Finances
Miss a credit card payment.
A single missed payment - one that's 30 days or more late - can drop credit scores 100 points or more. That turns great credit to average, or worse, which may mean higher interest rates and a greater possibility of getting turned down for credit. Recovering from this drop can take as long as three years. The cost can ripple well beyond credit accounts. A Consumer Reports investigation found that people with merely "good" credit could pay hundreds of dollars a year more for auto insurance than those with excellent scores. (The penalty for "poor" credit can be $1,000 or more.) Credit scores can matter more than any other factor, including driving record, when determining premiums, Consumer Reports found. Paying a credit card bill late but before the account is 30 days overdue turns a painful credit score hit into a credit non-event. The lapse won't be reported to the bureaus or calculated into your scores. The issuer might even waive the late fee if you ask (and if it's the first time).
A single missed payment - one that's 30 days or more late - can drop credit scores 100 points or more. That turns great credit to average, or worse, which may mean higher interest rates and a greater possibility of getting turned down for credit. Recovering from this drop can take as long as three years. The cost can ripple well beyond credit accounts. A Consumer Reports investigation found that people with merely "good" credit could pay hundreds of dollars a year more for auto insurance than those with excellent scores. (The penalty for "poor" credit can be $1,000 or more.) Credit scores can matter more than any other factor, including driving record, when determining premiums, Consumer Reports found. Paying a credit card bill late but before the account is 30 days overdue turns a painful credit score hit into a credit non-event. The lapse won't be reported to the bureaus or calculated into your scores. The issuer might even waive the late fee if you ask (and if it's the first time).
A missed credit card payment can drop credit scores and may mean higher interest rates. Recovering from this can take as long as three years.
Failure to Pay if you miss a payment, fail to pay the full amount or if we receive payment past the due date, we may impose late fees per your Motor Vehicle Contract. As required by state law, you are hereby notified that a negative credit report reflecting on your credit records may be submitted to a credit reporting agency if you fail to fulfill the terms of your credit obligations. Federal Notice: We may report information about your account to credit bureaus. Late payments, missed payments, or other defaults on your account may be reflected in your credit report.
More debt a concern?
CAR LOANS: Americans have been on a car-buying binge, as automakers sold a record 17.6 million cars last year to beat the level set a year earlier. People are also borrowing more money to buy their cars and are financing them for longer periods of time. The average length of a new car loan is around 62 months, compared with 55 months before the Great Recession, according to the St. Louis Federal Reserve. And delinquencies in auto loans have been inching higher as well. Car loans delinquent by 30 days or more grew to $23.27 billion, the most since $23.46 billion in the third quarter of 2008. They were up from $22.98 billion in the prior quarter. The percent of auto loans 90 days or more past due has climbed for 13 straight months, to 2.30 percent of all loans. Five years ago, that was 1.63 percent. Mortgage, auto loan and student loan due dates typically can not be changed, but most of these loans have grace periods that allow borrowers to make payments within 10 to 15 days of the due date without incurring late fees. If we do not receive your entire payment within 15 days after it is due (10 days if you are buying a heavy commercial vehicle), you will pay a late charge of 5% of the scheduled payment.
Subprime hauntings
The car was repossessed, but the debt remains
More than a decade after Yvette Harris' 1997 Mitsubishi was repossessed, she is still paying of her car loan. She has no choice. Her auto lender took her to court and won the right to seize a portion of her income to cover her debt. The lender has so far been able to garnish $4,133 from her paychecks - a drain that at one point forced Harris, a single mother who lives in the Bronx borough of New York, to go on public assistance to support her two sons. "How am I a still paying for a car I don't have?" she said. For millions of Americans like Harris who have shaky credit and had to turn to subprime auto loans with high interest rate and hefty fees to buy a car, there is no getting out. Many of these auto loans, it turns out, have a habit of haunting people long after their cars have been repossessed. The reason: Unable to recover the balance of the loans by repossessing and reselling the cars, some subprime lenders are aggressively suing borrowers to collect what remains - even 13 years later. Harris' predicament goes a long way toward explaining how lenders, working hand in hand with auto dealers, have made billions of dollars extending high-interest loans to Americans on the financial margins. These are people desperate enough to take on thousands of dollars of debt at interest rates as high as 24 percent for one simple reason: Without a car, they have no way to get to work or to doctors. With their low credit scores, buying or leasing a new car is not an option. And when all the interest and fees of a subprime loan are added up, even a used car with mechanical defects and many miles on the odometer can end up costing more than a new car. Subprime lenders are willing to take a chance on these risky borrowers because when they default, the lenders can repossess their cars and persuade judges in 46 states to give them the power to seize borrowers' paychecks to cover the balance of the car loan. Now, with defaults rising, federal banking regulators and economists are worried how the strain of these loans will spill over into the broader economy. For low-income Americans, the fallout could, in some ways, be worse than the mortgage crisis. With mortgages, people could turn in the keys to their house and walk away. But with auto debt, there is increasingly no exit. Repossession, rather than being the end, is just the beginning. "Low-income earners are shacked to this debt," said Shanna Tallarico, a consumer lawyer with the New York Legal Assistance Group. There are no national tallies of how many borrowers face the collection lawsuits, known with the industry as deficiency cases. But state records show that the courts are becoming flooded with such lawsuits. For example, the large subprime lender Credit Acceptance has filed more than 17,000 lawsuits against borrowers in New York since 2010, court records show. And debt buyers - companies that scoop up huge numbers of soured loans for pennies on the dollar - bring their own cases, breathing new life into old bills. Portfolio Recovery Associates, one of the nation's largest debt buyers, purchased about $30.2 million of auto deficiencies in the first quarter of this year, up from $411,000 just a year earlier. The value of any car typically starts to decline the moment it leaves the dealer's lot. In the subprime market, however, the value of a car is often beside the point. A dealership in Queens refused to cancel Theresa Robinson's loan of nearly $8,000 and give her a refund for a car that broke down days after she drove it off the lot. Instead, Robinson, a Staten Island resident who is physically disabled and was desperate for a car to get to her doctors' appointments, was told to pick a difference car from the lot. The second car she selected - a 2005 Chrysler Pacifica - eventually broke down as well. Unable to afford the loan payments after sinking thousands of dollar into repairs, Robinson defaulted. Her subprime lender took her to court and won the right to garnish her income from baby-sitting her grandson to cover her loan payments. Robinson and her lawyer, Tallarico, are now fighting to get the judgment overturned. "Essentially, the dealers are not selling cars - they are selling bad loans," said Adam Tuab, a lawyer in Detroit who has defended consumers in hundreds of these cases. Many lawyers assisting poor borrowers like Robinson say they learn about the lawsuits only after a judge has issued a decision in favor of the lender. Most borrowers cannot afford lawyers and do not show up to court to challenge the lawsuits. That means the collectors win many cases, transforming the debts into judgments they can use to garnish wages. The lenders argue that they are just recouping through the courts what they are legally owed. they also argue that subprime auto lending meets an important need. And collecting on the debt is a critical part of the business. The first item on the quarterly earning of Credit Acceptance is not the amount of loans it makes, but what it expects to collect on the debt. The company for example, expects a 72 percent collection rate on loans made in 2014 - the year that a used 2009 Volkswagen Tiguan was repossessed from Nina Lysloff of Ypsilanti, Mich. When Lysloff fell behind, the trade-in value on the car was a fraction of what she still owed. Last year, Credit Acceptance sued her for $15,755. The strategy at Credit Acceptance, which has a market value of $4.4 billion, is yielding big profits. The Michigan company said its return on equity, a measure of profitability, was 31 percent last year - more than four times Bank of America's return. Credit Acceptance did not respond to requests for comment.
CREDIT CARDS: Americans are carrying less credit card debt then they did before the Great Recession, but have re-embraced using them. Credit card debt has risen from $659 billion in 2014 to $746 billion last year, according to data from the New York Federal Reserve. Meanwhile, after years of trending lower, Federal Reserve data shows credit card delinquencies have reversed course and are climbing again - albeit still from relatively low levels. Most credit card companies, many cellphone companies and some utilities allow customers to change their due dates.
Reduce your risks before you roll the dice
"One of the questions is, "What would you regret not having done if you were on your deathbed?''' ''And his answer was, I would regret not having taught school."' After a lot of soul-searching and number crunching," she says, they sold their house and downsized to a smaller one. They gave up expensive vacations for shorter trips closer to home. Mark Howard, now 66, happily taught English for 10 years and recently retired from teaching this spring. "It was a wonderful time. I loved it," he says.
Roll the dice - but reduce the risks. Improving your life sometimes means taking big risks, whether it's starting a business, going back to school, changing careers or quitting a job you hate. Whether that risk pays off depends a lot on how you handle your money. "Two things in particular make a huge difference: having small ongoing expenses and having a large cash rainy-day fund."
Reducing expenses and paying off debt helps build a cash hoard ahead of your big leap and increases the odds that you'll be able to cover the bills afterward.
Tell yourself the pros and cons of not making the leap as well as the risks and benefits of going through with your plans.
Measure the benefits of doing vs. the risks and weigh those against the benefits of not doing and the risks.
Debt fix is no solution
Daniel Montville knew a debt consolidation loan wouldn't solve his financial problems, but the hospice nurse hoped it would give him some breathing room. He had already filed for bankruptcy in 2005, and was determined not to do so again. Montville took out the loan in 2015, but within a year he had fallen behind on its payments and on the payday loans he got to help his daughter, a single mother of four children. The payday lenders all but cleaned out his checking account each time a paycheck landed, leaving little money for necessities. Then his daughter lost her job then the $5000 tax refund she has promised to him as repayment went instead to supporting her kids.
Debt consolidation ignores root problems
"That's when I wised up and realized this was a no-win situation," say Montville, 49, of Parma, Ohio. Montville is now repaying his creditors under a five-year Chapter 13 bankruptcy repayment plan. Debt consolidation can feel like the solution to a struggling borrower's prayer, but it doesn't often address the over spending that caused the debt in the first place. Within a short time, borrowers find themselves buried deeper in bills. "It's a quick fix," says Danielle Garcia, a credit counselor with American Financial Solutions in Bremerton, Wash. "They aren't fixing the root problem." the five-year, $17,000 loan Montville got from his credit union, for example paid off 10 high-rate credit card bills, lowered the interest rate on the debt from double digits to about 8 percent and offered a fixed monthly payment of $375, less than what he was paying combined on the cards. What the loan didn't do, however, was change Montville's spending habits. Paying off the credit cards just gave him more room to charge. Some of the debt came from unexpected expenses, such as car repairs. But Montville estimated 60 percent came from "foolish spending." "I wanted a TV. I needed clothes. I want to go to a movie," Montville says. When he brought a new computer, he noticed only the low monthly payments of $35, not the 25 percent interest rate he was being charged. When his daughter got into financial trouble, he turned to payday loans because his cards were maxed out. Now that he can no longer borrow - his credit card accounts are closed, and he would need the bankruptcy court's permission to replace his car - Montville is finally thinking about what he actually needs to buy vs. what he wants to buy. He considers whether he can do without a purchase or put it off. If he really wants something, he saves for it. "My feeling now is, cash only," Montville says. "Once I pay cash, nobody can take it from me."
Spending assets
Montville's attorney, Blake Brewer, says many of his clients have no idea how their expenses stack up against their income. They assume that their next tax refund or stretch of overtime will help them catch up, not realizing that they're consistently spending more than they make. "These people are just shocked when I sit down with them and take out a calculator," Brewer says. Some of his clients consolidated their debt using a 401(k) loan or a home equity line of credit. they pride themselves on saving money because they lowered their interest rated, but they don't realize they're spending assets - retirement accounts and home equity - that generally would be protected from creditors in bankruptcy court. People seeking debt consolidation also can wind up with debt settlement companies, which promise to persuade creditors to accept less than what they're owed. Debt settlement typically causes a major hit to credit scores, but success isn't guaranteed, and some companies simply disappear with the thousands of dollars they charge.
The right way
Debt consolidation loans - through a credit union or a reputable online lender - don't have to be a disaster if borrowers:
Stop using credit cards.
Commit to a budget.
Save for emergencies so they don't have to borrow to cover unexpected expenses. Most important, their debt must be manageable and payable in the three-to-five-year term of the typical debt consolidation loan. If it would take longer than five years to pay off the debt on their own, borrowers should consult a credit counselor or bankruptcy attorney. "by the time most people go looking for help, they're already in too deep," says Garcia, the credit counselor. Liz Weston is a certified financial planner and columnist at NerdWallet. Email lweston@nerdwallet.com.
Failure to Pay if you miss a payment, fail to pay the full amount or if we receive payment past the due date, we may impose late fees per your Motor Vehicle Contract. As required by state law, you are hereby notified that a negative credit report reflecting on your credit records may be submitted to a credit reporting agency if you fail to fulfill the terms of your credit obligations. Federal Notice: We may report information about your account to credit bureaus. Late payments, missed payments, or other defaults on your account may be reflected in your credit report.
More debt a concern?
CAR LOANS: Americans have been on a car-buying binge, as automakers sold a record 17.6 million cars last year to beat the level set a year earlier. People are also borrowing more money to buy their cars and are financing them for longer periods of time. The average length of a new car loan is around 62 months, compared with 55 months before the Great Recession, according to the St. Louis Federal Reserve. And delinquencies in auto loans have been inching higher as well. Car loans delinquent by 30 days or more grew to $23.27 billion, the most since $23.46 billion in the third quarter of 2008. They were up from $22.98 billion in the prior quarter. The percent of auto loans 90 days or more past due has climbed for 13 straight months, to 2.30 percent of all loans. Five years ago, that was 1.63 percent. Mortgage, auto loan and student loan due dates typically can not be changed, but most of these loans have grace periods that allow borrowers to make payments within 10 to 15 days of the due date without incurring late fees. If we do not receive your entire payment within 15 days after it is due (10 days if you are buying a heavy commercial vehicle), you will pay a late charge of 5% of the scheduled payment.
Subprime hauntings
The car was repossessed, but the debt remains
More than a decade after Yvette Harris' 1997 Mitsubishi was repossessed, she is still paying of her car loan. She has no choice. Her auto lender took her to court and won the right to seize a portion of her income to cover her debt. The lender has so far been able to garnish $4,133 from her paychecks - a drain that at one point forced Harris, a single mother who lives in the Bronx borough of New York, to go on public assistance to support her two sons. "How am I a still paying for a car I don't have?" she said. For millions of Americans like Harris who have shaky credit and had to turn to subprime auto loans with high interest rate and hefty fees to buy a car, there is no getting out. Many of these auto loans, it turns out, have a habit of haunting people long after their cars have been repossessed. The reason: Unable to recover the balance of the loans by repossessing and reselling the cars, some subprime lenders are aggressively suing borrowers to collect what remains - even 13 years later. Harris' predicament goes a long way toward explaining how lenders, working hand in hand with auto dealers, have made billions of dollars extending high-interest loans to Americans on the financial margins. These are people desperate enough to take on thousands of dollars of debt at interest rates as high as 24 percent for one simple reason: Without a car, they have no way to get to work or to doctors. With their low credit scores, buying or leasing a new car is not an option. And when all the interest and fees of a subprime loan are added up, even a used car with mechanical defects and many miles on the odometer can end up costing more than a new car. Subprime lenders are willing to take a chance on these risky borrowers because when they default, the lenders can repossess their cars and persuade judges in 46 states to give them the power to seize borrowers' paychecks to cover the balance of the car loan. Now, with defaults rising, federal banking regulators and economists are worried how the strain of these loans will spill over into the broader economy. For low-income Americans, the fallout could, in some ways, be worse than the mortgage crisis. With mortgages, people could turn in the keys to their house and walk away. But with auto debt, there is increasingly no exit. Repossession, rather than being the end, is just the beginning. "Low-income earners are shacked to this debt," said Shanna Tallarico, a consumer lawyer with the New York Legal Assistance Group. There are no national tallies of how many borrowers face the collection lawsuits, known with the industry as deficiency cases. But state records show that the courts are becoming flooded with such lawsuits. For example, the large subprime lender Credit Acceptance has filed more than 17,000 lawsuits against borrowers in New York since 2010, court records show. And debt buyers - companies that scoop up huge numbers of soured loans for pennies on the dollar - bring their own cases, breathing new life into old bills. Portfolio Recovery Associates, one of the nation's largest debt buyers, purchased about $30.2 million of auto deficiencies in the first quarter of this year, up from $411,000 just a year earlier. The value of any car typically starts to decline the moment it leaves the dealer's lot. In the subprime market, however, the value of a car is often beside the point. A dealership in Queens refused to cancel Theresa Robinson's loan of nearly $8,000 and give her a refund for a car that broke down days after she drove it off the lot. Instead, Robinson, a Staten Island resident who is physically disabled and was desperate for a car to get to her doctors' appointments, was told to pick a difference car from the lot. The second car she selected - a 2005 Chrysler Pacifica - eventually broke down as well. Unable to afford the loan payments after sinking thousands of dollar into repairs, Robinson defaulted. Her subprime lender took her to court and won the right to garnish her income from baby-sitting her grandson to cover her loan payments. Robinson and her lawyer, Tallarico, are now fighting to get the judgment overturned. "Essentially, the dealers are not selling cars - they are selling bad loans," said Adam Tuab, a lawyer in Detroit who has defended consumers in hundreds of these cases. Many lawyers assisting poor borrowers like Robinson say they learn about the lawsuits only after a judge has issued a decision in favor of the lender. Most borrowers cannot afford lawyers and do not show up to court to challenge the lawsuits. That means the collectors win many cases, transforming the debts into judgments they can use to garnish wages. The lenders argue that they are just recouping through the courts what they are legally owed. they also argue that subprime auto lending meets an important need. And collecting on the debt is a critical part of the business. The first item on the quarterly earning of Credit Acceptance is not the amount of loans it makes, but what it expects to collect on the debt. The company for example, expects a 72 percent collection rate on loans made in 2014 - the year that a used 2009 Volkswagen Tiguan was repossessed from Nina Lysloff of Ypsilanti, Mich. When Lysloff fell behind, the trade-in value on the car was a fraction of what she still owed. Last year, Credit Acceptance sued her for $15,755. The strategy at Credit Acceptance, which has a market value of $4.4 billion, is yielding big profits. The Michigan company said its return on equity, a measure of profitability, was 31 percent last year - more than four times Bank of America's return. Credit Acceptance did not respond to requests for comment.
CREDIT CARDS: Americans are carrying less credit card debt then they did before the Great Recession, but have re-embraced using them. Credit card debt has risen from $659 billion in 2014 to $746 billion last year, according to data from the New York Federal Reserve. Meanwhile, after years of trending lower, Federal Reserve data shows credit card delinquencies have reversed course and are climbing again - albeit still from relatively low levels. Most credit card companies, many cellphone companies and some utilities allow customers to change their due dates.
Reduce your risks before you roll the dice
"One of the questions is, "What would you regret not having done if you were on your deathbed?''' ''And his answer was, I would regret not having taught school."' After a lot of soul-searching and number crunching," she says, they sold their house and downsized to a smaller one. They gave up expensive vacations for shorter trips closer to home. Mark Howard, now 66, happily taught English for 10 years and recently retired from teaching this spring. "It was a wonderful time. I loved it," he says.
Roll the dice - but reduce the risks. Improving your life sometimes means taking big risks, whether it's starting a business, going back to school, changing careers or quitting a job you hate. Whether that risk pays off depends a lot on how you handle your money. "Two things in particular make a huge difference: having small ongoing expenses and having a large cash rainy-day fund."
Reducing expenses and paying off debt helps build a cash hoard ahead of your big leap and increases the odds that you'll be able to cover the bills afterward.
Tell yourself the pros and cons of not making the leap as well as the risks and benefits of going through with your plans.
Measure the benefits of doing vs. the risks and weigh those against the benefits of not doing and the risks.
Debt fix is no solution
Daniel Montville knew a debt consolidation loan wouldn't solve his financial problems, but the hospice nurse hoped it would give him some breathing room. He had already filed for bankruptcy in 2005, and was determined not to do so again. Montville took out the loan in 2015, but within a year he had fallen behind on its payments and on the payday loans he got to help his daughter, a single mother of four children. The payday lenders all but cleaned out his checking account each time a paycheck landed, leaving little money for necessities. Then his daughter lost her job then the $5000 tax refund she has promised to him as repayment went instead to supporting her kids.
Debt consolidation ignores root problems
"That's when I wised up and realized this was a no-win situation," say Montville, 49, of Parma, Ohio. Montville is now repaying his creditors under a five-year Chapter 13 bankruptcy repayment plan. Debt consolidation can feel like the solution to a struggling borrower's prayer, but it doesn't often address the over spending that caused the debt in the first place. Within a short time, borrowers find themselves buried deeper in bills. "It's a quick fix," says Danielle Garcia, a credit counselor with American Financial Solutions in Bremerton, Wash. "They aren't fixing the root problem." the five-year, $17,000 loan Montville got from his credit union, for example paid off 10 high-rate credit card bills, lowered the interest rate on the debt from double digits to about 8 percent and offered a fixed monthly payment of $375, less than what he was paying combined on the cards. What the loan didn't do, however, was change Montville's spending habits. Paying off the credit cards just gave him more room to charge. Some of the debt came from unexpected expenses, such as car repairs. But Montville estimated 60 percent came from "foolish spending." "I wanted a TV. I needed clothes. I want to go to a movie," Montville says. When he brought a new computer, he noticed only the low monthly payments of $35, not the 25 percent interest rate he was being charged. When his daughter got into financial trouble, he turned to payday loans because his cards were maxed out. Now that he can no longer borrow - his credit card accounts are closed, and he would need the bankruptcy court's permission to replace his car - Montville is finally thinking about what he actually needs to buy vs. what he wants to buy. He considers whether he can do without a purchase or put it off. If he really wants something, he saves for it. "My feeling now is, cash only," Montville says. "Once I pay cash, nobody can take it from me."
Spending assets
Montville's attorney, Blake Brewer, says many of his clients have no idea how their expenses stack up against their income. They assume that their next tax refund or stretch of overtime will help them catch up, not realizing that they're consistently spending more than they make. "These people are just shocked when I sit down with them and take out a calculator," Brewer says. Some of his clients consolidated their debt using a 401(k) loan or a home equity line of credit. they pride themselves on saving money because they lowered their interest rated, but they don't realize they're spending assets - retirement accounts and home equity - that generally would be protected from creditors in bankruptcy court. People seeking debt consolidation also can wind up with debt settlement companies, which promise to persuade creditors to accept less than what they're owed. Debt settlement typically causes a major hit to credit scores, but success isn't guaranteed, and some companies simply disappear with the thousands of dollars they charge.
The right way
Debt consolidation loans - through a credit union or a reputable online lender - don't have to be a disaster if borrowers:
Stop using credit cards.
Commit to a budget.
Save for emergencies so they don't have to borrow to cover unexpected expenses. Most important, their debt must be manageable and payable in the three-to-five-year term of the typical debt consolidation loan. If it would take longer than five years to pay off the debt on their own, borrowers should consult a credit counselor or bankruptcy attorney. "by the time most people go looking for help, they're already in too deep," says Garcia, the credit counselor. Liz Weston is a certified financial planner and columnist at NerdWallet. Email lweston@nerdwallet.com.
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