Public

And then, assuming there is no charge, make sure you’re getting the most back you can.

Nick Ewen, a frequent business traveler who writes often on rewards at ThePointsGuy.com, says parents with lots of ready cash can turn tuition into valuable goodies.

One British Airways card, for example, offers a free companion ticket to those who spend at least $30,000 a year. And Southwest Airlines offers a year’s worth of free companion tickets to those who earn at least 110,000 points each calendar year.

Or, consider the winners of MONEY’s Best Credit Cards of 2014. The Barclaycard Arrival Plus World Elite offers two points per $1 spent and miles can be applied to your credit card bill to offset the costs of any kind of travel. Or if you prefer cash back, Citi Double Cash and Fidelity Investment Rewards American Express each give you 2% on every purchase.

With the latter, you can direct your earnings to a 529 college savings account—thereby reducing the amount you have to charge next semester.

MONEY Credit

The Crazy Easy Trick to Getting a Credit Card Fee Waived or Your Rate Lowered

Woman on phone calling about credit card fees
Robert Warren—Getty Images

A new report finds that the majority of Americans who've tried this simple move have been successful.

Want to get your credit card issuer to waive a late fee or drop your interest rate? All you have to do is ask, a survey released Thursday by CreditCards.com found.

Nearly nine in 10 cardholders have successfully had a late payment fee waived after asking their credit card company to do so. And two-thirds had their requests for a lower interest rate approved.

As simple as it sounds, only 28% of cardholders have ever asked to have a late payment fee removed and only 23% have requested a lower interest rate, meaning many of us are parting with our money unnecessarily.

A late payment fee can cost up to $26 for first time offenders, according to the U.S. Consumer Financial Protection Bureau. And the difference between a 20% APR on a credit card with a $5,000 balance and an (average) 15% can be as much as $2,496 over the life of the debt if you only make a 3% minimum payment.

“If you haven’t asked before and you are a decent customer, you’re going to get what you ask for,” says Gerri Detweiler, director of consumer education for Credit.com.

There are two other factors, the survey found, that can affect your chances at success: your age and your income.

People in households with annual incomes topping $75,000 were more likely to receive what they had requested: 72% of these folks had their rates decreased vs. 55% of those in households earning between $50,000 and $74,999. And 93% of people in higher-earning households had their late fees removed, while only 84% of those earning between $50,000 and $74,999 did.

Credit card companies also favor older cardholders. While 79% of 50 to 64 year olds had their lower-interest rate request approved, the number dropped to 59% of 30 to 49 year olds and 33% of 18 to 29 year olds.

If you’re a younger and/or lower-earning cardholder, you can increase your odds of getting your issuer to give you what you want by setting the conversation up right, says Matt Schulz, CreditCards.com’s senior industry analyst.

Looking to lower your card’s current interest rate? “Find out what rates other card companies would be willing to offer you, then play this information off your current issuer,” says Schulz. “You could say: ‘I’ve found some other cards that I qualify for with lower rates, and while I’d like to stay with you, I would be willing to leave if you can’t match the rate.”

If your card issuer can’t reduce the rate on your current card, ask if the company has another card that you would be a good fit for that also has a lower rate, advises Detweiler.

Looking to get a fee waived? It helps if this is your first offense: Many companies have policies that will forgive your first fee, says Schulz. Those who have a history of late payments or have not used the card very much are less likely to avoid the fee, says Detweiler.

“The most important thing to do before asking is to make sure that you have paid the balance on the card,” says Schulz. “Then explain that it won’t happen again.”

You’ll also want to provide a succinct explanation for why your payment was late. “Don’t go into great detail, but say something short and reasonable like you were traveling and lost your wallet,” says Detweiler. “Cards companies are generally policy-oriented and just want to see if you fit into one of their reasons for granting an exception.”

MONEY Credit

How to Raise Your Spouse’s Low Credit Score

It's not just your partner's problem—it's yours too, if you ever plan to buy a house or a car together.

While married couples don’t inherit each other’s credit scores, one partner’s weak rating could sink the family’s financial goals.

If one of you has a less-than-perfect number—anything under the mid-700s on the FICO scale—it can affect your ability as a couple to qualify for joint accounts, like credit cards, mortgages, or auto loans, says Rod Griffin, director of public education at Experian.

For example, lenders might not approve you together for as large of a mortgage as you’d like or may only extend you one with a really high rate. And if you can’t handle those terms, “you might find yourself completing an apartment lease application while you work to rebuild your spouse’s credit history,” says Griffin.

As the higher scoring spouse, it’s in your best interest to help your partner improve his or her credit. Here’s how:

Do encourage diligence about credit card payments…

The strength of your credit score is based 35% on your bill payment history and 30% on your level of outstanding debt—particularly credit card debt.

Remind your partner to pay his or her bills on time each month (you might suggest setting up account alerts so that you don’t have to be the nag). And explain to your loved one that it’s important to keep outstanding balances on his or her cards under 20% of the limit on those cards, since the formulas reward a low utilization ratio.

“Attacking those two issues will help improve credit scores faster than any other actions,” says Griffin.

…but don’t step in to wipe away your partner’s missteps

Think twice before using up personal savings to clear your partner’s towering credit card balance.

If the debt stems from reckless and irresponsible spending, bailing out your spouse won’t teach any lessons. “You’ll be an enabler,” says Barbara Stanny, author of the forthcoming book Sacred Success: A Course in Financial Miracles. “[Your spouse] could fall right back into debt.”

A more effective way to help reduce your partner’s debt may be to cut costs from your family budget (primarily from your spouse’s discretionary spending) and use the savings to chip away the debt. While it’s a slower process towards rebuilding credit, the extra discipline and effort involved may be a helpful reminder in the future of why it’s never a good idea to overspend.

Another strategy, if you earn enough money: Consider taking on some monthly costs that you previously shared—like rent or the car payment—by yourself to allow your spouse to use more of his or her salary towards personal debt.

Do let your partner piggyback…

Another possibly efficient way to improve your partner’s credit rating is by adding him or her to one of your major credit cards as an authorized user. “Most scoring models incorporate authorized user accounts in the [credit score] calculation, so they can contribute positively,” says Griffin.

You simply call up your credit card issuer and request to put your partner’s name onto the account as an authorized user. He or she will receive a personal card attached to your credit limit in the mail.

Assuming you both use the account responsibly and pay the monthly balance on time and in full, both your credit profiles can benefit.

But you should know that your spouse will not be liable for payments.

Also just make sure to monitor his or her spending activity regularly. If your partner gets too swipe-happy you may want to cancel access so you don’t see your score come down or your balance go up beyond what you can afford to pay.

….but don’t co-sign on the dotted line

Taking on a new credit card and using it responsibly is yet another way to help improve one’s credit rating. But if your partner needs you to co-sign or be added as “secondary” borrower, think twice.

You’re lending more than just your name. If your spouse falls behind on payments, the bank could come after your money.

“It’s a horrible idea,” says John Ulzheimer, credit expert at CreditSesame.com. “When you co-sign you are essentially…guaranteeing payment on behalf of someone whom the lender feels isn’t credit worthy on their own.”

Co-signed debt can also come to haunt you, should you ever get divorced. “There’s no easy way to separate yourself from it,” says Ulzheimer. “When the two of you break up, you’re still connected via the liability, whether you want to be or not.”

A better idea: Introduce your partner to a secured card, designed for borrowers who can’t qualify for a regular credit card yet due to poor or insufficient credit histories. You load it with your own money—usually between $300 to $500—and proceed to spend. You can only charge as much as you put down as collateral.

Secured cards are available at many banks and credit unions. Money likes the no-fee one offered by Digital Credit Union, the interest rate on which starts at 11.5%. (You must be a member of DCU to apply, though you can join with a $10 donation to Reach Out for Schools.)

The catch with a secured card is that it’s very easy to charge up to the credit limit, but that’s no good for your credit score. Ideally, your spouse should keep his or her spending to less than 20% of the limit.

Consistently paying off the balance for about a year may then earn your partner an upgrade to a traditional credit card with a solid credit limit—maybe even rewards. But most importantly, your spouse’s behavior using the secured card will also be reported to the major credit reporting agencies, which in turn helps to raise his or her credit score.

Farnoosh Torabi is a contributing editor at Money Magazine. She is the author of the new book When She Makes More: 10 Rules for Breadwinning Women.

MONEY 101: What is my credit score, and how is it calculated?

MONEY Apple

Apple Pay Is Here — and There’s Just One Big Problem

140909_EM_ApplePay
courtesy of Apple

While many consumers are ready to embrace the new mobile-payments service, most retailers are not. At least, not yet

On Tuesday, Tim Cook took the stage to announce — in addition to a few other things you may have heard about — a brand new mobile payments service called Apple Pay. Instead of swiping a credit card, users of the service will swipe their iPhones (or Apple Watches), which can be preloaded with customer’s debit and credit cards using the Passbook application.

Having one phone to rule all our cards sounds pretty great, and Apple is certainly positioned better than any other company to make mobile payments finally catch on. But there’s one issue the company still has to surmount before it can kill off plastic for good: Right now, the vast majority of retailers lack the technology to accept the company’s new payment service.

As CEO Tim Cook acknowledged during Apple’s announcement, only 220,000 stores will work with Apple Pay out of the gate. That’s about 2.4% of the roughly 7 million to 9 million merchants in the U.S. that accept credit cards. The remaining 97.6% of businesses do not have point-of-sale systems that work with near-field communication (NFC), the technology Apple Pay relies on. Merchants will have to upgrade their checkout process for Apple’s service to catch on, and the expense of such an endeavor has—thus far—left many businesses reluctant to do so.

Michael Archer, a partner leading the Global Financial Services practice at Kurt Salmon, thinks the major indicator of whether an Apple payment service will succeed is the number of locations prepared to accept NFC. According to Archer, who spoke to MONEY just before Apple Pay was announced, the service would need to be usable at about 20% of U.S. retail locations to reach critical mass of acceptance. So far, Apple isn’t close to hitting that number.

However, Archer points out that credit card companies may have an incentive to help stores acquire NFC technology to give their own cards an edge. “This could be a way to lock someone into the card if you can make it extremely convenient to use in the device,” said Archer. Another development he thinks could work in Apple’s favor is that merchants will soon be forced to upgrade their point-of-sale systems to accept EMV, a new card technology meant to reduce fraud. Card companies have given their customers until 2015 to make the transition, with laggards bearing increased liability for credit card fraud, but stores have dragged their feet. With the deadline approaching, more merchants may finally decide to upgrade and choose to add in NFC compatibility while they’re at it.

But not all experts are rosy on Apple’s chances for mobile payment domination—at least in the near term. George Wallner, co-founder and CTO of LoopPay, an Apple Pay competitor that uses existing point-of-sale infrastructure for mobile payments, predicts a slow acceptance of Apple Pay, and other NFC-dependent services like Softcard and Google Wallet. While Wallner was impressed by Apple’s demonstration, he says it will take more than the promise of Apple compatibility to get merchants to change their ways, especially when the status quo works just fine. “It’s not an easy change,” says Wallner. “It is a long, drawn-out, careful, extensive process. It can take six to eight months to even certify a new system. Retailers look at the bottom line, and they see nobody is offering a financial incentive for them to change.” According to the LoopPay founder, even increased fraud liability may not be costly enough to spur a jump in NFC adoption.

That said, Wallner believes that over time, merchants will gradually upgrade their equipment to support Apple Pay. In a decade, he sees NFC having significant market penetration and co-existing with both older and newer payment technology.

One feature that might convince merchants to upgrade ahead of schedule would be a way for businesses to use Apple Pay to reward loyal customers. According to Archer, a slightly more convenient way to pay, by itself, doesn’t provide enough value to customers or merchants to force a change in behavior. Integrating loyalty programs into Apple Pay, on the other hand, would give merchants a reason to upgrade their terminals and consumers a reason to use the service. Passbook, which powers Apple Pay, also integrates with multiple retailers’ loyalty cards.

Apple “is going to be playing on the cool factor on the first round of this,” said Henry Helgeson, CEO of Merchant Warehouse, a company that helps retailers implement mobile payments. “The real value is when merchants can put loyalty in those wallets and get repeat business. It’s something that they know and retailers know is very important to them. We’re going to see version 2.0 with some of those things.”

Overall, Helgeson anticipates Apple Pay being a huge success. His company recently outfitted 3,000 retailers with upgraded point-of-sale systems that included an NFC reader. “I’m pretty happy about that decision right now,” said Helgeson.

 

MONEY credit cards

Why Millennials are Terrified of Credit Cards

Girl hiding under table
Getty Images

A new poll shows that 63% of Gen Y doesn't carry a charge card. That doesn't surprise MONEY reporter Kerri Anne Renzulli—she's among the majority.

Millennials may have no qualms about skipping cash and swiping plastic for purchases, but we are picky about what kind of card we use. A study released a few weeks ago found that 18 to 29 year olds prefer to swipe debit to credit by a ratio of 3:1.

And now a survey out today by Bankrate.com explains why millennials are reaching for their debit cards so much more frequently: Because it’s the only card many of us have.

More than six in 10 millennials do not own a credit card, the poll found. I am one of them.

For me, this survey was oddly reassuring, putting me in the majority as one of the 63% of Gen Y-ers. While I use my debit card multiple times a day, I still, at age 24, haven’t gotten my first credit card, despite heavy pressure from my parents and my older colleagues here at MONEY who urge me to begin building my credit history.

Why are we millennials making the conscious decision to push off this step?

We don’t love banks

Well, first there’s the fact that as a generation we have low levels of social trust. Having come of age during the recession, we don’t have much faith in traditional institutions like banks, and we certainly don’t want to be reliant upon them any more than we must.

My coworker and fellow cardless millennial Jake Davidson says this certainly figures into his reluctance to sign up. “I feel like credit card companies are waiting to trap me,” he says. “The whole model of their business is to get you into debt. If I use a debit card, there is never any risk of that.”

We already owe too much

Yes, it’s true that if we paid off our balances in full each month, there would be no chance of companies trapping us with revolving debt. But the idea of having to borrow any more money, even if only for a month, can feel like the equivalent of throwing away your life vest to those who are already swimming in deep waters.

I’m talking about the fact that we millennials are already overloaded. On average, we’re starting out with $27,000 of debt from student loans—and that’s just for the bachelor’s degree. Our levels of student loan debt, poverty, and unemployment are all higher than Gen X or Boomers at the same stage of their lives, according to Pew Research.

We’ve seen the dark side

Stories from our friends who’ve actually gotten a card (or two or three) are bleak enough to further scare the rest of us away.

Millennials are the least likely generation to pay their balances off in full each month. A whopping 60% of us don’t, according to Bankrate’s survey. And 3% of us miss payments completely—more than any other age group. That’s all thanks to the high levels of existing debt, low income, and underemployment that make us financially unstable.

We don’t realize what we’re missing

We can’t put this financial step off forever though, no matter how good our reasons. We will need to begin building up our credit histories if we ever want to have a chance of getting an auto loan, obtaining an insurance policy, or buying a house.

So my fellow millennials, if you need to wait for more steady financial times before signing up for plastic, please do so.

But if you’re feeling financially responsible and secure enough to add credit, you might consider easing in with MONEY pick Northwest Federal Credit Union FirstCard Visa Platinum, which is designed for people who don’t yet have a credit history. It has no annual fee, a fixed 10% APR (which is very low, given the average of 15.61%), and a $1,000 credit limit (also very low, so you can’t get into too much trouble).

The only catch is that to build good credit, you’ll want to make sure you aren’t ever using more than 20% of your available credit, or $200.

Oh, and also, you will have to take a 10 question quiz on credit knowledge to get the card—but a little schooling on the risks of plastic won’t hurt you and may even help you avoid turning a financial tool into a financial trap.

As for me, I’m six months behind my original plan to apply for my first card when I got a “real job.” But I’m feeling more motivated these days, knowing that the longer I wait, the further I’m pushing back my dream of renting a whole 600 square feet of New York apartment without my parents’ help.

More on Managing Credit and Debt:
3 Simple Steps to Get Out of Debt
7 Ways to Improve Your Credit
How Do I Pick a Credit Card?

Do you have a personal finance question for our experts? Write to AskTheExpert@moneymail.com.

 

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