Consolidating Credit Card Debt Guide

Here are the basics of Credit Card Consolidation

1) It’s generally a bad idea to convert unsecured debt to secured debt. This means don’t take out a home equity loan to pay your credit cards unless the interest rate is very attractive and you are very confident you can pay it off quickly. Quickly means within 3-5 years tops…preferably much sooner. If you are going to end up taking much more than that to pay off the debt, you might want to consider bankruptcy as a bankruptcy will fall off your credit report in 7-10 years anyway.

2) The goal is to lower your overall interest rate more than it is to end up with just one payment. A few zero interest/low fee balance transfers are often an excellent strategy.

3) There are no websites out there that you can trust as everyone’s financial situation is different. This isn’t rocket science though…all you do is borrow enough money at a fairly reasonable interest rate so that you can pay off your high rate credit cards. If you have good credit this is usually fairly simple. If you have poor credit this will be pretty damn difficult and there is no way to make it easy other than fixing your credit.

Are Prosper and LendingClub good options?

In my opinion, its a good option if you have no other options. The rates are generally higher than a good local credit union will offer, they require a minimum FICO score for you to even post a loan request, they are not available in all states, and your approval is based on the whim of the masses rather than some form of standard underwriting requirements.

Also with those sites, once you start trying to borrow larger amounts, say more than $10K, the loan funding rates start to drop and the interest rate starts to go up.

By sitting down face to face with a loan officer you can discuss your specific situation, explain how the circumstance that led to your current financial crisis have changed and, and give them your planned path forward towards recovery. You can also immediately address any concerns they may have with giving you a loan or even ask for the loan to be reconsidered if its declined.


Should you use Prosper or LendingClub?

With prosper and Lending club, once you post the loan there is not a lot you can do except cross your fingers. It also often takes 3 or 4 failed loan postings before you finally get a write up that is convincing enough to get your loan funded.

How do I start building credit?

One of the most commonly asked questions here is “How do I start building credit?”. Obviously, a solid, long-term history of on-time payments generally yields the best credit score. But getting your foot in the door can sometimes be troublesome without lenders willing to take a chance on you.

Below, we’ll examine the best way to get your file started up, given different scenarios. Your mileage may vary, but hopefully this post will give you the resources to assist you in getting a solid base of credit history, as well as good financial habits.

Step #0: Assess your financial situation.

Your financial health comes first. Your credit score is not everything; it is only a supplement to your financial activity. Your first priority is always going to be ensuring that you are already practicing good financial habits.

This start-up kit will contain recommendations to obtain a credit card. While there are benefits to credit cards, there are also severe dangers. I do not recommend this tutorial to anyone who:

  • Has no emergency fund.
  • Plans on living beyond his/her means.
  • Does not have an income.
  • Has spending habits that have not been dealt with.
  • Does not have a budget.

If you do not fit into any of the bullet points above, then you’re likely safe to go on to the next step.

Step #1: Pick a Card.

See the scenarios below and pick one that best fits your situation. When you are done finding a card, go to Step #2. Do not skip Step #2.

For your first credit card, a general note is to avoid cards that have an annual fee. You do not need to pay a dime in interest or fees to obtain a fantastic credit score.

I am a student or graduate who has student loans, and is looking to build credit.

Since you already have student loans, you likely already have a decent (but short) length of history on your file. In this case, I would look at what is generally referred to as a “starter card”. A couple of the most recommended in this situation are the Chase Freedom and the Discover It. There is also the CapitalOne Quicksilver (Do not confuse this with the Quicksilver One, which has an annual fee).

I would also take a look at this list for other suggestions. You may also want to look at the bank where you currently have a deposit account; you are more likely to be approved for a credit card if you’re in a position where the institution can clearly gauge your financial health.

If you are a student who cannot get approved for a “starter card”, there are still plenty of student cards that are available for your situation.

I am a student who does not have student loans, but I am looking to build credit.

This means your file is completely empty. But since you are a student, you have plenty of financial institutions willing to take a chance on you. I would take a look at possible student cards to get started.

I am not a student, but I also have no payment history. Where can I start?

You may want to look at a “starter card” first, and see if you can get approved anyway. Once again, there are suggestions on Nerdwallet. Many of the options listed above (Freedom, It, and Quicksilver) are good at taking chances on thin or new files.

Again: You may also want to look at the bank where you currently have a deposit account; you are more likely to be approved for a credit card if you’re in a position where the institution can clearly gauge your financial health.

Try for a few starter cards first. If you are having bad luck, see below:

I can’t get approved for any cards listed above. What do I do?

Since you’ve exhausted all of the above options, you can try to get approved for a secured card. This is a card where you lay down a security deposit, which becomes your credit limit.

Usually, within 6-12 months of on-time payments, you can call your bank and request to move from a secured card to an unsecured card, or do a product change to a different card entirely.

I can’t even get approved for a secured credit card. What now?

If this is the case, it’s likely something is keeping your credit file back. Do you have an account in collections? Could there be a mistake on your credit file (which happens frequently)? At this point, please check to pull a report. You may or may not have to do a mail-in request to obtain your report. If you need further direction or support, you can always ask for some.

If there are any inaccurate items, and they have been disputed successfully, you may wish to go back through your denials. Call the bank and ask them to reconsider your application.

Step #2: Understand The Rules for Using your Card:

  1. Use your card only for planned expenses.
  2. Do not change your spending habits simply because you are using credit instead of cash. Rewards are nice, but spending a dollar to earn a penny is foolish.
  3. Always pay your statement balance in full by the due date. No exceptions.

Using the rules above, a typical billing cycle will look like this:

  1. You charge a planned expense, sticking to your budget and not changing your spending habits.
  2. The bank will sum up all of the activity in 1, and will send you a statement, or a summary of the information it believes to be correct.
  3. Review your statement for errors, and pay your statement in full by the due date. As long as your statement is paid in full, you will not pay interest. Any charges that you made that were not listed on the current statement will appear on the next one.
  4. Go back to 1.

If this seems confusing to you, consider an analogy to your Electric bill. Your institution monitors your charges (pun intended), and sends you your bill. As long as you pay your bill in full, there are no interest or late fees.


Frequently Asked Questions

Does paying rent or bills help my credit score?

No, unfortunately. Bills and rent are not tradelines, or lines of credit. However, if you don’t pay, it will affect your score negatively.

Should I care about APR?

No. If you are paying your credit card statement in full every month, your effective APR is 0%.

For my first card, why should I avoid an annual fee?

Your first credit card’s history is one of the more important factors in your FICO score. Closing your first credit account has been known to be detrimental to your credit file (moreso than canceling any other card you may acquire later). This means if your first credit card has an annual fee, and you’re looking to open up a loan or mortgage, you may have your credit score held hostage by it.

There are ways out of an annual fee card that won’t affect your history, however; the most common is calling the institution for a product change to a non-fee card. You can also call yearly and request to waive the fee. These, however, exist as options for most consumers, and are not guaranteed.

Should I take out a loan to improve my credit history?

Never. You do not need to pay a dime in interest to help your credit. You should treat these “starter loans” as if they were scams.

Do I need to use a certain percentage of my credit limit a month?”

There is only one credit utilization adage that matters: the lower, the better. Some of the best scores only have utilization between 1 and 9% (rounded up).

Utilization does not have any memory, so it’s pointless to force yourself to spend above or below a certain amount to get a higher score in a month that you’re not applying for new credit. In addition to this, your credit score will not factor the amounts paid on revolving accounts; the only thing that matters from month-to-month is whether you paid on time.

Simply focus on sticking to only regular expenses, and pay off your statement in full every month.

Credit Card Tips and Tricks to Save Money

  1. Banks make money from you on interest and fees, including late fees and annual fees. You can control those; you don’t have to pay any interest or fees unless you do something you agreed to. They make money from merchants on interchange fees of 2 to 4 percent. Merchants do not usually charge more for credit transactions, though they could in some cases. Interchange fees are higher if the card is not physically present, if you are getting rewards, and on American Express transactions.
  2. Your ongoing rewards come from these interchange fees. Initial spending bonuses come from the bank as a marketing cost. You can choose different types of rewards: cash, miles, or points that turn into cash or miles. You have to decide which you want, there’s no universally best choice. (Asking someone else what is the best card for you is generally futile, since they won’t know what works best for you.) Cash is, well, cash. Miles/ points can be worth more than cash, but only if you would spend them anyway. The best initial spending bonuses will be miles / points. If you don’t mind the impact of getting additional cards and can meet the spending targets, the best rewards percentages come from collecting initial spending bonuses; these can be 10% or more of that initial spending.
  3. The very best initial spending bonuses come from cards with annual fees; you have to factor that into the equation, but you still can come out ahead in the same 10% range on initial spend, especially if fees are waived first year. You may not want to keep paying annual fees, though, so this is where a product change comes in. Before the fee comes due, you can ask to switch to a card with no annual fee, but keep the same card number, credit limit and history. You don’t get an initial spending bonus with the new product, but you would get other benefits.
  4. Ask for what you want; some things are negotiable. You can sometimes get fees like annual fees or late feeswaived as a courtesy if you are otherwise a good customer and they want to retain your busines. You can almost always get the statement billing / due dates changed to something that works better for you, just by asking.
  5. Let’s look at some other things you can get with credit cards. My Chase Sapphire Preferred card provides these, described in a 47 page booklet full of small print covering details: a) car rental collision damage waiver, as primary coverage; I can decline the car rental company “insurance” without concern; b) various types of purchase protections, including extended warranty coverage, price protection, and return protection; c) trip cancellation / interruption insurance, due to e.g. accident/sickness, severe weather, or travel company bankruptcy; d) lost luggage, trip delay and travel accident benefits. e) This card also provides no fees on transactions in foreign currencies. Credit cards provide better exchange rates than cash / ATMs.
  6. We alluded to consumer legal protections previously. The two cases that are most important to you are: 1) if a card is lost or stolen (or, the number breached in any other way, even if the card is not physically involved…), your liability is legally limited to $50, and in practice, is usually zero. You do not have to pay for charges you did not authorize. Note that in this case, you card will be cancelled and re-issued with a new number, but the same credit limit and history. 2) if a merchant charges you something you disagree with, e.g. overcharge or defective product, you have the right to contest the charge, and the amount in question will be excluded from your bill until the dispute is finalized. Debit cards do not have to offer these same protections; for example, lost debit card liability can exceed $50 if not reported in 48 hours, and banks do not need to reverse debit card charges during disputes.
  7. Balance transfers can be helpful if you transfer to a 0% promotional rate card, but watch out for fees. You may be charged one-time interest of 3% or so. Cards from banks like Citibank allow you to transfer balances from student loans and car loans, too. Don’t get carried away though, since the term of these loans is very limited, and then interest goes up substantially. Be sure to read the fine print in your credit card disclosure about how balance transfers and new charges interact in terms of how payments are applied, too.
  8. Cash advances from credit cards are never a good idea. Your credit card is not an ATM card. This also applies to so-called “convenience checks.” You are typically charged a one-time fee of a few percent, have a higher interest rate, and, most importantly, you get no grace period on these transactions. Just say no.
  9. If you have self-employment income, you can apply for a small business card. This allows you to keep business expenses distinct from personal expenses, which can be helpful at tax time. Some small business cards also do not report against consumer credit bureaus, which may be a help if you want to minimize the impact of business utilization on your personal credit score. (But you could not use this to help your consumer credit history.)
  10. Final plug for being responsible. Only use a credit card as you would use an old-school charge card, where you pay off the balance in full each month. We’ve already explained that paying the minimum only is a disaster, but then that’s exceeded if you become 60 days late on payments, which will invoke not only late fees, but also penalty interest of 30% for at least six month. This can also result in increased interest rates on cards that you are not late on!

Basic Credit Card Information 101

Top ten things you need to know about credit cards.

  1. You probably want one or more credit cards. Used responsibly, a credit card gives you many benefits, including consumer protections as well as improved cash flow / rewards, that are not available from other payment sources. We’ll explain “used responsibly” as we go. You do not have to pay interest to get these benefits.
  2. Your debit card is not a credit card. If your bank gave you a card just for opening your account, it’s a debit card, not a credit card even if it says “Visa” on it. You have to apply to get a credit card. Debit cards take money from your checking account immediately. Credit cards don’t.
  3. A credit card is a pre-approved loan up to your credit limit, which lenders come up with based on your application. As loans, credit cards build your credit history when you use them, and can help your credit score if you don’t borrow much and pay it back every month. This is one of the few ways to build credit for no cost.
  4. The grace period is your friend. If you are paying off your statement balance each month, you will not be charged any interest on new charges. This can be up to six weeks, thus the cash-flow benefit. But beware: if you don’t pay off the balance, your grace period is gone, and all new charges will accrue high interest, until you again pay off the statement balance. There is no difference to the card company if you pay once / month or multiple times / month, though it may reduce your credit utilization which is usually good.
  5. The 20%+ annual APR common to credit cards is NOT your friend. You want to avoid this at all costs. This means you never charge more than you can pay off each month, even if you still have credit limit left :). While the “minimum payment” may not seem that bad, if you paid off a credit card balance using only minimum payments, you would pay up to three times as much for everything as if you paid it off immediately. If you find yourself shopping for lower APR, like 15%, that’s still bad, since you shouldn’t be paying interest at all.
  6. More credit is granted to people with good credit. What if you have no credit? To get started, you should look for a card designed for people with no credit, like a secured credit card, or something from your bank or credit union. With a secured card, you are basically borrowing your own money, since you put down the money to back your credit limit. It’s like training wheels, or a learner’s permit. Once you have shown you can do this, then you can use other people’s money. Not much to start, though; initial credit limits are usually below $1000. It’s possible to get $20,000+ limits on a card if your history is good enough.
  7. More credit cards is usually better, eventually. Go slow, though; maybe 1/year to start. Getting a new card increases your available credit, and increases your number of accounts, both of which help your credit score. This at the cost of an inquiry, which will be less-than-helpful for a couple of months. Note that requesting a credit limit increase sometimes produces an inquiry as well. There is no such thing as too many credit cards from a score standpoint, but taking out a lot of credit in a short period of time makes you look like a bad credit risk. You also don’t want to have more cards than you can manage. Forgetting to make a payment is bad. Closing a credit card won’t help your credit score.
  8. Zero-percent promotional rates are good but can be risky. Once you have a credit history, you’ll eventually be offered zero-percent promotional rates. These are generally speaking good for you, especially if you would otherwise be paying interest. In some cases you can even transfer balances from other cards. Just remember you need to pay everything off, and that’s easier said than done. The card companies hope you don’t. Be aware of the difference between promotional 0% and deferred 0%, as well.
  9. Rewards are a good thing. Once you have a good credit history, you will be able to get rewards cards that rebate 1%+ of your credit card expenses you. (Merchants pay this indirectly, as a portion of the 2-3% fee taken from them when you use your card.) You want to do this. Some cards offer extra rewards for initial spending to get you to apply. If you can get the extra reward, it’s usually worth it.
  10. Reminder to be responsible. Not everybody is. If you know you have limited self-control, then credit may not be for you. People who use credit may overspend on unneeded purchases. (“Hey, I’m getting rewards!”) Credit cards are not your emergency savings. Most of the saddest stories we have here at /r/pf are people who got $10,000 or even $50,000 in debt because they spent too much. Don’t let this be you. Be careful out there!

Paying Your Credit Card Bills and other Debt on Time

What can be done to make your credit better and how to stop their credit from going bad in the first place.


Paying Credit Card Bills on Time

The answer is almost always the same: Pay your bills on time. Specifically things like credit cards, auto loans, mortgages, etc., accounts that show up on your credit report.

Paying your electric bill 3 days late won’t hurt your credit. Paying your credit card bill 95 days late will annihilate your credit.

When you just cannot make a minimum payment for whatever reason, it helps to call your creditor before the due date and explain the situation. Most of the time, they will be able to work with you to setup something to make it easier for you to pay.

One 30 day late payment won’t shave 100 points off of your credit score but it certainly doesn’t help. Doing what you can do avoid making these late payments is critical if you want to have good credit.

I know it can be frustrating to sometimes be told “It takes time for some credit wounds to heal” but it’s the truth. It’s harder to take late payments off of your credit report than it is to take off a collection account.

About 18 months after a late payment, assuming you’ve been making all of your other payments on time, most of the effect it had on your credit will wear off.

Average age of your accounts, credit utilization, inquiries, everything like that play a role in your credit score but your payment history plays the biggest role, which can’t easily be changed.

Method to Pay Bills on Time

“Lazy Bill System” for the employed:

  1. Acquire one month’s worth of expenses, move to checking account.
  2. Set employer direct deposit to this checking account. Set everything to autopay from this checking account (edit: or a credit card if it doesn’t charge a convenience fee). (Autopay in full if it’s a credit card, unless you’re playing catch-up.)
  3. Use something like Mint or YNAB to track your expenses from your checking, credit cards, etc. so you can balance your finances automatically.
  4. You are now done.

How to Re-build Bad Credit and Improve Credit Score

Depending on how serious your situation is, you may or may not need to know a few important bullet points. This is not legal advice; if you are seeking legal advice, you should speak with a lawyer versed in the FCRA and FDCPA.

How to Re-build Bad Credit and Improve Credit Score

  • Bad marks, such as late (30, 60, 90 day) payments, liens, judgements, collections accounts, and chapter 13 bankruptcy will fall off your credit report at the 7.5 year mark from the Date of First Delinquency (DOFD) or the judgement date.
    • Note: Debt cannot legally be re-aged. All delinquencies must be dated from the DOFD or the judgement date.
    • If you have a Chapter 7 or Chapter 11 bankruptcy, you will need to wait until the 10-year mark for the public record to fall off of your report.
  • Creditors and collections agencies are obligated to comply with both the FCRA and the FDCPA. If you believe these laws are being violated, you should speak with an attorney.


Challenge Creditors to Fix Credit Score

  • The burden of proof is always on the creditor. Always ask for documentation. Period. Even if you know the debt and know you owe on the debt. When you pay off a debt in collections or under a judgement, you should always demand and keep proof of the payment.
  • Look up the statute of limitations of debt for your state. Please note that the link provided may or may not be completely up-to-date, and may or may not contain accurate information. Verify this with your state through your attorney.
    • Just because your statute of limitations is up doesn’t mean that a creditor is required to remove it from your credit report. The latter is governed by the FCRA, whereas the former is state law. It may, however, give you leverage against collections agencies and other creditors.


Things to do right away to rebuild credit score

  1. If you have various collections accounts or potential fraudulent accounts, pull your credit report from Dispute any inaccurate information. Obtain contact information regarding collections accounts that own your debt.
  2. If you have any revolving debt, reduce it to below 30% of its limit. 30% is usually the “red flag” threshold for debt. While 10-29% (rounded up) is not ideal for creditors to look at, it’s manageable and it doesn’t set off any red flags.



Handling your collections accounts to improve credit

Paying for delete of debt accounts

Negotiating with collectors can be tricky. Luckily, some of them are willing and able to negotiate a settlement offer in exchange for deleting the item from your credit reports. This exists as an option for a collections agency, and is not an obligation, so it may not always work. However, you miss 100% of the shots you don’t take, so it can only be beneficial to do this (assuming you do it correctly and carefully).


Goodwill letters for late payments

Some creditors are willing and able to remove 30, 60, and 90 day late notices from your credit report, assuming that you have been a solid customer for a long time since the derogatory mark. This can usually be done by contacting your creditor with a goodwill letter, or a request to remove the derogatory mark from your report from a consumer who has otherwise had a solid relationship with the financial institution.

Please note that This exists as an option for creditors, and is not an obligation, so it may not always work. However, persistence is key on this


Keep making on-time payments

Over time, bad marks and delinquent accounts (if you have any) will fall off at the 7.5 year mark from the DOFD. Bankruptcies will disappear at the 10 year mark. These two factors will also count against you less and less over time.

In addition to this, most creditors (as well as FICO) weigh your most recent 24 months of activity more heavily than the rest of your report. Your most recent two years of activity are a big enough indicator of risk (or lack thereof) for some lenders. Your mileage may vary.


Other Tips of Rebuilding Credit and Improving Credit Score


1. Time is the ultimate factor in credit building, so your response should be patience.

As was mentioned above, your age of accounts, combined with your payment history, account for 50% of your credit score. It goes without saying that letting time pass will allow both of these factors to become better established.

Over time, bad marks and delinquent accounts (if you have any) will fall off at the 7.5 year mark from the DOFD. Bankruptcies will disappear at the 10 year mark. These two factors will also count against you less and less over time.

In addition to this, most creditors (as well as FICO) weigh your most recent 24 months of activity more heavily than the rest of your report. Your most recent two years of activity are a big enough indicator of risk (or lack thereof) for some lenders. Your mileage may vary.

Don’t be discouraged with the time factor. With the exception of getting negative items removed from your report, the fastest way to build credit is at the regular speed of time, and the number one way to prove your creditworthiness is toactually be creditworthy.


2. Credit is not the end-all-be-all of finance.

Despite what some conventional wisdom might have you believe, your credit is not priority one. Your first priority in finance should be having enough for food and shelter for yourself and the people you provide for. Your second priority should be balancing out your cashflow with a budget, as well as paying down debt and saving for retirement. Once these are handled properly, only then do we get into credit, which really only needs to be optimized if you’re planning on a major loan in the near future.


3. Monitoring your credit can be important, but you should only do it for free.

There should be some emphasis placed on monitoring your identity, as well as knowing a ballpark figure for your credit score. But there should not be any circumstance where you should pay for your credit score and/or report. There are plenty of services that will give you a ballpark figure for free, and is also there to provide you with an annual credit report every 12 months, as required by federal law.

Best Student Credit Card or First Credit Cards in 2016

Students generally have no income and no credit history, so they often have to apply for student cards to build up their credit. Generally these cards require credit scores of around 600, but there are instances of those who have 0 credit getting these cards. These cards all have no annual fee.


What is a student credit card?

A student credit card can help you earn rewards and enjoy short-term, interest-free financing. What’s more, a student card is a great first step toward establishing a good credit history, which is crucial for obtaining favorable rates on future loans, renting your own apartment and getting low insurance premiums. If you’re in college and want to start building credit, check out these student credit cards which can also help you earn valuable credit card points while in college.

As a student, it’s important to choose a credit card that you can easily manage. Furthermore, you must restrain yourself from overspending, and always pay your balances in full and on time. The best options on the market have minimal fees, yet provide student-friendly benefits, as well as excellent opportunities to build credit.

Best Student Credit Cards to Get in 2016

Chase Student Credit Cards

Chase Freedom: Not technically a student card, but offers 5% cashback on rotating cateogries of up $1500 per quarter and 1% back on everything else. Chase is lenient to students who already have a chase bank account and more likely to approve you for the freedom. Chase Ultimate Rewards points can also be combined with a premium card such as the Chase Ink or CSP to transfer to other programs making it especially valuable. (See Hybrid/Transferable Points Cards)


Discover It for Students

Discover It for Students: Similar to the Chase Freedom, 1% on everything but offers rotating 5% categories such as Dining, Movies, Home Improvement etc. every quarter. Also seems to be the most friendly card company, uses only U.S. customer service reps, no forex fees, waives first late payment fee etc. Proof of Student required. (schedule, tuition bill ec.)

Citi Thank You Preferred for Students

Citi Thank You Preferred for Students: Citi’s new student card. Previously called the Citi Forward card that offered 5% on movies, music, bookstores (and amazon) and restaurants. The new version of the card is significantly neutered. It now offers 2% on restaurants on entertainment with 1% back on everything else. A decent card, probably the easiest card to obtain outside of getting a card with your local bank.


Bank of America Student Credit Cards

Bank of America Travel Rewards for Students: Generally harder to get than the Discover It or Citi Forward. 1.5x cashback everywhere, no forex fees. Smartchip enabled Same as the regular Bank of America Travel Rewards card (see ‘Best card for no forex fees’ section)

Bank of America Americard Cash Rewards for Students: Generally harder to get than the Discover It or Citi Forward. 1% cashback on everything, 2% on grocery stores, 3% on gas. 2% and 3% are limited to $1500 spend per quarter. Similar to the Amex Blue Cash Everyday card, but gas and grocery categories are flipped (2% gas, 3% grocery) and $6000 per year instead of 1500 per quarter.


Sallie Mae Mastercard

Sallie Mae Mastercard: 5% on gas and groceries, limited to $250 each per month, 5% on bookstores (amazon included) up to $750 per month. Best for small spenders/people who don’t MS.


Capital One Journey for Students

Capital One Journey for Students: 1% cashback, plus 25% if you pay on time, so 1.25% cashback on everything. No forex fees. Not recommended as BoA Travel Rewards for Students is better.


Can I earn credit card points for paying bills?

Yes, it is possible to use mortgage, rent, utility, student loan, and other bill payments to earn points. In some cases the company may offer a means of paying directly with a credit card, however it is important to note whether an extra fee is charged and, if so, how much. If there is no additional fee, or if it is low enough that you are willing to pay it (for instance, if you absolutely needed to hit a minimum spending requirement) then go about it in this way.

Are there fees for using a student credit card?

If this is not possible, or is too expensive, then all hope is not lost. There are several services that exist to facilitate paying bills that can be funded either directly with a credit card or indirectly via a reloadable card purchased with a credit card. See the rest of the Wiki on Manufactured Spending, and How to Meet Minimum Spend.


Using a Student Credit Card

Credit cards for students are designed to help students build credit and assist in establishing good credit habits that can be used to create a foundation for a successful financial future. From travel and cash rewards to a lower interest rate, there are credit cards for students with a variety of features. Remember to now be spending beyond your means with any student credit card.

Credit Card Trip Reimbursement Policies

Information about Credit Card Trip Reimbursement Policies

Chase’s Trip Delay Reimbursement benefits. But it seems like I’m always running into people who’re pleasantly surprised to learn that Chase will cover up to $500 in expenses incurred by an extended flight delay. So with that in mind, I thought I’d share the basics of how you might be able to take advantage of this benefit on your next trip.

In a nut-shell: If your common carrier travel is delayed more than 12 hours or requires an overnight stay, you and your family are covered for unreimbursed expenses such as meals and lodging, up to $500 per ticket.

Common Carrier will likely be an airline in most cases, but includes any company charged with the direct responsibility of transporting you (e.g., Greyhound, Amtrak, etc.).

When you’re covered by Credit Card Trip Reimbursement

  • Your trip is delayed more than 12 hours. Thankfully, this doesn’t happen too often.
  • Your trip is delayed so that it requires an overnight stay. This happens all the time. Have you ever missed your connection and been stranded in an airport overnight because your first leg was delayed? Or had inclement weather put your travel plans on indefinite hold? You’re covered.


What is covered by Credit Card Trip Reimbursement:

  • Up to $500 in reasonable expenses per ticket – as long as at least a portion of all tickets was charged to an eligible card and the ticket is for an immediate family member.
  • This means that if you purchase two tickets on your eligible card, one for you and one for your spouse, you are collectively eligible to file a claim for up to $1,000 in reimbursements!
  • Reasonable expenses include hotel accommodation, meals, ground transportation, necessary toiletries, and so on.

This benefit is the most useful when your airline refuses to provide meal/hotel vouchers because the cause of the delay is outside its control (i.e., inclement weather). However, it can also be useful if you just want to skip a long customer service queue or would rather stay someplace nicer downtown when your airline offers to put you up in a nightmarish airport motel.


How to get covered by credit card trip reimbursement:

  • Charge at least a portion of your fare to an eligible card. Eligible cards include the Chase Sapphire Preferred and Chase Sapphire – as well as a number of other Chase-branded Visa Signature cards.
  • This means that award tickets are also covered as long as you charge the taxes and fees to your card.
  • Be traveling round-trip and not know about any delay in advance of your departure (i.e. if your airline cancels flights in advance and tells you to stay home, you should).

To file a claim with your credit card company, you’ll need:

  • An airline receipt showing that the fare was charged to your eligible card.
  • Your credit card statement specifically showing the charge made to the airline.
  • A copy of your tickets. More specifically, the ticket for your original trip as well as the ticket for your delayed trip.
  • Receipts for incurred expenses. Alcohol and gratuities are excluded.
  • A statement from your airline explaining why your trip was delayed. I recommend requesting a military excuse while you’re still at the airport.

After submitting this information electronically, all of my trip delay claims have been approved within a week, and I’ve received a check in the mail within two weeks after that.

How to Make a Big Purchase with a Credit Card and Get Points

First, you should make sure your expense can’t actually be paid with a credit card. Many companies don’t advertise a credit card payment option because they would have to pay transaction fees, but most of them do accept credit cards. If you haven’t already asked, do so now.


How to Make a Big Purchase with a Credit Card and Get Points

Some merchants and rental companies will accept a credit card payment but will charge you an additional fee for it, in which case it’s really up to you to decide if it’s worth it. If they want to charge you a 1.5% fee and you’ll pay with your Citi Double Cash earning 2% cashback, obviously you’re coming out ahead. If they want to charge you a 3% fee and you’re having a hard time meeting your minimum spend, maybe it might make sense to say yes for the convenience. Do the math, look at your other options and make a decision.

Some merchants will accept a credit card payment with no fees, but in that case you should ask for a cash discount. They will usually be happy to oblige as a cash payment will result in less fees for them, and depending on how significant the cash discount is it might make more sense to forego credit card rewards. Again: do the math, look at your other options and make a decision.

If the company for sure doesn’t accept credit card payments (e.g. a contractor or an individual landlord) then start looking into third parties: Plastiq, Evolve Money, ChargeSmart or RadPad(specializing in rent) are just a few examples of services that can pay almost any bills using a credit card. They will charge you a fee (varies by service, type of card used, payee… usually somewhere between 2.5% and 3%) but again it might make sense if you’re having a hard time meeting your minimum spend.


Earning Credit Card Rewards

If these fees are too high for you then you’re out of luck and no, you won’t be able to earn credit card rewards from your upcoming cash expense. What you’re trying to do is simply to turn credit card spend into cash and while there are ways to do this, your upcoming cash expense then becomes irrelevant because cash is fungible and you could just as well use that cash to pay off your credit card bill. You do not need to have cash expenses to do this nor do you have to limit yourself to expenses you have planned. This is called manufactured spending and is somewhat related to churning but this is out of the scope of this post.

Reasons To Never Carry a Credit Card Balance

I wanted to do something a little bit more constructive than write an article with this title, but today it looks like I’m going to reduce myself to cleaning up rumors. Yes, rumors; you know, that friendly little bit of “advice” that at least one person decides to regurgitate when someone mentions “credit score”. It usually goes something like this:

My friend told me that if you want to build credit quickly, you should leave a small balance on your credit card so you can build trust with the bank. If you pay interest, they will see that you are a trustworthy consumer, and that you can handle paying them off. Otherwise, it looks like you’re not utilizing your cards and that looks bad on your report.

Usually when I ask where people heard this, they say it was their friend who works as a teller, or maybe a friend who sells cars for a living, or someone who does collections at a hospital. News flash: not everyone who works in a hyperbolically related industry knows what they’re talking about.

Reasons to Never Carry a Credit Card Balance

Not only is the statement above false, but even if it weren’t false, it’s still horrible advice. With most credit cards nowadays running an average of 15-20% APR, you can’t afford how bad this advice is. And that’s if it weren’t a complete and utter lie.

Let me give you a small tip that might save you hundreds of dollars a year the next time someone farts out something like that: You don’t need to pay a dime in interest for a good credit score. If you do, you’re paying a premium for something that’s exactly the same as the free version. And the free version goes something like this:

Always pay your statement balance in full, every month, by the due date. This will allow you to avoid paying interest, and your credit utilization will be recorded for free.

It’s really just that simple, and it’s the only way you should be building your credit score. Paying interest doesn’t improve your score faster. It only costs you money, and it makes you look pathetic when you have to explain to your new finance girlfriend why the size of your savings account is so small.


What is the credit card interest charge?

All right, zonination. If you’re so smart, then why is this “rumor” false?

I’ll tell me why. It’s because the interest that you pay on a credit card is not reported to the credit bureaus.

When you receive your statement, the statement balance is the number that is provided to the bureaus. This is the grand total that appears on your monthly statement from the bank. For credit cards, the bank also reports your available credit. If you’ve ever looked at your credit report (which you should do every year), you will see that the only two numbers reported on your accounts are your statement balance and your available credit. The month after your statement, they record whether you paid on time. Wash, rinse, repeat.

It’s almost completely needless to say that the FICO algorithm uses only these three criteria when calculating your payment history and utilization. In case the gears aren’t turning in your head, this means that interest paid has no additional effect on your score. So it’s really just the same as paying your statement balance in full by the due date. Imagine that.

But my friend X is an expert who works for Y, and s/he told me to carry a balance!

Your friend is an idiot, and s/he is costing you a fortune. You’re free to believe what your friend says, but that only makes you both wrong. Just because X claims something doesn’t mean it’s true.

But if you really want to throw your hard-earned cash into an eternal abyss of broken promises on behalf of your so-called expert’s advice, I suppose I can’t stop you. It’s your money, after all, and you’re free to waste it on whatever you want.


How does carrying a balance affect your credit report?

But I’m nervous that paying in full might look bad on my report.

Look at what I just said above. The only things your bank’s monthly report contains are your statement balance, available credit, and whether you paid on time. Interest is not recorded and there’s nothing to get nervous about.

When your statement balance comes in, you’ve been recorded. You will already look “good” utilizing your credit as long as your statement says something other than “0”. Then your choice is whether or not to pay in full.

Really, the only thing that will make you look bad are the bankers snickering at you behind their mahogany desks, all because you believe a rumor that pulls a ton of revenue from suckers who fall for this kind of crap.

That’s just your opinion, though. I followed X’s advice, and it worked!

That’s not why it worked.

The reason it worked is because, in addition to paying interest you never needed to pay, you also built a payment history which would have happened anyway. Your credit score didn’t get “bonus points” or “extra trust” because your bank made some quick cash off of you. Your credit score got a boost because you made on-time payments that got reported to the bureaus. It would have worked exactly the same if you had paid your statement in full.

What if I took out a loan to improve my credit score instead?

What? Whoa, wait! No. Let’s back up here. Look at what I said above. You don’t need to pay a dime in interest for a good credit score. Obviously, while it’s disappointing that there is no quick way to build a score, you don’t need to take out a loan. Credit cards are a loan, and paying them off in full every month builds a good enough payment history to bolster your score without paying interest. There are tips and tricks to boosting your score that I will examine later on, but “starter loans” are only a last resort.

What I’ve been trying to say for this whole post is that paying interest when you can afford to sidestep it is stupid. The whole point of having a good credit score is to pay lower rates on loans that you need to take out. Paying interest to avoid interest is an exercise in wastefulness, and it’s completely unnecessary when you can build your score for free.

So if there’s one thing I want you to take away from this, it’s that you can build a good credit history without paying the premium rate. Repeat after me: I, [name], will always pay my statement balance in full, every month, by the due date.

Should you ever default on credit card debt?

What happens if you default on your debt to credit card companies?

Default on credit card debt consequences can vary dramatically. In case you’re unclear on what defaulting on a credit card means, let me explain what this means. After you’ve failed to make a payment on your credit card for 180 days, your credit card issuer assumes you’re probably never going to pay them. At this point, the credit card issuer will close your credit card, write off what you owe as bad debt and sell your account to a collections agency. Read some more about what it means to default on a credit card.

The banks will go nuts for the first 180 days. When they call, tell them that they have the wrong number. Or change your number if possible. You can also screen your calls and then call the company’s general number and complain that they’re leaving messages for someone who had the number before you. Collections are aggressive, but they’re not the sharpest knives in the drawer. Don’t feel bad about lying to them because they will lie to you. If they get really nasty, take them to small claims under the FDCPA. You can win up to $1,500 if they violate the FDCPA.


Will banks sue you for defaulting on credit cards?

No, you won’t be sued. And even if they do, I’ll tell you how to handle it later. They rarely sue because that involves a few thousand to a lawyer and there’s an old saying in the biz, “don’t throw good money after bad.” Getting a judgment is easy. Collecting a judgment is an expensive pain in the balls. Anyone they send after you to collect judgment will probably want 50% and, after the lawyer’s costs and everything, they usually end up further in the hole. Which is why they rarely sue.


What happens after you default on credit card debt?

OK, you’ve defaulted. Do not worry about your credit score. Yes, it will go down, but that can be fixed. I’ll get to that later. You don’t need it unless you’re buying a house or car or something big. You don’t want to open another credit card, that’s for sure, so it’s not a big deal if it takes a hit.

After 180 days, GAAP requires banks to take bad debt off the books. This is a charge off. Statistically, when debt is over 180 days, the recovery rates are somewhere below 1%. It’s dead, and then your debt gets shuffled off to collection agencies. Bad debt gets traded around in portfolios. People buy it for pennies on the dollar (it’s worth less the older it gets) and the person who buys your $6k debt might only have $200 or $300 into it. If they can’t collect, they then sell it to someone else.


Default on credit card debt consequences

This is where you can cut a deal. I’ve seen some go as low as 10% to pay off a debt. Usually, you’re looking at 40%-50% or so. This is where your savings come in. Go to whoever holds your $6k card and offer them $2k to settle it. If they only have a few hundred into buying it, that’s a good deal for them. That’s a profit and they know they’re not going to get the whole thing. They’re used to these deals and 95% of the stuff they’re chasing has no money in it at all.


What happens to credit card debt when you settle with bank after defaulting on credit card debt?

When you settle, you can also include a provision requiring them to remove all negative credit information. Most will agree because it costs them nothing, means nothing to them, and – hey – they get paid if they agree.

What you want is Nolo’s book on bankruptcy and credit repair. Nolo is good and they will have all the correct letters and forms for you. Use it and be sure to follow up with the credit reporting agencies.

Do this and you’ll get out of debt in 12-18 months and have a perfect credit score. It’ll cost you $3k-$5k total. You will then have to begin the long process of rebuilding your credit score and coming back from defaulting on credit card debt.


Should you feel morally bad if you default on credit card debt?

Morally? Look, you guys have paid so much interest that you’ve already paid the bank back. Get your statements and add it up. You’ve probably repaid the debt already, so don’t worry too much about their bottom line. Further, even if they take a loss, who cares? Banks don’t pay any taxes and get to borrow at 0% from the fed, so they’re making huge profits at taxpayer expense. Do not feel bad for the banks. They get every possible advantage while holding your face down in the mud. Default is legal and this is what happens when you default. Default might be your best option.

What happens if a bank sues you after you default on credit card debt?

Oh, forgot to cover what happens if they sue. Like I said, this probably won’t happen. But if they sue and win, the judgment rate will be lower than your usual rate! Most courts have a low interest rate for judgments, often 5% to 10%, simple interest. The freakin’ court will give you a better interest rate than the banks do! So the absolute worst case scenario is that you will end up paying less than you are today!

Also, courts everywhere are backed up like crazy. If they do file suit, file a reply and the trial date will probably be 12-36 months out. Yeah, really. So that would be 12-36 months where you could save up and make offers to settle. They will settle. Further, the court will have some kind of mediation system where you can go in and bargain. So, really, do not worry about being sued. Even if that happens, you will be better off than you are today.

Seriously, default is a no-lose scenario. No matter what happens, you’ll be better off. More people should do this.

Best Cash Back Credit Cards for 2016

What are Points Credit Cards?

“Points” Cards: These cards have points worth a “set” amount. For the majority of banks and most of the time, that means that 1 point = 1 cent, though there are exceptions. So for example, the Chase Freedom offers a 10,000 point bonus if you meet the minimum spend requirements. This is equal to 100 dollars in rewards points. In general, a credit card issuer will offer statement credit, gift cards or travel redemption that are worth 1 point/cent, however certain redemption such as products they sell may have a point value less than one point. There are some credit card points programs that don’t even use points, such as the Discover It, which instead calculates your earnings in real dollars.Because of the many benefits they offer, we’ve been writing about rewards credit cards for years now. However, the fact that there are so many new cards entering and leaving the marketplace means there’s a lot to keep tabs on

What are Cash Back Credit Cards?

“Pure Cashback” Cards: This is a very rare category of cards, where instead of allowing many different types of redemptions like most fixed value credit cards, you can only redeem for cash, which is deposited directly into your bank account. An example is the Capital One Quicksilver, 1.5% cashback card, which can deposit your cashback either annually or once you hit a set amount. The Fidelity 2% Amex credit card requires you to have an open fidelity account, but has no account minimum. The only downside is foreign transaction fees (FX) and being an Amex credit card, it isn’t accepted everywhere. Another example is the Spark Cash Business credit card, earning 2% on every purchase.


What are “Miles” Credit Cards?

“Miles” credit cards: These are essentially the same as “points” cards because they have a set value, so for this purpose they are not considered a separate category. For example, the Capital One Venture and Barclay Arrival both offer “miles” as their reward, but make no mistake, this is a marketing trick. These miles are the same as a fixed value card in that the miles are worth a set amount, namely 1 cent/point. These are not the same as Frequent Flyer miles. The downside to both these cards is that they can only be used to redeem for travel (buses, subways, flights, rental cars etc.) without significant value loss. If you try to redeem them for other products, they become worth only 0.5 cents. Getting a Miles credit card could be a good idea if you think you will want to use travel reward redemption in the future.


How to Value Credit Card Miles and Value Credit Card Points?

First lets compare the cards. Both give 2% back, AF waived for first year. C1 is $59/yr after that and Arrival is $89/yr. Arrival also offers 10% rebate on any points redeemed. They both limit redemptions to “travel” purchases. The 10% rebate effectively makes the Arrival a 2.2% earning card. The arrival has a few nice features. It is a chip and pin, which is crucial for overseas travel, and also comes with a free FICO score and Tripit Pro (normally $49), but let’s ignore that for a few minutes.


Calculate the Value of Credit Card Points Equation

So we need to figure out at what annual spending level is the $30 difference in fees made up for with the extra 0.2% in earnings on the Arrival. It’s basic Algebra (your HS math teacher was right, algebra IS important!). If X is your annual spending, then we want to find out when the points earned on X is equal to or greater than $30. The equation would be:

X*(reward % difference)=Annual Fee difference.

Solving for X the basic equation becomes:

X=(annual Fee difference)/(reward % difference).

For this example, it would be X(0.2%)=$30. We can solve for X to get X=$30/0.2%=$15,000 (don’t forget to put the percent into the calculator since % means “/100”).

So if you are planning on spending more than $15000 on one of these cards, then the Arrival is the better card to use. You can do the same example for the Fidelity Amex 2% Card with no fee. X=$89/0.2% or X=$44,500 . However, the Fidelity Amex card becomes more difficult since you are comparing an Amex with Forex fees to a MC with no Forex fees, and chip and pin tech which is important for international travel.

Let’s look at the Quicksilver Visa card. It is 1.5% back on all purchases (redeemable for cash, though) with no annual fee. X=$89/0.7%=$12,714.29

So, if you are going to spend less than $12,715, the no fee quicksilver card may be better for you. If you spend between $12,715-$15000, then go with the Venture Card. If you spend over $15000, then go with the Arrival card.

Per request, let’s do the math on the BofA Travel Visa rewards card. This has a few more features than the Cap1 Quicksilver. It offers 1.5% back on purchases that can be redeemable to cover the cost of travel purchases. This card, though offers you a 10% points bonus if you have a checking account (which can be a pain to avoid fees), which makes the card actually a 1.65% card. It also has no AF, no foreign transaction fees, and is a chip and signature card, so it should function better overseas compared to the Cap1 card. So let’s do the math based on the 1.65% rate and compare it to the Arrival cards 2.2% and $89 annual fee.


So to compare the BofA card to the Arrival, if you are going to spend less than $16,182, then go with the BofA card. Over $16,182, then go with the Arrival Card.


Best Fixed Value Credit Card in 2016

Currently, the best fixed value card is now the Citi Double Cash. 2% with no annual fee, this makes it better than the Fidelity Amex as Mastercard is accepted in more places than American Express. Also it does not require you to deposit your earnings into a Fidelity account. Both these cards still incur foreign transaction fees while traveling abroad, for that reason, a secondary card that does not carry forex fees such as BoA Travel Rewards or Barclay Arrival may be better.


Cash Back or Points Card or Frequent Flyer Card

Pros of Cash Back Credit Cards:

Any seat, any time: The biggest upside of fixed value cards is that there are no blackout dates compared to using frequent flyer miles or some hotel programs. This is again because your points have a “set value”, so the bank is essentially buying your airline seat with your points. E.g. $100 flight = 10,000 points. This is a big pro for people who want to fly on specific days, don’t like hassle or have families where multiple seats are needed

Earns FF/Hotel Points: Because the bank is using your points to buy the seat, you’re still eligible to earn FF/hotel points on miles flown or revenue spent.


Cons of Cash Back Credit Cards:

Terrible for expensive hotels/premium international travel: Since there is a set value, seats that are very expensive such as business/first class are worth astronomically more points. E.g. $5000 business class ticket would be worth 500,000 points. At an accrual rate of 2.2% with even the best card, the Barclay’s Arrival, this would require almost $275,000 in spend! Similarly, this applies to expensive hotel properties that can go often times for $1000/night. For this reason, FF miles or hotel points can be used to create better value. I like to refer to this as “points arbitrage”, more on that next

Best Airline Credit Cards for Free Flights in 2016


When you sign up for a card, some banks give you points (which can be used on purchases or transferred out), some banks give you airline miles (which transfer directly to airline frequent flyer programs). With the right credit card, not only can frequent fliers accumulate miles and points they can redeem for travel, they can also enjoy perks such as free checked bags, priority boarding and sign-up bonuses.


Airline credit cards are one of the best ways to earn free travel

Airline credit cards are one of the best ways to earn free travel. As mentioned above, not only do airlines give you frequent flyer miles, they also give out other airline perks. Below is an introduction to earning airline miles with credit card promotions.


Credit Cards Linked to Airline Reward Programs

Affiliated credit cards are ones that reward you with points or miles that are tied to a specific loyalty program. Examples of this are cards connected to the Delta SkyMiles, US Airways or American Airlines AAdvantage frequent flyer programs. On the other hand are the unaffiliated cards like the Barclaycard Arrival Plus World Elite MasterCard or Chase Sapphire Preferred Card which pay you with miles that are usable as statement credit


Earning Airline Frequent Flyer Miles with Credit Cards

When you have an airline credit card, these miles earned are the true Frequent Flyer miles with the airlines programs.  Originally, you would earn a mile for every mile you flew on an airline. Each airline has their own Frequent Flyer (FF) program, where you can accumulate miles. Some examples of these are Delta Skymiles, Southwest Rapid Rewards, Lufthansa Miles&More, American AAdvantage Miles, and United MileagePlus Miles. The best airline credit cards help you earn free flights, seat upgrades, and more. And if you travel often enough, the right airline card can be one of the most important cards in your wallet. If you travel on a variety of airlines, it might not be worth it. It is often the best idea to pick an airline credit card where you can focus your future travel on in order to maximize the amounts of points you earn and the airline status.


Connecting Credit Card to Frequent Flyer Account

To earn these miles, you must have a Frequent Flyer account with the airline you are using. Fox example, if you have a Citi AA card, the AA miles you earn from it will be deposited in your AA frequent flyer account. If your card earns you one mile per dollar spent, this usually means after each statement close, the bank will deposit 1000 miles to your American Airlines frequent flyer account if you spent $1000 that month.

Once your mile is deposited in your Frequent Fluter account, it is no longer connected to your credit card. You can close your credit card, and the miles would still be in your frequent fluer account. Since the miles are in specific frequent flyer plans associated with an airline, you usually cannot join the miles together for an award. If you are 1000 miles short in AA for a ticket, 1k miles in Delta can’t help you at all.

Note that these are miles you either flown or earned through the credit card, and not how many miles you get to fly for free. There are many different award charts for each airline. Some airlines have very favorable award ticket policies, while others do not.


Airline Credit Card Signup Bonuses

The best airline credit cards compete with one another by offering unique card membership features. Listed below is a collection of standout features taken from all of the airline credit cards on the market:

  • Big signup bonuses
  • 2X miles or more for airline purchases
  • Yearly companion fares
  • Many travel perks
  • High flight availability or several travel partners
  • Opportunities to earn additional rewards

Some of the travel perks on airline credit cards involve free checked bags. Each airline credit is different and it is best to read the credit card holder agreement to see exactly the perks you are getting.


Redeeming Airline Frequent Flyer Miles and Free Trips on Points

If you want to redeem your frequent flyer miles for free travel, your first step is to lookup the Award Chart for the airline in question. The airline award chart will tell you how many miles you need to get a free ticket to travel somewhere. Choosing a airline with the most competitive award chart along with high quality partner airlines is one of the best ways to maximize airline miles. Some questions to ask yourself before you transfer your points are 1) do you want free stopovers or one-ways, and where? 2) do you want to fly on a specific airline or premium cabin? Choosing the right airline program to transfer points into can help you book the award you want with free stopovers, avoid paying high fuel surcharges, and use a competitive award chart to save miles.

Airlines also have partner airlines, and you can often use your frequent flyer miles to fly on a partner airline. For example, since British Airways partner with AA, if you had BA miles (Called Avios), you can book flights on AA using Avios. You usually CANNOT transfer miles between partners. About the only exception being BA Avios and Iberia Avios. If you travel one airline all the time, it makes sense to strategically use airline miles and travel credit cards this year, because the cost of an average domestic flight is still relatively high. After all, the right airline credit card can help you earn airline miles that can help you save hundreds or thousands of dollars on both international and domestic flights.


Earning Frequent Flyer Miles by Flying

Generally, the farther the distance flown, the more amount of miles required. Other airlines use a distance based chart, where the distance is calculated between the departing/arriving cities, which corresponds to additional “fuel surcharges” fees such as British Airways on top of miles needed. These airlines are ideal for short-haul trips, which may actually cost less miles than using a traditional award zone program such as American Airlines, but are terrible for long-haul trips, where fuel surcharges can add heavy fees.

Blackout Dates: Many of these awards are subject to blackout dates, meaning the most popular times to travel such as holidays or summer vacations there may not be awards available, meaning you need to flexible with when you can fly. Families that need multiple seats for children also suffer from this because there may not be 4-5 seats award seats open on a single flight.


Most Popular Airline Credit Cards in 2016

  • Bank of America Alaska Airlines
  • Barclays Hawaiian Air Card
  • Barclays Miles and More
  • Barclays Frontier
  • Chase BA Card
  • Chase United Cards
  • Chase Southwest Cards
  • Citi AA Cards
  • Delta Gold Amex
  • Delta Platinum Amex
  • Amex Bluesky
  • Virgin Atlantic Bank of America
  • Virgin American Bank of America


Airline Frequent Flier Programs




Airline Specific Credit Car Points

S airlinecardfrequentflerome airlines use a point system rather than miles. This is basically the same as miles, just a different name.  Two such examples of an airline point system instead of miles are Southwest and JetBlue. In these programs, you earn points instead of miles on your Credit Card spend, similar to other FF programs. However, they don’t use award charts.

These programs usually prices their award ticket based on the selling price of the ticket. If a flight would cost $150 for the ticket, the award ticket can cost 10,000 points. If the cost of the ticket goes up to $300, then the points cost goes up to 20,000 points. In effect, the airline has set a fixed exchange rate for each point to the cost of the ticket. Note that each airline does their valuation differently, and some also have bands of pricing rather than direct conversion, further altering the valuation.

Some of the cards that fit in this category are:

  • Chase Southwest Cards
  • AmEx Jetblue Cards


How much are airline miles and points worth?

Frequent flier miles are a lot harder to value than other types of credit card rewards such as 1% or 2% cash back. The number of miles required for a trip depends upon how many rewards seats the airline makes available and their pricing structure. If you are able to plan ahead, you can get incredibly good deals with your miles that regularly beat any cash back rate. And it can get even more lucrative when you look at the bonus offers on mile credit cards. If you do not think you can hunt out the best redemption opportunities, a cash back card is probably your best bet. Getting 2% of every purchase deposited into your checking account each month is incredibly easy.

Understand FICO Credit Scores for Equifax and TransUnion


Your FICO credit score is the accumulation of all your credit data on your credit report. The most common credit score is known as FICO.  This credit score can be very important when apply for new lines of credit (credit cards, mortgages, and auto loans). In general, a score of at least a FICO credit score of 700 will be decent enough to apply for most credit cards that offer good reward programs.


Why do you need to understand your FICO Credit Score Range?

Premium reward credit cards (often with annual fees and much better rewards) will require slightly higher FICO credit scores. Your score contains both positive and negative aspects of your credit report such as if you always pay on time or if you have late payments. In sum, many factors are in the FICO credit score.


Applying for Credit Cards and FICO Credit Score

When you apply for credit – such as a credit card, auto loan or mortgage – the company from which you are seeking credit checks your credit report from one or more of the three major consumer reporting agencies. In addition to your credit report, they will most likely use a credit score such as the FICO® Score in their evaluation of risk before lending their money to you. There is more than one type of credit score, but the score used 90% of the time in lending decisions is the FICO credit score.


What is the difference between Experian, Equifax and Transunion?

There are three different credit reporting bureaus in the United States, Experian, Equifax and Transunion. All of these credit reporting bureaus calculate credit scores different and use the FICO factors.  Depending on your place of residence along with the credit card company when you apply for a credit card, different card companies will place different hard inquiries on one of the credit bureaus (Experian, Equifax and Transunion). Always check your credit score for discrepancies and report any errors to Experian, Equifax and Transunion. Some credit card companies will place credit inquiries on all 3 bureaus such as Capital One. Some lenders are conservative, meaning they only want to lend to the least risky consumers. These companies will be cautious and look closely at a FICO score.

Other lenders are happy to work with consumers who have less-than-ideal credit histories. It is important to read about the type of card you are applying for before submitting an application to make sure your credit score is adequate for approval. Based on this information, a lender will decide whether to approve or decline your credit application. If they approve it, they will set your credit terms, such as interest rate, credit limit and down payment requirement.


When do credit cards pull from Experian, Equifax and Transunion?

BankCardBureauScore Type
AmExPlatinum, PRG, SPGExperianFICO 8
BarclaysAviator, SallieMae, Arrial+TransUnionFICO
Capital OneQickSilverTransUnionFAKO VantageScore 3.0
CitiAA Platinum, Dividend, DoubleCashEquifaxFICO 08 Enhanced Bankcard
Credit KarmaN/ATransUnion + EquifaxFAKO
Credit SesameN/ATransUnionFAKO
First National Bank of OmahaFirstBank CardExperianFICO Bankcard 8
PenfedEquifaxFICO 08 Enhanced Bankcard
QuizzleN/AEquifaxFAKO VantageScore 3.0
TD BankN/ATransUnion


What are the factors in a FICO credit score?

Every U.S. consumer typically has three reports – one at each of the three major U.S. consumer reporting agencies (Equifax, TransUnion, and Experian). Often, lenders report details of your credit history to more than one consumer reporting agency. These specific details of your credit history affect your FICO score, which in turn, affect how likely you are to receive credit (or new credit cards)

Your FICO Credit Score takes into consideration five main categories of information in a credit report. The chart below shows the relative importance of each category to your FICO Credit Score. Below is a break down of factors in your FICO credit score:


Payment History and FICO Score

Approximately 35% of your FICO Score is based on this information, which includes: Payment information on many types of accounts: o Credit cards – such as Visa, MasterCard, American Express and Discover. Retail accounts – credit from stores where you do business, such as department store credit cards. Installment loans – loans where you make regular payment amounts, such as car loans and mortgage loans.

Payment history is pretty self-explanatory, this how often you pay on time. If you have several late payments of even things like medical bills in collection, this will hurt your score a lot. It is essential to pay all credit cards on time to increase your credit

Amount Owed and FICO Score (Credit Utilization)

Approximately 30% of your FICO Credit Score is based on information which evaluates your indebtedness. In this category, your FICO Score takes into account:

  • The amount owed on all accounts.
  • The amount owed on different types of accounts.
  • Whether you are showing a balance on certain types of accounts.
  • The number of accounts where you carry a balance.
  • How much of the total credit line is being used on credit cards and other revolving credit accounts.
  • How much is still owed on installment loan accounts, compared with the original loan amounts.

This is also known as your credit utilization amount or otherwise known as your credit utilization ratio or how much of your credit line you use. There are many different theories on what a good credit utilization amount is. General guideline suggest that it is a good idea to never go over 30% of your credit limit, both on a single card, as well as across all your credit cards. This is why “maxing out your credit cards” can be detrimental to your overall FICO credit score. You will be seen as a much higher risk borrower.

Applying for many credit cards could actually raise your credit score because their utilization ratio will decrease. In the same manner, closing credits cards can hurt your credit score because you lose a credit line and then might have higher credit utilization. Before you apply for new credit cards, you should pay off large balances to reduce your utilization ratio, and then wait for the statements to close so the lower credit utilization is reported to the credit bureaus. Paying balances off will have no immediate effect as they haven’t had time to be reported as paid off. By having a lower credit utilization, you may increase your chances of getting a new credit card as you are seen as a more trustworthy borrower.

Remember, that having credit accounts with an outstanding balance does not necessarily mean you are a high-risk borrower with a low FICO Score. A long history of demonstrating consistent payments on credit accounts is a good way to show lenders you can responsibly manage additional credit.


Length of Credit History (Average Age of Accounts) and FICO Score

Approximately 15% of your FICO Score is based on this information. In general, a longer credit history will increase your FICO Score, all else being equal. However, even people who have not been using credit long can get a good FICO Credit Score, depending on what their credit report says about their payment history and amounts owed

Your oldest and newest cred cards will all be averaged together for purposes of credit score age. Too young of an average credit history will hurt their score. Closed credit accounts stay on your report for 10 years and will continue to age, which is the reason closing cards do not immediately impact your FICO score as even young cards will continue to age and bring up your average age of credit. It is recommended to keep as many no annual fee cards as possible just to lengthen/soften the blow when you open new cards with 0 months of history.


New Credit and FICO Score

Approximately 10% of your FICO Score is based on this information. FICO’s research shows that opening several credit accounts in a short period of time represents greater risk – especially for people who do not have a long credit history.

Basically, this is the amount that Hard credit pulls/hard credit inquiries you have on  your FICO score. Hard credit inquiries lessen after 3 months, stop factoring into your score after 1 year and completely fall off your report within 2 years. Too many hard inquiries will make it much harder for someone to apply for new credit cards. This is why if you are applying for an auto loan/mortage etc. in the future, it is recommended to avoid applying for many new credit cards. While your credit score is impacted by the number of inquiries, bank also count how many new accounts you have opened. Chase is now rejecting application to certain cards if you have opened more than 5 credit cards over the past two years. So while inquiries are important, banks do look at other factors.


 Types of Credit and FICO

imagesApproximately 10% of your FICO Score is based on this information. Your FICO Score considers your mix of credit cards, retail accounts, installment loans, finance company accounts and mortgage loans. It is not necessary to have one of each, and it is not a good idea to open a credit account you don’t intend to use. The more different types of credit you have, the better. Though this is not to say you should open up an auto loan when you don’t need one. It’s only a small part of your score and other scores make a much bigger difference.


Authorized Users and FICO Scores

Another note is the use of authorized users. An authorized user on a credit card is when you are added as secondary user to someone else’s credit card account. Adding an authorized user may improve your credit score if the person who issued you the card has a good credit history and FICO

Be warned that any damage to the person who issued you the card will ALSO damage your score. If you’re trying to help a family member build credit, you can make them an Authorized User on your card, but under no circumstances should they make you an Authorized User on their card. Also any debt that is accumulated is still your responsibility, so only make Authorized User people whom you trust.


FICO Credit Score and Likelihood of Getting Credit Card

Your credit score is only one way of calculating if you will get a credit card. There are so many other factors that banks are using these days to issue credit cards. Other factors that may factor into a credit card application include your rent payment and income. Credit card company computers are designed to take your income and subtract your rent/mortgage payment and then use your score as a basis for how trustworthy you are. An income of 20-25k is sufficient enough to get even premium cards such as the Chase Sapphire Preferred, but as your credit limit grows higher when compared to your income it will be progressively harder to get more cards as well as if you have too many inquiries. This can be mitigated by asking the bank to split credit lines (4k each on 2 cards, vs. 8k on 1 card) but may not work in all circumstances.


Sites to Estimate FICO Score

There are several websites that perform an estimate of your credit score. These can be seen as alternatives and give you a general look of what your credit score should do in different circumstnaces. They usually are a little higher than what your credit score actually is.

These sites are considered safe and do not use your credit score other than to show you affiliate offers for credit cards on their homepage. CreditKarma shows the most information, while the others show less, namely just the score and not any detailed information.


What else is in your Credit Report?

The credit records at a credit bureau regarding a given individual. The file may include: the person’s name, address, Social Security Number, credit history, inquiries, collection records, and public records such as bankruptcy filings and tax liens.


All credit reports contain basically the same types of information:

  • Your basic personal Information Your name, address, Social Security number, date of birth and employment information. This does not factor into score and is used to indentify you.
  • Most lenders report information about each account you have established with them. They report the type of account, the date you opened the account, your credit limit or loan amount, the account balance, and your payment history.
  • Requests for Credit When you apply for a loan, you authorize your lender to ask for a copy of your credit report. This is how inquiries appear on your report. Your credit report lists inquiries that lenders have made for your credit report within the last two years.
  • Public Record and Collection Items Consumer reporting agencies also collect information on overdue debt from collection agencies and public record information such as bankruptcies, foreclosures, tax liens, garnishment, legal suits and judgments from state and county courthouses. In general, these items remain on your credit report for 7 to 10 years.

Good Debt Versus Bad Debt or How Should Young People Should Use Credit?

Good Debt vs Bad Debt - How should young people use credit?

It’s possible to live completely debt-free, but it’s not necessarily good advice for the average young person. Very few people have or can earn enough money to pay cash for life’s most important purchases: a home, a car or an education. The most important consideration when buying anything on credit or taking out a loan is whether the debt incurred is good debt or bad debt.

 Good Debt Versus Bad Debt or How Should Young People Should Use Credit?

Good debt is seen as an investment, you are buying an asset that will grow in value or maybe generate long-term income. This means that the debt will be paid off and you will profit by owning an income producing asset.

Getting a Mortgage Can be Good Debt

Obtaining a mortgage to buy a home is usually considered good debt; firstly you need somewhere to live so instead of paying rent you are paying down the debt owed against the home.  The ideal situation would be that your also home increases in market value over time, so not only are you reducing the amount owed each month by making the payments the property is also increasing in value.  Mortgages also generally have lower interest rates than other debt as the lender holds the asset as security.


Student Loans Are Good Debt

Taking out student loans to pay for a college education is also deemed an example of good debt as student loans typically also have a low interest rate compared to other types of debt and a college education in theory increases your value as an employee and raises your potential future income. In my mind there are many caveats to this and a lot of thought has to go into the future earning potential in the field you are studying vs the cost of education vs is it truly a field you want to spend your working life and how transferable is the education.  I could talk about this subject in a lot more depth and how a lack of planning before taking out a student loan is a common problem, but this is a topic for another article.


An Auto Loan May Be Good Debt

An auto loan is another example perceived as good debt and it can be categorised so if the vehicle is essential to doing business and earning and income but vehicles are a depreciating asset so it is not in the buyer’s best interest to pay interest on a loan against an asset that is declining in value if it can be avoided.

Loans are not inherently bad, but almost everyone will tell you they are. If you can afford this loan and it will lower you gas expense and also be less than you would be saving and finally having a low interest rate I really see no reason not to take the loan out. You can also make additional payments to the loan and pay it off faster minimizing your interest since you said you will be paying less than you were anticipating saving as well as spending ~$100 less a month in gas. Assuming a 5 year loan and estimating paying $200 extra per month you could significantly reduce the amount of interest you pay since you could turn that 5 year loan into just under a 3 year loan (34 Months) and only paying about $433 in actual interest on the loan which is essentially nothing.


What is Bad Debt?

Bad debt is debt incurred to purchase things that have no value or quickly lose their value.  Bad debt is also debt that usually carries a high interest rate, such as credit card debt. The simple rule to avoid bad debt is if you can’t afford it, don’t buy it.

Bad debt includes debt you’ve taken on for things you don’t need and can’t afford and one of the worst forms of debt but often the easiest to come by is credit-card debt, since it usually carries high interest rates and relatively low monthly payments meaning the temptation is to stay current by making the minimum payments and never paying down the debt.


Payday Loans are Bad Debt

Payday loans/Cash advance loans are the worst kind of debt. Basically the borrower decides the amount he wants to borrow, a fee is then added to that amount and the borrower has until his next payday to pay back the loan amount, plus the original fee and any interest incurred over that period of time. Interest rates for payday loans are very deceptive and can be very misleading as the time period of the loans are so short it is only truly clear what is being charged if the interest and fees are actually annualised the same as other lending product so they can easily be compared, pay day loan annualised rates can be as high as 300 percent.  If you fail to pay back the amount by your next payday, the loan basically rolls over and you incur additional fees and more interest on top of the fees and interest you have already been charged.   It’s a slippery slop and hard to get out of once you are in the cycle.


The most effective ways to stay out of debt.

Practically speaking it’s almost impossible for most of us to live debt-free, we can’t pay cash for our home, our cars or our children’s college educations. But easy access to credit means too many young people let debt become unmanageable.

Ideally, your total monthly long-term debt payments, including your mortgage, car loans and credit cards, should not exceed 36% of your gross monthly income. This is one metric mortgage lenders and bankers call TDS (total debt service ratio) and is always consider when assessing the risk of a potential borrower.

Of course, avoiding debt at any cost is not smart either if it means depleting your cash reserves completely. The challenge is learning how to judge which debt makes sense and which does not and then wisely managing the money you do borrow. A student card is a good place to start if you’re in school. I suggest Capital One Journey (which you can later upgrade to Quicksilver) or Discover IT. Both have low requirements.

Otherwise, without credit history, you won’t be approved for much. You may need a secured card, which means you put a deposit down which is your credit limit, and after a few months of responsible use you can be upgraded to an unsecured card and get your money back.


When to take on good debt?

Taking on sensible debt can include financing items you absolutely need but can’t afford to pay for up front without wiping out cash reserves or liquidating all your investments. In cases where debt makes sense, only take loans for which you can easily afford the monthly payments. Consider the following when taking on sensible debt:

  • What is the interest rate/terms on other loans?
  • Do you have a full emergency fund?
  • What other debts do you have?
  • Have you taken advantage of employer 401k match, if any?

So based on the above it may seem logical to use every dollar you have available to keep you debt down as low as possible, even on good debt as it will reduce the interest payments and mean you can pay off more principle, but it’s not always the best move. You need to take into consideration your need for cash reserves for emergency expenses and also what your investments are earning.  If you deplete your cash reserves you become reliant on short term, easily available credit to meet unforeseen emergency expenses and the short term easily available credit is usually the highest interest rates.

Staying out of Debt and Creating a Budget

The key is to first create and accurate and realistic budget. Creating a budget you can follow will reduce stress, increase savings and mean you are not reliant on high interest credit for unexpected bills.

Make budgeting easy and part of the family daily routine. Keeping track of expenses, think about how to save money and plan what to do with your savings is all part of gaining control over your financial situation and are life lessons your children will learn by how the family deals with money and aren’t skills that are taught in school but ones that will stay with them for the rest of their lives and skills they learn by being involved in the family budget and decisions on how to spend money.

The best way to understand how to budget is to understand what you are spending your money on. There are no short cuts to becoming financial accountable for your lifestyle choices so save all your receipts and add them all up at the end of the week. This now matches your budget with your lifestyle. It doesn’t matter what your lifestyle is as long as you create a budget that fits with your income and allows you achieve your financial goals.

The goal of any good budget is to figure out ways to maintain your current lifestyle by spending less money. This allows you to enjoy the things that give you pleasure in life but ensures you aren’t using credit to fund them.

Some expenses are easier to reduce than others. Things like car loans, rent or mortgage payments and credit card payments all have set payment plans making them hard to change. The goal is to focus your attention on your discretionary expenses, the ones that you make a choice on every day and understand how those choices effect you long term financial goals.


Monitoring and maintain your credit score.

This is an important part of your overall financial plan. Understanding how to read your credit report and maintain a good credit score will allow you to access good credit at the lowest rates possible meaning less overall cost to acquire appreciating assets but also means even ‘bad credit’ is available at favorable rates in the case of emergencies ensuring it is paid of sooner and before it becomes unmanageable.  Far too many people experience difficulties and sometimes embarrassment because of having bad credit and this could be avoided through proper monitoring of your credit report. See more information about learning what goes into your FICO credit score.


Establishing a Good Credit History

Establishing a good credit history is important, even if you aren’t planning any large future loans/purchases. Car insurance companies use your credit score to determine your rate, and employers use your credit score to determine your trustworthiness as an employee. As mentioned, fraud protection gained by making purchases via credit card has significant value, as some the sometimes available extended warranty that some cards offer.

If you prefer not to use credit cards at all, it’s still a good idea to open a credit card account (with one that doesn’t charge an annual fee) and use it once per year for a minimal purchase, just to keep it active.

As an aside, it’s very possible that you will decide to make a purchase in the future that will benefit from your decision to get a credit card now. Personally, I feel it’s important to leave as many future options open, rather than delude yourself into thinking that what you feel/think/believe today will be what you feel/think/believe at some point in the distant future.


Choosing Good Credit Cards

Check out American Express Blue Cash (1/2/3% cash back, no fee) or the Capital One Quicksilver Cash Back (1.5% everywhere, no fee).

Some specialty cards are also worth it, I’d say – I’ve got a Target card that gets me 5% savings on everything there, with no fee. Since I do plenty of shopping at Target, that’s worthwhile for me.

For other paid cards, you can often look up the break-even point. (For example, AmEx has an upgraded Blue Cash card that’s 2/4/6% cash back, but costs $75 per year. I think you break even if you spend $6k or more per year on groceries.)

Just set up an auto-pay in full for whatever card you choose, and you’re essentially always saving a percentage point or two off of everything you buy with it. If you have good credit, no plans for mortgage/car payment etc., you can use your credit worthiness to get a lot of free stuff. Free hotel stays, free flights, gifs cards & money back. I’ve personally flew to Vegas twice for free, have gotten multiple Marriott hotel stays for free, and still have plenty more travel points left to spend on JetBlue, Southwest, and Marriott.

Chase Sapphire Preferred, and Chase Southwest Premier are two popular cards that always get brought up in the credit card forums. You have to do some digging though and find the best offers. A good sapphire preferred offer would be 40k or more points ($400 cash value) and only get the southwest card if it offers 50k southwest miles (good for two round trip flights at normal fares).

Gotta be careful though. The cards have minimum spend requirements (must spend $1000 in first three months to get bonus, etc.) so you need to make sure you can meet the requirement. If you fail to meet the spend requirement you won’t get the bonus.