MONEY credit cards

The Only Way Employers Can See Your Credit Report

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You have more say in the matter than you realize.

One of the most common complaints about credit scores isn’t even true — that your employer or potential employer can see your credit score.

“That’s probably the most common myth that that I hear about credit reports and scores,” said Rod Griffin, director of public education for credit bureau Experian.

Generally, anyone who can legally access your credit report can also see your credit score, but employers are the exception. Griffin said employers use credit reports as an identity-verification tool or as a sort of background check for people applying for positions that deal with money. It’s a controversial practice, and if your employer or potential employer requests to see your credit report, make sure you request one yourself so you know what they’re looking at. (Here are some tips for dealing with an employer credit check.)

It’s also important to know that while an employer can get your credit report, they must have your written permission to do so. The need for written consent (in addition to the fact that they can’t get your credit scores) sets employer credit checks apart from other entities that can request your credit report.

Your credit score isn’t the sort of information others’ can easily access — at least, not legally. For example, your spouse or family members aren’t permitted to just look them up, even though they likely have access to the information needed to do so, like your Social Security number, date of birth, etc.

If a family member or spouse has checked your scores without your knowledge or consent, that could be considered fraud, Griffin said. (Though experts do recommend you and your spouse share and discuss that information with each other so you can be transparent about your financial health, and can plan accordingly.)

This issue comes down to knowing who can access your credit reports. There are rules about who can see your credit report and, as a result, your credit score (except employers). Usually, a person or company can request your credit report if you’re applying for credit or if you’re initiating a business transaction, like renting an apartment, setting up utilities or opening an insurance policy. Any loan or credit card offers you might receive are usually a result of a company requesting a summary of your credit information.

Of course, you can also check your own credit report and scores whenever you want. In fact, it’s a good habit to practice, and it’s often free. You can also pull your free annual credit reports from AnnualCreditReport.com to see who has been checking your credit — each report lists the creditors and companies who have recently inquired about your credit.

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What’s the Difference Between Visa and Mastercard?

Visa and MasterCard credit card logos ar
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The rival payment networks administer benefits like rental car insurance, shopping discounts and other perks.

The names Visa and MasterCard are paired nearly as frequently as Minneapolis and St. Paul or Dallas and Fort Worth. But while these major cities are close neighbors, Visa and MasterCard are large payment networks that compete against each other. But to cardholders, Visa and MasterCard sometimes appear to be interchangeable.

What’s the Difference?

To most credit card users, Visa and MasterCard are just logos that appear in the corner of their card, in addition to that of the card issuer, and possibly a co-branding partner such as an airline, hotel chain or retailer. In the end, the payment network that a card belongs to will have three different effects on cardholders.

First, the payment network will administer benefits on behalf of the card issuer. The card issuer actually chooses which payment network a particular credit card belongs to, based on the benefits that it can offer cardholders, such as rental car insurance, extended warranty coverage and price protection. Nevertheless, the benefits offered by different cards in the same network can vary widely, as card issuers select from a range of benefits when they design a new product. So one Visa card may offer extended warranty protection, while another may not.

In addition, Visa and MasterCard both have premium benefit programs advertised to consumers that offer discounts on shopping as well as savings on travel and other travel perks. Visa offers its Visa Signature program, while MasterCard features its World MasterCard and World Elite MasterCard programs. For example, Visa Signature cardholders can utilize its Visa Signature Luxury Hotel Collection, which features more than 900 luxury hotels where cardholders can receive benefits such as free in-room Internet, room upgrades and complimentary continental breakfast. MasterCard’s World Elite program offers its Luxury Hotels & Resorts program that features similar perks to travelers.

Read next: What Your Credit Card Does (and Does Not) Cover for Rental Cars

Both Visa and MasterCard’s programs were represented in the winners of the Best Travel Credit Cards in America this year, to give you an idea of how competitive their programs are. Unlike other credit card benefits, customers who have a card that belongs to one of these premium benefit programs can know exactly what is offered, regardless of which bank or credit union issues the card. (You can check out the Best Hotel Rewards Cards in America if you’re interested in getting one of the most rewarding cards.)

In addition, there are some discounts available exclusively to holders of Visa and MasterCard business credit cards. The Visa Savings Edge program is available to Visa business cardholders and it offers savings on common business purchases such as travel, electronics and business solutions. For example, cardholders save 5% on Wyndham group hotels and computer manufacturer Lenovo, and Bing ads from Microsoft. Likewise, the MasterCard Easy Savings program offers similar savings on shipping, office supplies and travel. For instance, this program offers 5% savings on shipping from DHL and Avis car rentals, and 15% from advertisements on Monster.com.

Finally, Visa and MasterCard have slightly different sized payment networks. Visa says it’s accepted at “tens of millions” of merchants and 2.3 million ATMs, in more than 200 countries and territories. MasterCard says its cards are accepted with a similar number of merchants in more than 210 countries and territories. In the end, any difference is likely to come down to each company’s definition of a country or territory, and it’s extremely rare that a merchant will accept one but not the other.

Does It Matter Which One I Choose?

Even though credit card benefits are administered by the payment network, it is up to the credit card issuer to choose which benefits to offer for a particular card. Further, the rates and rewards of each card are also determined by the card issuer, not the payment network. Thus, credit card users will be better off focusing on the terms, benefits and rewards offered by a particular credit card, and not pay much attention to the payment network it belongs to. But once those factors are taken into account, it can make some sense to consider a card’s participation in a premium benefits program such as Visa Signature or World Elite MasterCard, as well as the savings program offered to business cardholders.

When it comes to your credit scores, the issuer of your credit cards is not included in the calculation of your scores, so it’s not a factor at all.

Although very similar, Visa and MasterCard do offer enough distinctions that can sway you to choose one card over another in some situations.

Read next: How Soon Will Your Credit Card’s APR Go Up Once the Fed Raises Interest Rates?

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How Soon Will Your Credit Card’s APR Go Up Once the Fed Raises Interest Rates?

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The prime rate could go up as soon as the Fed acts.

When the Federal Reserve raises interest rates — and it won’t be today, but may come in September — your credit card’s APR is almost certainly going to go up as well.

For those who carry a balance, that means higher monthly minimums and higher interest charges.

How quickly will they hit you? Once the Fed acts, your card agreement spells it out, and there are variations between banks. Some will act superfast, others will grant customers a brief reprieve.

It has been nine years and one huge recession since June 2006, the last time the Fed voted to raise short-term interest rates. In the interim, a new federal law, the Credit CARD Act of 2009, imposed regulations on how card issuers could raise rates.

In those nine years, card issuers have switched en masse to variable rate cards tied to an index called the prime rate, and the prime rate moves in lock step with the federal funds target rate that the Federal Reserve can change.

The change to variable-rate cards makes sense for the issuers, since the CARD Act contains an exception allowing changes to variable rate card’s index to be passed along to consumers. The question I wanted to answer is: How fast will it happen?

Read next: When No Credit Is Worse Than Bad Credit

I reviewed credit card terms and conditions from the nation’s biggest credit card issuers and found some variation. Most issuers say their cardholders’ APRs will change with the start of their first billing period after the first of the month following the prime rate change. But Capital One says they only make those types of changes quarterly, meaning that cardholders will get a brief reprieve. That reprieve isn’t going to be a huge deal for most folks, but a lower APR is a lower APR, even if it’s only for a few extra weeks or months.

Don’t expect to find information about these policies easily, though. While some issuers addressed prime rate changes in the terms and conditions pages on their website, making it easy for card applicants to find, others didn’t. Some issuers — including Citi, Chase and Bank of America — mentioned the information only in the full credit card agreement, which may or may not be easy to find when applying for a specific card.

Here’s a look at what I found in issuers’ terms and conditions:

The Starwood Preferred Guest Credit Card from American Express
“When the Prime Rate changes, the resulting changes to variable APRs take effect as of the first day of the billing period.”

Barclaycard Arrival Plus World Elite MasterCard

“We use the highest Prime Rate listed in The Wall Street Journal on the last business day of each month…”

Wells Fargo Cash Back Visa Signature Card
“For each billing period we will use the U.S. Prime Rate, or the average of the U.S. Prime Rates if there is more than one, published in the Money Rates column of The Wall Street Journal three business days prior to your billing statement closing date.”

Discover It
“We calculate variable rates based on the Prime Rate by using the highest U.S. Prime Rate listed in The Wall Street Journal on the last business day of the month.”

Capital One Quicksilver
“Your variable rates may change when the Prime rate changes. We calculate variable rates by adding a percentage to the Prime rate published in The Wall Street Journal on the 25th day of each month. If the Journal is not published on that day, then see the immediately preceding edition. Variable rates on the following segment(s) will be updated quarterly and will take effect on the first day of your January, April, July and October billing periods.”

Again, Citi, Chase and Bank of America don’t address the timing of the change in their cards’ terms and conditions on their websites. You have to dig out the information in the full card agreement — a far lengthier, far denser document.

Here’s what these issuers say:

Citi AAdvantage Platinum Select MasterCard
“If the Prime Rate causes an APR to change, we put the new APR into effect as of the first day of the billing period for which we calculate the APR.”

Chase Freedom
“Any new rate will be applied as of the first day of the billing cycle during which the Prime Rate has changed.”

And Bank of America provides just sample credit card agreements, because “final rate and fee information depends on your credit history, so your actual rates and terms will be found on your Credit Card Agreement.” Here’s what they say in their sample credit card agreement for a Bank of America Visa/MasterCard Preferred Gold-Platinum card: “An increase or decrease in the index will cause a corresponding increase or decrease in your variable rates on the first day of your billing cycle that begins in the same month in which the index is published.”

Clear as a bell, eh? Not even close.

So what should you do? Your best plan of action is to tackle any credit card debt you have, while you still have time to pay it off at a lower rate. If you have no balance, a higher rate is only a theoretical problem.If you do carry a balance into the coming rate-hike era, the increases will happen without you having to do anything. It may happen more quickly or slowly, depending on which card you have, but it will happen. Meanwhile, if you’d like some clarification on exactly how and when your bank will implement the increase, your best move would be to just pick up the phone and give them a call. That’ll likely be a whole lot easier than searching through a giant credit card agreement for language that probably won’t be easy to understand anyway.

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MONEY credit cards

When No Credit Is Worse Than Bad Credit

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A blank credit history could hurt you in the long run.

Although we’re constantly hearing about how much student loan and credit card debt we collectively carry, there are a few of us who don’t have any loans to our names or balances on our cards. Some people even avoid credit cards altogether, assuming it’s better to be completely free of financial products that could potentially lead to trouble.

That’s not a bad way of thinking, but it’s not accurate to say that avoiding credit is better than carrying a dinged-up score. In fact, if you ever face the decision to finance a major purchase (such as when you fill out a mortgage application to buy a home) or need to use your score to prove your ability to pay a monthly bill (like signing the lease on an apartment or setting up some utilities) having no credit at all may causemore problems than having a bad credit score.

What’s wrong with no credit?

When you don’t have any credit, it means you haven’t done anything to establish a credit history. That means you haven’t taken out any loans or lines of credit — again, a good thing considering that means you have no debt either!

But having no credit can hamstring you if you’re looking to get a car loan or a mortgage. A bank or other lender has nothing to go on when evaluating whether you’re likely to pay back the money you borrow. There’s no history to analyze, which turns you into a large question mark for them. Essentially, they’ll need to guess at how likely you are to repay the loan.

Most lenders simply don’t want to do a lot of guesswork when it comes to approving large financing decisions like mortgages.

Bad credit, on the other hand, does give the financial institution considering the loan something to work with — it provides them with information about your habits. Granted, it can show a lender that the borrower is more of a liability, which means that applicant will likely receive a less favorable interest rate. They may pay more in interest over the lifetime of their loan, but they can still receive approval.

When considering this from the perspective of getting approved for a loan, it may be worse to have zero credit at all.

How to responsibly build a (good!) credit history

It’s smart to plan ahead if you know you don’t have a credit history (or if you have a very short history). Give yourself some time to build something good!

Start by taking out a credit card at your bank. This will make it easy to tie your new card to your checking account, so you can view everything in one place and get in the habit of paying off your balances.

Use your credit card consistently over time — and always make sure you’re paying off whatever purchases you put on the card, on time and in full. That being said, don’t use up all your available credit each month (even if you’re paying it all off). Spending up to your credit limit will impact your debt-to-credit utilization ratio, which can hurt your credit score.

You can also become an authorized user on someone else’s credit card if you don’t want your own — but be careful. If that person fails to manage their own credit wisely, yours could be negatively impacted too.

Repairing the damage from a bad credit score

All this being said, a bad credit score isn’t ideal. Bad credit can also hurt in the form of increased costs over the lifetime of a loan — if you’re able to secure one in the first place.

You can check your credit by pulling your report for free, once a year. When it arrives, check it for errors and contact any or all of the three credit bureaus if you find a mistake. If everything looks good, move to step two: Get your credit score by going to a site like Credit Karma or Credit.com.

Is your credit in rough shape? Start repairing the damage by taking the following actions:

  • Make all loan and credit card payments on time and in full.
  • Don’t close old accounts — doing so can affect the average age of your credit history, and the longer you have established lines of credit, the better for your overall score.
  • Keep a low debt-to-credit utilization ratio.
  • Don’t open lots of new accounts at once or incur multiple new hard inquiries on your credit over the span of a few weeks.

It takes some time to improve bad credit, but it’ll be worth the effort. Having a good credit score — and some credit history! — will go a long way to helping you secure a loan at the best interest rate available.

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MONEY

Gen Y’s Glaring Financial Oversight Could Cost Them Big

woman tying blindfold on herself
Jonathan Fernstrom—Getty Images

It's the simplest thing, really

New research finds that a huge number of millennials don’t bother looking at their bills, an oversight that could be costing them—and anybody else who’s in the habit of paying without perusing—in more ways that you’d expect.

In a survey of more than 2,000 adults under the age of 25 conducted on behalf of technology company Inlet, 32% of respondents said they don’t look over itemized bills before paying them.

One possible reason could be because so many young adults pay their bills electronically these days. “Millennials are digital natives and are accustomed to living their lives on mobile devices and social networks,” Inlet points out in a release accompanying the results. The survey finds that fewer than 25% use paper checks and snail mail to pay bills, while about 10% get email reminders and 5% get text reminders when their bills are due.

But this convenience can have a downside if it leads to carelessness. If you don’t check your bills, here are some potentially costly outcomes that can result.

You might be paying for a service you don’t use. Maybe you signed up for a premium cable channel you no longer watch, or for a data plan that far outstrips your mobile usage. Maybe you signed up for a subscription — anything from a gym membership to movie-streaming site access—that you don’t use anymore. If you don’t look at your bill, this could slip your mind and cost you money.

You could miss out on savings. Sometimes, companies will offer money-saving options on your monthly bill that you won’t know about if you just look at the the total and tap a few keys or write out a check. For instance, you might be able save a few dollars if you opt for paperless statements or electronic payments. Expenses like insurance premiums sometimes can be a few bucks lower if you pay your annual premium in a lump sum rather than spreading out your payments over the course of the year.

You might get ripped off. Maybe you signed up for a cable package at a promotional rate, or were promised a discount on a purchase. The only way to make sure you’re getting what you’re entitled to is to check your bill. Glitches and mistakes do happen, and it’s up to you (not the company!) to be sure you’re not paying more than you should. In the case of credit or debit cards, you’ll also want to verify that you get the refund you’re owed if you return an item, and that you’re not overcharged at places like restaurants.

You could be a fraud victim. Hopefully you’d notice if someone went on a spending spree using your account information, but sometimes, small discrepancies can give you an early warning. When thieves steal a cache of credit or debit card information and sell it on the black market, the buyer will often make a small transaction—maybe a dollar or even less—to see if the stolen digits they just bought are still “live.” Catching an unfamiliar transaction that otherwise might go overlooked could save you a much bigger headache later.

Read next: Automate Your Finances With Our ‘Set It and Forget It’ Checklist

MONEY credit cards

5 Black Marks That Can Sink Your Credit Score

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Troy Plota—Getty Images

Derogatory information stays on your credit report for 7 to 10 years.

When you’re looking to apply for a loan, lenders place a major emphasis on your credit report. Your credit history includes your amount of debt and payment history, as well as other factors, and lenders look to your past credit behavior to see whether you’ll be a good credit risk going forward. There are some things on a credit report, however, that could discourage a lender from approving you. These “black marks” could make it difficult to get approved for a loan, and could even keep you from achieving certain financial goals. If you’re planning to apply for a loan but you’ve had credit challenges in the past, here’s what you need to know about credit report black marks.

What Is a Black Mark?

Any item that may be considered negative by creditors is often referred to as a “black mark” or “derogatory information.” These items indicate some sort of negative financial behavior, such as failing to pay debts on time, and they remain on your credit reports for an extended time, typically anywhere between seven to 10 years. Some of the most severe derogatory marks include:

Bankruptcy

Bankruptcy is essentially a legal process designed to reduce or eliminate a consumer or business’s debt — or make it easier to pay off. While it does provide some form of relief, bankruptcy is considered to be one of the most damaging marks to have on your credit report. Chapter 7 bankruptcy will stay on your credit report for 10 years while Chapter 13 bankruptcy will remain for seven years from the filing date.

Foreclosure

In the event that a borrower falls significantly behind on mortgage payments, the lender may opt to foreclose on the home. If the borrower fails to pay off the outstanding debt or cannot sell the home via short sale, the property then goes into foreclosure. A foreclosure will remain on your credit reports for seven years.

Collections

When accounts are reported as being sent or sold off to a debt collector, they are considered to be in “collections.” This usually occurs when a creditor is having difficulty collecting payments on a debt. A collections account will typically stay on your report for about seven and a half years from the date it first became late.

Tax Lien

Simply put, tax liens are when the government places a lien against some or all of an individual’s assets due to them neglecting or failing to pay a tax on time. Tax liens can remain on your credit report indefinitely, though credit reporting agencies often remove them after 10-15 years. Once you’ve paid off the debt’s balance in full it will take seven years from the date it’s paid for the mark to be removed. However, you may qualify to have the lien removed from your credit reports sooner, depending on the circumstances.

Civil Judgment

Although criminal records aren’t included upon your credit report, civil judgments (such as a civil lawsuit or child support case) are. A civil judgment is a ruling against you in a court of law that requires you to pay damages (typically in the event that you lose a case or neglect to respond to a lawsuit). A civil judgment stays on your credit report up to seven years.

What You Can Do About It

While derogatory marks can cause your credit score to take a major hit, they won’t keep you down the entire time they’re on your report. Maintaining good financial habits and keeping the rest of your credit in good health can help you build things back up. As negative information becomes older, it tends to have less of an impact on your credit scores, provided you have other current positive credit references. Paying down high credit card balances and keeping your debt usage ratio low, and making your payments on time are all things that can help you build your credit.

It’s also a good idea to get your free annual credit reports from each of the three major credit reporting agencies to check for inaccuracies and to generally stay informed. Checking your credit scores regularly can also help you track your progress.

While it might be hard at first, it is possible to return to good financial standing with a black mark on your credit report. Provided you strive to maintain good credit behavior, you should start to see your credit score start to inch upwards and your chances of securing a loan increase. Not only that, but the habits you develop during this period can hopefully help you avoid another derogatory mark in the future.

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MONEY College

Why Bank Accounts Are Better Than Credit Cards for College Kids

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Teens with checking accounts are better prepared to handle their finances than ones with access to plastic.

If you want your college student to learn money management skills, get him or her a checkbook instead of a credit card.

In fact, a recent survey of 42,000 first-year college students found that the earlier teenagers had access to credit cards, the less prepared they felt for managing their own money in college.

Those who had checking accounts, by contrast, were “markedly more prepared” to handle their finances than those who were unbanked before college, according to the study conducted by education technology company EverFi and sponsored by financial services company Higher One.

The findings match up with the experience of Janet Bodnar. The editor of Kiplinger’s Personal Finance and mother of three college graduates sees credit cards for college students as dangerous and unnecessary.

Young people need to have finite amounts of money to learn essential skills such as budgeting and monitoring their accounts, said Bodnar, author of the book “Raising Money Smart Kids.”

Ideally, students would start with a checking account in high school to manage income from their first jobs. Children who are not spending their own money often have a flexible definition of what constitutes a financial crisis, Bodnar said.

“An emergency is needing a dress for the sorority dance, or picking up the check for everyone at the pizza place because nobody has any money,” she said. “You think of plastic … as a convenience. Kids think of it as a direct line to your wallet.”

Check out the new MONEY College Planner

Plastic Cautions

Personal finance columnist Kathy Kristof, who also writes for Kiplinger’s and who has sent two children to college, is on the other side of the fence. She thinks a credit card can make sense for some families.

“For parents who know their kids and have taught them how to handle money, it can make your life easier,” Kristof said.

College students typically can qualify for their own credit cards, without a parent co-signing or any credit history, when they turn 21.

If parents want to help a child build a credit history before then, they can add him or her to one of their own credit cards as an “authorized user.” (Parents should call and ask the issuer if it will export their account history to the child’s credit report, since some will only do so for a spouse.)

Kristof gave cards to both children, one a college graduate and the other still a student, to book flights home and cover emergencies.

“I’m happy to have the kids as authorized users because I can see what they’re doing and rip the card out of their hot little hands if they abuse it,” Kristof said.

So far, her daughter has always checked in before using the card. Her son, however, will sometimes use it without asking but will tell Kristof and pay her back before the bill arrives.

Kristof said she would not let her progeny get a credit card if she could not see the bills. Even a responsible college student can get distracted and forget to check the balance or make an on-time payment.

Just one skipped payment can devastate credit scores.

“What you don’t want to do,” Kristof said, “is put your kid in a situation where they could get credit dings before life really has gotten started.”

Bodnar cautioned that students who run through all their money should have to make a case to their parents about why they need more, not an excuse for what they already spent using a credit card.

“If they really need money, there are plenty of ways to get it to them fast,” Bodnar said, such as bank transfers or a system like PayPal or Venmo.
Check out MONEY’s 2015-16 Best Colleges rankings

MONEY Credit

This City Has the Highest Debt Burden

Market Square in San Antonio, Texas
Jim West—Alamy Market Square in San Antonio, Texas

A new survey identifies the spots where credit card debt causes the most (and least) pain.

Locals like to brag that everything’s bigger in Texas. But they might not be boasting about a new ranking that places three Lone Star metro areas among the U.S. cities with the highest credit card debt burden.

San Antonio residents face the greatest credit card debt pain in the nation, according to a new analysis by CreditCards.com; Dallas/Fort Worth and Houston take the No. 2 and 5 spots, respectively. (Atlanta and Miami rounded out the top five spots.)

Using data from credit bureau Experian, the U.S. Census Bureau and the Federal Reserve, the study compared the average credit card debt total in the 25 largest U.S. metro areas with each area’s median income. It assumed that 15% of that median income would go toward credit card debt repayment each month, then calculated how long it would take an average resident to pay off his cards — and how much interest they’d pay while doing so — with a 13% APR, which the company says is the average rate for people who carry a balance.

That meant that high-income cities had an edge. The affluent San Francisco Bay Area had the lowest debt burden, with residents needing only nine months to pay off the average credit card debt. San Antonio residents, by contrast, would need 16 months to do the same, and would end up paying $214 more in interest.

Below are the top five metro areas with both the highest and lowest debt burdens:

Highest Credit Card Debt Burdens

1. San Antonio (16 months, $448 interest)

2. Dallas/Fort Worth (14 months, $382 interest)

3. Atlanta (14 months, $376 interest)

4. Miami/Fort Lauderdale (14 months, $351 interest)

5. Houston (13 months, $363 interest)

Lowest Credit Card Debt Burdens

25. San Francisco/Oakland/San Jose (9 months, $234 interest)

24. Boston (10 months, $267 interest)

23. Washington, D.C. (10 months, $286 interest)

22. Minneapolis/St. Paul (11 months, $266 interest)

21. New York City (11 months, $293 interest)

For help managing your own debt, see our credit guide.

MONEY Debt

How Etsy Helped Me Pay Off $20,000 in Debt

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Hero Images—Getty Images

Nancy Nemeth used half the money she made on Etsy to fund her sewing business. The other half went to pay down her debt.

Their marriage had a less-than-ideal start. She had $20,000 in debt. He was about to lose his home, and the bank wouldn’t negotiate. He also had a student loan, a car loan and some credit card debt. When she moved to Cleveland to be with him, she’d be unemployed. He’d have to work overtime as a truck driver just to put a few hundred dollars toward paying down the debt.

But Nancy and Dan Nemeth — both 49 years old — took the plunge anyway, getting hitched in a $300 budget wedding in April 2012. Thanks to a short sale, Dan was able to get out from under his mortgage and when they moved into a rental, they had a fresh start but a $30,000 mountain to climb — not including their car loan.

“His take home pay was only $2,000 a month, so Dan did all the overtime he could to bump it to $2,600,” Nancy said. “We paid just over minimum payments at first.”

Then, her love of birds, bags, and sewing changed everything.

“I love to craft. So one day, a friend was watching me sew at home and mentioned she wanted a couple things made for a friend’s birthday,” Nancy said. “So I sewed a few items for her. Then that turned into another item for another friend. Then (a different) friend said, ‘Hey, put your stuff on Etsy.’ I didn’t know what it was at the time. Within a couple months… I made enough for a new sewing machine.”

 

Nancy started making handbags and clutches, often with designs inspired by her pet birds. She made a vow that half the money she made on Etsy would go back into the business, but the other half would be used to pay down her debt. She was making a “couple of hundred” a month for a while, but eventually saved enough to upgrade her machine, which soon was running 10 hours a day, 6 days a week.

“I spent every day sewing and making my little shop bigger and better,” she said. “Studying how to expand and do social media to get my little shop out there. It has blossomed so much.”

And while the business blossomed, the Nemeths’ debt shrank fast. She averages about $2,500 in sales a month, which means she puts more than $1,000 a month toward paying down her debt. They’re not finished yet, but the $30,000 mountain is now more of a $10,000 molehill…plus about $8,000 remains on the car loan.

Paying down debts can also have a positive effect on credit scores – making payments on time and keeping revolving debts on credit cards low relative to credit limits have a big impact over time. This calculator can show you how long it’ll take you to pay off your credit cards.

“We will be completely debt free in ONE year. Can hardly wait,” she said. “Then all the extra will go into savings and a portion to our dream trip to Europe.”

Etsy wasn’t the only step the Nemeths took to attack their debt problem. They also cut out almost all extras. When they go food shopping, they bring the budgeted amount in cash, and never overspend. They plan date nights well in advance so they have something to look forward to, and make choices to keep those costs down, like eating before going to the theater to avoid paying for expensive candy and popcorn.

But finding a way to supplement their income has been the most important step towards climbing out of the hole they were in.

“I have always said do what you love, and if you can find a way, make some of that dream happen,” she said.

Her husband has gotten into the act, too. He recently went back to his old hobby performing comedy. He puts half his comedy income into paying down debt, too. Laughing together is helping their relationship, too.

While their marriage didn’t have an ideal financial beginning, Nancy actually thinks that might have made them closer.

“I think it’s just that we are proud of (our) really tough beginnings being together, but overcoming so much at the same time,” she said. “Go figure. You’re supposed to meet and get married when things are great and all that. But our (story) is opposite. Maybe that was a good thing. Maybe seeing the worst times at the beginning gives a healthy dose of realism and something to really bind a future together. It was a struggle… but nothing we could blame each other for. Just a desire to get out of this life that we ‘think’ we should have according to the white picket fence syndrome.”

And the couple might be able to get out of debt even sooner than expected. After Credit.com began chatting with Nancy about her debt, Etsy featured her store, Birds and Bagz, in an email. Orders spiked for a day, and she earned around $3,500 in July.

“Paying off another credit card tomorrow,” she said. “Feels great.”

What did the couple do to celebrate?

“We are treating ourselves to sushi dinner tonight…which of course we go at happy hour, which is half off,” she said. “Never pay full price.”

More From Credit.com:

MONEY credit cards

Should You Get the Amazon Prime Store Card?

Amazon Prime website
Alamy

The answer depends on what kind of shopper you are.

Everyone is buzzing about the new Amazon Prime Store Card, which offers 5% cash back on all Amazon.com purchases for Prime members. It was actually released without much fanfare back in March, but is getting attention now because of the marketing push around Amazon Prime Day, the company’s attempt to create a Black Friday-style retail frenzy in the run-up to back-to-school season.

The reasons that Amazon is pushing the card are clear: For one thing, by adding new Prime membership perks, it hopes to gain more Prime members, at $99 a year each. Perhaps less obviously, Amazon pays lower interchange fees to transaction processing companies for purchases made using the Prime Store Card than it does on those made using a traditional Visa, MasterCard, or AmEx.

But is the card good for consumers? The answer to that really depends on their relationship to Amazon and their credit.

Card Benefits

The rewards structure is pretty simple: 5% cash back on all purchases if you’re a Prime member. While the card doesn’t technically have an annual fee, you have to pony up nearly $100 bucks a year for the two-day shipping and media streaming service.

There’s currently a limited time offer of a $40 gift card if you sign up for the card. And Amazon won’t take long to make a decision on your creditworthiness: You’ll receive a response within a quarter of a minute.

The card also comes with a tiered financing option that’s meant to help consumers buy large purchases over time without interest. On items larger than $149, for instance, you have the option to pay off the full expense over six months without interest. But there’s a catch on this: If the purchase isn’t paid off at the end of that period, you’ll be “assessed on the promotional balance from the date of the purchase,” according to the card’s terms and conditions. If you carry a balance on non-financed purchases, you’ll pay a variable interest rate that’s currently at 26%.

Also, don’t expect a normal-looking piece of plastic if you’re approved. “The card itself is made out of paper, like an auto insurance card,” says NerdWallet’s Sean McQuay.

Pros …

So is it worth it? McQuay, who says he has used the card himself, notes that “5% is a great rewards rate and is generally only seen on rotating categories. To get 5% back on all purchases at a store as varied as Amazon is a great deal.”

Other cards do allow you to save money on Amazon purchases, but with more restrictions. The Discover it, for instance, offers 5% cash back on Amazon purchases, but only from July to September and only for up to $1,500. (And the Amazon.com Rewards Visa Card from Chase offers 3% back on Amazon purchases; 2% at gas stations, restaurants and drugstores; and 1% everywhere else.)

There’s also the simplicity: “The cash back appears on each statement balance automatically — no minimums, no opt-ins, no reminders,” McQuay adds.

And if you’re a heavy user who spends $200 a month at Amazon, using the card will earn you enough to cover the cost of Prime with some cash left over.

… and Cons

But the new card also has some serious downsides. For one thing, because the APR is very high, anyone who carries a balance should stay away. “A variable APR of 25.99% is horrible,” says CreditSesame.com’s John Ulzheimer. “If you carry a balance on the card then you’re funding your own rewards — and the rewards being enjoyed by others who are not carrying a balance.” By way of comparison, the Discover it’s APR ranges from 11% to 23%.

Another “benefit” could also get you in trouble, if you’re not disciplined enough. While the ability to pay for a big purchase without interest for at least half a year sounds appealing, you’ll end up with a much larger bill than you bargained for if you don’t pay off your new television on time.

Moreover, the credit limit might be much lower than you’re accustomed to. Matthew Goldman, the chief executive of credit card rewards site Wallaby Financial, received a credit limit that was a fraction of what he was offered on his other cards.

Even for the most creditworthy borrowers, a lower credit limit caps what you can earn in cash back. Moreover, using up a large portion of the available credit on an individual card can harm your overall credit score, says Goldman, making it more expensive to borrow in the future.

Finally, note that Amazon’s new product — unlike, say, the Amazon.com Rewards Visa Card — can only be used at Amazon.

The Verdict

Only apply for this card if you are already a Prime member who shops at Amazon frequently, doesn’t carry a balance and can hold yourself to spending about 20% to 30% of your available credit each month.

And realize that this is a difficult task when buying that shiny new toy is only a click away.

If that doesn’t sound like you, find a card that will first do no harm.

Read next: Amazon Prime Membership Should Come With a Warning

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