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avatar You are viewing an archive of articles by Stephanie Colestock. Stephanie is the managing editor at Consumerism Commentary, as well as a contributing writer. She graduated from Baylor University with a Biology degree, but has since found a passion for personal finance. She also writes for a number of other sites -- including Dough Roller, Five Cent Nickel, and allCards -- in addition to running her small business, Pink Orchid Press. Stephanie lives in Washington, DC with her two sons and a German Shepherd.

Stephanie Colestock

No more excuses. It’s time to open your first IRA account. We walk you through the entire process, including where to open your account. It’s easy!

First IRA Account

Establishing your first IRA, or Independent Retirement Account, is a big deal in the world of finance. This tax-advantaged account is a great way to save and invest for the future. It generally earns more than you would in a high-yield savings account (thanks to compound interest!). And it allows your money to grow tax-free for decades. Aside from a 401(k)–if you have one–it’s the biggest first step you can make toward saving, and planning for a successful retirement.

Planning for retirement is imperative, too, if you don’t want to work for the rest of your life. No matter how much you make now or how much you’ll need in the future, set aside what you can, when you can. Believe me: your future self will thank you!

So, how do you go about deciding on and opening your first IRA? More importantly, how can you start saving in this retirement vehicle with a limited initial contribution?

Let’s talk about the first steps toward opening an IRA. Then we’ll discuss the best ways to fund one if you only have, say, $1,000 to contribute.

Who Can Open One?

First, know that not everyone is eligible to contribute to an IRA. So, who is eligible to establish and contribute to one? If you are younger than 70 ½ and have earned, reported income of any kind, you’re good to go.

The rules for an IRA are simple: you’re can contribute up to the maximum of either the annual contribution limit or your earned income for the year, whichever is lower. The annual contribution limit can change from year to year. For 2018 it’s $5,500 in or $6,500 if you’re over 50.

This means that if you earned $100,000 this year, you can still only contribute up to $5,500 (or $6,500) to your IRA. Conversely, if you only earned $2,500 this year, that is all you can contribute. Even if you have savings elsewhere or your parents want to give you a little extra cash, you can’t put more in the account than you earned in income.

Decide Which Type Is Right for You

There are two types of IRAs to choose from: traditional and Roth. Both are tax-advantaged. This means they both offer tax benefits as they grow. But they work very differently.

Both IRA types have the same contribution limit. You can have both types of IRAs and contribute to both throughout the year. But if you split the money, the combined amount you contribute to both accounts still can’t exceed the applicable maximum.

A traditional IRA lets you see the tax benefits now. You contribute money to this account during the year tax-free. You can contribute pre-tax dollars through your employer. Or you can contribute post-tax income on your own, and then deduct the contributions when you file your taxes.

Your earnings in the traditional IRA will grow tax-free over the years. However, when you withdraw the funds in retirement, you will pay income taxes at whatever your normal rate is at that time.

A Roth IRA is a little different. You will contribute to this fund with after-tax dollars throughout the year. So your employer won’t contribute from pre-tax dollars. And you can’t take a tax write-off for your contribution. Every penny you contribute has already been taxed.

Again, your earnings will grow tax-free over the years. However, when you withdraw funds, you won’t pay any income taxes. None, nada, zip. You’ll be able to withdraw dollar for dollar in retirement (after age 59 ½), without Uncle Sam taking another cut.

So, which one should you choose?

Well, first off, you don’t have to choose. You can certainly open both types, or even open one now to begin contributing and then open the other type later on. However, if you’re asking which would be the better choice for you, here’s the general rule:

  • If you think you’re making more money now than you will in retirement, go with the traditional IRA. Taking the tax break now, while you’re in a higher income bracket, is smarter and results in more savings.
  • If you think you’ll make more in retirement than you’re making now, go with the Roth IRA. A tax cut now, in the form of annual deductions, doesn’t do you much good if you’ll pay higher taxes on distributions when retirement comes.

Decide when you’re most likely to be in a higher tax bracket, and take the tax benefits then. You can also change this later down the line, if your career shifts and you wind up making substantially more or less than you do now.

Where to Open It

So, you’ve picked an IRA type and set aside some cash. Now, where is the best place to open your account and invest the money? After all, an IRA isn’t simply a savings account, meant to sit around earning a couple percent in interest. It’s a retirement account that you want to grow.

You have a few options available. Almost all major financial institutions offer IRAs. You can open one through a bank or a credit union of which you’re a member. You could turn to mutual fund companies or investment accounts for a more traditional option. Or you can even look into using your IRA to invest with a peer-to-peer lending site, such as Lending Club or Prosper.

You have many, many investment options–more so than with 401(k) investments, in fact. Which you choose is determined by your risk level, your ability to manage the account, and whether you have any specific investment goals.

You can invest your IRA with a robo advisor like Betterment or Wealthfront. These low-cost options can help you decide on a portfolio. They’ll even re-balance your portfolio over time to keep meeting your investing needs.

You could look into utilizing a broker, such as Ally Invest or OptionsHouse. If you want to invest in ETFs (exchange-traded funds) or individual stocks, this is the way to go. This is a great option if you want to pick and choose where your money gets invested.

Mutual fund companies, such as Fidelity, Vanguard, or Charles Schwab are some other preferred places to invest. Each company offers plenty of its own mutual funds to choose from, so you can pick the one that best suits you.

Within the “mutual fund” umbrella, you have a number of options for where your money actually goes. You can pick a target-date retirement fund, which is a fund based on your expected year of retirement. The company will rebalance your portfolio and asset allocation as you go, according to an established timeline. Essentially, the company starts you off in higher-risk, higher-reward investment options when you’re young. As you near retirement, they’ll move your money into safer bonds.

Lifestyle funds are similar, in that they automatically rebalance your portfolio as you go. However, with these, you choose your asset allocation from the get-go, and it doesn’t change over time.

You can also utilize financial advisor services to manage your investments. Each of the mutual fund companies mentioned here offers these services. This is a bit more costly of an option, but can be a great choice if you want to have more control over your money.

Which of these options really depends on your personal preferences and how much money you have to invest. Many companies have initial investment minimums of $0 to $500. But some have minimums of $2,000+. Be sure to check out the details and our reviews before you settle on a company for your first IRA.

Opening and funding an IRA is a great first start toward saving for retirement. It provides more of a return on your savings than a basic savings account would, and also offers tax advantages that help you keep a little more of what’s yours.

By wisely contributing and investing your IRA, you’ll not only grow your money but also save for a successful retirement future. And believe me, you’ll be glad you did.

 

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APR vs. APY: While the seem similar, there’s a big difference between annual percentage rate and annual percentage yield. Here’s what you need to know.

APR vs. APY

APR and APY are short acronyms with big importance. Despite the confusion, these two terms are not interchangeable. What exactly is the difference between APR and APY? Here’s a quick lesson:

  • APR stands for annual percentage rate
  • APY stands for annual percentage yield
  • APR is more commonly used regarding credit cards, mortgages, and loans
  • APY is more commonly used regarding interest-bearing accounts

One thing APR and APY have in common is that they come into play in our lives just about every day if we use credit cards, pay a mortgage, or keep money in the bank. Both determine how much you will earn or pay on investment products and loans. Understanding the basic differences between APR and APY is important before you do something like open a credit card or choose an investment account.

APR is going to be tossed at you when you shop around for credit cards, car loans, or home loans. APR represents the interest you’ll be responsible for paying. APY is a phrase you’re going to hear as you search around for bank accounts, CDs, and a variety of investment products. APY is the amount you stand to earn if you place your money in the hands of a financial institution.

The Basics of APR

The rate portion of an annual percentage rate refers to the amount of money a lender is charges when you borrow money. You can figure out the APR of a loan or balance by multiplying the period rate by the number of payment periods in a year. A simple way to look at it is that an account with an interest rate of 1 percent will have an APR of 12 percent.

On the other side, you can divide the APR by the number of payment periods to get the per-payment rate. Many loans will give you the APR rather than the per-payment rate. If your car loan has a 7.5 percent APR, you’ll pay .625 percent in interest every month.

Sometimes you’ll see both an interest rate and an APR for any given loan or balance. In this case, the APR is typically higher. That’s because APR includes interest, points, broker fees, and additional fees. This is especially common for accounts like mortgages.

The Basics of APY

APY is the rate of return of an interest rate. It takes into account compound interest. Compound interest is the interest you earn on top of the principal and simple interest. APY takes the interest rate and provides a percentage based on how often interest is compounded during a year.

Remember the account with an interest rate of 1 percent and an APR of 12 percent? That same account would carry an APY of approximately 12.68 percent. However, that’s just a basic estimate using the most basic scenario. Actual percentages will always depend on factors like the specific financial institution you’re dealing with and state laws.

Things to Keep in Mind When Shopping Around for Rates

Keep in mind that most lenders and institutions will list whichever number makes their products appear more appealing. This is why it’s important to always ask a potential lender or institution which percentage type they’re quoting as you’re shopping around for loans or accounts.

Compare all the options you’re considering based on the same percentage type to get a true picture. Anything else would be like measuring apples against oranges instead of making a true apples-to-apples comparison. The Truth in Lending Act (TILA) requires all lenders to provide you with accurate cost information that allows you to comparison shop for loans.

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The security of your home and family have never been more important. In this detailed guide, we rate the best home security systems and companies.

best home security systems

No matter how safe your neighborhood — or even your city — is, you’ve likely considered a security system for your home. But choosing the right one (that won’t cost an arm and a leg) can be confusing. How do you know which company will protect your loved ones and belongings best? And where can you find the best value?

To make the home security shopping process easier, we’ve sifted through the most popular systems on the market today. We’ve evaluated them for reliability, price, customer service, ease of installation, and the equipment offered. Hopefully, this will help you decide which company is the best one to keep you, your family, and the things you cherish safe.

What We Compared

You’ll need to consider several factors when choosing the right home security company. You have quite a few options available to you. So first determine which needs are the most important and what you can live without. Here are the factors we considered:

Installation

When it comes to a security system, you have two installation options: Have the company come in and install your monitoring equipment, or install it yourself. The latter is likely to be the cheaper option,. But it requires you to know what you need and feel confident enough to do the basic wiring.

Some security companies will offer free installation packages for new customers, usually with a signed service contract for a certain number of months of service. This can be a great way to get your system put in your home without paying a penny — or lifting a finger. But be sure to read the fine print.

If you decide to cancel your contract at any time, you may have to pay both early cancellation fees and prorated equipment installation charges. And what if you move? Some companies will offer to move your equipment for you or install a new system in your new home. However, a few of these companies will either require you to sign a new monitoring contract or will charge a small fee for the new install.

Equipment

With some companies, you purchase your monitoring equipment and own it outright. This is especially true for contained systems or companies that require you to install your own system. This also means that you are welcome to move the equipment, with or without new monitoring contracts for your new home.

And what about the $0-installed, basic systems for new customers? Well, as we all know, there’s no such thing as a free lunch.

Be sure that your “complimentary” system won’t cost you more in the long run due to an overpriced monthly monitoring fee. Also, be sure the free system has all the features that you need and won’t wind up costing you a lot more in the end. Basic, free system installations are often limited to a couple doors and windows. Depending on the size of your home, you may need to add a number of additional sensors. And this will likely cost you more.

Some companies offer equipment protection packages in case a sensor breaks or needs servicing. Without this added service, you may be on the hook for a pricey repair or replacement.

Monthly Pricing

Besides equipment and installation charges, you’ll pay monthly monitoring fees for your home security system. This fee ranges quite a bit, depending on the company you choose.

Contained systems are available if you’d rather forgo the monthly cost. Essentially, you can monitor your own home via sensors and even cameras. These systems will make noise if someone trips a sensor. And you can even get notifications if a camera senses movement. However, you won’t have a monitoring company to call the police for you in the case of a break-in or other emergency.

If you want the peace of mind that a monitoring company provides, you’ll pay somewhere between $15 and $100 a month in fees. The average monthly cost is about $30. Some companies will monitor for both security and things like fire and carbon monoxide. This adds peace of mind but may increase the price. With some companies, you can add other features. For instance, you could opt to remotely control your lights and deadbolts. This is nice, but it’ll add to your installation and monthly costs.

Keep in mind that almost all monitoring companies require a contract for service. So, while $45 a month may not sound like a lot at first, it translates to $540 a year for monitoring (plus any equipment and installation charges). Be sure that this fits into your family’s budget before signing any contracts.

Customer Service

How much, or how little, customer service do you expect from your home security system? This may sway you from one company to another.

You may want to choose a company that won’t try to upsell you with high-pressure sales tactics or whose representatives don’t work on commission. You may want to choose a company that has a long history of providing knowledgeable service 24/7 and has a reliable monitoring network.

Technology

The last big consideration when choosing a home security company is the technology. Each company offers a different line of products, ranging from the most basic to the most advanced. So you need to decide what you need (or simply want) before shopping around.

Do you want a security system that allows for remote monitoring of cameras? Maybe you would prefer a system that can not only protect your home but also control things like your lights, door locks, and even your A/C settings. The options are endless, but not every company will have what you need.

Be sure to also take the technology into consideration when comparing prices. The monitoring for a basic, sensor-based system on your doors and windows will likely be much cheaper than a system that allows you to turn off the kitchen lights or lock the front door from your office desk.

Comparing the Top Options

We looked at some of the most popular companies to see which one really is the “best.” Here’s what we found.

ADT

Perhaps one of the most familiar names in the security industry, ADT has certainly been around for the longest. In fact, ADT was started in 1874, albeit as a telegraph company in the beginning. This foundation in communication has served the company well over the years, though. They are renowned for their reliable monitoring of installed systems.

Cost: ADT ranks average in monthly monitoring cost, with a basic essentials package starting at $36.99 a month. Premium Protection packages start at $52.99 a month. However, the company often runs discounts, specials, and deals through certain organizations. For instance, USAA and ADT have a partnership. So members of the military-based association receive discounts on both equipment and monitoring charges.

To see current specials ADT is offering, visit this page. Keep in mind that the company also offers a discount for enrolling in AutoPay.

Contract: ADT requires a contract, typically 36 months long (in California, this is 24 months). Service fees, installation charges, and activation fees vary depending on the package you choose and whether you’re eligible for any sort of discount or special pricing.

Installation: ADT must professionally install all its systems. They regularly offer rebates and new customer specials. And they often offer discounts for existing customers who need to install new systems when they move.

The Customer Installation Charge for a basic system is $99 with a contract. The more equipment you choose, the higher this installation fee can go.

Technology: ADT has come a long way in recent years. When I got my first ADT system a decade ago, it seemed like the company was a bit behind some of the newer, more “hip” competitors out there.  The coolest thing they offered at the time was a key fob to activate and deactivate the system without entering my code.

Now, however, ADT is keeping up with the Joneses. They now offer the ADT Pulse system. It’s a touchscreen panel and accompanying app that allows you to control various aspects of your home, monitor the status remotely, and even see which entrances were opened when. You can also install features all the way from basic sensors to glass break alarms, carbon monoxide detectors, and interior/exterior cameras.

Consumer Affairs Rating: 4.5

ADT rating

Frontpoint

A newer name in the home security industry, Frontpoint has already developed quite the positive reputation. The company is not only growing fast and offering cutting-edge technology, but has a long line of happy customers in its wake.

Cost: One of the most commonly-heard accolades for Frontpoint is that they have incredible customer service and no-pressure sales tactics. Their representatives take the time to walk you through their available options and tailor a plan that fits your needs. And they don’t push you to buy pricey packages to boost their own commission. Their pricing is transparent, and you don’t have to worry about hidden fees.

Frontpoint charges between $34.99 and $49.99 a month, depending on the equipment and monitoring you choose. Monitoring is 24/7 and completely wireless/cellular. So you don’t have to worry about setting up a dedicated landline for your system.

You can choose from three equipment packages. They cost between $673 and $972. However, if you have a good enough credit score (600+) and sign a 3-year monitoring contract, they’ll also give you discounts off of your equipment package. This can bring the prices down to between $199 and $599.

You’ll install your own equipment with Frontpoint, which potentially saves hundreds of dollars in fees. They offer online videos and easy-to-use installation guides, claiming that getting your system up and running is a simple, user-friendly process.

Frontpoint also offers a 30-day, risk-free trial. If you’re not happy with the equipment or service, you get your money back.

Contract: Frontpoint requires you to sign a 3-year monitoring contract. However, you can cancel early for a fee. You can also transfer your equipment to a new home at any time without any moving or reactivation fees (or restarted contract periods).

Installation: Frontpoint is a DIY installation system. You’ll receive your equipment in the mail, along with easy-to-follow instructions. They also offer online video guides and FAQ pages to walk you through the process, as well as 24/7 support.

Technology: Frontpoint offers equipment with leading technology, such as touchscreen panels, glass break sensors, smartphone apps with remote system controls, flood sensors, cameras, and panic buttons. They also offer a Crash & Smash protection. Burglars can destroy your home’s smart panel without disabling the tripped sensor — help will still be en route.

Consumer Affairs Rating: 3.8

Frontpoint rating

Vivint

Vivint has been around for almost 20 years, but the name has really only gone mainstream in the last decade or so. However, with their bright orange branding and exciting technology, they’ve become a popular home security option.

Cost: Vivint makes monthly monitoring simple. You’ll pay either $49.99 (basic system), $57.99 (energy management system), or $68.99 (home automation system) a month. No matter which equipment you add to your home, though, this fee stays the same. You’ll receive 24/7 professional monitoring and cellular service — a convenient feature for those without an active landline. Discounted pricing and specials are also available from time to time.

You buy your equipment piece by piece, according to what your home needs. For instance, door/window sensors are $60 each, the main control panel is $699, and fixed video cameras are $149. To learn more about the equipment available, visit Vivint’s page here.

Installation fees vary. The most basic equipment can be DIY installed, but the “smart” equipment requires a professional installation. This installation can range from $99 to $250. But Vivint regularly offers discounts, specials, and rebates to reduce this to little or no cost.

If you’re not happy with the equipment or service, you can legally cancel within three days to get your money back. However, they don’t offer an actual “trial period.”

Contract: Vivint requires contract lengths of either 42- or 60-month periods if you choose the Flexpay option for your equipment. If you need to cancel your contract for any reason, it’ll be difficult to do and involve an early termination fee. You can also transfer the contract in some instances (such as to the new owner of the home or a family member), with approval and a $99 transfer fee.

If you pay for your equipment in full and up-front, you can choose monitoring services without a contract.

Installation: Vivint offers DIY installation for the most basic equipment. However, if you choose any of the more high-tech equipment options, they’ll require you to hire one of their professionals for installation.

Professional installation varies in price from $99 to $250. But Vivint regularly offers specials, discounts, and rebates that lower or even eliminate this expense.

Technology: The tech is where Vivint really shines. They are the home security company to choose if you want a truly smart home system.

Their control panel and app allow for complete home automation. You can view cameras and control the system on the go. And you can even lock doors, control lights, see who is ringing your doorbell, and open or close the garage door — from anywhere!

If you want a system that runs on solar energy, Vivint is the only one to offer this service. They also allow you to control thermostats, lights, and other energy-using appliances remotely, saving you money each month on electricity costs.

Consumer Affairs Rating: 3.8

Vivint rating

Link Interactive

If you’re looking for a transparent, easy-to-use, and flexible home security system, Link Interactive might be just the answer for you. There aren’t any hidden fees. It’s easy to see exactly how much you’ll pay for your system, and they have great customer service ratings.

Cost: Link Interactive charges one flat monitoring price: $35.99 a month. If you want video monitoring, it’s an additional $5 a month. If you don’t want any HD monitoring or home automation, take off $5.

That’s it. No packages to choose from or added fees for certain equipment. Just $30.99/$35.99/$40.99 for everyone.

You choose your equipment based on what your home needs. The package you choose is custom according to your specific budget and configuration.

There are no installation or activation fees with Link Interactive. Installation is DIY, and there’s no cost to start using the system once it’s been purchased and set up. Plus, the company also offers a 30-day trial period, so you can try the system before you really commit.

Contract: You’ll need to sign a 3-year contract for your Link Interactive system, during which your rate will be locked in. If you need to cancel your contract before then, you’ll pay an early termination fee. You’ll also get a 3-year warranty on your equipment to match the contract period.

Installation: Link Interactive is an entirely DIY installation system. They offer directions and guides for setting up your home security, and customer service can help you if you have questions along the way.

This means that you’ll potentially save hundreds of dollars in installation fees that you would have paid elsewhere.

Technology: Link Interactive offers systems ranging from very basic to tech-savvy, depending on what your home needs. You can choose home automation equipment such as touchscreen/wireless deadbolts, remote thermostats, and garage door controls. They have z-wave light bulbs that allow you to set schedules and wirelessly control your lighting.

There are, of course, basic offerings like motion sensors, door/window sensors, cameras, and smoke/CO alarms. You can also choose life-saving equipment such as panic or emergency buttons, such as for elderly loved ones.

Consumer Affairs Rating: 4.6

Link Interactive rating

No matter which home security company you choose, be sure to get a final price and read the fine print before signing on any dotted line. Not only will this ensure that you get the right system for your home and family, but you can also avoid overpaying for the wrong service for a years-long contract period.

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A credit card hardship program can help you deal with mounting credit card debt. This guide walks you through these programs, including what they are, how they work, how to apply, and their effect on your credit score.

credit card hardship program

No matter how particular you are with your budget, life can always knock everything off-kilter. Illness, injury, job loss… all of these have the ability to impact your monthly income. This makes it difficult to meet your financial obligations, including minimum credit card payments.

So, what can you do when credit card bills keep coming but you’re having trouble making payments? This is where a credit card hardship program can come into play.

What It Is

Some credit card companies make hardship programs available to their customers in times of need. These programs allow you to temporarily reduce monthly payments to a manageable level if you are having trouble paying your bills due to unforeseen circumstances.

Credit card hardship programs typically last somewhere between six months and a year. They don’t allow you to bypass monthly payments altogether. But they will often involve a lowered interest rate, altered repayment plan, or a combination of the two. Some companies will even offer to waive certain fees for late payments, over-limit charges, and the like.

So, why would credit card companies even offer these types of programs? Well, at the end of the day, it’s really a mutually-beneficial relationship. The consumer is able to continue managing their debt. This means they avoid defaulting on the account. The company will continue receiving a monthly payment, even if it’s a smaller one. And it doesn’t have to worry about chasing the customer down, sending the account to collections, or even charging off the debt.

Who It’s For

If you are struggling to make your credit card payments each month and have some sort of hardship going on in your life, you may be eligible to enroll in this type of program. Eligible hardships could include situations such as:

  • A serious illness or injury
  • A death in the family
  • Divorce
  • Losing your job
  • Being affected by a natural disaster

If you feel your circumstance is compelling enough to warrant enrollment, give the company a call. But don’t simply contact them with woes of accidentally overspending this month. These programs are meant to be a last resort for those who have tried every possible way to make their payments on time.

Of course, a hardship program shouldn’t be your first option for managing monthly expenses. In fact, it’s far-from-ideal. We’ll talk more about the impacts in just a moment.

If you’ve exhausted all other avenues, though, including cutting your monthly expenses and implementing a bare bones budget, a credit card hardship program could be next on your list.

Before Enrolling

If you are thinking about enrolling in a hardship program, it’s important to have a come-to-Jesus moment with your finances first. And you’ll want to do it before you get behind on payments.

Sit down and look at your situation. How much are you obligated to pay each month? How much are you realistically able to afford at the moment, due to the situation at-hand? Could you do more to trim expenses to a more manageable level each month?

Ask yourself whether there is an end in sight to your hardship. If you recently lost your job, can you reasonably speculate that you will indeed find a suitable replacement at some point, bringing relief to your financial crisis?

If your struggle is due to an illness or injury, do you expect another source of income to arrive in the future? Perhaps you are applying for Social Security Disability or other needs-based programs. In that case, you can estimate a timeline for your financial hardship.

Once you have a good idea of where you stand (and how long it will continue), you can lay out your situation to the credit card company. This way, you’ll know how much you can realistically offer to pay through a hardship program.

How to Enroll

These types of programs are far from advertised, so you will have to work at it if you want more information. After all, credit card companies aren’t keen on telling customers that there are ways to not pay their full bill each month.

Chances are, the average customer service representative won’t be able to give you all the information you need, if they know about the program at all. Call customer service and ask to speak with someone in the customer hardship department or a customer assistance representative. You may be able to look on the credit card company’s website to find a directory of departments, as well.

When you call, explain that you would like more information on any available hardship programs. Don’t immediately dive into your story or tell the company that you “can’t afford to pay your bills.” That will raise some serious red flags and could prompt the company to lower your limit or make other credit-impacting changes. Instead, simply ask for information and see what the representative offers.

They will likely ask what your situation is that warrants enrollment in such a program. This is the uncomfortable part. You’ll need to give them a rundown of what’s going on in your life and why you are suddenly unable to pay your bills in full.

While you do need to make your case for hardship eligibility, be sure to still keep some of your cards close to the chest. Give the basic facts about your situation, but let the representative do most of the talking. That way, you can hear a solid, neutral overview of the program and how it would look.

Then, once you’ve gotten the specifics about the program – the duration, how it works, your new interest rate, what the approval process is – it’s time to hash out what you’ll actually pay.

The Terms

At this point, the representative will likely ask you what you can reasonably afford each month. This is where your previous calculations will come into play. Let them know that you’ve crunched the numbers and believe that you can successfully manage XYZ payments.

No, the company may not accept your offer as it stands. However, crunching the numbers beforehand allows you to know how far off their proposed payment schedule may be from your bottom line.

The most important thing to remember here is to be cautious of what you say. For example, don’t propose a payment schedule that you aren’t sure you’re able to pay for the duration of the agreement.

As mentioned, also don’t zero in on a flat-out “inability” to pay on your debt. This can spook the credit card company. In turn, they could lock your card, limit your access to the account, or even drop your credit limit without notice. You don’t want to add insult to injury by negatively impacting your credit in additional ways.

Will a Hardship Program Hurt My Credit?

While we’re on the subject, let’s talk about how a credit card hardship program will impact your credit in the end.

Every credit card company approaches a hardship arrangement differently. It’s important to ask exactly how your creditor plans to report your enrollment in the program, if they report it at all. If possible, get a copy of this policy in writing before you move forward.

Some companies will report your account negatively to the bureaus, even though you’re paying each month. This can include notations such as “paying partial payment agreement” or that the account balance is “settled.” Neither of these will help your credit score. In fact, they may set up red flags for lenders in the future.

Also, many creditors require you to close the existing account in order to move forward with a hardship agreement. You won’t be able to make new charges on the card, of course, but this will also impact your credit report.

Closing an account will negatively affect your average age of accounts and total credit limit. They should typically be avoided. But in this case, you may have to grin and bear it. However, be sure to ask how the closed account is notated.

Will they report your account as “closed by consumer” to the bureaus? If so, you’re good to go. However, if they report it as “closed by creditor,” you’re looking at another negative impact that may not be worth it to you in the end.

Moving Forward

Deciding whether or not to enroll in a hardship program is, in the end, contingent on your exact situation. Are you feeling an uncomfortable pinch due to your unforeseen circumstances, or are you truly at the end of your financial rope and in need of a life raft?

If the former, it might be worth looking into other ways to put more wiggle room into your budget. This may include a 0% balance transfer offer, a short-term personal loan from family, or even just cutting all unnecessary expenses for a while.

If you’re truly in dire straits, though, a hardship program can save you from defaulting on your debt. Be sure to seek out as much information as you can about the program beforehand, and get it in writing if possible. Figure out what you can actually afford each month before making your offer to the creditor, and then be sure to keep up with those payments.

Before you know it, you’ll have paid off your debts and (hopefully) your hardship situation will have improved.

Have you ever considered–or enrolled in–a credit card hardship program? What was your experience?

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